<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended March 31, 1999.
/ / Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
Commission file number: 33-83526
SECURFONE AMERICA, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 34-1833574
- ------------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8080 DAGGET, SUITE 220 SAN DIEGO, CALIFORNIA 92111
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices)
619-677-5580
------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
COMMON STOCK, $0.001 PAR VALUE PER SHARE: 10,784,669 (AS OF NOVEMBER 1, 1999)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Transition Small Business Disclosure Format (check one):
Yes No X
---
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
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SECURFONE AMERICA, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
PART I - FINANCIAL INFORMATION 2
Item 1. Financial Statements. 2
Item 2. Management's Discussion and Analysis or Plan of Operations. 15
Overview 15
Results of Operations: 17
First Quarter of 1999 Compared to First Quarter of 1998 17
Liquidity and Capital Resources 19
Year 2000 19
Forward-Looking Statements 20
PART II - OTHER INFORMATION 25
Item 1. Legal Proceedings. 25
Item 2. Changes in Securities and Use of Proceeds. 25
Item 3. Defaults Upon Senior Securities. 25
Item 4. Submission of Matters to a Vote of Security Holders. 25
Item 5. Other Information. 25
Item 6. Exhibits and Reports on Form 8-K. 25
</TABLE>
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Page 1
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets.........................................3
Consolidated Statements of Operations...............................4
Consolidated Statements of Stockholders' Equity.....................5
Consolidated Statements of Cash Flows...............................6
Notes to Financial Statements....................................7-14
</TABLE>
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Page 2
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ 5,869 $ 9,666
Accounts receivable, net 8,853 61,326
Marketable securities -- 280,000
Prepaid Expenses -- 300
------------------ -----------------
Total current assets 14,722 351,292
PROPERTY AND EQUIPMENT, net of accumulated depreciation 155,337 222,643
OTHER ASSETS:
Intangible assets, net of
accumulated amortization -- 245,747
Deposits 1,225 1,225
------------------ -----------------
Total other assets 1,225 246,972
------------------ -----------------
Total assets $ 171,284 $ 820,907
------------------ -----------------
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' (ACCUMULATED DEFICIT) EQUITY
1999 1998
------------------ -----------------
CURRENT LIABILITIES:
Current portion of long term liabilities $ 64,193 $ 54,180
Accounts payable & accrued liabilities 558,737 233,276
Accrued payroll - officers 114,246 29,165
Notes Payable 1,000,983 --
------------------ -----------------
Total current liabilities 1,738,159 316,621
------------------ -----------------
LONG-TERM LIABILITIES:
Advances payable -- 327,000
Notes payable-net of current portion 1,000,000 58,301
Obligation under capital leases-net of current portion 45,274 83,446
------------------ -----------------
Total long term liabilities 1,045,274 468,747
------------------ -----------------
Total liabilities 2,783,433 785,368
------------------ -----------------
STOCKHOLDERS' (ACCUMULATED DEFICIT) EQUITY:
Common stock - SecurFone America, Inc. 6,092 5,845
$.001 par value, authorized 100,000,000
shares, outstanding 6,091,881 shares at
March 31, 1999 and 5,965,216 shares
at March 31, 1998
Additional paid in capital 4,363,315 4,190,180
Additional paid in capital-stock options 2,874,475 2,869,525
Deficit accumulated during the development stage (9,856,031) (7,030,011)
------------------ -----------------
Total stockholders' (accumulated deficit) equity (2,612,149) 35,539
------------------ -----------------
Total liabilities and stockholders' (accumulated deficit) equity $ 171,284 $ 820,907
See accompanying notes. ------------------ -----------------
------------------ -----------------
</TABLE>
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Page 3
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 AND THE PERIOD MAY 20, 1996
(DATE OF INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Three Months Ended May 20, 1996
--------------------------------------------------- (Date of Inception)
March 31, 1999 March 31, 1998 to March 31, 1999
------------------------ ------------------------ -----------------------
<S> <C> <C> <C>
REVENUES $ 22,642 $ 158,104 $ 479,096
COST OF GOODS SOLD 55,809 98,065 598,549
------------------------ ------------------------ -----------------------
Gross profit (33,167) 60,039 (119,453)
------------------------ ------------------------ -----------------------
OPERATING EXPENSES:
Selling, general and administrative 301,515 665,113 4,988,066
Stock-based compensation -- 1,620,000 5,947,250
------------------------ ------------------------ -----------------------
301,515 2,285,113 10,935,316
------------------------ ------------------------ -----------------------
Income (loss) from operations (334,682) (2,225,074) (11,054,769)
------------------------ ------------------------ -----------------------
OTHER INCOME (EXPENSE):
Interest income -- -- 14,949
Royalty revenue -- 100,000 1,600,000
Realized stock gains -- -- 50,000
Interest expense - capital lease (1,206) -- (23,835)
Interest expense -other (99,920) (27,806) (433,598)
Loss on abanconment-SFNY -- -- (48,980)
------------------------ ------------------------ -----------------------
Total other income (expense) (101,126) 72,194 1,158,536
------------------------ ------------------------ -----------------------
Provision for income tax (1,600) -- (3,249)
------------------------ ------------------------ -----------------------
Loss from continuing operations (437,408) (2,152,880) (9,899,482)
EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT 43,451 -- 43,451
------------------------ ------------------------ -----------------------
Net loss (393,957) (2,152,880) (9,856,031)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on securities -- 280,000 --
------------------------ ------------------------ -----------------------
Comprehensive income (loss) $ (393,957) $ (1,872,880) $ (9,856,031)
------------------------ ------------------------ -----------------------
------------------------ ------------------------ -----------------------
Net (loss) per share - basic $ (0.06) $ (0.32)
------------------------ ------------------------ -----------------------
------------------------ ------------------------ -----------------------
Net (loss) per share - fully diluted $ (0.06) $ (0.32)
------------------------ ------------------------ -----------------------
</TABLE>
See accompanying notes.
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Page 4
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MAY 20, 1996 THROUGH MARCH 31, 1999
<TABLE>
<CAPTION>
Additional Deficit
paid in accumulated
Additional capital- during the
Common paid in stock development
Stock capital options stage Total
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Initial issuance of common
Stock, May 20, 1996 $ 3 $ 975,797 $ -- $ -- $ 975,800
Stock split 1,333.33 to 1 - Mar 6, 1997 39,970 (39,970) -- -- --
Sale of stock - 1997 1,200 118,800 -- -- 120,000
Acquisition - Aug 1, 1997 (36,173) 36,173 -- -- --
Stock options granted Aug-Nov, 1997 -- -- 1,227,250 -- 1,227,250
Contingent shares issued - Dec 31, 1997 and Mar 18, 1998 740 3,099,260 -- -- 3,100,000
Stock options exercised - Mar 19, 1998 225 -- 22,275 -- 22,500
Stock options granted - Jan 6, 1998 -- -- 1,620,000 -- 1,620,000
Stock issued - May 12, 1998 35 139,965 -- -- 140,000
Stock issued - Nov 17, 1998 42 33,290 -- -- 33,332
Stock options exercised - Aug 6, 1998 50 -- 4,950 -- 5,000
Deficit accumulated March 31, 1999 -- -- -- (9,856,031) (9,856,031)
----------- ----------- ----------- ------------ ------------
Balance March 31, 1999 $ 6,092 $ 4,363,315 $ 2,874,475 $(9,856,031) $(2,612,149)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
See accompanying notes.
