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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
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, $.001 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 (this "Form 10"). 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 provides high quality fax processing systems to large
corporations and Government agencies. Customers, including IBM, Hewlett-Packard,
Duracell, Bristol-Meyers, the U.S. Treasury Department, and the Executive Office
of the President use SpectraFAX's patented Fax Liaisona system to deliver
internal information to fax machine users worldwide. The Company's Fax Services
consist primarily of its Fax Information Dissemination Services (including Fax
Broadcast and Fax-on-Demand Services), Fax Transaction Processing Services, and
Fax Messaging Services. Using one of the Company's several applications,
information can be delivered to others by Fax Broadcast and can be retrieved by
the caller using Fax-on-Demand Services. Through the Fax Messaging Service,
important fax messages can be placed in a Fax Mailbox, where they are kept
confidential, until retrieved by the intended recipient from any fax-equipped
location.
Through the Company's Fax Information Dissemination Services,
information can be broadly disseminated by fax through the Fax-on-Demand or Fax
Broadcast applications. The Fax-on-Demand system allows users to call and use
touch tone keys to control 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. 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 service 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 services over either enhanced delivery services (Fed Ex.) or the U.S.
Postal Service.
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.
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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.
Through the Company's Fax Messaging Services, 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
LANFAX product offering.
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 services 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 Services 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.
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.
Fax Liaison
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 comes with a dedicated PC and
voice and fax cards. It runs Microsoft Windows NT 4.0, Microsoft Office
Professional, and programs written by SpectraFAX. Fax Liaison by SpectraFAX is
the "fax gateway" for Microsoft Exchange. The Microsoft Exchange Integration
system application allows Exchange clients to send and receive fax mail from the
same mailbox used to manage their e-mail. Microsoft Exchange clients are
centrally managed by the Exchange Administrator. The Company introduced the Fax
Liaison product in October of 1996.
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
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 to
transmit its telecommunications traffic, and employs a variety of
telecommunications routing technologies, including "back-up" services. 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 $75,000. 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.
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.
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.
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 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
TEN MONTHS ENDED OCTOBER 31, 1999 COMPARED TO TEN MONTHS ENDED OCTOBER 31, 1998
REVENUES
Net Revenues in the ten months ended October 31, 1999 were $2,181,101,
compared to net revenues of $2,484,422 for the ten months ended October 31,
1998, a decrease of $303,321 or 13.9%. The decrease was due primarily to
warranty revenue. SpectraFAX could no longer warrant the "old" Special Request
("SR") system, because only the new Fax Liaison is Y2K compliant. As the Company
replaces more SR systems with the new Fax Liaison systems, the warranty revenue
should continue to grow.
COST AND EXPENSES
Cost of revenues decreased by $89,183 or 16.6% to $536,838 for the ten
months ended October 31, 1999, from $626,021 in the ten months ended October 30,
1998, and the gross margin for the ten months ended October 31, 1999 increased
to 75.3% of net sales compared to 74.8% in the ten months ended October 31,
1998. The favorable gross margin primarily reflects a price increase in Fax
Liaison product line.
Selling, general and administration expenses, including depreciation,
decreased from $1,830,069 in the ten months ended October 31, 1998 to $1,804,501
in the ten months ended October 31, 1999, or 1.4%. Savings in salaries in
Marketing and Sales were essentially offset by the increase in expense in
Research and Development for the ten months ended October 31, 1999.
OTHER INCOME EXPENSE
Other income/expense increased by $7,946 reflecting higher interest
cost.
NET INCOME
The Company's loss $260,345 for the ten months ended October 31, 1999
compared to a loss of $63,829 for the ten months ended October 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.
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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 $12,345 at October 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 1998 which were offset by debt financing, issuance
of common stock and existing cash balances. For the ten months ending October
31, 1999 cash from net borrowing of $66,778 and stock issuance of $442,530 was
used to finance an increase in accounts receivable of almost $300,000 and a loss
of $260,345. 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.
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 if for a period of three years commencing June 1, 1997 and
ending May 30, 2000. The Company has an option to renew the lease 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 for a total of $12,002 per month.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information relating to the beneficial
ownership of Company common stock 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 18.7%
Lions Gate Management, Ltd. 2,986,000 16.0
A. J. Pelligrino 1,800,000 9.6
Thomas J. Conwell 886,083 4.7
Eric Ekelund 36,200 *
Vicki Koopman 37,700 *
Prakash V. Patel 10,000 *
Nalin Rathod(2) 3,520,000 18.7
All Directors & Officers as a Group 4,496,483 24.0
</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 note and in 1998, $5,000 was paid on note leaving a balance
of $29,010. In 1998, Thomas J. Conwell loaned the Company $55,000 with interest
payable at the rate of 14% per annum. In 1999, $38,000 was paid on note leaving
a balance of $17,000. In 1999, Thomas J. Conwell loaned the Company $45,000 with
interest payable at the rate of 12% per annum. All of the above notes are demand
notes. 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, $.001 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
</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
(a) The Company consummated a Regulation D 504 offering in March 1999,
selling 477,507 shares at a price of $.73.
(b) (i) In 1997, the Company issued 24,125 shares of common stock
for cash at $3.00 per share to 5 purchasers; 1,000 shares of common stock for
cash at $2.00 per share to 1 purchaser; 189,421 shares of common stock upon
conversion of notes at $2.00 per share to 20 purchasers; 1,000 shares of common
stock for services at $2.00 per share to 1 purchaser; 5,000 shares of common
stock for services at $3.00 per share to 1 purchaser; 10,000 shares of common
stock for services at $1.00 per share to 1 purchaser; 79,206 shares of common
stock were given at no charge to existing IPO shareholders to make the price of
their IPO shares equal to $3.00 per share for the 40 shareholders (the Company
received no money).
(ii) In 1998, the Company issued 5,000 shares of common stock for
cash at $1.00 per share to 1 purchaser; 27,000 shares of common stock for cash
at $.37 per share to 1 purchaser; 30,000 shares of common stock for cash at $.43
per share to 2 purchasers; 14,313 shares of common stock for services at $.59
per share to 1 purchaser; 34,125 shares of common stock for conversion of debt
to equity at $2.00 per share to 3 purchasers; 25,000 shares of common stock for
conversion of debt to equity at $1.00 per share to 1 purchaser; 48,852 shares of
common stock for consulting services at $.75 per share to 3 purchasers.
(iii) In 1999, the Company issued 15,625 shares of common stock
for cash at $.32 per share to 1 purchaser; 150,000 shares of common stock for
cash at $.30 per share to 1 purchaser; 100,000 shares of common stock for cash
at $.45 per share to 1 purchaser; 1,500 shares of common stock for cash at
$.6667 per share to 1 purchaser; 3,000 shares of common stock for cash at $.65
per share to 1 purchaser; 4,500 shares of common stock for services at $.44 per
share to 1 purchaser; 5,000 shares of common stock for services at $.32 per
share to 1 purchaser.
In December 1999, the Company issued 398,000 shares of common stock to
seventeen (17) employees upon exercise of outstanding stock options.
