UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE 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.)
85 Scarsdale Road, Suite 202
Toronto, Ontario, Canada M3B 2R2
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code (416) 441-6720
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 July 31, 2000 -
Class Shares Outstanding
Common Stock 6,617,544
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [ X ]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
HITCOM CORPORATION
Condensed Consolidated Balance Sheet
June 30, 2000
(Unaudited, all amounts in US Dollars)
ASSETS
Current Assets:
Short-term deposits 50,000
Accounts receivable, net of allowance for 663,301
doubtful accounts of $110,152
Inventory 21,465
Other current assets 52,518
--------------------------------------------------------------------------------
Total current assets 787,284
--------------------------------------------------------------------------------
Property and equipment, net 237,551
Goodwill, net of amortization of $832,854 3,164,846
--------------------------------------------------------------------------------
$ 4,189,681
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 106,796
Accounts payable and accrued liabilities 1,934,125
Deferred revenue 381,162
Due to officers and directors 21,767
Current portion of obligations under capital lease 22,343
--------------------------------------------------------------------------------
Total current liabilities 2,466,193
--------------------------------------------------------------------------------
Long-term debt 513,000
Obligations under capital lease 49,657
--------------------------------------------------------------------------------
Total liabilities 3,028,850
Commitments and contingencies
Shareholders' equity
Convertible preferred stock $.001 par value, liquidation preference
of $0.80 per share ($818,398 aggregate liquidation preference),
convertible into 0.25 shares of common stock; 5,000,000 authorized;
1,022,998 issued and outstanding 1,022
Common stock $.004 par value, 25,000,000 authorized;
12,462,297 issued; and 6,617,544 outstanding 49,849
Additional paid in capital 5,021,047
Deficit (2,111,367)
Cumulative foreign currency translation adjustment (28,673)
Treasury stock - at cost; 5,844,753 shares of common stock (1,771,047)
--------------------------------------------------------------------------------
1,160,831
--------------------------------------------------------------------------------
$ 4,189,681
--------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements
--------------------------------------------------------------------------------
<PAGE>
HITCOM CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2000 1999 2000 1999
(All amounts in US Dollars) (All amounts in US Dollars)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net service revenues $1,102,164 $1,357,592 $2,987,020 $2,267,635
Cost of services 930,100 1,187,760 2,640,545 2,069,648
--------------------------------------------------------------------------------------------------------------
Gross margin 172,064 169,832 346,475 197,987
--------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 359,694 301,580 636,178 513,867
Amortization of goodwill 99,943 99,943 199,885 199,885
Depreciation of property and equipment 27,499 9,505 46,995 18,927
--------------------------------------------------------------------------------------------------------------
Total operating expenses 487,136 411,028 883,058 732,679
--------------------------------------------------------------------------------------------------------------
Operating loss (315,072) (241,196) (536,583) (534,692)
Net interest expense (11,577) (8,526) (22,415) (18,386)
--------------------------------------------------------------------------------------------------------------
Loss from continuing operations (326,649) (249,722) (558,998) (553,078)
Income (loss) from discontinued operations,
net of tax payable - (14,584) - 48,136
--------------------------------------------------------------------------------------------------------------
Net loss $ (326,649) $ (264,306) $ (558,998) $ (504,942)
--------------------------------------------------------------------------------------------------------------
Basic loss per share
Loss from continuing operations $ (0.05) $ (0.02) $ (0.08) $ (0.04)
Income from discontinued operations - - - -
--------------------------------------------------------------------------------------------------------------
Net loss $ (0.05) $ (0.02) $ (0.08) $ (0.04)
--------------------------------------------------------------------------------------------------------------
Weighted average shares - basic 6,607,756 12,360,133 6,588,343 12,308,613
Weighted average shares - diluted 6,607,756 12,360,133 6,588,343 12,308,613
--------------------------------------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements
--------------------------------------------------------------------------------------------------------------
</TABLE>
HITCOM CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2000 1999 2000 1999
