<PAGE> 1
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 JULY 31, 1997
-- or --
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM____________TO_____________
------------------
fine.com CORPORATION
Name of small business issuer as specified in its charter
0-22805
Commission File Number
STATE OF WASHINGTON 91-1657402
State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization
1118 POST AVENUE
SEATTLE, WASHINGTON 98101
Address of Principal Executive Offices
206-292-2888
Issuer Telephone Number
------------------
Check whether the registrant (1) filed all reports Yes [ ] No [X]
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the prior 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.
The number of shares of the registrant's common stock, no par value per
share, outstanding as of August 31, 1997 was 2,380,065.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
fine.com CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS (unaudited)
CURRENT ASSETS:
Cash $ 33,701 $ 198,317
Accounts receivable, less allowances 628,508 476,766
Work-in-progress 228,156 --
Income taxes refundable 784 784
Prepaid expenses and other 56,227 9,409
Notes receivable from officers 54,884 30,435
---------- ----------
TOTAL CURRENT ASSETS 1,002,260 715,711
Deferred offering costs 459,903 41,116
Deferred income tax asset 46,424 30,883
Equipment & furniture, net 177,378 80,827
---------- ----------
TOTAL ASSETS $1,685,965 $ 868,537
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 611,286 $ 90,286
Accounts payable 9,839 117,459
Accrued offering costs 349,933 16,002
Accrued expenses 29,047 28,046
Deferred revenue -- 36,722
Note payable to director -- 15,000
Deferred income tax liabilities 153,131 100,769
Capitalized lease obligations 6,883 9,699
---------- ----------
TOTAL CURRENT LIABILITIES 1,160,119 413,983
SHAREHOLDERS' EQUITY:
Convertible Preferred stock, no par value
Authorized shares - 1,000,000; issued and outstanding 239,918 239,918
- 59,524
Common Stock
Authorized shares - 9,000,000; issued and outstanding 75,000 75,000
- 1,055,541
Retained earnings 210,928 139,636
---------- ----------
Total shareholders' equity 525,846 454,554
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,685,965 $ 868,537
========== ==========
</TABLE>
See accompanying notes.
- 2 -
<PAGE> 3
fine.com CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross revenue $ 752,966 $ 266,391 $1,564,399 $ 492,128
Direct salaries and costs 574,053 142,977 1,100,995 271,906
---------- ---------- ---------- ----------
Gross profit 205,913 123,414 463,404 220,222
Selling, general and administrative
expenses 151,730 117,597 335,889 207,529
---------- ---------- ---------- ----------
Operating income 54,183 5,817 127,515 12,693
Interest expense 11,864 1,798 19,402 2,778
---------- ---------- ---------- ----------
Income before income taxes 42,319 4,019 108,113 9,915
Provision for income taxes 14,451 1,367 36,821 3,372
---------- ---------- ---------- ----------
Net income $ 27,868 $ 2,652 $ 71,292 $ 6,543
========== ========== ========== ==========
Net income per share $ 0.02 $ 0.00 $ 0.06 $ 0.01
========== ========== ========== ==========
Shares used in computation of net
income per share 1,155,126 1,155,126 1,155,126 1,155,126
========== ========== ========== ==========
</TABLE>
-3-
<PAGE> 4
fine.com CORPORATION
STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 71,292 $ 6,543
Depreciation and amortization 35,832 14,895
Deferred income taxes 36,821 3,372
Net changes in:
Accounts receivable (151,742) (55,469)
Work-in-process (228,156) --
Prepaid expenses and other (46,818) (7,215)
Accounts payable (107,620) 4,175
Accrued expenses 1,001 107
Deferred revenue (36,722) --
--------- ---------
Total cash used in operating (426,112) (33,592)
activities
CASH FLOWS FROM INVESTING ACTIVITY
Purchase of equipment and furniture (132,383) (13,263)
--------- ---------
Total cash used in investing (132,383) (13,263)
activity
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable to bank 521,000 30,000
Deferred offering costs (84,856) --
Payments on capital lease (2,816) --
obligations
Notes receivable from shareholders (24,449) --
Notes payable to director (15,000) 15,000
--------- ---------
Total cash used in financing
activities 393,879 45,000
--------- ---------
Net decrease in cash (164,616) (1,855)
Cash at beginning of period 198,317 15,668
--------- ---------
Cash at end of period $ 33,701 $ 13,813
========= =========
</TABLE>
-4-
<PAGE> 5
fine.com CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
fine.com Corporation (the "Company") in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been included. For further information,
refer to the financial statements and footnotes thereto for the year ended
January 31, 1997 included in the Company's Registration Statement on Form SB-2,
as amended (file no. 333-26855) (the "Registration Statement"), and the related
Prospectus dated August 11, 1997 (the "Prospectus") as filed with the Securities
and Exchange Commission (the "Commission").
2. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
common shares outstanding. In accordance with the Securities and Exchange
Commission requirements, common and common equivalent shares issued during the
12-month period prior to the filing of the Company's initial public offering
have been included in the calculation as if they were outstanding for all
periods presented using the treasury stock method and the initial public
offering price of $6.50 per share. Common equivalent shares consist of the
common shares issuable upon the conversion of the convertible preferred stock
and shares issuable upon the exercise of stock options.
3. EQUIPMENT AND FURNITURE
Equipment and furniture consist of the following:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
-------- --------
<S> <C> <C>
Equipment $219,071 $129,765
Office furniture and Equipment 56,123 13,047
-------- --------
275,194 142,812
Accumulated depreciation and amortization 97,816 61,985
-------- --------
$177,378 $ 80,827
======== ========
</TABLE>
4. NOTE PAYABLE TO BANK
The Company had a $200,000 revolving line of credit agreement with a
bank which was due on March 31, 1997. Borrowings under this agreement bear
interest at the bank's prime interest rate plus 2% (effective rate of 10.25% at
January 31, 1997). At January 31, 1997, $90,286 was outstanding under this
agreement. This obligation was collateralized by eligible accounts receivable.
-5-
<PAGE> 6
This credit agreement expired on March 31, 1997 and was replaced with a
new credit agreement which provides for a revolving line of credit in the
maximum amount of $750,000 (the "New Revolving Line of Credit") and a line of
credit in the maximum amount of $400,000 (the "Equipment Line of Credit"). The
New Revolving Line of Credit expires on March 31, 1998, provides for interest at
the bank's prime rate plus 2% (effective rate of 10.50% at July 31, 1997) and is
secured by all accounts receivable and the personal guarantee of the Company's
President and Chief Executive Officer. At July 31, 1997, $611,286 was
outstanding under the New Revolving Line of Credit. The Equipment Line of Credit
expires on December 31, 2000, provides for interest at the bank's prime rate
plus 2.25% and is secured by the equipment purchased utilizing such funds, all
accounts receivable and the personal guarantee of the Company's President and
Chief Executive Officer. The credit agreement contains certain covenants,
including maintenance of minimum levels of working capital and tangible net
worth and restrictions on change of control of the Company.
5. SHAREHOLDERS' EQUITY
Convertible Preferred Stock. On January 31, 1997, the Company completed
a private placement for the issuance and sale of 59,524 shares of Series A
Preferred Stock of the Company for $250,000 less offering costs of $10,082. Upon
the effectiveness of the Company's Registration Statement relating to the
Company's initial public offering of the common stock, all outstanding shares of
the Series A Preferred Stock automatically converted into shares of common
stock, at a one-to-one conversion ratio. In addition, upon the effective date of
the Registration Statement, the authority of the Company to issue preferred
stock terminated and the number of authorized shares of preferred stock were
converted into additional authorized shares of common stock.
Initial Public Offering. On April 14, 1997, the Board of Directors
authorized the Company to file a registration statement with the Securities and
Exchange Commission to permit the Company to sell shares of common stock to the
public. Additionally, the Board of Directors approved a recapitalization of the
issued and outstanding shares of common stock which became effective on May 9,
1997. All outstanding common and common equivalent shares and per-share amounts
in the accompanying financial statements and the related notes to the financial
statements have been retroactively adjusted to give effect to such
recapitalization.
Immediately prior to the date of the initial public offering of common
stock, the Company had authorized capital stock consisting of 9,000,000 shares
of common stock, of which 1,055,541 shares were issued and outstanding, and
1,000,000 shares of preferred stock, of which 59,524 shares were designated as
Series A Preferred Stock and were issued and outstanding. On the effective date
of the Registration Statement relating to the initial public offering of the
Company's common stock, the issued and outstanding shares of Series A Preferred
Stock automatically converted into 59,524 shares of common stock (resulting in
an aggregate of 1,115,065 shares of common stock outstanding at such time).