In connection with the shares issued in (b) above, the Company relied
on the exemption from registration provided by Section 4(2) of the Securities
Act of 1933 in that the purchasers acquired the shares for investment and a
restrictive legend was placed on the certificates issued.
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
SPECTRAFAX CORP.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Clancy and Co., P.L.L.C., Independent Auditor ............................................... 19
Balance Sheet at December 31, 1997 and 1998............................................................ 20
Statements of Operations for the years ended December 31, 1997 and 1998................................ 21
Statements of Shareholders' Equity for the years ended December 31, 1997 and 1998...................... 22
Statements of Cash Flows for the years ended December 31, 1997 and 1998................................ 24
Notes to the Financial Statements...................................................................... 25
Balance Sheet at October 31, 1999 (unaudited).......................................................... 33
Statements of Operations for the ten months ended October 31, 1998 and 1999 (unaudited)................ 34
Statements of Shareholders' Equity for the ten months ended October 31, 1998 and 1999 (unaudited)...... 35
Statements of Cash Flows for the ten months ended October 31, 1998 and 1999 (unaudited)................ 36
Notes to the Financial Statements...................................................................... 37
</TABLE>
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
Board of Directors
SpectraFAX Corp.
Naples, Florida
We have audited the accompanying balance sheet of SpectraFAX Corp. (the
Company), as of December 31, 1998 and 1997 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, 1998 and 1997
and the results of its operations and its cash flows for the periods then ended
in conformity with generally accepted accounting principles.
/s/ Clancy and Co., P.L.L.C.
- ----------------------------
Clancy and Co., P.L.L.C.
Phoenix, Arizona
April 12, 1999
19
<PAGE> 22
SPECTRAFAX CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS:
Current assets
Cash $ 29,262 $ 78,832
Accounts receivable 321,612 165,376
Inventory (Note 3) 71,073 181,146
Prepaid expenses 2,507 32,421
----------- -----------
Total current assets 424,454 457,775
Property and equipment, net (Note 4) 218,045 230,217
Other assets
Deposits 10,658 10,658
----------- -----------
Total assets $ 653,157 $ 698,650
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Notes payable (Note 5) $ 830,500 $ 712,000
Accounts payable 312,401 314,889
Notes payable, bank current portion (Note 6) 22,398 0
Due to related party (Note 7) 140,343 131,193
Accrued liabilities 439,083 438,576
----------- -----------
Total current liabilities 1,744,725 1,596,658
Long-term liabilities
Notes payable, bank non-current portion (Note 6) 11,455 0
----------- -----------
Total liabilities 1,756,180 1,596,658
Commitments and contingencies (Note 10, 11)
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 17,324,300 and 17,105,260 1,732 1,710
Additional Paid in Capital 8,024,953 7,804,580
Less Treasury Stock, at Cost, 4,000
Shares Outstanding at December 31,
1998 and 1997 (4,000) (4,000)
Accumulated Deficit (9,125,708) (8,700,298)
----------- -----------
Total Stockholders' Equity (A Deficit) (1,103,023) (898,008)
----------- -----------
Total Liabilities and Stockholders' Equity $ 653,157 $ 698,650
=========== ===========
</TABLE>
20
<PAGE> 23
SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 2,568,738 $ 2,015,716
Cost of sales 731,573 464,908
------------ ------------
Gross profit 1,837,165 1,550,808
Selling, general and administrative expenses
Marketing and sales 749,039 892,454
Production and manufacturing 81,682 95,348
General and administrative 746,842 678,998
Research and development expenses 580,245 603,466
------------ ------------
Total selling, general and administrative expenses 2,157,808 2,270,266
------------ ------------
Net operating loss (320,643) (719,458)
Other income (expense)
Interest income 0 1,590
Interest expense (104,767) (113,132)
------------ ------------
Total other income (expense) (104,767) (111,542)
------------ ------------
Net loss available to common stockholders $ (425,410) $ (831,000)
============ ============
Net loss per share of common stock $ (0.02) $ (0.04)
============ ============
Weighted average number of common shares and common share
equivalents outstanding $ 17,217,370 $ 19,257,132
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 24
SPECTRAFAX CORP.
STATEMENT OF STOCKHOLDERS' EQUITY (A DEFICIT)
For the years ended December 31, 1998 and 1997
<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, 1996 0 $ 0 16,658,048 $ 1,665 $6,662,108 $ (4,000) $ (7,869,298) $(1,209,525)
Issuance of Common Stock For Cash
at $3.00 Per Share During 1997 1,125 0 3,375 3,375
Issuance of Common Stock For Cash
at $2.00 Per Share During 1997 1,000 0 2,000 2,000
Issuance of Common Stock For Cash
at $5.00 Per Share on June 16, 1997 91,960 9 459,791 459,800
Issuance of Common Stock for Cash
at $5.00 Per Share on June 26, 1997 16,800 2 83,998 84,000
Issuance of Common Stock For
Conversion of Notes Payable at
$2.00 Per Share on July 17, 1997 24,926 2 49,850 49,852
Issuance of Common Stock For
Services at $2.00 Per Share on
July 17, 1997 1,000 0 2,000 2,000
Issuance of Common Stock For Cash
at $5.00 Per Share on August 6, 1997 28,700 3 143,497 143,500
Issuance of Common Stock For
Conversion of Notes Payable at $2.00
Per Share on October 3, 1997 14,300 1 28,599 28,600
Issuance of Common Stock For Services
at $3.00 Per Share on October 3, 1997 5,000 1 14,999 15,000
Less Offering Costs (15,000) (15,000)
Issuance of Common Stock For Cash
at $3.00 Per Share on October 29, 1997 15,000 2 44,998 45,000
Issuance of Common Stock For Services
at $1.00 Per Share on November 4, 1997 10,000 1 9,999 10,000
Less Offering Costs (10,000) (10,000)
Issuance of Common Stock For
Conversion of Notes Payable at $2.00
Per Share on November 19, 1997 95,635 10 191,260 191,270
</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, 1998 and 1997
<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>
Issued Common Stock to Existing IPO
Stockholders at $3.00 Per Share on
December 3, 1997 79,206 8 (8) 0
Issuance of Common Stock For Cash at
$3.00 Per Share on December 10, 1997 8,000 1 23,999 24,000
Issuance of Common Stock For
Conversion of Notes Payable at $2.00
Per Share on December 17, 1997 54,560 5 109,115 109,120
Net Loss Year Ended December 31, 1997 (831,000) (831,000)
----------- -----------
Balance, December 31, 1997 0 0 17,105,260 1,710 7,804,580 (4,000) (8,700,298) (898,008)
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 Services
at $0.59 Per Share 14,313 1 8,505 8,506
Conversion of Debt to Equity
at $2.00 Per Share 34,125 3 68,247 68,250
Conversion of Debt to Equity
at $1.00 Per Share 25,000 3 24,997 25,000
Issuance of Stock For Consulting
Services at $0.75 Per Share 48,852 5 36,634 36,639
Loss, Year Ended December 31, 1998 (425,410) (425,410)
----------- -----------
Balance, December 31, 1998 $ 0 0 17,324,300 $1,732 $8,024,953 $(4,000) $(9,125,708) $(1,103,023)
========= ==== ========== ====== ========== ======= =========== ===========
</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, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $(425,410) $(831,000)
Adjustments to Reconcile Net Loss to Net Cash Used
In Operating Activities
Depreciation 88,303 77,008
Conversion of Notes Payable for Common Stock 93,250 378,842
Issuance of Common Stock for Services 45,145 2,000
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (156,236) 264,138