(All amounts in US Dollars) (All amounts in US Dollars)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $ (326,649) $(264,306) $(558,998) $(504,942)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of goodwill 99,943 99,943 199,885 199,885
Depreciation of property and equipment - continuing operations 27,499 9,505 46,995 18,927
Depreciation of property and equipment - discontinued operations - 24,000 - 48,001
Issuance of common shares for interest on convertible debenture - - 31,200 -
Issuance of common shares for services - 15,322 20,000 15,560
Changes in assets and liabilities:
Accounts receivable, net 156,921 45,873 99,901 (101,662)
Inventory 6,802 (23,263) 7,496 (23,983)
Other current assets (9,739) (6,655) (4,674) (10,436)
Accounts payable and accrued liabilities 49,260 350,130 282,320 371,951
Deferred revenue (149,896) (31,000) (367,123) 29,483
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (145,860) 219,549 (242,998) 42,784
-----------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of property and equipment (30,287) (47,560) (130,654) (116,496)
-----------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from (repayment of) capital leases 36,360 (9,926) 56,155 1,241
Increase (decrease) in revolving line of credit 106,796 (92,746) 106,796 15,000
Repayment of due to officers and directors - (18,838) - (28,416)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 143,156 (121,510) 162,951 (12,175)
-----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (32,991) 50,479 (80,047) (85,887)
Cash and cash equivalents at beginning of period 32,991 204,118 80,047 340,484
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ - $ 254,597 $ - $ 254,597
-----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid for interest during the period $ 1,215 $ 4,371 $ 1,480 $ 20,116
Cash paid for income taxes during the period - - 12,000 -
Non Cash investing and financing activities:
Property and equipment acquired through proceeds from
capital lease 39,700 - 59,460 -
Conversion of preferred shares into common shares - - - 119
-----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HITCOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of HitCom
Corporation and subsidiaries (collectively "the Company" or "HitCom") have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission ("SEC") regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) which are necessary to present fairly the financial
position, results of operations, stockholders' equity and cash flows for the
interim periods.
The Company has sustained losses from operations since its inception. The
Company's ability to meet its obligations in the ordinary course of business is
dependent upon its ability to raise additional financing through public or
private equity financings, establish profitable operations, enter into
collaborative or other arrangements with corporate sources, or secure other
sources of financing to fund operations.
Management intends to raise working capital through additional equity and/or
debt financings in the upcoming year. However, there can be no assurance that
such financings can be successfully completed on terms acceptable to the
Company. The accompanying unaudited condensed consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 1999, as set forth in HitCom's Annual Report on Form 10-KSB.
The results for the six months ended June 30, 2000, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. All amounts presented are in US dollars.
2. NATURE OF BUSINESS
HitCom Corporation and its subsidiaries (collectively referred to as "Hitcom" or
the "Company") is a telecommunication Company providing long distance
telecommunication services primarily in Canada. The services are provided on a
prepaid basis through a card or on a post paid basis whereby the customer is
invoiced on a monthly basis for the long distance usage. The company maintains
its own carrier-class switching platform to provide its services.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated on consolidation. The investment in a 50% owned affiliate has
been accounted for using the equity method.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reported
period with consideration given to materiality. Actual results could differ from
those estimates.
Revenue Recognition and Deferred Revenue
The Company recognizes revenue as services are rendered as follows:
Prepaid card services
The Company's revenue originates from customer usage of (i) Company and
co-branded prepaid calling cards sold through retailers, (ii) recharges of
existing calling cards, and (iii) cards sold for promotional marketing
campaigns. The Company sells cards to distributors and retailers with normal
credit terms. When the distributor or retailer is invoiced, deferred revenue is
recognized.
The Company recognizes revenue in accordance with the terms of the card - rates,
fees and expiration dates of the card - as the ultimate card users utilize
calling time and service fees. All prepaid cards sold by the Company expire upon
either three or six months after first usage. Upon usage or expiration of the
prepaid phone card, the Company recognizes the related deferred amount as
revenue.