Additionally, on such date, all authorized shares of preferred stock
automatically converted into additional authorized shares of common stock and,
as a result, the Company's authorized capital stock, on such date, consisted
solely of 10,000,000 shares of common stock.
6. SUBSEQUENT EVENT
On August 11, 1997, the Company's Registration Statement relating to the
initial public offering of common stock was declared effective by the
Commission. Conversion of the preferred stock into common
-6-
<PAGE> 7
stock occurred automatically on such date and all 59,524 shares of preferred
stock were converted into 59,524 shares of common stock.
On August 15, 1997, the Company completed its initial public offering
and issued 1,100,000 shares of common stock to the public at an initial public
offering price of $6.50 per share. On August 25, 1997, pursuant to the exercise
of an over-allotment option granted to the underwriters in the Company's initial
public offering, the Company issued an additional 165,000 shares of common stock
at a price of $6.50 per share. Proceeds to the Company, net of estimated
offering expenses of $1,643,925, amounted to approximately $6,578,575.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with (i) the
financial statements and accompanying notes appearing in this Report, and (ii)
the Company's financial statements and accompanying notes appearing in the
Company's Registration Statement and Prospectus as filed with the Commission.
This Quarterly Report on Form 10-QSB contains forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. Words used in this Report such as
"believes," "anticipates," "expects," "intends," and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. Readers are urged to carefully review and
consider the various disclosures made by the Company in this Report and in
section entitled "Risk Factors" appearing in the Registration Statement and the
Prospectus.
OVERVIEW
The Company plans, creates, maintains and hosts Web sites for major
national and international corporate clients and others. The Company's Web site
development process utilizes marketing expertise and state of the art
interactive database compilation and dissemination techniques and technologies.
Through the planning, creation, maintenance and hosting of interactive Web
presentations, the Company enhances clients' marketing campaigns, fosters the
collection of demographic data which is utilized by clients when allocating
marketing resources and facilities both internal and external corporate
communications for clients.
The Company generates substantially all of its revenues from fees
associated with the planning and creation of commercial Web sites for clients.
These fees are generally earned pursuant to long-term fixed fee contracts (with
terms typically ranging from two to seven months). Revenues generated from
long-term contracts are recognized under the percentage-of-completion method.
Percentage-of-completion is generally measured on the attainment of specific
contract milestones (based on the ratio of costs incurred to total estimated
project costs). Estimated earnings from long-term contracts are reviewed
periodically as work progresses. All other revenue is recorded on the basis of
performance of services. The Company assumes greater financial risk on fixed fee
contracts than on either time-and-material or cost-reimbursable contracts.
Failure to anticipate technical problems, estimate costs accurately or control
costs during performance of a fixed fee contract may reduce the Company's profit
or cause a loss individually on a particular project and in the aggregate.
-7-
<PAGE> 8
The Company has recently initiated efforts to generate recurring
revenues from Web site maintenance and Web site hosting fees. The amount of
revenue generated to date from the Company's provision of such services has not
been significant. Even if revenues from such source increase, fees for
maintenance and hosting services may not become a significant percentage of the
Company's revenues, if and to the extent that revenues increase from the
planning and creation of Web sites. No assurance can be given that revenues from
maintenance and hosting fees, or from other new methods of generating recurring
revenues, will be sufficient to offset the costs incurred by the Company in
performing such services.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JULY 31, 1997 AND 1996
Gross Revenue. Gross revenue for the six months ended July 31, 1997 and
1996 was $1,564,399 and $492,128, respectively. During each of these six-month
periods, substantially all of the Company's revenue was generated by its Web
site planning and creation services. The 218% increase in the first two quarters
of fiscal 1998 gross revenue over gross revenue for the same period in fiscal
1997 is attributable primarily to the number of clients contracting with the
Company for such services increasing from approximately 20 clients in the first
six months of fiscal 1997 to approximately 21 clients for the same period in
fiscal 1998, as well as to an increase in the average amount billed per client
for such services from approximately $25,000 per client in fiscal 1997 to
approximately $71,000 in fiscal 1998. The Company believes that the increase in
the number of clients was attributable to increased levels of marketing,
advertising and new business development activities. The average amount billed
per client during the first six months of fiscal 1998 for Web site planning and
creating services increased from the same period in fiscal 1997 primarily due to
the Company's clients generally undertaking more sophisticated levels of Web
site development.
