<PAGE>
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 April 30, 1999
-- or --
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
FINE.COM INTERNATIONAL CORP.
(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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1525 FOURTH AVENUE, SUITE 800
SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 292-2888
(ISSUER TELEPHONE NUMBER)
Check whether the Registrant (1) filed all reports required Yes [X] No [ ]
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
The number of shares of the Registrant's common stock, no par value per share,
outstanding as of June 10, 1999 was 2,698,500.
<PAGE>
FINE.COM INTERNATIONAL CORP.
FORM 10-QSB
FOR THE QUARTER ENDED APRIL 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements 2
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE 12
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 704,708 $ 1,521,301
Accounts receivable, less allowances 1,218,078 1,952,694
Costs and profits in excess of billings on uncompleted contracts 226,802 14,292
Prepaid expenses and other 87,085 68,830
Notes receivable from officer 21,678 21,794
----------- -----------
TOTAL CURRENT ASSETS 2,258,351 3,578,911
Other long-term assets 75,350 76,850
Equipment & furniture, net 1,367,844 1,414,338
----------- -----------
TOTAL ASSETS $ 3,701,545 $ 5,070,099
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ - $ 500,000
Accounts payable 149,495 427,420
Accrued expenses 160,026 332,963
Billings in excess of costs and profits on uncompleted contracts 136,087 536,860
Contract loss reserve - 40,218
Current portion of capital lease obligations 32,341 57,602
----------- -----------
TOTAL CURRENT LIABILITIES 477,949 1,895,063
Capital lease obligations, less current portion 45,264 52,228
----------- -----------
TOTAL LIABILITIES 523,213 1,947,291
SHAREHOLDERS' EQUITY:
Common stock, no par value:
10,000,000 shares authorized; 2,697,805 and 2,669,590 shares issued and
outstanding at April 30, 1999, and January 31, 1999, respectively 6,946,409 6,906,409
Accumulated deficit (3,768,077) (3,783,601)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 3,178,332 3,122,808
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,701,545 $ 5,070,099
----------- -----------
----------- -----------
</TABLE>
See Accompanying Notes to Financial Statements
2
<PAGE>
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30,
1999 1998
---- ----
(restated)
<S> <C> <C>
Gross revenue $1,875,011 $1,331,793
Direct salaries and costs 855,006 952,478
--------- ---------
Gross profit 1,020,005 379,315
Selling, general and administrative expenses 1,004,246 962,345
---------- ----------
Operating income (loss) 15,759 (583,030)
Interest income (expense) (235) 94,602
---------- ----------
Income (loss) before income taxes 15,524 (488,428)
Provision for (benefit from) income taxes -- (120,000)
---------- ----------
Net income (loss) $ 15,524 ($ 368,428)
---------- ----------
Basic and diluted net income (loss) per share $ 0.01 $ (0.14)
---------- ----------
---------- ----------
Shares used in computation of net income (loss) per share:
Basic 2,687,103 2,664,754
Diluted 2,692,843 2,664,754
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE>
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30,
1999 1998
---- ----
(restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 15,524 ($ 368,428)
Depreciation and amortization 100,394 79,440
Deferred income taxes - (120,000)
Non cash stock-based compensation 40,000 -
Net changes in:
Accounts receivable 734,616 (33,604)
Costs and profits in excess of billings (212,510) (103,158)
Prepaid expenses and other assets (18,255) (145,515)
Accounts payable (277,925) (16,703)
Accrued expenses (172,937) 15,643
Advance payments - (70,500)
Billings in excess of costs and profits (440,991) (31,452)
--------- ---------
Net cash used in operating activities (232,084) (794,277)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Other assets - (20,010)
Purchases of equipment and furniture (52,400) (494,020)
--------- ---------
Net cash used in investing activities (52,400) (514,030)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable to bank (500,000) -
Increase (decrease) on capital lease obligations (32,225) 13,067
Decrease in note receivable from officer 116 2,585
--------- ---------
Net cash provided by (used in) financing activities (532,109) 15,652
--------- ---------
Net decrease in cash and cash equivalents (816,593) (1,292,655)
Cash and cash equivalents at beginning of period 1,521,301 1,571,861
--------- ---------
Cash and cash equivalents at end of period $ 704,708 $ 279,206
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid 9,106 9,047
Acquisition of Pacific Analysis and Computing Corporation, in
February 1998, in exchange for 35,870 shares of common
stock - 143,480
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE>
FINE.COM INTERNATIONAL CORP.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by fine.com
International Corp. (the "Company") in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-QSB and Item 310 of Regulation S-B. 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. Results of operations for the
three-month period ended April 30, 1999 are not necessarily indicative of
performance for a full fiscal year or for future periods. For further
information, refer to the financial statements and footnotes thereto for the
fiscal year ended January 31, 1999, included with the Company's Form 10-KSB, as
amended, as filed with the Securities and Exchange Commission (the
"Commission").