Postpaid long distance services
The Company's revenue originates from customer usage of long distance services
which is billed to the customer on a monthly basis. Revenue is recognized as
invoice is issued.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired for the Channel Telecom acquisition effective May 31, 1999, and is
being amortized on a straight-line basis over a ten year period. Amortization
expense was $99,943 in the second quarter of 2000 and 1999, and $199,885 for the
six-months ended June 30, 2000 and 1999. The Company evaluates on an ongoing
basis the carrying value of goodwill for potential permanent impairment.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Numerator:
Net loss available to common shareholders $(326,649) $(264,306) $(558,998) $(504,942)
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares 6,607,756 12,360,133 6,588,343 12,308,613
Dilutive potential common shares - Adjusted
weighted-average shares and assumed conversions 6,607,756 12,360,133 6,588,343 12,308,613
-----------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per share: $ (0.05) $(0.02) $(0.08) $(0.04)
-----------------------------------------------------------------------------------------------------------
</TABLE>
Employee stock options, convertible preferred stock, convertible debentures and
warrants, are not presented for the years ended December 31, 2000 and 1999,
because they are anti-dilutive due to the net loss available to common
shareholders.
5. Segmented Information
At June 30, 2000, Hitcom is operating in only one business segment, long
distance services.
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation
Overview
The Company principally derives its revenues from long distance
telecommunication services primarily in Canada. The services are provided on a
prepaid basis through its subsidiary Channel Telecom Inc. (Channel) and on a
post paid basis whereby the customer is invoiced on a monthly basis for the long
distance usage. The company maintains its own carrier-class switching platform
to provide its services.
Prepaid telecommunication services (Channel)
Channel provides long distance services to consumers through prepaid cards under
the Channel brands and private label brands, ("Channel Cards"), through an
extensive network of independent retail outlets (through independent sales
agents) and distributors throughout Canada. Channel targets retail markets with
substantial international long distance calling requirements, such as ethnic
communities, and believes that its Channel Cards provide consumers with a
convenient, attractively priced alternative to traditional presubscribed long
distance services. Channel Cards enable consumers to place local, long distance
and international calls from touch-tone phones, without the need for cash,
operator assistance, collect or other third party billed calls. Consumers can
use the Channel Cards to place international long distance calls from the U.S.
and Canada to more than 200 countries at rates that are generally lower than the
standard plan rates currently charged by the major telecommunication carriers
such as Bell Canada, Sprint and AT&T or the rate charged for a direct call from
a payphone or hotel room.
Consumers access the services of the Channel Cards by dialing a local number or
toll-free number and entering a PIN printed on the back of the card. The system
provides explanation to the services including the time remaining on the card.
Postpaid telecommunication services
This service was just launched in January 2000. Consumers can use the Hitcom
long distance service to place long distance calls from their home or office at
rates that are generally lower than the standard plan rates currently charged by
the major telecommunication carriers such as Bell Canada, Sprint and Primus. The
long distance plans are based on a per minute basis which vary according to the
country dialed. Consumers access the Hitcom long distance service by dialing a
local number and then dialing their destination number. There is no need to
enter a PIN number.
<PAGE>
RESULTS OF OPERATION
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenue
Total revenue decreased 19% to $1,102,164 in the second quarter of 2000 from
$1,357,592 for the same period in 1999. The decrease was primarily due to lower
usage in Channel's prepaid long distance cards due to greater competitive
pressures on pricing. The Company launched the Hitcom long distance residential
service in January 2000 which provided consumers with a post paid long distance
service. Revenues from this service were approximately $35,000 in the second
quarter of 2000 ascompared to $20,000 in the first quarter, an increase of 75%.
Cost of Services:
Cost of services primarily includes payments to other carriers for origination,
transport and termination of international and domestic long distance traffic.