Direct Salaries and Costs. Direct salaries and costs include all
internal labor costs and other direct costs related to project performance, such
as project specific independent contractor fees, supplies and specific
project-related expenditures. The Company's direct salaries and costs for the
six months ended July 31, 1997 were $1,100,995 and consisted primarily of
$670,956 paid as direct salaries, taxes and benefits and secondarily of $430,039
as other direct costs of goods sold related to specific projects. The Company
hired additional employees during fiscal 1998 to meet increased demand and had
27 full-time employees at July 31, 1997. The Company expects that it will hire
additional staff if and as needed to meet demand from current clients and
prospective clients whose projects are anticipated to commence within ninety
days after hiring. The Company engages independent contractors and
subcontractors to service unanticipated projects. The Company's direct salaries
and costs for the six months ended July 31, 1996 were $271,906 and consisted,
primarily, of $205,540 of direct salaries, taxes and benefits and secondarily,
of $66,366 of other direct costs of goods sold related to specific projects. The
Company had 17 full-time employees at July 31, 1996.
As a percentage of gross revenue, total direct salaries and costs
increased 15% for the first two quarters of fiscal 1998 over the same period in
fiscal 1997. This increase was due to a combination of increased level of
salaries paid to production employees and to an increase in the number of
independent contractors and subcontractors hired to fulfill the production
requirements which exceeded the capacity of the Company's internal staff. The
Company engages independent contractors and subcontractors to service project
demand that exceeds anticipated levels and will continue to do so if and to the
extent the Company's hiring of additional staff does not enable it to service
all project demand internally. The Company believes that staffing client
projects with independent contractors and subcontractors results, on a
project-by-project basis, in the incurrence by the Company of costs that are
greater than those the
-8-
<PAGE> 9
Company would experience if projects were internally staffed. Such cost
increases were not offset by corresponding increases in amounts billed to
customers or gross revenue generated therefrom in the six months ended July 31,
1997 due to the fact that the relevant project budgets assumed costs at
internally staffed rates. Management intends, to the extent feasible, to build
cost adjustments into future project budgets, but cannot predict how such
adjustments may impact gross revenue from period to period. Management believes
that direct salaries and costs from period to period as a percentage of gross
revenue are subject to increase, and that gross profits from period to period as
a percentage of gross revenue are subject to decrease, in comparison to prior
periods until sufficient internal staffing levels are achieved to meet
increasing project demand.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $335,889 and $207,529 for the six months ended July
31, 1997 and 1996, respectively. In each period, these expenses consisted
primarily of administrative salaries, professional fees, occupancy costs,
telephone and related Internet connectivity fees, computer network costs, office
expenses and supplies, marketing, advertising and new business development
costs. The increase in expenses from fiscal 1997 to 1998 was primarily due to
telephone costs, administrative services and rent costs.
Marketing, advertising and new business development costs increased as a
percentage of gross revenue in the first six months of fiscal 1998 from the
first six months of fiscal 1997. Marketing, advertising and new business
development costs were $66,531 (representing 4% of gross revenue) in the first
six months of fiscal 1998, as compared to $16,685 (representing 3% of gross
revenue) in the first six months of fiscal 1997. The Company believes that the
increase in marketing, advertising and new business development costs was
instrumental in the 218% increase in gross revenue from the first six months of
fiscal 1997 to the same period of fiscal 1998. Management believes that these
costs will continue to increase as a percentage of gross revenue in future
periods and may reach approximately 6% of gross revenue.
Overall, selling, general and administrative expenses as a percentage of
gross revenue were 21% for the six months ended July 31, 1997 as compared to 42%
for the six months ended July 31, 1996. This overall decrease in selling,
general, and administrative expenses as a percentage of gross revenue was a
result of the Company's ongoing effort to control expenses and effectively
assimilate higher volumes of business using existing resources, offset by
increased marketing, advertising and new business development. The Company
anticipates administrative expenses increasing due to the compliance and
reporting obligations associated with becoming a publicly held company.
Net Income. The Company recognized net income of $71,292 (representing
5% of gross revenue) for the first six months of fiscal 1998 as compared to
$6,543 (representing 1% of gross revenue) for the same period in fiscal 1997.