On July 31, 1998, Meta4 Digital Design, Inc. ("Meta4") was merged with and into
a wholly-owned subsidiary of the Company and the Company issued 253,655 shares
of Company common stock in exchange for all of the outstanding shares of Meta4.
The merger qualified as a tax-free reorganization and was accounted for as a
pooling-of-interests. Accordingly, the Company's historical financial statements
have been restated to include the results of Meta4 for all periods presented.
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which requires disclosure of an additional
basis of measuring income. Comprehensive income for the three months ended April
30, 1999 was $15,524 and for the period ending April 30, 1998 was a loss of
$410,654.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
Three Months Ended April 30,
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income (loss)...................................................... $ 15,524 ($ 368,428)
Denominator for basic earnings per share:
Weighted Average Common Stock.......................................... 2,687,103 2,664,754
Effect of dilutive securities:
Employee stock options................................................. 5,740 0
---------- ----------
Denominator for diluted earnings per share............................. 2,692,843 2,664,754
---------- ----------
---------- ----------
Basic and diluted earnings (loss) per share............................ $0.01 ($0.14)
</TABLE>
3. BANK LINE OF CREDIT
The Company has a revolving line of credit with a commercial bank for
$750,000, which expires on September 1, 1999, and is secured by all accounts
receivable and such other property and assets of the Company as the bank may
require. Amounts outstanding under the revolving line of credit bear interest
at the bank's prime interest rate plus 0.25% (an effective rate of 8% at
April 30, 1999). At June 10, 1999, no amounts were outstanding under the
revolving line of credit. The revolving line of credit containes modified
financial covenants and restrictions including a restriction on the payment
of dividends. The Company met all revolving line of credit covenants at April
30, 1999.
5
<PAGE>
4. SUBSEQUENT EVENT
On May 17, 1999, the Company entered into a definitive agreement with ARIS
Corporation, a leading provider of international information technology
consulting, training and software, for the acquisition of the Company by
ARIS, for up to $12.25 million. Under the terms of the agreement, the
purchase price is to be paid in exchange for up to one million shares of ARIS
common stock, or a combination of one million ARIS shares plus up to $5.25
million cash, depending upon the average closing price of ARIS common stock
prior to closing of the acquisition. The transaction is subject to approval
of the Company's shareholders as well as other customary closing conditions,
including favorable tax treatment of the acquisition. The Company expects to
call a special meeting of shareholders in the third quarter of the 1999
calendar year to vote on the transaction. Assuming shareholder approval and
satisfaction of other closing conditions, the transaction is expected to
close in the third calendar quarter of 1999.
5. SEGMENT INFORMATION
The Company markets its services through direct and indirect channels throughout
the world. Information regarding revenues in different geographic regions is as
follows:
<TABLE>
<CAPTION>
Quarter
Ended April 30,
1999 1998
---- ----
<S> <C> <C>
North America $1,561,448 $1,291,793
Rest of world 313,563 40,000
---------- ----------
---------- ----------
Total revenues $1,875,011 $1,331,793
</TABLE>
The Company reports operating results based on geographic areas which are
primarily its PacWest (headquarters) and NorthEast office locations. The "Other"
segment below includes the operations of its MidAtlantic office. A summary of
key financial data by segment is as follows:
<TABLE>
<CAPTION>
PacWest NorthEast Other Total
------- --------- ----- -----
<S> <C> <C> <C> <C>
Quarter Ended April 30, 1999:
Revenues $1,274,226 $485,117 $115,668 $1,875,011
Operating income (loss) (17,068) 23,175 9,417 15,524
Quarter Ended April 30, 1998:
Revenues 925,955 390,478 15,360 1,331,793
Operating loss (56,828) (136,125) (175,475) (368,428)
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE ANTICIPATED. WORDS USED IN THIS REPORT SUCH AS
"BELIEVE", "ANTICIPATE", "EXPECT", "MAY", "WILL" AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS
OF IDENTIFYING SUCH STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED
BY, THESE FORWARD-LOOKING STATEMENTS. THE COMPANY DOES NOT UNDERTAKE ANY
OBLIGATION TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY
FUTURE EVENTS OR CIRCUMSTANCES. READERS ARE URGED TO CAREFULLY REVIEW AND
CONSIDER THE VARIOUS DISCLOSURES MADE BY THE COMPANY IN THIS REPORT, INCLUDING
THOSE UNDER THE SECTION ENTITLED "OTHER FACTORS THAT MAY AFFECT OPERATING
RESULTS," WHICH CONSIST PRIMARILY OF A BRIEF DISCUSSION OF CERTAIN RISKS AND
WHICH ARE IN THEIR ENTIRETY FORWARD-LOOKING STATEMENTS, AND THOSE INCLUDED IN
THE COMPANY'S OTHER REPORTS PREVIOUSLY FILED WITH THE COMMISSION, INCLUDING THE
DISCLOSURES IN THE "RISK FACTORS" SECTION APPEARING IN THE FORM 10-KSB, AS
AMENDED, FOR THE FISCAL YEAR ENDED JANUARY 31, 1999 AND THE COMPANY'S
REGISTRATION STATEMENT ON FORM SB-2.