Cost of services decreased to 84% of revenue ($930,100) in the second quarter
of 2000 from 87% of revenue ($1,187,760) for the same period in 1999. With the
implementation of the new carrier class switch in May 1999, Channel has
implemented cost saving programs to decrease cost of services as a percentage of
revenue. These include building private networks and utilizing Voice over
Internet Protocol (VoIP) gateways to reduce transmission costs. Channel has also
continued to expand the number of carriers it uses to terminate its
telecommunication traffic. The increased number of carriers and increased
termination traffic, has allowed Channel to continually negotiate lower
termination rates to reduce cost of services. Hitcom will continue to expand its
private network, implement voice over IP gateways, and expand the number of
carriers it utilizes to reduce transmission costs.
Selling General & Administrative (SG&A):
SG&A expenses increased to 33% of revenue ($359,694) in the second quarter of
2000 from 22% of revenue ($301,580) for the same period in 1999. The increase in
SG&A expense was primarily due to increased reserves in bad debts during the
quarter.
Goodwill Amortization
Goodwill represents the excess of cost over the fair value of net assets
acquired for the Channel acquisition effective May 31, 1998 and is being
amortized on a straight-line basis over a ten year period. Amortization expense
was $99,943 in the second quarters of 2000 and 1999.
Depreciation of property and equipment
Depreciation increased to $27,499 in the second quarter of 2000 from $9,505 for
the same period in 1999. The increase in dollar amount was primarily
attributable to increased capital expenditures for property and equipment to
support the growth of the business resulting in increased depreciation expense.
Net Interest Expense (income):
Net interest expense was $11,577 in the second quarter of 2000 as compared to
net interest expense of $8,526 for the same period in 1999. Interest expense was
primarily due to the convertible debenture bearing interest at 8% per annum.
Discontinued Operations
In December 1999, the Company completed the sale of certain assets and
liabilities that were primarily related to One Plus Marketing, Inc. (One Plus)
to a former officer, director and major shareholder of the Company. The Company
also received 5,837,503 shares of Hitcom's common stock from the purchaser which
has been returned to treasury and has therefore reduced the outstanding number
of common stock in Hitcom. The transaction was recorded at carrying value and
the resulting gain has been recorded directly to additional paid in capital. The
disposal of the One Plus segment is reflected as discontinued operations in the
accompanying condensed consolidated financial statements. Expenses and
associated overhead net of revenue earned from these operations, was a loss of
$14,584 for the quarter ended June 30, 1999.
EBITDA - continuing operations
EBITDA loss for the second quarter of 2000, increased to $187,630 or 17% of
revenue as compared to $131,748 or 10% of revenue for the same period in 1999.
The increased EBITDA loss was due to increased SG&A expenses.
Net loss
Net loss for the second quarter of 2000, increased to $326,649 or 30% of revenue
as compared to $264,306 or 20% of revenue for the same period in 1999. The
increased net loss was primarily due to increased SG&A expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 2000 decreased to $nil from $32,991 at
March 31, 2000. The Company's liquidity requirements were largely used by
operating activities and investment needs.
Cash used by operating activities in the second quarter of 2000 was $145,860 as
compared to cash provided of $219,549 for the same period in 1999. Significant
utilization of cash in the second quarter was the EBITDA loss of $187,630.
Cash used for capital expenditures in the second quarter of 2000 was $30,287 in
the second quarter of 2000 as compared to $47,560 for the same period in 1999.
Capital expenditures were for the continued expansion of the carrier class
switch due to the growth in revenues and building of VoIP gateways to reduce
cost of services.
Cash proceeds from financing activities in the second quarter of 2000 were
$143,156 as compared to repayments of $121,510 for the same period in 1999.
Financing activities proceeds consisted primarily of increased line of credit
borrowing ($106,796) and lease borrowings ($36,360). The Company's revolving
line of credit of approximately $100,000 was fully utilized as at June 30, 2000.
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenue
Total revenue increased 32% to $2,987,020 in the six-month period ended June 30,
2000 from $2,267,635 for the same period in 1999. The increase was primarily due
strong growth in the first quarter in the usage of Channel's prepaid long
distance cards. The Company launched the Hitcom long distance residential
service in January 2000 which provided consumers with a post paid long distance
service. Revenues from this service were approximately $55,000 in the
six-months.