The increase in profitability (as a percentage of gross revenue) is due to the
factors discussed above.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JULY 31, 1997 AND 1996
Gross Revenue. Gross revenue for the three months ended July 31, 1997
and 1996 was $752,966 and $266,391, respectively. During each of these periods,
substantially all of the Company's revenue was generated by its Web site
planning and creation services. The 183% increase in gross revenue for the three
months ended July 31, 1997 compared to the three months ended July 31, 1996 is
attributable primarily to the increase in the average amount billed per client
to approximately $45,000 per client during the second quarter of fiscal 1998
from approximately $14,000 during the same period in fiscal
-9-
<PAGE> 10
1997. The number of clients contracting with the Company for such services
decreased to approximately 16 clients during the three months ended July 31,
1997 from approximately 18 clients during the three months ended July 31, 1996.
The average amount billed per client during the three months ended July 31, 1997
for Web site planning and creation services increased from the same period in
1996 primarily due to the Company's clients generally undertaking more complex
levels of Web site development.
Direct Salaries and Costs. The Company's direct salaries and costs for
the three months ended July 31, 1997 were $547,053 and consisted primarily of
$363,411 paid as direct salaries, taxes and benefits and, secondarily of
$183,642 as other direct costs of goods sold related to specific projects. The
Company's direct salaries and costs for the three months ended July 31, 1996
were $142,977 and consisted, primarily, of $116,446 of direct salaries, taxes
and benefits and, secondarily, of $26,531 of other direct costs of goods sold
related to specific projects.
As a percentage of gross revenue, total direct salaries and costs
increased 19% for the three months ended July 31, 1997 from the three months
ended July 31, 1996. This increase was due primarily to an increase in the
number of independent contractors and subcontractors hired to fulfill the
production requirements which exceeded the capacity of the Company's internal
staff. The Company engages independent contractors and subcontractors to service
project demand that exceeds anticipated levels and will continue to do so if and
to the extent the Company's hiring of additional staff does not enable it to
service all project demand internally. The Company believes that staffing client
projects with independent contractors and subcontractors results, on a
project-by-project basis, in the incurrence by the Company of costs that are
greater than those the Company would experience if projects were internally
staffed. Such cost increases were not offset by corresponding increases in
amounts billed to customers or gross revenue generated therefrom in the three
months ended July 31, 1997 due to the fact that the relevant project budgets
assumed costs at internally staffed rates. Management intends, to the extent
feasible, to build out adjustments into future project budgets, but cannot
predict how such adjustments may impact gross revenue from period to period.
Management believes that direct salaries and costs from period to period as a
percentage of gross revenue are subject to increase, and that gross profits from
period to period as a percentage of gross revenue are subject to decrease, in
comparison to prior periods until sufficient internal staffing levels are
achieved to meet increasing project demand.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $151,730 and $117,597 for the three months ended
July 31, 1997 and 1996, respectively.
Marketing, advertising and new business development costs increased as a
percentage of gross revenue in the three months ended July 31, 1997 compared to
the same period in 1996. Marketing, advertising and new business development
costs were $22,909 (representing 3% of gross revenue) in the second quarter of
fiscal 1998 as compared to $12,011 (representing 5% of gross revenue) in the
second quarter of fiscal 1997. The Company believes that the increase in
marketing, advertising and new business development costs was instrumental in
the 183% increase in gross revenue from the three months ended July 31, 1996 to
the three months ended July 31, 1997. Management believes that these costs will
continue to increase as a percentage of gross revenue in future periods and may
reach approximately 6% of gross revenue.
Overall, selling, general and administrative expenses as a percentage of
gross revenue amounted to 20% for the three months ended July 31, 1997 as
compared to 44% for the same period in 1996.
-10-
<PAGE> 11
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has funded its capital requirements through
earnings, borrowings from affiliates and commercial lenders and private
placements of its capital stock. The Company had cash in the aggregate amount of
$33,701 and $198,317 at July 31, 1997 and January 31, 1997, respectively.
The Company's working capital decreased $459,587, from $301,728 at
January 31, 1997 to ($157,859) at July 31, 1997. Operating activities for the
six months ended July 31, 1997 required net cash in the amount of $426,112,
primarily due to increases in work in process and accounts receivable. Work in
process increased $228,156 from $0 at January 31, 1997. Accounts receivable
increased $151,742, from $476,766 at January 31, 1997 to $628,508 at July 31,
1997, primarily due to the increase in gross revenue during the six months ended
July 31, 1997.
