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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934.
For quarterly period ended September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No: 0-29747
-------------
SPECTRAFAX CORP.
----------------
(Exact name of registrant as specified in its charter)
Florida 59-2412164
------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3050 N. Horseshoe Dr., Suite 100, Naples 34104
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(941)643-8700
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Registrant's telephone number, including Area Code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of September 30, 2000, 21,294,374 shares of Common Stock were
outstanding.
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SPECTRAFAX CORP.
BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
Sept 30,
2000
--------
ASSETS
Current Assets
Cash $ 93,553
Accounts Receivable 72,131
Inventory 40,062
Prepaid Expenses 75,550
--------
Total Current Assets 281,296
Property & Equipment -Net (Note 2) 246,918
Other Assets
Deposits 12,648
Goodwill Arising from Acquisition (Note 3) 279,837
--------
Total Other Assets 292,485
Total Assets $820,699
========
The accompanying notes are an integral part of these financial statements.
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SPECTRAFAX CORP.
BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
Sept 30,
2000
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable (Note 4) $ 539,500
Accounts Payable 157,394
Deferred Revenue 175,881
Notes Payable, Bank Current Portion 8,244
Due to Related Party 120,768
Accrued Interest Payable 195,671
Accrued Liabilities 73,873
------------
Total Current Liabilities 1,271,331
Long-Term Liabilities
Notes Payable Noncurrent Portion (Note 4) 514,300
------------
Total Liabilities 1,785,631
Stockholders' Equity
Preferred Stock: $25.00 Par Value, 200,000 Shares 0
Authorized Series A Cumulative, Non Participating
12%; Issued and Outstanding, None
Common Stock: $0.0001 Par Value, 40,000,000 2,129
Shares Authorized, Issued and Outstanding
21,294,374 and 18,598,322 (Note 6)
Additional Paid In Capital 10,511,512
Less Treasury Stock, at Cost, 4,000 Shares Outstanding (4,000)
Accumulated Deficit (11,474,573)
------------
Total Shareholders' Equity (A Deficit) (964,932)
------------
Total Liabilities and Stockholders' Equity $ 820,699
============
The accompanying notes are an integral part of these financial statements.
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SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
9/30/00 9/30/99
------------ -----------
<S> <C> <C>
Revenues $ 143,738 764,036
Cost of Sales 109,712 323,142
------------ -----------
Gross Profit 34,026 440,894
Selling, General & Administrative
Marketing & Sales 262,844 182,559
General & Administrative 91,757 201,641
Research & Development Expense 164,083 73,940
------------ -----------
Total Selling, General & Administrative Expense 518,684 458,140
------------ -----------
Net Operating Loss (484,658) (17,246)
------------ -----------
Other Income (Expense)
Interest Income 5,940
Interest Expense (22,842) (38,416)
------------ -----------
Total Other Income (Expense) (16,902) (38,416)
------------ -----------
Net Loss Available to Common Stockholders $ (501,560) (55,662)
============ ===========
Basic Loss Per Common Share $ (0.02) (0.003)
============ ===========
Basic Weighted Average Number of
Common Shares Outstanding 20,249,222 17,911,291
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SPECTRAFAX CORP.