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Page 5
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 AND THE PERIOD MAY 20, 1996
(DATE OF INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (393,957) $ (2,152,880)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 19,756 29,623
Stock options granted and contingent shares issued -- 1,620,000
Decrease (increase) in accounts receivable (1,715) (26,222)
Decrease (increase) in notes receivable -- 89,353
Decrease (increase) in royalities receivable -- 100,000
Decrease (increase) in inventory -- 22,153
Decrease (increase) in intangilble and other assets -- --
Decrease (increase) in prepaid expenses 35,000 (300)
(Decrease) increase in accounts payable,
payroll payable and accrued expenses (8,228) 89,573
(Decrease) increase in deferred royalty revenue -- (100,000)
----------------- ------------------
NET CASH USED BY
OPERATING ACTIVITIES (349,144) (328,700)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (157) (5,756)
----------------- ------------------
NET CASH USED BY
INVESTING ACTIVITIES (157) (5,756)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to paid-in capital -- 22,500
Issuance of stock options and contingent shares -- --
Proceeds from advances payable -- 327,000
Proceeds from notes payable 362,218 --
Proceeds from capital lease -- --
Repayments on notes payable (5,377) (3,819)
Repayments under capital lease (3,203) (9,066)
----------------- ------------------
NET CASH PROVIDED IN
FINANCING ACTIVITIES 353,638 336,615
----------------- ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,337 2,159
BEGINNING BALANCE - CASH AND CASH EQUIVALENTS 1,532 7,507
----------------- ------------------
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 5,869 $ 9,666
----------------- ------------------
----------------- ------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 23,967 $ 20,306
----------------- ------------------
----------------- ------------------
Cash paid during the period for income taxes $ 1,600 $ 800
----------------- ------------------
----------------- ------------------
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Amortization of prepaid loan fees paid by stock issued $ 35,000 $ ---
----------------- ------------------
----------------- ------------------
<CAPTION>
May 20, 1996
(Date of Inception)
to March 31, 1999
---------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,856,031)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 208,761
Stock options granted and contingent shares issued 4,327,250
Decrease (increase) in accounts receivable (8,853)
Decrease (increase) in notes receivable 5,833
Decrease (increase) in royalities receivable --
Decrease (increase) in inventory --
Decrease (increase) in intangilble and other assets (56,680)
Decrease (increase) in prepaid expenses --
(Decrease) increase in accounts payable,
payroll payable and accrued expenses 672,983
(Decrease) increase in deferred royalty revenue --
---------------------
NET CASH USED BY
OPERATING ACTIVITIES (4,706,737)
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (314,474)
---------------------
NET CASH USED BY
INVESTING ACTIVITIES (314,474)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to paid-in capital 1,292,500
Issuance of stock options and contingent shares 1,647,500
Proceeds from advances payable --
Proceeds from notes payable 2,012,270
Proceeds from capital lease 159,650
Repayments on notes payable (5,377)
Repayments under capital lease (79,463)
---------------------
NET CASH PROVIDED IN
FINANCING ACTIVITIES 5,027,080
---------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,869
BEGINNING BALANCE - CASH AND CASH EQUIVALENTS --
---------------------
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 5,869
---------------------
---------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 380,275
---------------------
---------------------
Cash paid during the period for income taxes $ 2,400
---------------------
---------------------
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Amortization of prepaid loan fees paid by stock issued $ 140,000
---------------------
---------------------
</TABLE>
See accompanying notes.
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Page 6
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF INCEPTION) TO
MARCH 31, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
SecurFone America, Inc. and its wholly owned subsidiary, SecurFone, Inc.
(collectively referred to as the "Company"). Inter-company transactions and
balances have been eliminated in the consolidated financial statements.
NATURE OF OPERATIONS
During the period reported, SecurFone America, Inc. was principally engaged in
the sale of prepaid cellular phone services. The Company provided these services
in some markets and, in other markets, licenses the Company's resources to
unrelated parties.
The Company offered three main products:
- - Buy-The-Minute-TM- - a software modified handset for which the Company
provides underlying national airtime, activation, and administrative
services for end users.
- - SFA Local Network Solution - the Company's flagship product that
telephonically connects directly to the underlying wireless service
provider to accomplish call routing and completion.
- - Carrier Network Services - the wholesale prepaid wireless platform service
that the Company sells directly to wireless carriers that do not wish to
create their own platform
On August 1, 1997, SecurFone, Inc. was acquired by Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) and became a publicly traded
corporation. In April of 1999 the name of SecureFone, Inc. was renamed to
SecurFone Services, Inc. and a new subsidiary was formed in the name of
SecurFone, Inc.
DEVELOPMENT STAGE OPERATIONS
Since its inception the Company has pursued research and development of
telephony, internet and e-commerce products and services. Substantially all
efforts have been spent on fund raising, product and service development and
market research.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents. The Company maintains its cash accounts in two commercial banks.
Accounts are guaranteed by the Federal Deposit Insurance Company (FDIC) up to
$100,000.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
include temporary cash investments and trade receivables. Concentration of
credit risk with respect to trade receivables is limited due to the Company's
large number of customers and wide range of locations served. The Company
occasionally maintains deposits in excess of federally insured limits.
Management believes that the risk is limited by maintaining all deposits in high
quality financial institutions.
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Page 7
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is calculated using the accelerated
depreciation method for both financial reporting and income tax purposes. For
the quarters ended March 31, 1999 and 1998 depreciation expense of $19,756 and
$8,582 was charged to operations, respectively.
FINANCIAL INSTRUMENTS
As collateral for performance and advances on long-term contracts, the Company
has stand-by letters of credit that it can issue for up to $1,000,000. Through
an agreement with investors, the Company may obtain letters of credit which are
secured by their personal assets through their personal banks. In connection
with the annual renewal of these credit lines investors were granted 35,000
shares of common stock on April 1, 1998. As of March 31, 1999, there was an
amount of $133,900 available by these investors for stand-by letters of credit.
For the quarters ended March 31, 1999 and 1998, interest expense of $22,500 and
$23,355 was charged to operations respectively.
REVENUE AND EXPENSE RECOGNITION
The Company recognizes revenue from sales of cellular airtime, net of an
allowance for uncollectible amounts, when substantially all significant services
to be provided by the Company have been performed. Expenses are recognized in
the period in which they are incurred. An allowance has been provided for
uncollectible accounts based on management's evaluation of the accounts and
their history.
CHANGE IN ACCOUNTING PRINCIPLE
Effective December 1, 1998 the Company retroactively changed its method of
recognizing start-up costs in its financial statements to conform with a recent
pronouncement of the AICPA, SOP 98-5 Reporting on the Costs of Start-Up
Activities. The Company previously amortized these costs over a five-year period
beginning January 1, 1997, using the straight-line method. The new pronouncement
requires start-up costs to be expensed as incurred. As a result, the cumulative
effect of applying the new method retroactively as of January 1, 1997 was
charged to 1998 earnings as required by SOP 98-5. Amortization in the amount of
$15,546 was charged to expense for the three month period ended March 31, 1998.
USE OF ESTIMATES
In preparing the Company's financial statements, management is required to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. These estimates are based on management's knowledge
and experience. Accordingly, actual results could differ from those estimates.
COMPENSATED ABSENCES
The Company does not have a vacation policy as of March 31, 1999. The unpaid
vacation has not been accrued since it is considered immaterial.
NOTE 2. MARKETABLE SECURITIES
Cost and fair value of marketable securities available for sale at March 31,
1998 consisted of equities with a cost of $0 and $280,000 fair value and
unrealized gain of $280,000. The securities were sold later in 1998.