(Increase) Decrease in Inventory 110,073 (70,374)
(Increase) Decrease in Prepaid Expenses 29,914 (9,924)
(Increase) Decrease in Security Deposits 0 5,535
Increase (Decrease) in Accounts Payable (2,488) 2,277
Increase (Decrease) in Accrued Liabilities 507 (201,535)
--------- ---------
Total Adjustments 208,468 447,967
--------- ---------
Net Cash Used In Operating Activities (216,942) (383,033)
Cash Flows From Investing Activities
Capital Expenditures (76,131) (60,173)
--------- ---------
Net Cash Flows Used In Investing Activities (76,131) (60,173)
Cash Flows From Financing Activities
Net Proceeds (Repayments) From Notes Payable 115,650 (482,000)
Net Proceeds (Repayments) From Notes Payable, Related
Party 12,000 83,800
Net Proceeds From Issuance of Bank Notes Payable 33,853 0
Net Proceeds From Sale of Common Stock 82,000 761,675
--------- ---------
Net Cash Provided By Financing Activities 243,503 363,475
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (49,570) (79,731)
Cash and Cash Equivalents, Beginning of Year 78,832 158,563
--------- ---------
Cash and Cash Equivalents, End of Year $ 29,262 $ 78,832
========= =========
Supplemental Information
Cash paid for:
Interest $ 132,079 $ 131,976
========= =========
Income taxes $ 0 $ 0
========= =========
Non-cash Activities:
Exchange of Note Payable for Common Stock $ 93,250 $ 378,842
========= =========
Common Stock Issued for Services $ 45,145 $ 2,000
========= =========
</TABLE>
24
<PAGE> 27
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
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.
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 to be cash and cash equivalents.
C. Accounts Receivable
Accounts Receivable consist 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.
D. Revenue Recognition
Revenue from sales to distributors and resellers is recognized when related
products are shipped.
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 1998 and
1997 were $580,245 and $603,466, respectively.
F. Inventory
The inventory is valued at the lower of cost or market, determined on a first-in
first-out basis.
25
<PAGE> 28
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
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.
The current value of patents, net of amortization, is equal to its current book
value.
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.
J. Earnings (Loss) Per Common Share
Basic earnings or loss per share has been computed based on the weighted average
number of common shares and common share equivalents 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. The number of shares used in computing earnings
(loss) per common share at December 31, 1998 and 1997 was 17,217,370 and
19,257,132 respectively.
J. Stock Issuance Costs
Costs and fees incurred in the sale of the Company's common stock are recorded
as a direct reduction of additional paid-in capital in the period incurred.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. Use of Estimates
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of the
26
<PAGE> 29
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
contingent assets and liabilities, and the reported revenues and expenses.
Actual results may vary from the estimates that were assumed in preparing the
financial statements.
M. Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements will not have
an adverse impact on the financial statements of the Company.
N. Presentation
Certain prior year amounts have been reclassified to conform to 1997
presentation. These changes had no impact on previously reported results of
operations or stockholder's equity.
NOTE 3 - INVENTORY
Inventory at December 31, 1998 and 1997 of $71,073 and $181,146, 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, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Machinery and Equipment $ 157,424 $ 154,454
Computer Equipment 438,224 383,248
Furniture and Fixtures 36,544 36,544
Display Booth 8,076 8,076
Software 121,539 103,354
--------- ---------
Total 761,807 685,676
Less Accumulated Depreciation (543,762) (455,459)
--------- ---------
Net Book Value $ 218,045 $ 230,217
========= =========
</TABLE>
Depreciation expense charged to operations for the years ended December 31, 1998
and 1997 was $88,303 and $77,008, respectively.
27
<PAGE> 30
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
NOTE 5 - NOTES PAYABLE
The following is a summary of notes payable at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
15% demand note $ 50,000 $ 50,000
12% convertible notes at $2.00 per share 261,500 327,000
10% convertible notes at $2.00 per share 8,000 8,000
12% Short-term notes 24,000 24,000
10% convertible subordinated debentures
due October 31, 1990 - scheduled
redemption subordinated to other senior
obligations 125,000 145,000
18% Secured Factoring Promissory Notes 362,000 158,000
-------- --------
Total $830,500 $712,000
======== ========
</TABLE>
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.
The 12% convertible notes at $2.00 per share are 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 and 1997, the
12% convertible notes were reduced by $62,500 and $111,000, respectively.
Payments on 12% convertible notes were $3,000 during 1998. Interest on most of
the notes has been paid through 1995.
The 10% convertible notes are a series of notes from individuals dated from
March 1992 through November 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 year ended December 31, 1997, the 10% convertible notes
were reduced by $47,000. There were no reductions in 1998. Interest on most of
the notes has been paid through 1995.
The 12% short-term notes are 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. For the year ended December 31, 1997, the notes were reduced by $114,000.
There were no reductions in 1998. Interest on most of the notes has been paid
through 1995.
28
<PAGE> 31
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
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 years ended December 31, 1998 and 1997, the notes were reduced by
$12,000 and $39,000, respectively. Payments on the 10% convertible notes were
$8,000 during 1998. Interest on most of the debentures has been paid through
1995.
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, 1998 and 1997, total payments were $225,000 and $171,000, and
additional notes issued totaled $158,000 and $429,000, respectively.
All of the notes are due at December 31, 1998.
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, 1998) per annum, due
September 01, 2001, and secured by all Company assets. Total principal payments
during 1998 were $2,422.
<TABLE>
<CAPTION>
<S> <C>
Total $ 33,853
Less current portion 22,398
---------
Long-term debt $ 11,455
=========
</TABLE>
Future minimum maturities of long-term debt are as follows at December 31:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 22,398
2000 $ 10,067
2001 $ 1,388
</TABLE>
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 $84,010 at
December 31, 1998. The loan activity is as follows through December 31, 1998:
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. The balance at
December 31, 1997 is $44,010. During 1998, the note was decreased by $15,000,
leaving a balance due of $29,010 at December 31, 1998.
29
<PAGE> 32
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
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, 1998 is $27,000.
LFX Associates, Ltd., a related Company, is due $56,333 and $59,183 at December
31, 1998 and 1997, respectively, in royalty payments under agreements that it
has with the Company.
NOTE 8 - INCOME TAXES
There is no current or deferred tax expense for the years ended December 31,
1998 and 1997, due to the Company's loss position. The benefits of timing
differences have not been previously recorded.