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
UNAUDITED)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
9/30/00 9/30/99
------------ -----------
<S> <C> <C>
Revenues (Note 7) $ 534,129 2,082,522
Cost of Sales 366,567 710,044
------------ -----------
Gross Profit 167,562 1,372,478
Selling, General & Administrative
Marketing & Sales 708,065 558,514
General & Administrative 565,363 568,381
Research & Development Expense 369,095 315,306
------------ -----------
Total Selling, General & Administrative Expense 1,642,523 1,442,201
------------ -----------
Net Operating Loss (1,474,961) (69,723)
------------ -----------
Other Income (Expense)
Interest Income 16,641
Interest Expense (99,348) (88,649)
------------ -----------
Total Other Income (Expense) (82,707) (88,649)
------------ -----------
Net Loss Available to Common Stockholders $ (1,557,668) (158,372)
============ ===========
Basic Loss Per Common Share $ (0.08) (0.01)
============ ===========
Basic Weighted Average Number of
Common Shares Outstanding 20,112,585 17,884,879
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SPECTRAFAX CORP.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPT 30, 2000 AND 1999
9/30/00 9/30/99
----------- ---------
Cash Flows from Operating Activities:
Net Loss $(1,557,668) $(158,237)
Adjustments to reconcile net loss to
Net Cash Used in Operating Activities:
Options Granted - Compensation Cost 100,513
Common Stock Issued for Services 49,350
Depreciation and Amortization 65,839 75,458
Decrease (increase) in operating assets:
Accounts Receivable 303,458 (357,431)
Inventory (14,703) 39,254
Prepaid Expenses and Deposits (65,590) (21,906)
Increase (decrease) in operating liabilities:
Accounts Payable (90,378) (33,048)
Accrued Interest 37,243 23,067
Accrued Liabilities (50,271) (15,170)
Customer Deposits 16,209 17,534
Checks in Excess of Cash (14,031) --
----------- ---------
Total Adjustments 337,643 (272,242)
Net Cash Used in Operating Activities (1,220,025) (430,479)
Cash Flows from Investing Activities:
Property and Equipment Expenditures (105,402) (50,448)
Purchase of 2Alertme (112,604) --
----------- ---------
Cash Used by Investing Activities (218,006) (50,448)
Cash Flows from Financing Activities:
Payments on Notes Payable (106,500) (130,617)
Payments on Bank Note (10,250) (8,264)
Proceeds from Short Term Borrowing 199,617
Proceeds from Issuance of Notes Payable 1,570,000
Offering Cost (54,600)
Proceeds from Issuance of Common Stock 153,944 442,530
Advances from Officer 27,000 45,000
Payments to Officer (48,010) (38,000)
----------- ---------
Net Cash Provided By Financing 1,531,584 510,266
----------- ---------
Increase in Cash and Cash Equivalents 93,553 29,339
Cash Beginning of Period 12/31/99 & 12/31/98 0 29,262
----------- ---------
Cash End of Period 9/30/00 & 9/30/99 93,553 58,601
=========== =========
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SPECTRAFAX CORP.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Supplemental Information
------------------------
Cash Paid for:
Interest $ 59,891
==========
Income Taxes $ 0
==========
Non-Cash Investing and Financing Activities:
Conversion of Accts Payable, Related Party to Com Stk $ 2,700
Conversion of Notes Payable to Equity including ==========
Accrued interest $1,377,050
==========
Common Stock issued for Services
Net of Offering Costs $ 49,350
==========
Compensation Costs - Stock Options $ 100,513
==========
The accompanying notes are an integral part of these financial statements.
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS
Note 1. Statement of Information Furnished
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with Form 10SQB instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 2000, the results of operations for the three and nine months ended
September 30, 2000, and the statement of cash flows for the three and nine
months ended September 30, 2000. These results have been determined on the
basis of generally accepted accounting principles and practices and applied
consistently with those used in the preparation of the Company's 1999 Annual
Report on Form 10-SB.
Certain information and footnote disclosure normally included in the financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the
accompanying financial statements be read in conjunction with the accompanying
financial statements and notes thereto incorporated by reference in the
Company's 1999 Annual Report on Form 10-SB.
Note 2. Property and Equipment
Property and equipment is comprised as follows at September 30, 2000:
Computer Equipment $ 575,848
Furniture and Fixtures 40,823
Display booth and other equipment 178,473
Software 121,539
---------
916,683
Less accumulated depreciation (699,765)
---------
Net Property and Equipment 246,918
Depreciation expense charged to operations during the nine months ending
September 30, 2000 and September 30, 1999 was $34,747 and $74,458 respectively.