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Page 8
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
Note 3. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
March March
1999 1998
------------ ------------
<S> <C> <C>
Office Furniture and Equipment $ 35,043 $ 28,660
Computer Software 88,901 88,802
Computer Hardware 190,530 190,373
------------ ------------
314,474 307,835
Accumulated Depreciation (159,137) (85,192)
------------ ------------
$ 155,337 $ 222,643
------------ ------------
------------ ------------
</TABLE>
Note 4. SHORT TERM NOTES PAYABLE
As of March 31, 1999 and 1998 notes payable, other obligations and short term
debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Notes payable (formerly treated as an advances payable) to
unrelated parties for advances of $35,000 and $130,000 are due
February 18, 1999 and January 30, 1999, respectively with 10%
interest. The notes are unsecured $ 165,000 $ --
Notes payable dated September 1, 1998 for advances made to the
Company by a Nevada corporation and an individual bearing 10%
interest per annum, principal and interest payable August 31,
1999 179,750 --
Note payable (formerly treated as an advance payable) to an
unrelated party is due November 21, 1998 with 10% interest
Under terms of the note, a $20,000 origination fee is due
November 1, 1998. The note is secured with a security interest
in 50,000 shares of the Company's common stock 100,000 --
Note payable for advances on future sale to Teledata (TWOS) 366,233 --
Note payable for a settlement to the Company's former CEO to
resolve all outstanding Company obligations related to his
employment due April 1, 1999 50,000 --
Advances payable to unrelated parties and potential investors who
have committed the funds on a long term basis. Negotiations
with various parties have not characterized the debt and
equity nature of the funds or finalized interest rates,
maturity dates, repayment terms or other features for the
advances 140,000 --
---------- ----------
$1,000,983 $ --
---------- ----------
---------- ----------
</TABLE>
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Page 9
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
Note 5. LONG TERM DEBT
As of March 31, 1999 and 1998 notes payable, other obligations and long term
debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Advances payable to unrelated parties and potential investors who
have committed the funds on a long term basis. Negotiations
with various parties have not characterized the debt and
equity nature of the funds or finalized interest rates,
maturity dates, repayment terms or other features for the
advances $ -- $ 327,000
Convertible debenture in the amount of $1,000,000 issued August
21, 1998 for advances made to the Company. The debenture has
12% interest rate payable quarterly. The principal is payable
on the earlier of (1) the Company's receipt of at least $8
million proceeds from a public offering of Company securities
or (2) August 21, 2001. Non-detachable warrants for 500,000
shares exercisable at $2.72 per share were issued in
connection with the convertible debenture. The warrants expire
August 21, 2003 1,000,000 --
Note payable with a vendor under an agreement dated October, 1997
is a two year, unsecured note with an annual interest rate of
6% and monthly payments of $1,407 including interest. The
balance at March 31, 1999 requires payment within nine months 9,653 24,175
Note payable to a shareholder in connection with the July 31, 1997
reorganization and legal claims asserted against a
Company shareholder -- 50,000
CAPITAL LEASE
In March 1997, the Company entered into a sale-leaseback
arrangement under which computer equipment capitalized at
$159,649 is being accounted for as a capital lease. Under the
agreement, the Company sold certain equipment and leased it
back for a period of 48 months, at which time the Company will
repurchase the equipment from the lessor 99,814 121,752
---------- ----------
Total 1,109,46 522,927
Less: Current Portion, notes and other maturities 64,193 54,180
---------- ----------
Total long term liabilities $1,045,274 $ 468,747
---------- ----------
---------- ----------
</TABLE>
Minimum future lease payments under non-cancelable capital leases for the next
five years are as follows:
<TABLE>
<S> <C> <C>
March 31, 2000 $54,540
March 31, 2001 45,274
-------
Total minimum future lease payments $99,814
</TABLE>
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Page 10
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
The note payable maturities on long term debt for the next five years
are as follows:
<TABLE>
<S> <C> <C>
1999 $ 9,653
2000 0
2001 1,140,000
----- ----------
Total $1,149,653
----- ----------
----- ----------
</TABLE>
Note 6. COMMON STOCK
At December 31, 1996, 30,000 shares of SecurFone America, Inc.'s stock were
authorized and 3,000 shares were issued and outstanding.
On March 5, 1997, an additional 4,700,000 shares were authorized by the Board of
Directors.
On March 6, 1997, the shareholders of SecurFone America, Inc. approved a stock
split of 1,333,333 to 1 shares, increasing the 3,000 shares issued and
outstanding to 4,000,000 shares with a par value of $.01 per share. The amount
of $39,970 was transferred from the paid-in-capital account to common stock
account to record the split.
Prior to the reorganization between SecurFone America, Inc. and Material
Technology, Inc., Material Technology, Inc. had as of July 31, 1997 100,000,000
shares authorized and 5,000,000 shares outstanding with a reverse split of 1 for
10 resulting in 500,216 shares issued and outstanding. Also, Material
Technology, Inc. issued additional 4,500,000 shares on July 31, 1997 for a total
of 5,000,216 shares issued and outstanding. On August 1, 1997, SecurFone
America, Inc. completed a reorganization with Material Technology, Inc. whereby
4,000,000 shares issued and outstanding common stock of SecurFone America, Inc.
were exchanged for 4,500,000 shares issued and outstanding common stock of
Material Technology, Inc. As a result of the reorganization, there were
5,000,216 shares issued and outstanding and 100,000,000 shares authorized. The
amount of $36,173 was transferred from the common stock account to the
additional paid-in-capital account to reflect the par value change from $.01 to
$.001 per share.
On November 13, 1997 the Company registered with the Securities and Exchange
Commission on Form S-8 (the "S-8 filing") 1,000,000 shares under the 1997 Stock
Option Plan to grant incentive stock options and non-qualified stock options to
officers and key employees. At the same time a similar registration for 250,000
shares under the 1997 Director Non-qualified Stock Option Plan was made. At
various dates the Company granted stock options under the two stock option plans
totaling 830,900 shares consisting of 300,000 shares at an option price of $1.00
per share, 130,900 shares at an option price of $2.50 per share and 400,000
shares at an option price of $0.10 per share. These options are exercisable
during 1997 and 1998. These shares were recorded as $1,227,250 selling, general
& administrative (SG&A) expense and additional paid in capital - stock options
at the grant date in accordance with Statement of Financial Accounting Standards
NO. 123 (SFAS 123) "Accounting for Stock-Based Compensation."
On December 3, 1997, the Company issued 620,000 conditional shares of common
stock with a par value of $.001 per share registered with the S-8 filing. These
shares were issued pursuant to various employment, retainer, consulting and fee
agreements. As of December 31, 1997 all conditions of these shares had been met
and $3,100,000 was recorded as SG&A expense, and common stock and additional
paid in capital accounts at the issue date.
On January 6, 1998 the Company granted stock options under the 1997 Stock Option
Plan for 400,000 shares at an option price of $.10 per share. These options are
exercisable immediately and are recorded as $1,620,000 SG&A expense and
additional paid in capital - stock options at the grant date in accordance with
Statement of Financial Accounting Standards NO. 123 (SFAS 123) "Accounting for
Stock-Based Compensation." On February 18, 1999 the 350,000 unexercised options
were returned.
On March 19, 1998 an additional 345,000 shares were issued as a result of the
following transactions: 225,000 shares of stock issued pursuant to warrants
exercised by the individuals providing credit accommodations in connection with
letters of credit issued by the Company; 120,000 shares were the result of two
stock subscriptions in private placements.
- --------------------------------------------------------------------------------
Page 11
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
On May 12, 1998 35,000 shares were issued in connection with credit
accommodations provided to the Company by investors (see Note 1).
On August 6, 1998 50,000 shares were issued on the exercise of stock options.
On November 17, 1998 the Company issued 41,665 shares of unregistered common
stock in exchange for investment banking services and bridge funding and a cash
payment of $2,500.
As of March 31, 1999, a total of 100,000,000 shares were authorized and
6,091,881 shares were issued and outstanding.
Note 7. RELATED PARTIES
The Secretary of the Company is also a partner in the law firm that represents
the Company in its legal matters. The accrued payroll is due to officers and
directors of the Company. The expense recognized for the quarters ended March
31, 1999 and 1998 are $72,702 and $29,165 respectively.
Note 8. INCOME TAXES
Income taxes are provided based on earnings reported for financial statement
purposes pursuant to the provisions of Statement of Financial Accounting
Standards No. 109 (FASB 109). The provision for income taxes differs from the
amounts currently payable because of timing differences in the recognition of
certain income and expense items for financial and tax reporting purposes.
FASB 109 uses the asset and liability method to account for income taxes which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities.
For the year ended December 31, 1998 the Company had net operating loss carry
forwards for federal income and state income tax purposes. These carry forwards
may provide future tax benefits. The federal net operating loss will begin to
expire in 2011, if not utilized to offset taxable income. Various state net
operating loss carry forwards will begin to expire earlier. Future changes in
ownership, as defined by Section 382 of the Internal Revenue Code, could limit
the amount of net operating loss carry forwards used in any one year.
An allowance has been provided for by the Company that reduced the tax benefits
accrued by the Company for its net operating losses to zero. It cannot be
determined when, or if, the tax benefits derived from these losses will
materialize. Income taxes in the amounts of $1,600 and $830 were paid in the
quarters ended March 31, 1999 and 1998.