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 consolidated balance sheet is a result of the following:
<TABLE>
<CAPTION>
Deferred Taxes 1998 1997
- -------------- ----------- -----------
<S> <C> <C>
NOL Carryforwards $ 3,188,642 $ 3,039,748
----------- -----------
Total 3,188,642 3,039,748
----------- -----------
Valuation Allowance (3,188,642) (3,039,748)
----------- -----------
Net Deferred Tax Assets $ 0 $ 0
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
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%
</TABLE>
The Company has available net operating loss carry-forwards of approximately
$9,110,405 for tax purposes to offset future taxable income, and expire
principally in the year 2013.
NOTE 9 - STOCK OPTIONS
The Company has stock award agreements with several key employees. The
agreements were adjusted down by 15,400 to 1,701,600 at December 31, 1996. The
objectives of these plans include
30
<PAGE> 33
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
attracting and retaining the best personnel, providing for additional
performance incentives, and promoting the success of the Company by providing
employees the opportunity to acquire common stock. The Company has also reserved
600,000 shares for sale to existing and future employees under the 1994 ISO
Plan, an Incentive Stock Option Plan. To date, no options have been granted
under this plan. Options are granted at prices which are either equal to or
above the market value of the stock on the date of grant and expire at various
dates after the grant date.
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:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Loss
As reported $ (425,410) $ (831,000)
Pro forma $ (544,650) $ (950,187)
Net Loss Per Share
As reported $ (0.02) $ (0.04)
Pro forma $ (0.03) $ (0.05)
</TABLE>
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 in 1998 and 1997, respectively:
dividend yield of 0%, expected volatility of 87% and 203%, risk-free interest
rates of 5% and 5%, and expected lives of 4 and 4 years.
NOTE 10 - 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 for its executive
offices. The lease was originally for a period of three years commencing June 1,
1994 and ending May 31, 1997, with an option to renew for two additional
thirty-six (36) month terms for an additional increase in the monthly base rent
of 4% on each commencement date. On December 31, 1996, the Company exercised its
first option term to renew for an additional three year period commencing June
1, 1997 and ending May 31, 2000. The Company has agreed to re-carpet the suite
in building standard carpet. The base rent is $8,141.70 per month plus
additional rent equal to the pro rata monthly operating expenses of the property
of approximately $3,510.80, or $11,652.50 at December 31, 1998.
Lease expense for the years ended December 31, 1998 and 1997 was $138,925 and
$134,059, respectively.
31
<PAGE> 34
SPECTRAFAX CORP.
NOTES TO THE FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
Future minimum annual lease obligations at December 31 are as follows:
<TABLE>
<S> <C>
1999 $ 139,830
2000 $ 60,337
</TABLE>
Equipment Lease - The Company leases various equipment under non-cancelable
operating leases for five year terms. The lease expense for the year ended
December 31, 1998 and 1997 was $6,808 and $5,239. Future minimum annual lease
obligations are as follows:
<TABLE>
<S> <C>
1999 $ 11,328
2000 $ 11,328
2001 $ 8,416
2002 $ 6,960
2003 $ 3,480
</TABLE>
NOTE 11 - CONTRACTS/BACKLOG
Total backlog at December 31, 1998 and 1997 was approximately $265,000 and
800,000, respectively.
32
<PAGE> 35
SPECTRAFAX CORP.
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
October 31, 1999
----------------
<S> <C>
ASSETS:
Current assets
Cash & cash equivalents $ 12,354
Accounts receivable 613,090
Inventory 45,542
Prepaid expenses 14,651
-----------
Total current assets 685,637
===========
Property & equipment (net) 186,998
Other assets 10,658
-----------
Total assets 883,293
===========
LIABILITIES:
Current liabilities
Short-term notes payable 907,141
Current maturities long-term debt 108,000
Accounts payable 255,539
Due to related party 53,468
Accrued liabilities 442,986
Advances 36,996
-----------
Total current liabilities 1,804,130
-----------
Total liabilities 1,804,130
===========
SHAREHOLDERS' EQUITY:
Common stock @ par value 1,808
Additional paid in 8,467,408
Treasury stock (4,000)
Deficit (9,386,053)
-----------
Total shareholders' equity (920,837)
===========
Total liabilities & shareholders' equity 883,293
===========
</TABLE>
33
<PAGE> 36
SPECTRAFAX CORP.
STATEMENTS OF OPERATIONS
For the ten months ended October 31, 1998 and 1999
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Sales revenues 2,181,036 2,483,727
Miscellaneous other income 65 695
----------- -----------
Total revenues 2,181,101 2,484,422
Direct cost of sales 536,838 626,021
Gross margin 1,644,263 1,858,401
OPERATING EXPENSES:
Manufacturing 54,664 65,534
Research & development 495,384 460,392
Marketing & sales expense 620,092 664,626
General & administrative expense 634,361 639,517
----------- -----------
Total operating expenses $ 1,804,501 $ 1,830,069
=========== ===========
Interest expense 100,107 92,161
Miscellaneous other deductions -- --
----------- -----------
Total expenses $ 1,904,608 $ 1,922,230
=========== ===========
Earnings (loss) (260,345) (63,829)
</TABLE>
34
<PAGE> 37
SPECTRAFAX CORP.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the ten months ended October 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Accumulative
Shares Amt Capital Treasury Deficit Total
---------- ------ ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 17,324,300 $1,732 $8,024,953 $(4,000) $(9,125,708) $(1,103,023)
Issuance of stock
for cash at $.306
per share during
February 1999 170,125 17 51,963 51,980
Issuance of stock
for cash at $.510
per share during
March 1999 166,667 17 84,983 85,000
Issuance of stock
for cash at $.728
per share during
April 1999 415,840 41 302,560 302,600
Issuance of stock
for cash at $.656
per share during
June 1999 4,500 1 2,949 2,950
Loss, ten month ended
October. 31, 1999 (260,345) (260,345)
---------- ------ ---------- ------- ------------ -----------
Balance, October 31, 1999 18,081,432 $1,808 $8,467,408 $(4,000) $(9,386,053) $ (920,837)
</TABLE>
35
<PAGE> 38
SPECTRAFAX CORP.
STATEMENT OF CASH FLOWS
For the ten months ended October 31, 1999
(unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $(260,345)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 82,678
DECREASE (INCREASE) IN OPERATING ASSETS:
Accounts receivable (291,478)
Inventory 25,531
Prepaid expenses (12,144)
INCREASE (DECREASE) IN OPERATING LIABILITIES:
Accounts payable (56,862)
Accrued liabilities 3,903
Due to related party (2,865)
36,996
---------
Total adjustments to net profit (214,241)
=========
Net cash provided by operating activities (474,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (51,282)
Other assets
Cash used by investing activities (51,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt borrowing (177,839)
Payments on short-term debt borrowing
Converted notes to stock proceeds from
short-term debt borrowing 244,617
Proceeds from long-term borrowing
Proceeds from issuance of common stock (net) 442,530
---------
Net cash provided by financing activities 509,308
---------
Net increase (decrease) in cash (16,908)
Cash at December 31, 1999 29,262
---------
Cash at October 31, 1999 12,354
</TABLE>
36
<PAGE> 39
SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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, repairs, and minor renewals are charged to earnings in the
year in which the expense is incurred. Additions, improvements, and major
renewals are capitalized.