Note 3. Asset Purchase Agreement
On May 1, 2000, SpectraFAX Corp. completed an "Asset Purchase Agreement" with
2Alertme.com, Inc. to purchase all of its assets, properties and goodwill. The
purchase price was $125,000 cash, less the amount of cash purchased as an
asset, or $12,396, the issuance of 200,000 shares of SpectraFAX common stock at
$0.70 per share, and an option to acquire 200,000 shares of SpectraFAX common
stock at $3.50 per share, expiring in ten years. SpectraFAX paid $125,000 and
recorded the issuance of the
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
200,000 shares of common stock at the fair market value of the common stock at
the date of issuance, which was $1.00 per share, because the fair market value
exceeded the value in the asset purchase agreement. The options were not valued
because the exercise price of the options exceeded the fair market value of the
common stock at the date of issuance.
The estimated purchase price and preliminary adjustments to historical book
value of 2Alertme as a result of the 2Alertme transaction are as follows:
Purchase price:
Cash 125,000
Common Stock Issued 200,000 325,000
-------
Book Value of net assets acquired:
Cash 12,396
Computer 1,675 (14,071)
------- --------
Purchase price in excess of net
assets acquired (goodwill) 310,929
--------
(1) The acquisition of 2Alertme's assets was accounted for by the purchase
method of accounting, which allocates the excess of the total purchase price
exceeding the sum of amounts assigned to the assets and liabilities acquired,
to intangible assets (goodwill). Goodwill is being amortized over its estimated
useful life, not to exceed ten years. Fixed Assets are being depreciated over
estimated useful lives, or five years. Included in nine month operating
statement is Goodwill and depreciation of $31,092 and $336 respectively.
Note 4. Notes Payable
Notes Payable consists of the following:
15% Short Term Demand Note $ 50,000
12% Short Term Notes Convertible @$2.00/Share 133,000
Notes Secured by US Government Receivables 266,500
12% Short Term Equipment Notes 24,000
10% Convertible Subordinated Debenture 66,000
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$539,500
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
On December 31, 1999 the Short Term Notes totaled $ 849,500. The following
transactions occurred during the nine months ending September 30, 2000.
<TABLE>
<S> <C>
Converted to Stock at $1.00/share, 10 & 12% Convertible Notes $ 136,500
Converted to Stock at $0.55/share, 10 & 12% Convertible Notes 77,000
Notes Secured by US Government Receivables, borrowed (10,000)
Notes Secured by US Government Receivables, paid cash 100,500
Paid cash on 12% Short Term Note 6,000
---------
$ 310,000
</TABLE>
Accrued interest converted to stock was $113,550.
Long Term Debt $1,560,000
6% Convertible Subordinated Debentures due
March 2005 (Scheduled redemption
subordinated to other senior obligations)
Converted $1,050,000 @ $.080 on May 12, 2000. $ 510,000
Long Term Portion of 9.75% Bank Note 4,300
---------
Total Long Term Debt $ 514,300
Note 6. Common Stock
Issued 2,696,052 shares of common stock during the nine month period ending
9/30/00:
<TABLE>
<S> <C> <C>
Issued for cash 263,621 shares $ 153,944
Issued for Conversion of 6% Debenture 1,312,500 shares 1,050,000
Issued for Conversion of Convertible Notes 276,456 shares 260,100
Issued for Conversion of Factored Notes 120,995 shares 66,950
Issued for Services 519,600 shares 213,030
Issued for Conversion of Accounts
Payable, Related Party 2,880 shares 2,700
Issued for the acquisition of 2Alertme 200,000 shares 200,000
---------------- -----------
Total 2,696,052 1,946,724
Stock Options 100,513
Less Offering Cost (218,280)
Less Common Stock @ .0001 (270)
-----------
Paid in Capital $ 1,828,687
</TABLE>
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
Note 7. Segment Information
The Company's revenues are classified into four principal reportable segments
that provide different products or services.
Management evaluates the performance of its segments and allocates resources to
them primarily based on pretax income along with cash flows and overall
economic returns. Certain items are maintained at the Company's corporate level
and are not allocated to the segments. They primarily include the Company's
corporate headquarters costs, such as General and Administrative expenses,
related employee benefits, travel and promotion, rent expense, consulting and
professional fees.