Note 9. EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT
The extraordinary gain is a result of the settlement agreement with the
Company's former CEO to resolve all outstanding Company obligations related to
his employment with the Company in exchange for a payment of $50,000 payable not
later than April 1,1999. Due to the net operating losses sustained by the
Company there is no tax effect.
Note 10. COMMITMENTS AND CONTINGENCIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained losses totaling
$9,856,031 since its inception, of which $5,157,131 represents expenses
associated with stock-based compensation plans as noted at Note 6.
The continuing losses resulting from operations, and not necessarily those costs
associated with stock-based compensation plans, are an indication that the
Company may not be able to continue to operate without an additional cash
infusion. The Company has been and is currently seeking private and public
equity and bridge loans in order to finance operations. The Company has retained
business advisory firms to assist the Company in meeting its financing needs.
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Page 12
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
In November 1996, the Company entered into an agreement with Associated Barter
Services, Inc. ("ABS") under which ABS agreed to arrange for advertising
services for the Company. The Company agreed to issue ABS shares of the
Company's common stock in exchange for these services. A dispute has arisen
between the Company and ABS regarding ABS's performance under the agreement. The
Company negotiated a settlement in exchange for 61,522 shares of the Company
common stock on June 30, 1999.
Paul Silverman executed an employment agreement assuming the role of Chief
Executive Officer as of November 1, 1998 and elected Director on December 11,
1998. Mr. Silverman was also granted options to acquire 100,000 shares of the
Company's stock at $.10 per share upon execution of the employment agreement,
and qualified incentive stock options to acquire up to 300,000 additional shares
of the Company's stock based on achievement of Company goals established by the
Board of Directors. Mr. Silverman was granted options to acquire 50,000 shares
of the Company's stock at $0.28 per share under the Company's 1997 Director's
Option Plan. Total deferred compensation as of March 31, 1999 is approximately
$60,000.
Note 11. QUARTERLY INFORMATION
Following is computational information for earnings per share information
calculated under Statement of Financial Accounting Standards No. 130, Earnings
Per Share (EPS) which is effective for periods beginning after December 15,
1997.
<TABLE>
<CAPTION>
Quarter Ended Mar 31, 1999 Quarter Ended Mar 31, 1998
-------------------------- --------------------------
Income (Loss) Shares Per Share Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- --------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available
to common Stockholders
$(393,957) 6,091,881 $(.06) $(1,872,880) 5,965,216 $(.32)
EFFECT OF DILUTIVE SECURITIES
Stock Options 0* 0*
------------- -------------
DILUTED EPS
Income available to
common stockholders and
assumed conversions $(393,957) 6,151,881 $(.06) $(1,872,880) 6,344,834 $(.32)
</TABLE>
* SFAS 128 requires the use of weighted averages for stock outstanding
during the quarter. Although stock options issued under Company plans
exercise prices were below the average market price of the common
shares, they were not computed in calculating diluted earnings per
share because SFAS 128 does not include stock dilutions that would
reduce per share losses.
As of March 31, 1999 1,280,900 stock options were issued, 430,900 were vested,
500,000 had been forfeited and 50,000 had been exercised.
Note 12. SUBSEQUENT EVENTS
In May 1999 the Company issued 59,266 unregistered shares of the Company's
common stock (par value $.001) to eliminate total debts of $118,532 including
notes of $115,000 to an unrelated party.
In May 1999 the Company issued 12,500 unregistered shares of the Company's
common stock (par value $.001) to eliminate total debts to an unrelated
individual in the amount of $25,000.
On April 22, 1999 the Company executed a final agreement to sell a wholly owned
subsidiary, SecurFone, Inc. to Teledata World Services, Inc., a publicly traded
company ("TWOS"), for cash and TWOS common stock. Under the agreement TWOS would
acquire all outstanding shares of SecurFone, Inc., a wholly owned operating
subsidiary of the Company, for $498,000 in cash, 600,000 shares of unregistered
TWOS common stock (subject to Rule 144) valued at $300,000 and the option to
sell the stock back to TWOS at a price of $2.50 per share effective one year
- -------------------------------------------------------------------------------
Page 13
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
from the date of the transaction if the market price of the TWOS stock is
less than $2.50 per share. As of March 31, 1999 no value has been recorded
for the option. SecurFone, Inc. assets include certain cellular service
resale agreements, the Company's Miami customer service center, rights to the
Buy-The-Minute-TM- product and selected distribution channels. To cover the
costs for these services in the interim period prior to closing the
transaction, the total funds provided to the Company by TWOS during January
1, 1999 to April 22, 1999 amounted to approximately $261,000 in addition to
the advance of $366,233 at March 31, 1999. These funds were recorded as loans
to the Company and were settled at the closing of the agreement in April 1999.
Subsequent to the sale of certain prepaid cellular assets to TWOS the Company
effectively discontinued its prepaid cellular operations.
On May 7, 1999 the Company executed an agreement to acquire all outstanding
common stock of IXATA.COM, Inc., a privately held provider of Internet-based
information services targeting the travel industry, in exchange for 4,500,000
shares of the Company. The acquisition finalized on July 1, 1999. As of June 30,
1999 IXATA's financial statement showed the following results: revenue $27,052,
net loss $435,561.
The Company has agreed to pay Global One, Inc. (Global) 600,000 shares of common
stock for brokering services as a part of the purchase of IXATA.COM. Global is
an international business corporation in Nevis, British Virgin Islands. The
Company intends to issue the shares to Global in the fourth quarter of 1999.
In October 1999 the Company agreed to issue 50,000 unregistered shares of the
Company's common stock to eliminate total debts to Kohrman Jackson and Krantz
PLL ("KJK"), the Company's legal counsel, in the amount of $50,000. The Company
intends to issue the shares to KJK in the fourth quarter of 1999.
On August 18, 1999 an individual exercised options under the Directors Option
Plan for 9,500 shares of common stock.
In November of 1999, the Company offered equity investments to private
parties. As of December 9, 1999, the Company had sold 1,053,473 shares of its
unregistered common stock for $0.85 a share in connection with the offering.
Proceeds to the Company were $842,778 after the deduction of Scott &
Stringfellow, Inc.'s placement agent fee of $0.05 per share. The purchasers
in the offering were granted the right in certain instances to include their
shares in future offerings of registered stock by the Company.
- --------------------------------------------------------------------------------
Page 14
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The following describes certain factors which produced changes in the
results of operations of SecurFone America, Inc. (the "Company") during the
three months ended March 31, 1999 and as compared with the three months ended
March 31, 1998 as indicated in the Company's Consolidated Financial Statements.
The following should be read in conjunction with the Consolidated Financial
Statements and related notes. Historical results of operations are not
necessarily indicative of results for any future period. All material
inter-company transactions have been eliminated in the results presented in this
Quarterly Report.
Certain matters discussed in this Quarterly Report constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") and involve risks and
uncertainties. These forward-looking statements relate to, among other things,
expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market and
statements regarding the Company's mission and vision. The Company's actual
results, performance or achievements may differ significantly from the results,
performance, or achievements expressed or implied in these forward-looking
statements. See "- Forward-Looking Statements."
OVERVIEW
THE COMPANY
SecurFone America, Inc. was organized to develop and market prepaid
wireless products and services in various markets throughout the United States.
In late 1998, the Company established a new strategic objective of refocusing
the Company's mission to pursue new complimentary Internet-related and
e-commerce opportunities. In 1999, the Company has actively implemented its new
mission by, among other actions, selling a portion of the Company's business no
longer considered essential for the new strategy and purchasing a company whose
business thrust is in line with the new strategy. See "The Company's Business
Case for New Electronic Commerce and Internet Business Directions."
Throughout 1997 and 1998, the Company developed and marketed prepaid
wireless products and services in various markets throughout the United States.
