UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from ________ to ________
Commission file number 001-13999
HITCOM CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 87-0389677
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
700 North Second Street, Third Floor
St. Louis, Missouri 63102
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code (314) 231-1000
Check whether the 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 ( X ) No ( )
State the number of shares outstanding of each of the issuer's common equity,
as of the latest practicable date: As of May 7, 1998 -
Class Shares Outstanding
Common Stock 7,944,042
Traditional Small Business Disclosure Format (check one):
Yes ( ) No ( X )
HITCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31,
1998
Current assets:
Cash and cash equivalents $182,896
Accounts receivable-net of allowance
for doubtful accounts of $8,135 109,275
Prepaid expenses and other 1,298
Total current assets 293,469
Property and equipment-net 332,615
Other assets 45,472
Total $671,556
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31,
1998
Current liabilities:
Revolving line of credit $ 99,951
Current portion of long-term obligations 60,455
Accounts payable and accrued expenses 702,860
Deferred revenue 458,866
Total current liabilities 1,322,132
Long-term obligations, less current portion 11,858
Commitments and contingencies
Minority interest 193,114
Stockholders' equity (deficit):
Preferred stock, $.001 par value-5,000,000
authorized; 1,122,027 issued and
outstanding 1,122
Common stock, $.004 par value-12,500,000
authorized; 7,951,292 issued; 7,944,042
outstanding 31,776
Additional paid in capital (1,192,440)
Retained earnings 323,790
Treasury stock-at cost (19,796)
Total stockholders' equity (deficit) (855,548)
Total $671,556
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the For the
Three-month Three-month
Period Ended Period Ended
March 31, March 31,
1998 1997
Net revenues $ 797,178 $ 835,790
Costs and expenses:
Cost of sales 406,770 528,834
Selling, general and administrative 425,372 175,349
Total costs and expenses 832,142 704,183
Operating income (loss) (34,964) 131,607
Other (income) expense-net (13,252) (4,475)
Income (loss) before income tax
expense and minority interest (21,712) 136,082
Income tax expense -- --
Income (loss) before minority interest (21,712) 136,082
Minority interest 27,007 --
Net income (loss) ($48,719) $136,082
See accompanying notes to financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the For the
Three-month Three-month
Period Ended Period Ended
March 31, March 31,
1998 1997
Cash flows from operating activities:
Net income (loss) ($48,719) $136,082
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 21,650 13,107
Minority interest in earnings
of subsidiaries 27,007 --
Common stock issued for services
rendered 20,156 --
Changes in assets and liabilities:
Accounts receivable-net 791 (210,866)
Prepaid expenses and other 4,864 40,090
Other assets 7,001 --
Accounts payable and accrued
expenses 23,962 404,490
Deferred revenue 29,504 82,191
Net cash provided by operating
activities 86,216 465,094
Cash flows used in investing activities:
Purchases of property and equipment (17,298) (33,053)
Cash flows used in financing activities:
Payments on debt obligations (49) --
Payments on capital leases (2,111) --
Costs associated with equity placement (72,662) --
Shareholder distributions -- (94,424)
Net cash used in financing
activities (74,822) (94,424)
Net increase (decrease) in cash and
cash equivalents (5,904) 337,617
Cash and cash equivalents:
Beginning of period 188,800 426,589
End of period $182,896 $764,206
Supplemental cash flow disclosures:
Cash paid for interest during the period $ 4,182 $ 0
Cash paid for taxes during the period $ 0 $ 0
See accompanying notes to financial statements.
FORM 10-QSB - PART I
ITEM 1 - Financial Statements (continued)
HitCom Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1998
1. Basis of Presentation
The unaudited consolidated balance sheet of HitCom Corporation and
Subsidiaries (the "Company") as of March 31, 1998, and the related
consolidated statements of earnings and cash flows for the three-month
period ended March 31, 1998 and 1997 have been prepared in accordance with
the instructions to Form 10-QSB. Accordingly, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These unaudited financial statements should be read in conjunction with the
audited financial statements and notes thereto for the nine-month period
ended December 31, 1997.
Effective April 1, 1997, the Company acquired 80% of the outstanding stock
of One Plus Marketing, Inc. (the "Acquisition") for 5,837,503 shares of the
Company's common stock. The Acquisition was accounted for as a reverse
acquisition in accordance with APB No. 16 "Business Combinations." As such,
One Plus Marketing, Inc. ("One Plus") is considered the "accounting
acquiror." The historical financial statements prior to April 1, 1997, are
those of One Plus Marketing, Inc.
Prior to April 1, 1997, One Plus was an S Corporation for tax purposes under
provisions of the Internal Revenue Code which provide that, in lieu of
corporate income taxes, the stockholder is taxed for the company's taxable
income. Therefore, no provision or liability for federal and state
income taxes is reflected in the financial data for periods prior to
April 1, 1997.