Cost of Services:
Cost of services primarily includes payments to other carriers for origination,
transport and termination of international and domestic long distance traffic.
Cost of services decreased to 88% of revenue ($2,640,545) in the six-months
period ended June 30, 2000 from 91% of revenue ($2,069,648) for the same period
in 1999. With the implementation of the new carrier class switch in May 1999,
Channel has implemented cost saving programs to decrease cost of services as a
percentage of revenue. These include building private networks and utilizing
Voice over Internet Protocol (VoIP) gateways to reduce transmission costs.
Channel has also continued to expand the number of carriers it uses to terminate
its telecommunication traffic. The increased number of carriers and increased
termination traffic, has allowed Channel to continually negotiate lower
termination rates to reduce cost of services. Hitcom will continue to expand its
private network, implement voice over IP gateways, and expand the number of
carriers it utilizes to reduce transmission costs.
Selling General & Administrative (SG&A):
SG&A expenses decreased to 21% of revenue ($636,178) in the six-month period
ended June 30, 2000 from 23% of revenue ($513,867) for the same period in 1999.
The significant increase in revenue enabled the decrease of SG&A expense as a
percentage of revenue.
Goodwill Amortization
Goodwill represents the excess of cost over the fair value of net assets
acquired for the Channel acquisition effective May 31, 1998 and is being
amortized on a straight-line basis over a ten year period. Amortization expense
was $199,885 in the six-month periods ended June 30, 2000 and 1999.
Depreciation of property and equipment
Depreciation increased to $46,995 in the six-month period ended June 30, 2000
from $18,927 for the same period in 1999. The increase in dollar amount was
primarily attributable to increased capital expenditures for property and
equipment to support the growth of the business resulting in increased
depreciation expense.
Net Interest Expense (income):
Net interest expense was $22,415 in the six-month period ended June 30, 2000 as
compared to net interest expense of $18,386 for the same period in 1999.
Interest expense was primarily due to the convertible debenture bearing interest
at 8% per annum.
Discontinued Operations
In December 1999, the Company completed the sale of certain assets and
liabilities that were primarily related to One Plus Marketing, Inc. (One Plus)
to a former officer, director and major shareholder of the Company. The Company
also received 5,837,503 shares of Hitcom's common stock from the purchaser which
has been returned to treasury and has therefore reduced the outstanding number
of common stock in Hitcom. The transaction was recorded at carrying value and
the resulting gain has been recorded directly to additional paid in capital. The
disposal of the One Plus segment is reflected as discontinued operations in the
accompanying condensed consolidated financial statements. Revenue net of
expenses and associated overhead earned from these operations, was $48,136 for
the six-month period ended June 30, 1999.
EBITDA - continuing operations
EBITDA loss for the six-months ended June 30, 2000, decreased to $289,703 as
compared to $315,880 for the same period in 1999. As a percentage of revenue,
EBITDA loss decreased to 10% of revenue in the six-months period ended June 30,
2000 as compared to 14% of revenue for the same period in 1999.
Net loss
Net loss for the six-months period ended June 30, 2000 increased to $558,998
from $504,942 for the same period in 1999. As a percentage of revenue, net loss
decreased to 19% of revenue in the six-months period ended June 30, 2000 as
compared to 22% of revenue for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 2000 decreased to $nil from $80,047 at
December 31, 1999. The Company's liquidity requirements were largely used by
operating activities and investment needs including capital expenditures for the
continued expansion of the new carrier class switch and building of VoIP
gateways.
Cash used by operating activities in the six-months period ended June 30, 2000
was $242,998 as compared to cash provided of $42,784 for the same period in
1999. Significant utilization of cash in the six-months was the EBITDA loss of
of $289,703.
Cash used for capital expenditures in the six-months period ended June 30, 2000
was $130,654 as compared to $116,496 for the same period in 1999. Capital
expenditures were for the continued expansion of the carrier class switch due to
the growth in revenues and building of VoIP gateways to reduce cost of services.