By late 1998, the Company had substantially completed development of all major
aspects of its prepaid wireless network systems, and previously planned to
implement the marketing and sales programs necessary to create a sustainable
revenue base. The Company invested significant capital and effort to develop its
network, software, routing and carrier interface technology, for the hiring and
development of an experienced management team, and the initial introduction of
services to the roll-out markets. The products and services that the Company
developed during its start-up phase were initially introduced to a limited
number of U.S. cities to fully test the network, administrative, engineering and
marketing infrastructure prior to full-scale roll-out. To effectively manage the
Company's growth and maintain quality controls over its services and network,
the Company needed to expand its internal management, technical resources,
accounting and other administrative support systems, all of which required
additional investment. In the third quarter 1998, the Company developed a
business plan showing the investment required to develop a full-scale program
for commercial product launch and broad marketing and distribution program in
1999. Significant additional funding was required to support these activities.
On January 30, 1999, the Company executed an agreement with Teledata World
Services, Inc. ("Teledata") (OTC/BB:TWOS), to sell certain prepaid cellular
assets to Teledata for cash and Teledata common stock. The transaction was
closed on April 22, 1999. Under the terms of the agreement, SecurFone sold its
wholly-owned subsidiary, SecurFone, Inc., to Teledata for $498,000 in cash,
600,000 shares of Teledata common stock, and the option to sell the stock back
to Teledata at a price of $2.50 per share effective one year from the date of
the transaction if the market price of the Teledata stock is less than $2.50 per
share. SecurFone, Inc. assets include certain cellular service resale
agreements, the Company's Miami customer service center, rights to the
BUY-THE-MINUTE-TM- ("BTM") product and selected distribution channels. The asset
sale improved the Company's balance
- --------------------------------------------------------------------------------
Page 15
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
sheet and was consistent with the Company's new business objective of pursuing
opportunities in the Internet and electronic commerce markets.
On May 7, 1999, the Company executed an agreement to acquire all
outstanding common stock of IXATA, Inc. ("IXATA.COM"), a privately held provider
of Internet-based information and electronic commerce services targeting the
travel industry. The acquisition was finalized on July 1, 1999 and is consistent
with the Company's new business objectives. The Company is now operating
IXATA.COM as a wholly-owned subsidiary and plans to significantly expand
IXATA.COM's operations to offer new enhanced information services in the travel
market, targeting existing and new corporate clients.
By closing the IXATA.COM acquisition, the Company has established itself as
a provider of Internet-based, electronic commerce services provider in rapidly
growing market for travel information services, serving an expanding base of
more than twenty major Fortune 500 firms and other organizations. IXATA.COM's
principal service, RFP Express, integrates a user-friendly, Internet-based
interface with a sophisticated data-warehousing system, interactive telephone
and fax technology to deliver automated solutions for creating, sending,
receiving and managing the preferred lodging programs request for proposal
process in the hospitality services market ("RFP process"), typically involving
hundreds or, in some cases, thousands of properties worldwide. By automating the
users' RFP business process, and also providing user-friendly Internet access to
a sophisticated data warehousing system, RFP Express, provides dramatic cost
savings to users, typically 70% or more compared to costs for manual processes.
Pricing for RFP Express includes an annual subscription fee and transaction fees
for each RFP handled. The Internet-based, electronic commerce and operational
platforms developed to support the RFP Express offering can be used to address
similar needs in other vertical markets.
Subsequent to the sale of the prepaid cellular assets to Teledata, the
Company had planned to continue to offer prepaid wireless services, focusing on
higher margin opportunities, primarily through resale. Given the opportunities
available through IXATA.COM and the associated resources required, the Company
has discontinued its prepaid cellular operations. The discontinuing of
operations was consistent with the Company's planned strategy of refocusing its
business objectives to pursue new e-commerce and Internet-based business
opportunities to create significant shareholder value.
The Company's principal executive offices are located at 8080 Dagget
Street, Suite 220, San Diego, California 92111, and its telephone number is
(888) PRE-4PAY.
THE COMPANY'S BUSINESS CASE FOR NEW ELECTRONIC COMMERCE AND INTERNET BUSINESS
DIRECTIONS
Since inception, the Company has primarily pursued opportunities in the
prepaid wireless services market. The Company developed several unique products
to address the prepaid wireless services market and had achieved some success in
1998. However, the emergence of new competition, industry price reductions and
other margin pressures in the prepaid wireless services market suggested that
significant additional investment would be required to achieve the business
scale and required to create significant shareholder value.
Recognizing the explosive growth of the Internet, and the long term
prospects for integrating new wireless and Internet-based services, in late 1998
the Company established a new business objective to pursue new opportunities in
the Internet and electronic commerce markets. In 1998, the consumer segment of
electronic commerce consumer retailing revenues totaled $7.8 billion, with
business-to-business e-commerce service revenues estimated at $43 billion,
according to a recent study by Forrester Research, a leading information
industry consulting firm. By the year 2003, business-to-business e-commerce is
expected to increase ten-fold, to $1.3 trillion, representing about 9% of all
projected US trade in the year 2003. The recently-closed acquisition of
IXATA.COM is the Company's initial step in entering the market for
business-to-business, Internet-based electronic commerce services, which
management believes is the optimum strategy to deliver substantial value to the
Company's shareholders.
Another key element in SecurFone's new growth strategy is to focus on next
generation, "pro-active" electronic commerce solutions which employ e-commerce
solutions to address labor intensive processes, rather than to solely displace
paper-based solutions. Management believes such pro-active e-commerce solutions,
which go well beyond
- --------------------------------------------------------------------------------
Page 16
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
today's basic electronic cataloging, web portals and web-based ordering
services, will change users' business processes, create significant operating
efficiencies and dramatically reduce users' costs. More importantly, management
believes such pro-active e-commerce services will play a key role in the future
market for business-to-business e-commerce services described above. IXATA.COM's
RFP Express Service represents a pro-active e-commerce service which, in
management's view, is ideally positioned to meet the needs of the travel
services market. IXATA.COM's expanding client base of more than 20 major firms,
demonstrate strong, growing market acceptance for the Company's e-commerce
services.
The Company is now expanding its management team and plans to secure new
financing to support both expansion of the IXATA.COM revenue base, as well as
development of new enhancements and related Internet-based services targeting
the travel and hospitality sectors.
While the outlook for Internet-based, electronic commerce services is
impressive, there can be no assurances that the Company will secure the
additional investment capital needed to succeed in this highly competitive,
rapidly changing and technology driven market, nor are there any assurances that
the Company's initial acquisition of IXATA.COM will be successful. Investors
should carefully review the risk factors described in this document and other
documents filed by the Company with the Securities and Exchange Commission. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Forward Looking Statements."
ADDITIONAL ISSUANCE OF SECURITIES
For rendering brokering services and as a part of the transaction to
purchase IXATA.COM, the Company agreed to pay Global One, Inc. ("Global")
600,000 shares of common stock of the Company. Global is an international
business corporation in Nevis, British Virgin Islands. The Company intends to
issue the shares to Global in the fourth quarter of 1999.
In 1999, agreement was secured from Kohrman Jackson & Krantz P.L.L.
("KJK"), the Company's legal counsel, to convert existing debt to unregistered
shares of SecurFone common stock. On October 19, 1999, KJK agreed to receive
50,000 unregistered shares of the Company's common stock to eliminate total
debts of $50,000. The Company intends to issue the shares to KJK in the fourth
quarter of 1999.
In November of 1999, the Company offered equity investments to private
parties. As of December 9, 1999, the Company had sold 1,053,473 shares of its
unregistered common stock for $0.85 a share in connection with the offering.
Proceeds to the Company were $842,778 after the deduction of Scott &
Stringfellow, Inc.'s ("S&S") placement agent fee of $0.05 per share. The
purchasers in the offering were granted the right in certain instances to
include their shares in future offerings of registered stock by the Company.
For rendering investment banking services, the Company agreed to issue
643,553 warrants to S&S for the price of $0.01 per warrant. These warrants
expire in October of 2004. The exercise price of the warrants is $1.687 per
warrant. The exercise of these warrants are subject to vesting covenants,
currently not met.
RESULTS OF OPERATIONS:
FIRST QUARTER OF 1999 COMPARED TO FIRST QUARTER OF 1998
REVENUES
The Company only began full-scale operations in the first quarter of 1998;
accordingly, a detailed comparison of revenues and expenses between the first
quarter of 1999 and the first quarter of 1998 is not meaningful. Prepaid
cellular revenues for the first quarter of 1999 decreased to $22,642 from
$158,104 in the first quarter of 1998. The decrease was due to increased
competition for and technical obsolescence of SFA Local Network Solution
("SFN"), delayed market roll-out of the Buy-The-Minute-TM- ("BTM"), and the
Company's inability to adequately fund major national marketing programs.