In the opinion of the management of the Company, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
the financial statements have been included therein. The results of this
interim period are not necessarily indicative of results for the entire year.
2. Earnings per Share
The Company has implemented the provisions of SFAS No. 128, "Earnings per
Share." SFAS No. 128 simplifies the computation of earnings per share
("EPS") by replacing the presentation of primary EPS with a presentation of
basic EPS. Basic EPS is calculated by dividing income or loss available to
common stockholders by the weighted average number of common shares
outstanding during the period. Options, warrants, and other potentially
dilutive securities are excluded from the calculation of basic EPS. Diluted
EPS includes the options, warrants and other potentially dilutive securities
that are excluded from basic EPS.
The details of earnings (loss) per share calculations for the quarter ending
March 31, 1998, and 1997 are as follows:
Income Per Share
(loss) Shares Amount
1998
Earnings (loss) per share of
common stock - basic ($48,719) 7,944,042 ($0.01)
Stock options and warrants -- n/a n/a
Earnings (loss) per share of
common stock - on a fully diluted basis ($48,719) 7,944,042 ($0.01)
1997
Earnings per share of
common stock - basic $136,082 100 $1,360.82
Stock options and warrants -- -- --
Earnings per share of common stock - on
fully diluted basis $136,082 100 $1,360.82
3. Acquisition
On February 18, 1998, the Company announced the signing of a definitive
agreement to acquire 100% of the outstanding shares of Channel Telecom Inc.,
("Channel") headquartered in Toronto, Canada. Channel is the fourth largest
facility-based provider of prepaid calling cards in Canada. The transaction
had been approved by the Company's Board of Directors and ratified at the
Company's Annual Meeting of Shareholders.
Under the terms of the agreement, the Company will exchange approximately
3.8 million shares, adjusted for certain events, of Company common stock
and $175,000 in cash for all of Channel's outstanding shares. The effective
date of the transaction will be January 1, 1998. As of March 31, 1998, the
transaction was not consummated.
The following condensed financial summary reflects the pro forma effects of
the acquisition effective from January 1, 1998 as compared to the same
period for 1997 (amounts stated in US dollars):
March 31, March 31,
1998 1997
Current assets $ 476,314 $1,010,432
Current liabilities 1,760,087 1,096,151
Stockholder's equity (deficit) (814,647) 521,589
Total assets 1,150,410 1,617,740
Revenues 1,130,683 965,586
Cost of sales 604,732 623,531
Selling, general and administrative 537,642 211,744
Net income (loss) $ (25,446) $ 134,785
ITEM 2 - Management's Discussion and Analysis
Results of Operations
The Company principally derives its revenues from the sale of interactive
voice response/voice processing services to Direct Sales Organizations.
These customized voice-processing systems allow each member of a national or
international sales organization a method by which the response from a large
advertising campaign can be handled 24 hours a day and pertinent data
reported to their membership almost instantly. The Company generally
requires its customers to establish a minimum account balance prior to
receiving voice mail service. The Company recognizes revenues as services
are rendered. Account balances in excess of services rendered are recorded
as deferred revenue. Account balances without activity for 180 days are
treated as revenue.
Effective April 1, 1997, the Company acquired 80% of the outstanding stock
of One Plus Marketing, Inc. (the "Acquisition") for 5,837,503 shares of the
Company's common stock. The Acquisition was accounted for as a reverse
acquisition in accordance with APB No. 16 "Business Combinations." As such,
One Plus Marketing, Inc. is considered the "accounting acquiror." The
historical financial statements prior to April 1, 1997 are those of One Plus
Marketing, Inc.
Prior to April 1, 1997, One Plus was an S Corporation for tax purposes under
provisions of the Internal Revenue Code which provide that, in lieu of
corporate income taxes, the stockholder is taxed for the Company's taxable
income. Therefore, no provision or liability for federal and state
income taxes is reflected in the financial data for periods prior to April 1,
1997.
QUARTER ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
NET REVENUES. Net revenues decreased $38,612 or 5% from $835,790 for the
quarter ended March 31, 1997. Revenues are primarily generated from the
Company's interactive voice response products and services. The decrease in
revenue is attributable to the change in the Company's subscriber base. As
such, the Company is becoming less dependent on large direct sales
organizations to supply its subscriber base.
COST OF SALES. Cost of sales decreased $122,064 or 23% from $528,834 for
the quarter ended March 31, 1997. The cost of sales percentage to net
revenues decreased from 63% to 51%, thus gross profit margin increased
correspondingly. Cost of sales primarily represents the long distance
minutes purchased to service the interactive voice response products and
services. The Company purchases long distance minutes from a highly
competitive service market. In late fourth quarter 1997, the Company was
able to renegotiate its long distance per minute rate with its current
service provider. The Company expects its interactive voice response gross
profit percentage to increase in 1998 as a result of its affiliation with its
long distance service provider.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $250,023 or 143% from $175,349 for the quarter ended
March 31, 1997. The selling, general and administrative percentage to net
revenues increased to 53% from 21%. The primary reason for the increase is
attributable to the additional costs of administrative support functions to
enhance the management of the Company along with the costs associated with
becoming an SEC reporting public company.