A summary of the segment information is as follows:
<TABLE>
<CAPTION>
SERVICE
SEPT 30, 2000 FAX LIAISON BUREAU WARRANTY OTHER TOTAL
------------- ----------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 243,551 $ 41,396 $ 217,217 $ 31,965 $ 534,129
Operating
Income (Loss) (958,725) (29,499) (73,747) (412,990) (1,474,961)
Total Assets 525,415 73,862 4,103 217,319 820,699
Capital
Expenditures 6,300 2,501 -- 96,601 105,402
Depreciation 48,578 7,742 4,907 4,612 65,839
SERVICE
SEPT 30, 1999 FAX LIAISON BUREAU WARRANTY OTHER TOTAL
------------- ----------- ------- --------- --------- -----------
Revenues $ 1,721,227 $ 97,229 $ 208,291 $ 55,775 $ 2,082,522
Operating
Income (Loss) (18,361) (4,377) (11,264) (35,721) (69,723)
Total Assets 394,668 5,282 1,000 197,196 598,146
Capital
Expenditures 13,212 3,509 2,750 11,772 50,448
Depreciation 53,076 4,470 3,966 13,946 75,458
</TABLE>
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
Note 8. Operating Lease
The Company entered into a lease for 1,006 square feet of office space located
at 1732 Windsor Road, Loves Park, IL 61111. The lease begins May 1, 2000 and
extends for 2 years ending April 30, 2002. The basic rent is $1,000 per month
plus one month security.
Note 9. Stock Options
The Company has issued stock options to certain individuals as additional
performance incentives to promote the success of the Company by providing these
individuals with the opportunity to acquire common stock. The status of the
Spectra Fax's outstanding stock options is summarized below as of September 30,
2000:
Number of Option Exp
Shares Price Date
--------- ------ ----------
Granted During February 2000 20,000 $ .25 Feb 2001
40,000 $ .50 Feb 2001
Granted During April 2000 1,100,001 $ 1.50 April 2007
136,500 $ .80 April 2003
200,000 $ 3.50 April 2010
Granted During May 5,000 $ .10 May 2003
---------
Total outstanding, Sept 30, 2000 1,501,501
=========
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," under which no compensation cost for stock
options is recognized for stock options awards granted at or above fair market
value. Had compensation expense for the Company's stock-based compensation
plans been determined under SFAS No. 123, based on the fair market value at the
grant dates, the Company's pro forma net loss and pro forma net loss per share
would have been reflected as follows at September 30, 2000:
Net Loss
As reported $ 1,557,668
Pro forma $ 1,760,028
Net Loss Per Share
As reported $ 0.08
Pro forma $ 0.09
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SPECTRAFAX CORP.
NOTES TO FINANCIAL STATEMENTS CONTINUED
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumption used for those options granted: dividend yield of 0%, expected
volatility of 170%, risk-free interest rate of 5%, and an expected life of 5
years.
SPECTRAFAX CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
When used in this discussion, the words "believes", "anticipates", "expects",
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. SpectraFAX Corp. (SpectraFAX)
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by SpectraFAX which attempt to advise
interested parties of the factors which affect SpectraFAX's business in this
report.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND THE NINE MONTHS SEPTEMBER 30, 2000 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1999.
REVENUES
Net Revenues for the three months ended September 30, 2000 were $143,738
compared to net revenues of $ 764,036 for the three months ended September 30,
1999, a decrease of $ 620,298 or 81.2%. Net Revenues in the nine months ended
September 30, 2000 were $ 534,129, compared to net revenues of $2,082,522 for
the nine months ended September 30, 1999, a decrease of $ 1,548,393 or 74.4%.
The decrease was due primarily to Fax Liaison Revenue. SpectraFAX continued to
see a shift from fax products to internet products in the last year. The
Company's new internet product, which is ready for market, is an Internet stock
alert program, that "runs" on our Fax Liaison messaging system. SpectraFAX has
recently signed both Paragon and Firstrade to alert their customers of stock
market deviations. In addition, the Company is negotiating sales orders with
several Wall Street brokerage firms to install 2AlertMe and Fax Liaison Systems
on their site.