- --------------------------------------------------------------------------------
Page 17
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
COST OF GOODS SOLD
Total cost of goods sold for the first quarter of 1999 decreased to $55,809
from $98,065 in the first quarter of 1998 primarily due to the reduced volume of
SFN sales and the Company's increased diligence on managing the fixed telephony
charges associated with the service offerings.
GROSS PROFIT/MARGIN
Gross profit for the first quarter of 1999 decreased to a loss of $33,167
compared with a profit of $60,039 in the first quarter of 1998. The gross profit
margin for the first quarter of 1999 was negative because of the increase in the
fixed portion of the cost of goods sold caused by reduced sales volume. The
Company opens certain markets and immediately incurs activation and access fees
for lines ordered in those markets. In addition given the time delay in ordering
a new line from an underlying carrier and when the order is fulfilled, the
Company must maintain an inventory of available lines for potential customers in
order to prosecute the business. As a result, the Company is subject to cost of
goods sold charges before any sales have been completed and subsequent to when
any customer ceases the use of the Company's services.
OPERATING EXPENSES
Selling, general and administrative expenses decreased to $301,515 in the
first quarter of 1999 from $665,113 in the first quarter of 1998. Due to a
reduction of overall staff, wages and associated taxes decreased in the first
quarter of 1999 to $164,654 from $200,593 in the first quarter of 1998. In
addition, the demand for services and increase cost control mechanisms put in
place by the Company regarding the Company's network, software, routing and
carrier interface technology decreased network expenses in the first quarter of
1999 to $20,411 from $107,626 in the first quarter of 1998. Legal and
professional fees decreased to $52,474 in the first quarter of 1999 from
$112,176 in the first quarter of 1998 due to the Company's decreased need for
assistance in technological developments, new product development, and Public
Utilities Commission requirements. In addition, the Company recorded
amortization and depreciation expenses of $19,756 in the first quarter of 1999
versus $29,623 in the first quarter of 1998.
Loss from operations in the first quarter of 1999 decreased to $334,682
from $2,225,074 in the first quarter of 1998 due to decreased costs associated
with stock based compensation. The net loss in the first quarter of 1999 was
increased by $101,126 for interest related expenses ad decreased by a $43,451
extraordinary gain on debt extinguishment which resulted in a comprehensive loss
of $393,957 or $0.06 per share in the first quarter of 1999.
ROYALTY REVENUE
The Company previously licensed, in a limited number of instances, certain
distribution rights in various markets for a license fee. Royalty revenue from
the sale of license rights was $0 in the first quarter of 1999 compared to
$100,000 in the first quarter of 1998. The Company does not anticipate any 1999
revenues to be derived from the sale of licenses. Due to the potential impact of
exclusive distribution rights on the Company's future marketing options, the
Company does not anticipate, at this time, offering similar licenses in the
future.
OTHER EXPENSES
Interest expense increased to $101,126 in the first quarter of 1999 from
$27,806 in the first quarter of 1998. The increase was primarily due to 35,000
shares of the Company's stock that were issued as compensation to investors who
renewed and extended letters of credit to April 1999 on behalf of the Company.
The issuance of the shares resulted in an additional accounting cost entry of
$35,000 in the first quarter of 1999. The letters of credit are posted with the
Company's underlying telephony service providers for the purpose of provisioning
service to initial roll-out markets. Additional interest expense has been
incurred as a result of $2,000,983 that was loaned to the Company by private
investors as of March 31, 1999.
- --------------------------------------------------------------------------------
Page 18
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating and net losses as a result
of the development and operation of its service platform and supporting
networks. The Company expected that such losses would continue to increase as
the Company focused on the development, construction and expansion of its
service platform and underlying networks and expands its customer base. Cash
provided by operations would not be sufficient to fund the expansion of the
product offerings and resultant subscriber base. The Company is continually
reviewing various sources of additional financing to fund its growth. As of
March 31, 1999, the Company had received advances in the amount of $2,000,983
from private investors.
The Company is required by underlying wireless carriers to post irrevocable
letters of credit to secure the purchase of airtime. Prompt payment history, as
well as overall financial condition will also effect each carrier's decision to
stabilize, increase or eliminate these financial guarantees. The Company has an
agreement with two investors that may obtain letters of credit of up to $1.0
million that are secured by their personal assets (the "LC Agreement"). These
investors have renewed the LC Agreement through April 1, 1999. As compensation
for their initial agreement to provide letters of credit, the Company issued
warrants to these investors to purchase a total of 225,000 shares of common
stock (the "LC Warrants"). In connection with the renewal of the LC Agreement,
the Company issued a total of 35,000 additional shares of common stock to these
investors. An amount of $35,000 was recorded as interest expense in the first
quarter of 1999 for the issuance of the shares.
At March 31, 1999, the Company had cash and cash equivalents of $5,869. In
addition, the Company had accounts receivable totaling $8,853 from the sale of
the Company's switch-based debit cellular product. Net cash used by operating
activities was $349,144 in the first quarter of 1999 compared to $328,700 in the
first quarter of 1998. Net cash used in investing activities in the first
quarter of 1999 was $157 used to purchase equipment as compared with $5,756 in
the first quarter of 1998. Net cash provided by financing activities in the
first quarter of 1999 totaled $353,638 which consisted primarily of $362,218 in
proceeds from notes payable to the Company from private investors as compared
with $336,615 in the first quarter of 1998 which consisted primarily of proceeds
from advances payable of $327,000.
On February 4, 1999, the Company executed a Purchase Agreement with All
Points Telecom, Inc. ("APT"), a privately-held telecommunications firm, whereby
APT would acquire a controlling interest in the Company through the purchase of
4.5 million shares of the Company's common stock from Montpilier Holdings, Inc.
("Montpilier"). Montpilier is the principal stockholder of the Company and is
owned indirectly by Michael M. Grand, a Director of the Company. Under the terms
of the agreement, APT would also loan up to $1.8 million at the time of closing
to the Company. The proceeds of this loan would be used to repay existing debt
and provide additional working capital to meet the Company's growth needs. On
April 12, 1999, the Company rejected a modified APT proposal, the Company and
APT terminated discussions and the Company elected to pursue other alternatives.
On October 12, 1999, the Company entered into a relationship with Scott &
Stringfellow, Inc. ("S&S"), an investment banker, to act as the exclusive
financial advisor to the Company, in connection with the exploration of
potential alternative strategic transactions, including without limitation one
or more private equity offerings, mergers and acquisitions and a public equity
offering.
YEAR 2000
The Company utilizes two different computer systems. The Internet-based
software system used in automation of preferred lodging programs proposal
process in the hospitality services market consists of three components,
presently the SL server, the Web server and the Front End database Access
software. These software products are Microsoft products, and according to the
vendor the products are presently Year 2000 compliant. The Company's
administrative computer network utilizes accounting, database, and computational
software that are all Year 2000 compliant according to management's recent
discussions with its vendors. As a result, management does not anticipate any
material adverse effect to the operations of the Company with respect to the
Year 2000 problem.
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Page 19
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
While the Year 2000 considerations are not expected to materially impact
the Company's internal operations, they may have an effect on some of the
Company's customers and suppliers, and thus indirectly affect the Company.
Generally, the Company requires its key vendors and suppliers to certify they
are Year 2000 compliant. The Company has not determined the exact costs and
expenses it expects to incur relating to preparation of its systems for the Year
2000. Based on current assessments and compliance plans in process, the Company
does not expect that the Year 2000 issue, including the cost of making its
critical systems and applications compliant, will have a material effect on its
business operations, or its financial position or results of operations.
However, if appropriate modifications are required by the Company's key
suppliers and vendors, and if those modifications are not made on a timely
basis, the Company's actual costs or timing for Year 2000 compliance may differ
materially from current estimates. There can be no assurance that the systems of
other parties upon which the Company relies will be converted on a timely basis.