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.
INCOME TAXES
The Company has filed income tax returns for all closed fiscal periods.
Cumulatively, there are no material book to tax differences.
INVESTMENT TAX CREDITS
Investment tax credit carry-overs through December 31, 1985 amounting
to $11,000 will be rec ognized as a reduction of income tax expense in that
period in which the Company first becomes liable for income tax payment and will
result in a reduction of tax payments.
ADVERTISING COSTS
Advertising costs are expensed when incurred.
37
<PAGE> 40
NOTE 2. PROPERTY AND EQUIPMENT.
Property and equipment is comprised as follows at October 31, 1999.
<TABLE>
<S> <C>
Computer Equipment $ 473,050
Furniture and Fixtures 36,544
Display booth and other equipment 178,473
Software 121,539
---------
809,606
Less accumulated depreciation (622,608)
---------
$ 186,998
</TABLE>
NOTE 3. SHORT TERM DEBT.
<TABLE>
<S> <C>
15% Short Term Demand Note $ 50,000
12% Short Term Notes Convertible @ $2.00/Share 225,500
14% Note - Related Parties 91,010
Notes Secured by US Government Receivables 492,000
12% Short Term Equipment Notes 24,000
9.75% Bank Note 24,631
---------
$ 907,141
</TABLE>
NOTE 4. LONG TERM DEBT.
<TABLE>
<S> <C>
10% Convertible Subordinated Debentures due
October 31, 1990 (Scheduled redemption
subordinated to other senior obligations) $ 108,000
Less current maturities 108,000
----------
</TABLE>
Following are the maturities of Long Term Debt for each of the next five
calendar years ending:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1995 $108,000
Thereafter --
--------
$108,000
</TABLE>
38
<PAGE> 41
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation
2.2 By-laws
3.1 See Exhibits 2.1 and 2.2 for provisions of the Articles of
Incorporation and Bylaws of the Company defining rights of holders of
the Company's Common Stock
3.2 Specimen Stock Certificate
10 Consent of Independent Auditor
12 Cautionary Statements for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this to be signed on its behalf by
the undersigned, thereunto duly authorized as of this 28th day of February,
2000.
SpectraFAX Corp.
By: /s/ Thomas Conwell
------------------------------
Name: Thomas Conwell
Title: Chief Executive Officer
39
<PAGE> 1
Exhibit 2.1
ARTICLES OF INCORPORATION
OF
LaserFax, Inc.
The undersigned, acting as incorporator of a corporation under the
Florida General Corporation Act, adopts the following Articles of incorporation
for such corporation:
1. NAME:
The name of this corporation is:
LaserFax, Inc.
2. DURATION:
The period of duration of this corporation shall be perpetual.
3. PURPOSE:
The purpose is to engage in any activities and lawful business
permitted under the laws of the United States and the State of Florida.
4. CAPITAL STOCK:
The corporation is authorized to issue 750,000 shares, all of one class
having a par value of One Cent ($.01) per share.
5. INITIAL REGISTERED OFFICE AND AGENT:
The name and address of the initial registered agent and office of
this corporation is as follows:
OSTRAU & RIFKIN, PROFESSIONAL ASSOCIATION
8751 West Broward Boulevard
Suite 302
Plantation, Florida 33324
<PAGE> 2
6. NUMBER OF DIRECTORS AND INITIAL DIRECTORS:
This corporation shall have three (3) directors. The number of
directors may be increased by an amendment to the bylaws of the corporation. The
number of directors shall not be less than three. The name of the initial
directors and their address are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
ROBERT LEE 5801 Pelican Bay Blvd., Suite 403
Naples, Florida
WILL SELBAK 5801 Pelican Bay Blvd., Suite 403
Naples, Florida
THOMAS J. CONWELL 5801 Pelican Bay Blvd., Suite 403
Naples, Florida
</TABLE>
7. INCORPORATOR:
The name and address of the incorporator signing these Articles of
Incorporation is:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Michael Rifkin 8751 W. Broward Blvd., Suite 302
Plantation, Florida 33324
</TABLE>
8. BYLAW AMENDMENT:
The power to adopt, alter, amend or repeal the bylaws of this
corporation shall be vested in the Board of Directors.
9. INDEMNIFICATION:
The corporation shall indemnify its officers, directors, employees and
agents to the fullest extent permitted under the laws of the State of Florida.
2
<PAGE> 3
10. INFORMAL ACTION OF DIRECTORS:
If all of the Directors severally or collectively consent in writing to
any action taken or to be taken by the corporation, and the writings evidencing
their consent are filed with the Secretary of the corporation, the action shall
be as valid as though it had been authorized at a meeting of the Board of
Directors.
11. AMENDMENT OF ARTICLES:
This corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation, or any amendment hereto and any
right conferred upon the shareholders is subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporators have executed these
Articles of incorporation this 12th day of September, 1983.
/s/ MICHAEL RIFKIN
-----------------------
MICHAEL RIFKIN
Incorporator
STATE OF FLORIDA )
: ss
COUNTY OF BROWARD )
BEFORE ME, the undersigned authority, personally appeared MICHAEL
RIFKIN, to me known to be the person who
3
<PAGE> 4
executed the foregoing Articles of Incorporation, and he acknowledged to and
before me that he executed such instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day
of September, 1983.
/s/ Laurie G. Jacobs
- -----------------------
Laurie G. Jacobs
NOTARY PUBLIC
State of Florida at Large
NOTARY PUBLIC, STATE OF FLORIDA AT LARGE
My Commission Expires: MY COMMISSION EXPIRES AUGUST 9, 1984
4
<PAGE> 5
CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE FOR THE
SERVICE OF PROCESS WITHIN THIS STATE, NAMING AGENT UPON WHOM
PROCESS MAY BE SERVICED.
In pursuant to Chapter 48.091, Florida Statutes, the following is
submitted, in compliance with said Act:
First, that LaserFax, Inc. desiring to organize under the laws of the
State of Florida, with its principal office at the City of Naples, County of
Collier, State of Florida, has named the firm of OSTRAU & RIFKIN, PROFESSIONAL
ASSOCIATION, located at 8751 West Broward Boulevard, Suite 302, Plantation,
Florida, 33324, as its agent to accept service of process within this State.
/s/ MICHAEL RIFKIN
------------------
MICHAEL RIFKIN
Incorporator
Having been named to accept service of process for the above stated
corporation, at the place designated in this certificate, the undersigned
MICHAEL RIFKIN, on behalf of the firm of OSTRAU & RIFKIN, PROFESSIONAL
ASSOCIATION, hereby agrees to act in this capacity, and agree to comply with the
provision of said Act relative to keeping open said office.
OSTRAU & RIFKIN, P.A.