The purchase of equipment and furniture required cash in the amount of
$132,383 during the six months ended July 31, 1997. These expenditures were made
primarily for computer hardware and software, furniture, fixtures and leasehold
improvements necessary to accommodate an increase in Company personnel. The
Company believes that the increase in personnel was a principal factor enabling
the Company to generate higher gross revenue during this period. Net cash
provided from financing activities was $393,879, primarily due to an increase of
$521,000 in borrowings under the New Revolving Line of Credit, offset by costs
associated with the offering, a note receivable from a shareholder, repayment of
a note payable to a shareholder and payments on capital lease obligations.
The Company's revolving line of credit expired on March 31, 1997 and was
replaced by the New Revolving Line of Credit. The maximum amount available under
the New Revolving Line of Credit is $750,000. Prior to the first day of the
month following the completion of the offering, amounts outstanding under the
New Revolving Line of Credit bear interest at the bank's prime interest rate
plus 2% (10.5% at July 31, 1997). On the first day of the month following the
successful completion of the Company's initial public offering, the interest
rate was reduced to the bank's prime interest rate plus 0.25%. Amounts
outstanding under the New Revolving Line of Credit are secured by all of the
Company's accounts receivable and the personal guaranty of Daniel M. Fine, the
Company's President and Chief Executive Officer. The New Revolving Line of
Credit expires on March 31, 1998 (the "Expiration Date"). On the Expiration
Date, the Company must pay in full the aggregate unpaid principal amount then
outstanding and all accrued interest, together with all applicable fees, costs
and charges, if any. At July 31, 1997, $611,286 was outstanding under the New
Revolving Line of Credit.
The Company has also obtained an additional line of credit (the
"Equipment Line of Credit") from the commercial bank which has made the New
Revolving Line of Credit available. The maximum amount available under the
Equipment Line of Credit is $400,000. Amounts drawn by the Company pursuant to
the Equipment Line of Credit may be used exclusively for the purchase of
computer hardware and software, furniture and fixtures, and leasehold
improvements. After the Company's initial public offering, amounts outstanding
under the Equipment Line of Credit bear interest at the same rate of interest as
applicable to the New Revolving Line of Credit. Monthly payments of accrued
interest only are due until January 31, 1998, from which date the balance
outstanding under the Equipment Line of Credit will be required to be amortized
over a 36-month period. Amounts outstanding under the Equipment Line of Credit
will be secured by the assets purchased with funds borrowed under the Equipment
Line of Credit, all of the Company's accounts receivable and the personal
guaranty of Daniel M. Fine. At July 31, 1997, no amounts were outstanding under
the Equipment Line of Credit.
-11-
<PAGE> 12
On August 15, 1997, the Company completed its initial public offering
and issued 1,100,000 shares of common stock to the public at an initial public
offering price of $6.50 per share. On August 25, 1997, pursuant to the exercise
of an over-allotment option granted to the underwriters in the Company's initial
public offering, the Company issued an additional 165,000 shares of common stock
at a price of $6.50 per share. Proceeds to the Company, net of estimated
offering expenses of $1,643,925, amounted to approximately $6,578,575.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on Form SB-2, as amended (file
number 333-26855), relating to the Company's initial public offering of the
Company's common stock was declared effective by the Commission on Monday,
August 11, 1997. Coleman and Company Securities, Inc. acted as the
representative for the several underwriters in the offering. Pursuant to the
Registration Statement, the Company registered (i) shares of common stock for a
maximum aggregate offering price of $8,625,000, (ii) Representative's Warrants
for a maximum aggregate offering price of $100, and (iii) shares of common stock
issuable upon exercise of the Representative's Warrants for a maximum aggregate
offering price of $900,000. On August 15, 1997, the Company sold 1,100,000
shares of common stock at a price of $6.50 per share at an aggregate offering
price of $7,150,000 and 110,000 Representative's Warrants at a price of $.001
per Representative's Warrant at an aggregate offering price of $110. On August
25, 1997, the Company sold an additional 165,000 shares of common stock at a
price of $6.50 pursuant to the exercise of the underwriters' over-allotment
option, at an aggregate offering price of $1,072,500.