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 Quarterly Report, and (ii)
the Company's financial statements and accompanying notes appearing in the
Company's Form 10-KSB, as amended, for the fiscal year ended January 31, 1999,
as filed with the Commission.
OVERVIEW
The Company develops marketing-driven, interactive, database-oriented Web
applications for major national and international corporate clients who seek to
establish a commercial presence on, or conduct Internet commerce over, the Web.
The Company's Web application development process combines marketing expertise
with state-of-the-art interactive database compilation and dissemination
techniques and technologies.
The Company generates the majority of its revenues from fees associated with the
planning and development of commercial Web sites for clients. These fees are
earned pursuant to fixed fee, time and materials or cost reimbursement contracts
(with terms typically ranging from two to seven months). Revenues generated from
these contracts are recognized under the percentage-of-completion method (based
on the ratio of costs incurred to total estimated project costs). 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 on a particular
project.
Prior to fiscal year 1999, the Company conducted all of its operations from its
headquarters in Seattle, Washington. On July 31, 1998, the Company acquired
Meta4 Digital Design, Inc., a company that provides Internet-based solutions in
the NorthEast. As of April 30, 1999, the Company conducted operations in
Seattle, Washington, Bethesda, Maryland and Livingston, New Jersey.
On May 17, 1999, the Company entered into a definitive agreement with ARIS
Corporation, a leading provider of international information technology
consulting, training and software, for the acquisition of the Company by
ARIS, for up to $12.25 million. Under the terms of the agreement, the
purchase price is to be paid in exchange for up to one million shares of ARIS
common stock, or a combination of one million ARIS shares plus up to $5.25
million cash, depending upon the average closing price of ARIS common stock
prior to closing of the acquisition. The transaction is subject to approval
of the Company's shareholders as well as other customary closing conditions,
including favorable tax treatment of the acquisition. The Company expects to
call a special meeting of shareholders in the third quarter of the 1999
calendar year to vote on the transaction. Assuming shareholder approval and
satisfaction of other closing conditions, the transaction is expected to
close in the third calendar quarter of 1999.
7
<PAGE>
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED APRIL 30, 1999 AND 1998
GROSS REVENUE. Consolidated gross revenue for the three months ended April 30,
1999 and 1998 was $1,875,000 and $1,332,000 respectively. During each of these
three-month periods, substantially all of the Company's revenue was generated by
its Web site planning and development services. The 41% increase in the first
quarter of fiscal 2000 revenue over revenue for the same period in fiscal 1999
is attributable to the addition of new clients, an increase in service billing
rates and higher staff utilization levels.
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 consolidated direct salaries and costs were $855,000
and $952,000 for the three months ended April 30, 1999 and 1998 respectively,
representing a 10% decrease from the prior period. Gross operating margins were
54% for the three months ended April 30, 1999, as compared to 28% for the prior
period. The lower levels of direct salaries and costs and higher gross operating
margins are attributable to higher utilization and productivity levels and a
decreased reliance on higher cost contract labor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and
administrative expenses were $1,004,000 and $962,000 for the three months ended
April 30, 1999 and 1998, respectively, representing a 4% increase. In each
period, these expenses primarily consisted of sales and 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. As a percentage of gross
revenues, selling, general and administrative expenses were 54% for the three
months ended April 30, 1999, as compared to 72% for the same period in fiscal
year 1999. The decrease in expenses as a percentage of gross revenues is
primarily due to the cost containment initiatives implemented as part of the
Company's operational restructuring announced in the third quarter of fiscal
year 1999.