Registered Agent
By /s/ MICHAEL RIFKIN
---------------------
MICHAEL RIFKIN
For the Firm
5
<PAGE> 6
ARTICLES OF AMENDMENT
OF
LaserFax, Inc.
1. Section 4 of the Articles of Incorporation of LaserFax, Inc., which
has filed on September 20, 1983, is hereby amended to read as follows:
"4. CAPITAL STOCK:
The corporation is authorized to issue 15,000,000 shares, all of
one class, each having a par value of one/hundredth of a cent ($.0001)
per share."
2. Section 8 of the Articles of Incorporation of LaserFax, Inc., which
has filed on September 20, 1983, is hereby deleted in its entirety.
3. The foregoing amendments were adopted by the shareholders of this
corporation on the 20 day of January, 1984.
IN WITNESS WHEREOF, the undersigned President and Secretary of this
corporation have executed these Articles of Amendment this 20 day of January,
1984.
/s/ ROBERT LEE
----------------------
ROBERT LEE, President
/s/ WILL SELBAK
----------------------
WILL SELBAK, Secretary
STATE OF FLORIDA
COUNTY OF COLLIER
BEFORE ME, the undersigned authority, personally appeared ROBERT LEE
and WILL SELBAK, as President and Secretary, respectively, known to me to be the
persons who executed the foregoing Articles of Amendment for the purpose therein
stated.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 20 day of
January, 1984.
/s/ SHIRLEY L. COLLINS
----------------------
SHIRLEY L. COLLINS
NOTARY PUBLIC
My Commission Expires:
NOTARY PUBLIC STATE OF FLORIDA AT LARGE
MY COMMISSION EXPIRES APR 10 1984
BONDED THRU GENERAL INS, UNDERWRITERS
<PAGE> 7
ARTICLES OF AMENDMENT FILED
OF
LaserFAX, Inc.
ARTICLE 1 of the Articles of incorporation of LaserFAX, Inc., which
was filed on September 20, 1983, is hereby amended to read as follows:
1. NAME: The name of this Corporation
is SpectraFAX Corp.
The foregoing Amendment was adopted by the Shareholders of this
Corporation on the 24th day of June, 1985.
IN WITNESS WHEREOF, the undersigned, has executed these Articles of
Amendment, this 31st day of July 1985.
WITNESSES:
/s/ Nancy Dickey /s/ Robert Lee
- ----------------------------------- -------------------------------------
ROBERT LEE, President
/s/ [SIGNATURE ILLEGIBLE] ATTEST: /s/ Thomas Conwell
- ----------------------------------- ------------------------------
Thomas Conwell, Secretary
STATE OF FLORIDA
COUNTY OF COLLIER
The foregoing instrument was acknowledged before me this 31st day of
July, 1985, by ROBERT LEE as President and THOMAS CONWELL Secretary of
LaserFAX, Inc., a Florida Corporation, and known to me to be the persons who
executed the foregoing Articles of Amendment for the uses and purposes therein
expressed.
My commission expires: /s/ Betty L. Cunningham
-----------------------------------------
NOTARY PUBLIC
(SEAL)
NOTARY PUBLIC, STATE OF FLORIDA AT LARGO
MY COMMISSION EXPIRES MARCH 19, 1989
BONDED BY IOWA NATIONAL INS. CO.
<PAGE> 8
ARTICLE OF AMENDMENT
OF
SPECTRAFAX CORP.
1. Section 4 of the Articles of Incorporation OF LASERFAX, Inc., which
were filed on September 20, 1983, and subsequently amended on January 20,
1984 and on June 24, 1985, this later amendment providing for a change in the
name of this Corporation from LaserFAX, Inc. to SpectraFAX Corp. is hereby
amended to read as follows:
"4. CAPITAL STOCK:
The Corporation is authorized to issue 20,000,000 shares, all of
one class, each having a par value of one/hundredth of a cent ($.0001) per
share."
2. The foregoing amendment was adopted by the shareholders of this
corporation on the 21st day of November, 1989.
IN WITNESS WHEREOF, the undersigned Chief Executive officer and
Secretary of this Corporation have executed this Article of Amendment this 22nd
day of November, 1989.
/s/ Thomas J. Conwell
- -------------------------------------------------
Thomas J. Conwell, Chief Executive Officer, Pres.
/s/ Betty Cunningham
- -------------------------------------------------
Betty Cunningham, Corporate Secretary
STATE OF FLORIDA
COUNTY OF COLLIER
BEFORE ME, the undersigned authority, personally appeared Thomas J.
Conwell and Betty L. Cunningham, as Chief Executive 0fficer and Secretary,
respectively, known to me to be the persons who executed the foregoing Article
of Amendment for the purpose therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
22nd day of November, 1989.
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------------
Notary public
Notary Public, State of Florida at Largo
My Commission Expires July 20, 19??
<PAGE> 9
AMENDMENT TO ARTICLES OF INCORPORATION
OF
SPECTRAFAX CORP.
1. Section 4 of the Articles of Incorporation of LaserFAX, Inc.,
which were filed on September 20, 1983, and subsequently amended on January 20,
1984 and on June 24, 1985, this latter amendment providing for a change in the
name of this Corporation from LaserFAX, Inc. to SpectraFAX Corp., and again on
November 21, 1989, is hereby amended to read as follows:
"4. CAPITAL STOCK:
The Corporation is authorized to issue 20,000,000 shares, each having
a Par Value of one/hundredth of a cent ($.0001) per share. The Corporation is
also authorized to issue 200,000 Series A Cumulative, Non Participating 12% Par
Value $25.00 Preferred Stock.
2. The foregoing amendment was adopted by the shareholders of this
Corporation on the 23rd day of October, 1992. All Common Stock Shareholders,
representing all 13,332,679 common shares outstanding, were entitled to vote on
this amendment and holders of 8,180,656 shares, more than required to approve
the amendment, voted to approve the amendment.
IN WITNESS WHEREOF, the undersigned Chief Executive Officer and
Secretary of this Corporation have executed this Article of Amendment this 29th
day of October, 1992.
/s/ Thomas J. Conwell
- -------------------------------------------------
Thomas J. Conwell, Chief Executive Officer
/s/ Betty L. Cunningham
- -------------------------------------------------
Betty L. Cunningham, Corporate Secretary
STATE OF FLORIDA
COUNTY OF COLLIER
BEFORE ME, the undersigned authority, personally appeared Thomas J.
Conwell and Betty L. Cunningham, as Chief Executive officer and Secretary,
respectively, known to me to be the persons who executed the foregoing Article
of Amendment for the purpose therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day
of October, 1992.
/s/ Diane R. Fisher
--------------------------------------
Notary public
NOTARY PUBLIC, STATE OF FLORIDA
MY COMMISSION EXPIRES APRIL 21, 1993
BONDED THRU GENERAL INS. UND.
<PAGE> 10
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SPECTRAFAX CORP.
----------------
(Present name)
Pursuant to the provisions of section 607.1006, Florida Statutes, this
corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment(s) adopted: (indicate article number(s) being
amended, added, or deleted)
Article III
Section 1.