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COST AND EXPENSES
Cost of revenues for the three months ended September 30, 2000 was $109,712
(76.3% of Revenue) compared to $ 323,142 (42.3% of Revenue) for the three
months ended September 30, 1999. Cost of revenues for the nine months ended
September 30, 2000, was $366,567 (68.6% of Revenue) compared to $710,044 (34.1%
of Revenue) for the nine months ended September 30, 1999. The increase, as a
percentage of revenue, was due to the reduction in sales of Fax Liaison systems
(volume variance), while the company incurred fixed costs in operations. As a
result, gross profit decreased from $440,894 for the three months ended
September 30, 1999 to $ 34,026 for the three months ended September 30, 2000.
The gross profit decreased from $1,372,478 or 65.9% for the nine months ending
September 30, 1999 to $167,562 or 31.4% for the nine months ending September
30, 2000.
Selling, General and Administration and Research and Development expenses,
increased from $458,140 in the three months ended September 30, 1999 to
$518,684 in the three months ended September 30, 2000. The expenses for the
nine months ended September 30, 1999 increased from $ 1,442,201 to $1,642,523
for the same period ending September 30, 2000, approximately 14%. Expenses did
not decrease commensurate with the decrease in revenue as the Company
maintained its overhead expenses in anticipation of increased sales of
2AlertMe. In addition, increases were realized in several areas due to the
purchase of 2AlertMe. Increased staffing occurred both in engineering and in
marketing to introduce the new product, 2AlertMe. Attorney fees were incurred
due to the purchase of 2AlertMe and sales and marketing expenses now include
the expenses for the satellite office in Loves Park, IL.
OTHER INCOME EXPENSE,
Other expense decreased by $ 21,514 for the three months and $5,942 for the
first nine months due to interest income off setting loan interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant, and its cash requirements have exceeded cash flow from operations
since inception. As a result, the Company has been substantially dependent on
the proceeds of earlier private placements of debt and equity securities to
satisfy its working capital requirements.
In March 2000 the Company consummated the sale, in a private offering, of
$1,560,000 principal amount of convertible subordinated debentures bearing
interest at the rate of 6% per annum and convertible at $.80 per share. As a
result, cash at September 30, 2000 was $93,553. During May $1,050,000 principal
amount of Debentures was converted into 1,312,500 shares of common stock. The
Company believes that the proceeds received from the sale of debentures will
satisfy the cash requirement of the Company over the next twelve months.
Furthermore, the Chief Executive Officer has verbally agreed to
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<PAGE> 15
provide funding, as necessary, to the Company to assure continued operations
for the next twelve months. If the Company does not attain a positive cash flow
by then, it will need to seek additional equity or debt financing, to the
extent available. There can be no assurance that additional financing from any
source will be available when needed on commercially reasonable terms, or at
all.
GOING CONCERN
Note 1 to the financial statements of SpectraFAX for the years ended December
31, 1999 and 1998 indicates a substantial doubt as to the ability of the
Company to continue as a going concern. Also, the report of 2AlertMe.com's
independent accountant on its audited financial statements contains an
explanatory paragraph regarding such company's ability to continue as a going
concern. However, due primarily to the issuance of $1,560,000 principal amount
of Convertible Subordinated Debentures in March 2000 and a verbal commitment
from the Chief Executive Officer of the Company to provide additional funding
for the next twelve months, if needed, management believes that for at least
the next twelve months, both the Company and 2AlertMe.com can continue as going
concerns.
PART II OTHER INFORMATION
Items 1-5. None
Item 6. Exhibit 27 - Financial Data Schedule (for SEC use only)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 14, 2000.
SpectraFAX Corp.
/s/ Thomas J. Conwell
----------------------------------------------
Thomas J. Conwell, Chief Executive Officer
/s/ Eric Ekelund
----------------------------------------------
Eric Ekelund, Chief Financial Officer
15