It is not possible to quantify the aggregate cost to the Company with respect to
customers and suppliers with Year 2000 problems, although the Company does not
anticipate it will have a material adverse impact on its business.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
expansion into new markets, growth in existing markets, and the Company's
ability to attract new sources of financing, are forward-looking statements that
involve risks and uncertainties. These risks and uncertainties include, but are
not limited to:
- - THE COMPANY HAS A SHORT OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT
DECISION. The Company established a new strategic objective of refocusing
the Company's mission to pursue Internet-related and e-commerce
opportunities in the travel and hospitality service markets in late 1998.
As a result, its business plan is currently in the early stage and,
accordingly, the Company has a limited operating history on which to base
an evaluation of its business and prospects. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development. To address
these risks, the Company must, among other things, attract a number of
major corporate clients/customers and strategic alliance partners,
implement and successfully execute its marketing and sales strategy, and
successfully recruit and motivate qualified sales and technical personnel.
There can be no assurance that the Company will be successful in addressing
such risks, and the failure to do so could have a material adverse effect
on the Company. The likelihood of success of the Company must be considered
in light of the problems, expenses, complications and delays frequently
encountered in connection with the development of an early stage business.
It is impossible to predict the degree of success the Company will have in
achieving its objectives.
- - THE COMPANY REQUIRES SIGNIFICANT ADDITIONAL CAPITAL, WHICH IT MAY NOT BE
ABLE TO OBTAIN. As the Company continues to implement its business, present
sources of financing will not be adequate to support the Company's
increased cash needs. Furthermore, the Company's entry into new Internet
and electronic commerce business areas will create additional demands for
investment capital. The Company may not be able to obtain future equity or
debt financing on satisfactory terms or at all. If the Company fails to
obtain necessary short-term financing, it will not be able to continue
operations. Long-term liquidity will depend on the Company's ability to
obtain long-term financing and attain profitable operations. The Company's
auditors issued an opinion with its most recent audit of the Company's
financial statements raising doubt about the Company's ability to continue
as a going concern if it does not obtain additional debt or equity
financing.
- - IF THE COMPANY IS UNABLE TO SUCCESSFULLY INTEGRATE IXATA.COM, ITS FINANCIAL
RESULTS WILL SUFFER. The Company completed its acquisition of IXATA.COM on
July 1, 1999. Its future profitability will depend heavily on its ability
to integrate the management of its business with IXATA.COM. Failure to
successfully integrate the companies may cause significant operating
inefficiencies and adversely affect profitability. To successfully
integrate the companies, the Company must, among other things, install and
standardize adequate operational, financial and control systems.
- --------------------------------------------------------------------------------
Page 20
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
Although the Company has no definitive plans to acquire any business in the
near future, if it does acquire additional companies, it will face business
integration risks similar to those described above. In addition, during the
beginning stage of development and operation, the Company may encounter
expenses and difficulties that it may not expect or are beyond its control.
As a result, it may not be able to achieve or maintain profitability.
- - THE COMPANY'S FAILURE TO PROTECT OR MAINTAIN ITS INTELLECTUAL PROPERTY
RIGHTS COULD PLACE IT AT A COMPETITIVE DISADVANTAGE AND RESULT IN LOSS OF
REVENUE AND HIGHER EXPENSES. The Company's performance and ability to
compete are dependent to a significant degree on its proprietary electronic
commerce system and services. The steps the Company has taken to protect
its proprietary intellectual property rights may not prevent or deter
someone else from using or claiming rights to its intellectual property.
Third party infringement or misappropriation of trade secrets, copyrights,
trademarks or other proprietary information could seriously harm the
Company's business. The Company also cannot assure that it will be able to
prevent the unauthorized disclosure or use of its proprietary knowledge,
practices and procedures if its senior managers or other key personnel
leave it. In addition, although the Company believes that its proprietary
rights do not infringe on the intellectual property rights of others, other
parties may claim that it has violated their intellectual property rights.
These claims, even if not true, could result in significant legal and other
costs and may distract management.
- - THE COMPANY'S BUSINESS PROSPECTS DEPEND ON DEMAND FOR AND MARKET ACCEPTANCE
OF THE INTERNET. The Company is currently dependent on the Internet as an
access and transmission medium to provide its services. Although the
Company believes that the acceptability and usability of the Internet will
increase over time, any increase in the rates charged by Internet service
providers resulting in a decreased usage of the Internet or decreased use
of the Internet for electronic commerce transactions, would have a
materially adverse effect on the Company's operating margins. Failure to
promote Internet access as the preferred means of accessing the Company's
service could also have a materially adverse effect on the Company,
including the possibility that the Company may need to significantly
curtail or cease its Internet based e-commerce operations or to develop its
own capabilities at a cost in excess of the Company's ability to fund such
undertakings.
- - IF THE COMPANY'S MARKET DOES NOT GROW AS EXPECTED, ITS REVENUES WILL BE
BELOW ITS EXPECTATIONS AND ITS BUSINESS AND FINANCIAL RESULTS WILL SUFFER.
The Company is engaging in a developing business with an unproven market.
Accordingly, it cannot accurately estimate the size of its market or the
potential demand for its services. If its customer base does not expand or
if there is not widespread acceptance of its products and services, its
business and prospects will be harmed. The Company believes that its
potential to grow and increase its market acceptance depends principally on
the following factors, some of which are beyond its control:
(a) the effectiveness of its marketing strategy and efforts;
(b) its product and service quality;
(c) its ability to provide timely, effective customer support;
(d) its distribution and pricing strategies as compared to its
competitors;
(e) its industry reputation; and
(f) general economic conditions.
- - ANY FAILURE OF THE COMPANY'S INTERNET AND E-COMMERCE INFRASTRUCTURE COULD
LEAD TO SIGNIFICANT COSTS AND DISRUPTIONS WHICH COULD REDUCE REVENUES AND
HARM BUSINESS AND FINANCIAL RESULTS. The Company's success, in particular
its ability to automate the RFP process successfully, largely depends on
the efficient and uninterrupted operation of its computer and
communications hardware and software systems. The Company's systems and
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events.
The Company presently has very limited redundant systems. It does not have
a formal disaster recovery plan and carries no business interruption
insurance to compensate it for losses that may occur. Temporary or
permanent loss of data or systems through casualty or operating malfunction
could have a materially adverse effect on the Company's business.
- --------------------------------------------------------------------------------
Page 21
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
- - THE COMPANY COULD LOSE CUSTOMERS AND EXPOSE ITSELF TO LIABILITY IF BREACHES
OF ITS NETWORK SECURITY DISRUPT SERVICE TO ITS CUSTOMERS OR JEOPARDIZE THE
SECURITY OF CONFIDENTIAL INFORMATION STORED IN ITS COMPUTER SYSTEMS.
Despite the implementation of network security measures, the Company's
network infrastructure is vulnerable to computer viruses, break-ins and
similar disruptive problems caused by its customers or Internet users. Any
of these acts could lead to interruptions, delays or cessation in service
to the Company's customers and subscribers. Furthermore, such inappropriate
use of the network by third parties could also potentially jeopardize the
security of confidential information stored in the computer systems and the
Company's customers' computer systems, which may result in liability to
existing customers and may also deter potential customers. Any security
measures the Company implements may be circumvented in the future. The
costs and resources required to eliminate computer viruses and alleviate
other security problems may result in interruptions or delays to the
Company's customers that could cause harm to the Company's reputation as
well as its business and financial results.
- - RAPID GROWTH IN THE COMPANY'S BUSINESS COULD STRAIN ITS RESOURCES AND HARM
ITS BUSINESS AND FINANCIAL RESULTS. The planned expansion of the Company's
operations will place a significant strain on its management, financial
controls, operations systems, personnel and other resources. The Company
expects that its customers increasingly will demand additional information,
reports and services related to the services and products the Company
currently provides. If the Company is successful in implementing its
marketing strategy, it also expects the demands on its network
infrastructure and technical support resources to grow rapidly, and it may
experience difficulties responding to customer demand for its services and
providing technical support in accordance with its customers' expectations.