Amended from: "An annual meeting of the Shareholders shall be held on
the 30th day of September in each year at the principal
office of the Corporation."
Amended to read: "An annual meeting of the Shareholders shall be held
within 90 days after the end of the calendar year
accounting cycle of the Company ending December 31."
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the amendment if not
contained in the amendment itself, are as follows:
THIRD: The date of each amendment's adoption: July 14, 1995
---------------------------------
<PAGE> 11
FOURTH: Adoption of Amendment(s) (CHECK ONE)
[x} The amendment(s) was/were approved by the shareholders. The number of
votes cast for the amendment(s) was/were sufficient for approval.
[ ] The amendment(s) was/were approved by the shareholders through voting
groups.
The following statement must be separately provided for each voting group
entitled to vote separately on the amendment(s):
"The number of votes cast for the amendment(s) was/were sufficient for
approval by ."
--------------------------------------------------------------
Voting group
[ ] The amendment(s) was/were adopted by the board of directors without
shareholder action and shareholder action was not required.
[ ] The amendment(s) was/were adopted by the incorporators without shareholder
action and shareholder action was not required.
Signed this day 14th of September , 1995.
---------- --------------- ----
Signature Timothy S. Farlow
-----------------------------------------------------------------
(By the Chairman or Vice Chairman of the Board of Directors,
President or other officer if adopted by the shareholders)
OR
(By a director if adopted by the directors)
OR
(By an incorporator if adopted by the incorporators)
Timothy S. Farlow
----------------------------------------------------
Typed or printed
Corporate Secretary
----------------------------------------------------
Title
<PAGE> 1
Exhibit 2.2
BYLAWS
OF
SpectraFAX Corp.
ARTICLE I
Name
Section 1. The name of this corporation is SpectraFAX, Corp. (Amended 7-31-85)
Section 2. Its principal office shall be located at Naples, Florida, 33942.
Other offices for the transaction of business shall be located at such places as
the Board of Directors may from time to time determine.
ARTICLE II
Stock
Section 1. Stock may be issued for cash or property, services rendered or good
will, as may be determined by the Board of Directors.
Section 2. All certificates of stock shall be signed by the President and the
Secretary and shall be sealed with the corporate seal.
Section 3. Treasury stock shall be held by the Corporation subject to the
disposal by the Board of Directors and shall neither vote nor participate in
dividends.
Section 4. The Corporation is authorized to issue 20,000,000 shares, each
having a Par Value of one/hundredth of a cent ($.0001) per share. The
Corporation is also authorized to issue 200,000 Series A Cumulative, Non
Participating 12% Par Value $25.00 Preferred Stock.
(Amended 1-20-84)
(Amended 11-22-89)
(Amended 10-29-92)
Section 5. Transfers of stock shall be made only on the books of the
Corporation, and the old certificate properly endorsed shall be surrendered and
canceled before a new certificate is issued. The stock books of the Corporation
shall be closed against transfers for a period of ten (10) days before the day
of payment of a dividend and for ten (10) days before each annual meeting of
Shareholders.
Page 1 of 5
<PAGE> 2
Section 6. In case of loss or destruction of a certificate of stock, no new
certificate shall be issued in lieu thereof except upon satisfactory proof to
the Board of Directors of such loss or destruction and upon giving of
satisfactory security, bond or otherwise, against loss to the Corporation. Any
such new certificate shall be plainly marked "Duplicate" upon its face.
ARTICLE III
Shareholders' Meetings
Section 1. An annual meeting of the Shareholders shall be held within 90 days
after the end of the calendar year accounting cycle of the Company ending
December 31st at the principal office of the Corporation. At such meeting, the
Shareholders shall elect Directors and Officers to serve as provided by the
Charter, or these bylaws, or until their successors shall be elected and
qualified.
(Amended July 14,1995)
Section 2. A special meeting of the Shareholders may be called at any time and
place by the President, Executive Vice President or by a majority of the Board
of Directors. It shall be the duty of the President, Executive Vice President
or the Board of Directors to call such a meeting whenever so requested by
Shareholders holding a majority of the capital stock.
Section 3. Notice of the time and place of all annual and special meetings
shall be mailed by the Secretary to each Shareholder ten (10) days before the
date thereof, but each Shareholder respectively may dispense with the notice
requirements by signing a written waiver.
Section 4. The President, or in his absence, the Executive Vice President,
shall preside at all such meetings.
Section 5. At every such meeting, such Shareholder will be entitled to cast
one vote for each share of stock held in his name, either in person or by
proxy. All proxies shall be in writing and shall be filed with the Secretary
and by him/her entered of record in the minutes of the meeting.
Section 6. Every Shareholder shall have the right to vote in person or by
proxy the number of shares of stock owned by him.
Section 7. A quorum for the transaction of business at any such meeting shall
consist of a representation of a majority of the shares of stock issued and
outstanding. The Shareholders present at any meeting, though less than a
quorum, may adjourn the meeting to a future time.
Section 8. The Shareholders shall have power, by a majority vote of stock
present at any such meeting, to remove any Director or Officer from office.
Page 2 of 5
<PAGE> 3
ARTICLE IV
Directors
Section 1. The business and property of the Corporation shall be managed by a
Board of Directors of not less than five (5) nor more than seven (7) in number,
who shall be elected by the Shareholders and shall receive such compensation
for their services as the Shareholders authorize.
(Amended 11-22-88)
Section 2. The regular meetings of the Directors shall be held at the
principal office of the Corporation immediately after the adjournment of each
annual Shareholders' meeting upon the same or succeeding day or at such other
place as a majority of the Board may agree upon.
Section 3. Special meetings of the Board of Directors, to be held in the
principal office of the Corporation, may be called by the President, Executive
Vice President or a majority of the Board. By unanimous consent of the
Directors, special meetings of the Board of Directors may be held without
notice at any time and place.
Section 4. Notice of all regular and special meetings shall be mailed to each
Director by the Secretary, or in his/her absence, by the President or Executive
Vice President, at least five (5) days previous to the time fixed for the
meeting, unless written waiver of notice is signed by all Directors. All
notices of special meetings shall state the purpose thereof.
Section 5. A quorum for the transaction of business at any regular or special
meeting of the Directors shall consist of a majority of the members of the
Board, but a majority of those present at any regular or special meeting shall
have power to adjourn the meeting to a future time. In accordance with Florida
law, meetings of the Board of Directors may be conducted telephonically with
appropriate minutes being kept and filed among the corporate records.
Section 6. Notwithstanding Sections 2 through 5 of this ARTICLE IV, above, an
action ordinarily required to be taken at a meeting of three Directors, may be
taken without a meeting if a consent, in writing, setting forth the action to
be taken is signed by all of the Directors and filed in the minutes of the
Board of Directors. Such consent shall have the same effect as a unanimous
vote.
Section 7. The Directors shall elect the Officers of the Corporation, such
election to be held at the Directors' meeting following each annual
Shareholders' meeting. An officer may be removed at any time by a two thirds
vote of the full Board of Directors. The Directors shall fix the salaries of
the Officers of the Corporation and award them from time to time such
additional compensation, as bonuses or dividends, as may be lawful and
justified.