The Company's Registration Statement for its initial public offering was
declared effective after the end of the Company's fiscal quarter ended July 31,
1997. Accordingly, through the end of the Company's fiscal quarter ended July
31, 1997, no expenses were incurred for the Company's account in connection with
the issuance and distribution of the securities registered for underwriting
discounts and commissions, finders' fees, expenses paid to or for the
underwriters, or for other expenses. In addition, through the end of the
Company's fiscal quarter ended July 31, 1997, the Company did not receive or use
any offering proceeds.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By unanimous written consent of the shareholders of the Company, dated
as of May 9, 1997, the shareholders approved and ratified certain amendments to
the Company's articles of incorporation, as amended, to (i) amend the terms and
provisions of the Series A Preferred Stock to provide that each outstanding
shares of Series A Preferred Stock would automatically be converted into one
fully paid and nonassessable common stock on the Effective Date of a
Registration Statement for an underwritten public offering under the Securities
Act of 1933, as amended, (ii) set the total number of shares of Series A
Preferred Stock at 59,524 shares, and (iii) provide that each of the remaining
authorized and unissued shares of preferred stock would automatically be
converted into one authorized but unissued share of common stock on the
effective date of a registration statement for an underwritten public offering
under the Securities Act of 1933, as amended. No shareholder withheld his or her
written consent to such action.
-12-
<PAGE> 13
By unanimous written consent of the shareholders of the Company, dated
as of May 23, 1997, the shareholders approved the adoption of the Company's 1997
Stock Option Plan. No shareholder withheld his or her written consent to such
action.
ITEM 5. OTHER INFORMATION
On September 10, 1997, the Company announced that its chief operating
officer, Daniel G. Stull, is resigning, and that his duties will be assumed by
James P. Chamberlin, the Company's chief financial officer, who had also served
as chief operating officer prior to Mr. Stull's joining the Company 18 months
prior.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11.1 Statement regarding computation of net income per share
27.1 Financial data schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended July
31, 1997.
-13-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated September 11, 1997.
fine.com CORPORATION
--------------------
(Registrant)
By /s/ Daniel M. Fine
-------------------------------------------------------
Daniel M. Fine
President and Chief Executive Officer
(principal executive officer)
By /s/ James P. Chamberlin
-------------------------------------------------------
James P. Chamberlin
Secretary and Chief Financial Officer
(principal financial and principal accounting officer)
-14-
<PAGE> 1
Exhibit 11.1
fine.com CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares 1,055,541 1,055,541 1,055,541 1,055,541
outstanding
Net effect of stock options exercised
and granted, and preferred stock
issued during the 12-month period
prior to the Company's filing of
its initial public offering at
less than the offering price,
calculated using the treasury
stock method at the initial
offering price of $6.50 per
share, and treated as outstanding for 99,585 99,585 99,585 99,585
---------- ---------- ---------- ----------
all periods presented
Shares used in computation of net
income per share 1,155,126 1,155,126 1,155,126 1,155,126
========== ========== ========== ==========
Net income $ 27,868 $ 2,652 $ 71,292 $ 6,543
========== ========== ========== ==========
Net income per share $ 0.02 $ 0.00 $ 0.06 $ 0.01
========== ========== ========== ==========
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-31-1997 JUL-31-1997
<PERIOD-START> FEB-01-1997 FEB-01-1997
<PERIOD-END> JAN-31-1997 JUL-31-1997
<CASH> 198,317 33,701
<SECURITIES> 0 0
<RECEIVABLES> 476,766 628,508
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 715,711 1,002,260
<PP&E> 142,812 275,194
<DEPRECIATION> 61,985 97,816
<TOTAL-ASSETS> 868,537 1,685,965
<CURRENT-LIABILITIES> 413,983 1,160,119
<BONDS> 0 0
0 0
239,918 239,918
<COMMON> 75,000 75,000
<OTHER-SE> 139,636 210,928
<TOTAL-LIABILITY-AND-EQUITY> 868,537 1,685,965
<SALES> 1,485,869 1,564,399
<TOTAL-REVENUES> 1,485,869 1,564,399
<CGS> 774,242 1,100,995
<TOTAL-COSTS> 774,242 1,100,995
<OTHER-EXPENSES> 514,059 335,890
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,840 19,402
<INCOME-PRETAX> 188,728 108,113
<INCOME-TAX> 64,454 36,821
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 124,274 71,292
<EPS-PRIMARY> 0.11 0.06
<EPS-DILUTED> 0.11 0.06
</TABLE>