The Company may not be able to keep pace with any growth, successfully
implement and maintain its operational and financial systems or
successfully obtain, integrate and utilize the employees, facilities,
third-party vendors and equipment, or management, operational and financial
resources necessary to manage a developing and expanding business in an
evolving industry. If the Company is unable to manage growth effectively,
it may lose customers or fail to attract new customers and its business and
financial results will suffer.
- - THE COMPANY MAY NOT BE ABLE TO COMPETE IN ITS MARKET SINCE THIS MARKET IS
HIGHLY COMPETITIVE. The Internet-based electronic commerce market has
become increasingly competitive due to the entry of large, well-financed
service providers into the market. Other potential competitors in the
market for Internet-based electronic commerce services for the travel and
hospitality industry may include companies with substantially greater
financial and marketing resources than those of the Company. No assurance
can be given that competitors possessing greater financial resources than
the Company will not be able to develop a product which is more appealing
or offer similar products at lower prices than those of the Company. The
Company may not be able to operate successfully in this competitive
environment. Direct competitors today include JBH and Lanyon, among others
seeking to enter the market for e-commerce services targeting the travel
and hospitality sectors. Other potential competitors, such as Ariba, Inc.,
have existing, well-established e-commerce platforms and have also
indicated an interest in pursuing IXATA.COM's target market. While to date
the market reaction to the Company's service has been positive vis-a-vis
competitive services, there is no assurance this will continue in the
future.
- - THE COMPANY DEPENDS ON THE SERVICES OF SENIOR MANAGEMENT AND OTHER KEY
PERSONNEL AND THE ABILITY TO HIRE, TRAIN AND RETAIN SKILLED EMPLOYEES. The
success of the Company will be dependent on the skill and experience of
certain key employees. The Company believes that the loss of Paul B.
Silverman, CEO, or Andrew H. Kent, CFO, could disrupt or delay the
Company's business or would otherwise have a material adverse effect the
Company's business. The Company's future success also depends on its
ability to identify, attract, hire, retain and motivate other well
qualified managerial, sales and marketing personnel. There can be no
assurance that these professionals will be available in the market or that
the Company will be able to meet their compensation requirements.
- - RISKS ASSOCIATED WITH OPERATING IN INTERNATIONAL MARKETS COULD RESTRICT THE
COMPANY'S ABILITY TO EXPAND GLOBALLY AND HARM ITS BUSINESS AND PROSPECTS.
The Company markets and sells its services and products in the United
States and internationally. The Company's failure to manage its
international operations effectively
- --------------------------------------------------------------------------------
Page 22
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
could limit the future growth of its business. There are certain risks
inherent in conducting the Company's business internationally, such as:
(a) changes in international regulatory requirements could restrict
the Company's ability to deliver services to its international
customers;
(b) differing technology standards across countries that may impede
the Company's ability to integrate its product offerings across
international borders;
(c) difficulties collecting accounts receivable in foreign
jurisdictions;
(d) political and economic instability could lead to appropriation of
the Company's physical assets, its ability to deliver its
services to customers and harming its financial results;
(e) protectionist laws and business practices favoring local
competitors; and
(f) potentially adverse tax consequences due to unfavorable changes
in tax laws.
- - GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD LIMIT OUR BUSINESS OR
SLOW OUR GROWTH. Although Internet-based electronic commerce is not
currently subject to government regulation, it is under increased scrutiny
by regulatory agencies and may undergo rapid and drastic regulatory
changes. There can be no assurances that one or more services currently
offered by the Company will not be negatively impacted by newly-created or
interpreted regulations
- - YEAR 2000 COMPUTER COMPLICATIONS COULD DISRUPT THE COMPANY'S OPERATIONS AND
HARM ITS BUSINESS. Many currently installed computer systems are not able
to distinguish 21st century dates from 20th century dates. As a result,
computer systems and software that fail to recognize the proper date at the
end of the current year may suffer major system failures or
miscalculations. The Company's inability to correct a significant Year 2000
problem, if one exists, could result in an interruption in, or a failure
of, certain of its normal business activities and operations, harming its
business and financial results. While the Company requires its key vendors
and suppliers to certify that they are Year 2000 compliant, there can be no
assurance that the systems of other parties upon which the Company relies
will be converted on a timely basis. Further, while the Company does not
believe that Year 2000 problems will materially impact the Company's
internal operations or cause the Company to incur material costs to modify
systems, unforeseen Year 2000 problems could occur causing significant
unanticipated expenses.
- - THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS WHICH MAY
CAUSE VOLATILITY OR A DECLINE IN THE PRICE OF ITS COMMON STOCK. The Company
may experience significant fluctuations in its future quarterly operating
results due to a variety of factors, many of which are outside the
Company's control. Such fluctuations may cause the price of its common
stock to fall. Factors that may adversely affect the Company's quarterly
operating results include, without limitation:
(a) the Company's ability to retain existing customers, attract new
customers at a steady rate and maintain customer satisfaction;
(b) the mix of products and services sold by the Company;
(c) the announcement or introduction of new products and services by
the Company and its competitors;
(d) price competition in the industry;
(e) the amount and timing of operating costs and capital expenditures
relating to any expansion of the Company's business, operations
and infrastructure;
(f) governmental regulation; and
(g) general economic conditions and economic conditions specific to
the travel and hospitality industry.
Further, stock prices and trading volumes for many Internet companies
fluctuate widely for a number of reasons, including some reasons which may
be unrelated to their businesses or results of operations. This market
volatility, as well as general domestic or international economic, market
and political conditions, could materially adversely affect the price of
the Company's stock without regard to the Company's operating performance.
In addition, the Company's operating results may be below the expectations
of public market analysts and investors. If this were to occur, the market
price of the stock would likely significantly decrease.
- --------------------------------------------------------------------------------
Page 23
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
- - THE COMPANY'S EXECUTIVE OFFICERS, DIRECTORS, AND PARTIES RELATED TO THEM,
IN THE AGGREGATE, WILL CONTROL 54% OF THE COMPANY'S COMMON STOCK AND MAY
HAVE THE ABILITY TO CONTROL MATTERS REQUIRING STOCKHOLDER APPROVAL. The
Company's executive officers, directors and parties related to them own a
large enough stake in the Company to determine matters presented to
stockholders, the approval of significant corporate transactions, such as
any merger, consolidation or sale of all or substantially all of the
Company's assets, and the control of the management and affairs of the
Company. In addition, certain executive officers, directors and other
shareholders, representing 74% of the Company's outstanding common stock,
have entered into a Voting Agreement in which the parties agree to vote
their shares for certain directors. As a result, these stockholders may
have the ability to control the election and removal of directors.
Accordingly, such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company,
impede a merger, consolidation, takeover or other business combination
involving the Company or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company,
which in turn could have an adverse effect on the market price of the
Company's common stock.
- - THE COMPANY'S COMMON STOCK MAY BE DELISTED FROM THE NASDAQ OVER-THE-COUNTER
BULLETIN BOARD SERVICE. Because of recent changes in the Nasdaq listing
rules, the Company's common stock could be delisted from trading on the
Nasdaq Over-the-Counter Bulletin Board Service, unless the Company makes
required filings with the Securities and Exchange Commission. If the
Company's stock were to be delisted, there would be no public market for
the Common Stock and stockholders would have difficulty liquidating their
investment. Although the Company intends to make the required filings with
the Securities and Exchange Commission and retain its stock listing on the
Nasdaq Bulletin Board, there can be no assurance that it will be able to do
so.
These and other risks described in this Quarterly Report must be considered by
any investor or potential investor in the Company.
- --------------------------------------------------------------------------------
Page 24
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is involved in legal matters which are
incidental to its operations. In the opinion of management, the ultimate
resolution of these matters has not had a material adverse effect on the
Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No defaults upon senior securities occurred during the first quarter of
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the first quarter of 1999.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits being filed with this Quarterly Report:
(27) Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the first
quarter of 1999.
- --------------------------------------------------------------------------------
Page 25
<PAGE>
SECURFONE AMERICA, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1999
- -------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SecurFone America, Inc.
Date: December 13, 1999 /s/ Paul B. Silverman
---------------------
By Paul B. Silverman, Chief Executive Officer
- --------------------------------------------------------------------------------
Page 26
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