Section 8. Vacancies on the Board of Directors may be filled for unexpired
terms by the remaining Directors at any regular or special Directors meeting.
Page 3 of 5
<PAGE> 4
Section 9. At each annual Shareholders' meeting, the Directors shall submit a
statement of the business done during the preceding year, together with a
report of the condition of its tangible property.
ARTICLE V
Officers
Section 1. The officers of this Corporation shall be a President, one or more
Vice Presidents, a Secretary, and a Treasurer, Assistant Secretaries and
Treasurers and such other Officers, agents and factors as may be deemed
necessary by the Directors, who shall be elected for the term of one (1) year,
but who shall hold office until their successors are duly elected and qualified.
Any two (2) or more offices may be held by the same person. No one shall be
eligible to hold the office of President who is not a Director of the
Corporation, and if the President ceases to be a Director, he shall cease to
hold office as President as soon as his successor is elected and qualified.
Section 2. The President shall preside at all Directors' and Shareholders'
meetings, shall have general supervision over the affairs of the Corporation
and over the other Officers, shall sign all stock certificates and written
contracts of the Corporation and sign checks, and shall perform all other
duties as are incident to his office. In case of the absence by reason of
incapacitation or disability of the President, his duties shall be performed by
the Executive Vice President, by any other Vice President if the Executive Vice
President is disabled or absent, or by the Secretary in the absence of any
Vice President.
Section 3. The Secretary shall issue notices of all Directors' and
Shareholders' meetings and shall attend and keep the minutes of the same, shall
have charge of the corporate minute book, stock certificate book, and shall be
custodian of the corporate seal. He/she shall attest with his/her signature and
impress with the corporate seal all stock certificates and written contracts of
the Corporation and shall perform all such other duties as are incident to
his/her office.
Section 4. (a) Funds of the company shall be deposited in such bank or banks as
the Directors may designate and shall be withdrawn upon check or order of such
of the Officers as the Directors may authorize.
(b) The Treasurer shall have custody of the corporate funds,
records, books and accounts of the Corporation, shall keep full and accurate
accounts of receipts and disbursements and render account thereof at the annual
meeting of the Shareholders and shall perform such other duties as the Directors
may designate and authorize.
ARTICLE VI
Dividends
Section 1. Dividends to be paid out of the surplus earnings of the Corporation
may be declared from time to time by resolution of the Board of Directors, but
no dividend shall be paid that will impair the capital of the Corporation or
that would render the Corporation insolvent.
Page 4 of 5
<PAGE> 5
ARTICLE VII
Amendments
Section 1. Amendments to these Bylaws may be made by a vote of the Shareholders
representing a majority of all the stock issued and outstanding at any annual
Shareholders' meeting; or at any special Shareholders' meeting, when the
proposed amendments have been set out in the notice of such meeting.
ARTICLE VIII
(Amended and deleted 2-23-87)
ARTICLE IX
Indemnification
Section 1. 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 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.
THE ABOVE AND FOREGOING BYLAWS WERE UNANIMOUSLY ADOPTED BY THE SHAREHOLDERS
THIS 4TH DAY OF SEPTEMBER, 1984.
Page 5 of 5
<PAGE> 1
Exhibit 3.2
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
SpectraFAX Corp.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
20,000,000 SHARES COMMON STOCK AUTHORIZED, $.0001 PAR VALUE
This NUMBER SHARES
1653 ***20,000***
certifies
that CUSIP 847572 10 4
*** -----------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of *** TWENTY THOUSAND SHARES *** The shares of stock represented by this certificate
FULLY PAID AND NON-ASSESSABLE have not been registered under the Securities Act of
SHARES OF COMMON STOCK OF 1933, as amended, and may not be sold or otherwise
transferred unless compliance with the registration
provisions of such Act has been made or unless
availability of an exemption from such registration
provisions has been established, or unless sold
pursuant to rule 144 under the Securities Act of
1933.
SpectraFAX Corp.
transferable on the books of the corporation in person or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are subject to the laws of the State of Florida, and to the
Certificate of Incorporation and Bylaws of the Corporation, as now or hereafter amended. This certificate is not
valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signature of its duly authorized officers.
DATED August 25, 1999
Thomas J. Conwell Vicki L. Koopman
President Secretary
[SEAL]
COUNTERSIGNED
PACIFIC STOCK TRANSFER COMPANY
P.O. Box 93385
Las Vegas, NV 89193
By [ILLEGIBLE]
----------------------------
AUTHORIZED SIGNATURE
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the use in this Registration Statement on Form
10-SB of my report dated April 12, 1999 relating to the financial statements of
SpectraFAX Corp. appearing in such Registration Statement.
/s/ Clancy and Co., P.L.L.C.
- -------------------------------------
Clancy and Co., P.L.L.C.
Phoenix, Arizona
February 28, 2000
<PAGE> 1
Exhibit 12
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
RISK FACTORS
FINANCIAL DATA
Although formed in 1983, the Company's activities have been limited to
the design, manufacturing, and marketing of a full line of high-performance fax
processing systems that use the fax machine as a terminal to increase the
productivity and effectiveness of business fax users. The Company's sales for
the year ended December 31, 1988 and ten months ended October 31, 1999 were
$2,568,736 and $2,181,101, respectively. The Company has also incurred a
negative cash flow from operating activities of ($216,942), and ($260,345) for
such periods. At October 31, 1999 the Company had a negative working capital of
($1,118,493) and a negative shareholders equity of ($920,837). Future operating
results will depend on many factors, including the ability of the Company to
raise adequate working capital, demand for the Company's products, the level of
competition and the Company's ability to manufacture its products in a
production environment while maintaining quality and controlling costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business-Competition."
COMPETITION
The Company competes with numerous other fax-based industry suppliers.
Many of these competitors have substantially greater resources than the
Company. The Company has been successful in finding a niche in the market,
through research and subsequent patenting of varions composite technologies.
Should a larger and better financed company decide to directly compete with the
Company, and be successful in its competitive efforts, the Company's business
could be adversely affected. See "Business-Competition."
DEVELOPING AND CHANGING MARKET
The market for Fax Services and related services is continually
evolving, and is highly dependent upon changes in the fax-based industry.
Changes in technology and regulatory licensing permitting may cause the demand
for Fax Services related services and products within the industry to create
such a demand for these products that substantially existing companies in other
product lines may shift their emphasis to the fax-based industry, thus
increasing the competition. There can be no assurance that the company's
products will continue to be accepted. See "Business - Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon Thomas J. Conwell, President and founder
of the Company, key man life insurance on the life of Thomas J. Conwell in the
amount of $500,000. The Company's future success also depends on its ability to
attract and retain qualified personnel, for which competition is intense. The
loss of Mr. Conwell or the Company's inability to attract and retain other
qualified employees could have a material adverse effect on the Company. See
"Management."
LACK OF DIVIDENDS
The Company has not paid cash dividends and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future.