Cash proceeds from financing activities in the six months period ended June 30,
2000 were $162,951 as compared to repayments of $12,175 for the same period in
1999. Financing activities proceeds consisted primarily of increased in
revolving line of credit and lease borrowings. The Company's revolving line of
credit of approximately $100,000 was fully utilized as at June 30, 2000.
<PAGE>
At June 30, 2000, the Company is not committed to completing any acquisition,
however, the Company is continually looking for further acquisitions which will
expand the Company's product lines and competitive position. Any potential
acquisitions in 2000 will be funded either through stock issuance, new equity
financing and/or increased bank borrowings.
In the first quarter of 1999, Channel obtained a new operating credit facility
from a commercial bank in Canada for approximately $100,000. The new credit
facility is secured by a general security agreement on Channel Telecom Inc.,
$50,000 Guaranteed Investment Certificate and corporate guarantees from HitCom.
Need for Additional Capital to Finance Operations and Capital Requirements
Hitcom believes that it must continue to enhance and expand its network and
build out its telecommunications network infrastructure in order to maintain its
competitive position and continue to meet the increasing demands for service
quality, capacity and competitive pricing. Hitcom's ability to grow depends, in
part, on its ability to expand its operations through the ownership and leasing
of network capacity, which requires significant capital expenditures, that are
often incurred prior to Hitcom's receipt of the related revenue.
The Company has sustained losses from operations since its inception. The
Company's ability to meet its obligations in the ordinary course of business is
dependent upon its ability to raise additional financing through public or
private equity financings, establish profitable operations, enter into
collaborative or other arrangements with corporate sources, or secure other
sources of financing to fund operations.
Management intends to raise working capital through additional equity and/or
debt financings in the upcoming year. However, there can be no assurance that
such financings can be successfully completed on terms acceptable to the Company
or at all. If Hitcom is unable to obtain such additional capital, Hitcom may be
required to reduce the scope of its anticipated expansion, which could have a
material adverse effect on Hitcom's business, financial condition or results of
operations.
NEW ACCOUNTING STANDARDS
Accounting for derivatives and hedging activities
In June 1998, the FASB issued SFAS No. 133 "Accounting for derivatives and
hedging activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of the Company's
year ending December 31, 2001. The Company does not expect the adoption of this
statement to have significant impact on the Company's results of operations,
financial position or cash flows.
PART II
OTHER INFORMATION
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
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
3.1* Certificate of Incorporation, as amended
3.2* Bylaws
4.1* Certificate of Designation for 8% Convertible Preferred Stock
10.1* Share Exchange Agreement Between HitCom Corporation and Scott Beil
dated April 14, 1997
10.2* Stock Purchase Agreement Between HitCom Corporation and Rajan
Arora/Jeffrey Shier and The Jeffrey Samuel Shier Family Trust For
Purchase of All Outstanding Stock of Channel Telecom Inc. dated
February 18, 1999
10.4** Letter agreement between the registrant, Rajan Arora and Jeffrey
Shier dated June 30, 1999 regarding forgiveness of indebtedness.
10.5** Stock Purchase Agreement between Scott A. Beil and registrant dated
August 10, 1999 regarding 20% minority interest in One Plus Marketing,
Inc.
10.6** Letter agreement between registrant and Scott A. Beil dated August
11, 1999 regarding voting of stock in registrant.
10.7*** Assets purchase agreement by and between Hitcom Corporation and Scott
A. Beil
10.8*** Assets purchase agreement by and between One Plus Marketing, Inc.
and Scott A. Beil
21.1* List of Subsidiaries of Registrant
27.0 Financial Data Schedule
* Filed as exhibit to the Company's Registration Statement on Form 10-SB
** Filed as Exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999
*** Filed as Exhibit to the Company's AnnualReport on Form 10-KSB for the
year ended December 31, 2000
B. Form 8-K filings
There were no 8-K filings in the quarter.
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/ Rajan Arora
Rajan Arora
President and CEO
Date: August 14, 2000