OTHER EXPENSE (INCOME), NET. Other expense (income), net increased $8,777
from income of $4,475 for the quarter ended March 31, 1997. The primary
reason for the increase was attributable to the Company's ability to obtain
more favorable interest on investments held.
MINORITY INTEREST. Minority interest expense increased $27,007 from no
activity for the quarter ended March 31, 1997. Minority interest represents
a 20% ownership interest in the Company's subsidiary One Plus owned by the
major stockholder of the Company.
NET INCOME. As a result of the foregoing, net income for the quarter ended
March 31, 1997, decreased by $184,801 or 136% compared to the same period in
1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During the quarter ended March 31, 1998, the Company generated net cash
flows from operating activities of $86,216 as compared to $465,094 during
the comparable three-month period ended 1997. Effective with the "reverse
merger" acquisition of One Plus, the Company assumed an immediate increase
in accounts payable and accrued expenses of $1,150,960. Cash from operations
has been used to reduce these liabilities.
Cash Flows from Investing Activities
During the quarter ended March 31, 1998 and 1997, the Company used $17,298
and $33,053 for purchases of property and equipment related principally to
support the Company's interactive voice response operations and corporate
operations.
The Company's total budgeted capital expenditures, including acquisitions,
are currently anticipated to be approximately $1.5 million during 1998 in
connection with the purchase of strategic interactive voice response and
prepaid phone card operations, the minority interest of One Plus and
enhanced phone card computer system upgrades. The Company expects to fund
these expenditures through equity financing and bank borrowings. Although
management anticipates that the Company will continue to expand, there can
be no assurances that the Company's expansion plans will not be adversely
affected by competition, market conditions, or changes in laws or government
regulations affecting telecommunication businesses.
Cash Flows from Financing Activities
The Company maintains a $100,000 secured revolving credit arrangement with a
bank that bears interest at the bank's prime rate plus one percent (prime
was 8.5% at March 31, 1998) and expires on May 24, 1998. The Company has
pledged its assets as security for the existing indebtedness. At March 31,
1998, $99,951 of the credit arrangement available has been used by the
Company. The Company is currently reviewing its short and long-term debt
financing and expects to implement more favorable debt financing in the
second quarter of 1998.
During the first quarter 1998, the Company recognized $72,662 in equity
placement fees as it attempts to secure additional financing to support the
Company's expansion.
IMPACT ON INFLATION
Management believes that the Company's results of operations are not
dependent upon the levels of inflation.
FORM 10-QSB - PART II
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
On April 8, 1998, the Company held an adjourned meeting, originally scheduled
for March 28, 1998, of the annual stockholders' meeting. The stockholders
were asked to cast votes on three items. First, the ratification of the
acquisition of Channel Telecom Inc. Second, the proposed increase in
authorized common stock from 12,500,000 shares to 25,000,000 shares. Third,
the ratification of the proposed Board of Directors for the Company. The
proposed Board of Directors consisted of the following:
Name New Director Continuing Director
Rajan Arora X
Scott A. Beil X
Ronald K. Mann X
David B. Parks X
Jeffrey S. Shier X
6,842,403 shares were represented at the meeting. All 6,842,403 shares were
voted "for" each matter voted on as mentioned above and no shares were voted
"abstention" or "against" on any matter considered.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27.0 - Financial Data Schedule
B. Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HITCOM CORPORATION
(Registrant)
By: /s/ DAVID B. PARKS
David B. Parks
Executive Vice President,
Chief Financial Officer,
Corporate Secretary and Director
Date: May 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HitCom
Corporation's March 31, 1998 10-QSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 182,896 764,206
<SECURITIES> 0 0
<RECEIVABLES> 109,275 244,490
<ALLOWANCES> 8,135 5,743
<INVENTORY> 0 0
<CURRENT-ASSETS> 293,469 1,008,696
<PP&E> 474,742 289,559
<DEPRECIATION> 142,127 40,692
<TOTAL-ASSETS> 671,556 1,361,514
<CURRENT-LIABILITIES> 1,322,132 852,263
<BONDS> 148,951 0
0 0
1,122 0
<COMMON> 31,776 0
<OTHER-SE> (888,446) 509,251
<TOTAL-LIABILITY-AND-EQUITY> 671,556 1,361,514
<SALES> 797,178 835,790
<TOTAL-REVENUES> 797,178 835,790
<CGS> 406,770 528,834
<TOTAL-COSTS> 832,142 704,183
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 30,059 12,455
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (21,712) 136,082
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (21,712) 136,082
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (48,719) 136,082
<EPS-PRIMARY> (0.01) 1360.82
<EPS-DILUTED> (0.01) 1360.82
</TABLE>