TAXES. During the first quarter of fiscal 1999, the Company recorded a tax
benefit of $120,000, which represented the tax benefit associated with the
carryback of operating losses to previous years. At January 31, 1999, the
Company had provided a full valuation allowance against its deferred tax assets,
which primarily related to $3,856,000 of net operating loss carryforwards. No
tax expense was recorded during the first quarter of fiscal 2000 due to the tax
effects of the utilization of the above mentioned net operating loss
carryforwards.
NET INCOME. The Company recognized net income for the first quarter of fiscal
2000 of $16,000 compared to a net loss of $368,000 for the same period in fiscal
1999.
8
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has funded its capital requirements through earnings,
borrowings from affiliates and commercial lenders and equity financing and
private placements of its capital stock. The Company had cash and cash
equivalents of $705,000 and $1,521,000 at April 30, 1999 and January 31, 1999,
respectively.
The Company's working capital increased $96,000, from $1,684,000 at January 31,
1999 to $1,780,000 at April 30, 1999. Operating activities for the three months
ended April 30, 1999 required net cash in the amount of $232,000, primarily due
to decreases in billings in excess of costs and profits and accounts payable and
increases in costs and profits in excess of billings. Accounts receivable
decreased $735,000, from $1,953,000 at January 31, 1999 to $1,218,000 at April
30, 1999. Through June 1, 1999, the Company has collected approximately $500,000
of the April 30, 1999 accounts receivable balance.
The purchase of equipment and furniture required cash in the amount of $52,000
during the three months ended April 30, 1999. These expenditures were made
primarily for computer hardware and software, furniture, fixtures and leasehold
improvements necessary to accommodate the day-to-day business of the Company.
Net cash used in financing activities was $532,000, mainly due to the repayment
of borrowings outstanding at January 31, 1999 under the Company's line of
credit.
The Company has a revolving line of credit with a commercial bank for
$750,000, which expires on September 1, 1999, and is secured by all accounts
receivable and such other property and assets of the Company as the bank may
require. Amounts outstanding under the revolving line of credit bear interest
at the bank's prime interest rate plus 0.25% (an effective rate of 8% at
April 30, 1999). At June 10, 1999, no amounts were outstanding under the
revolving line of credit. The revolving line of credit contains modified
financial covenants and restrictions including a restriction on the payment
of dividends. The Company met all revolving line of credit covenants at April
30, 1999.
The Company believes that its cash and cash equivalents will be sufficient to
fund its operations through the current fiscal year. The Company believes that
it has taken appropriate action to realign and strengthen the Company's
operations, including a plan to strategically grow sales, increase internal
productivity and decrease its overhead cost structure. However, there can be no
assurance that the Company will be able to achieve profitable operations.
Further development and establishment of the Company's business may require
additional financing. The Company believes that additional financing could be
obtained from various sources, including certain existing shareholders and other
investors and financial institutions not yet identified. In the event that
additional financing is delayed or not able to be obtained on satisfactory
terms, if at all, the Company may need to reduce its expenditures. There can be
no assurance that additional capital on a debt or equity basis will be obtained,
or if obtained that it will be on economically viable terms.
CHANGES IN STOCK OPTION PLANS
Effective February 26, 1999, the Company implemented a number of changes to
its stock option plans. These changes included: (a) the repricing of all
stock options granted after the Company's initial public offering under
either the 1996 stock option plan or 1997 stock option plan which were held
by current employees (but not officers and directors) of the Company to an
exercise price of $2.50, the fair market price at the date of the repricing,
(b) amendments to the existing stock option vesting schedules to provide for
vesting at a rate of 25% per year over four years relating back to the date
of original grant for all employees (excluding directors and officers) and
all future option grants, and (c) the implementation of a new Employee Bonus
Plan which provides for the grant of nonqualified stock options to employees
or consultants (but not officers and directors) to purchase up to 126,435
shares of common stock. In connection with the above stock option plan
changes: (a) 7,216 pre-IPO stock options were not repriced and remained
exercisable at $1.76 per share, (b) 99,000 employee options outstanding were
repriced to an exercise price of $2.50 per share, (c) 126,435 employee
options were granted at $2.50 per share under the new Employee Bonus Plan in
order to more equitably allocate options among employees based on their
respective positions with the Company and (d) 106,311 currently outstanding
stock options held by officers and directors were not repriced and remained
at $6.50 per share.
9
<PAGE>
YEAR 2000 READINESS DISCLOSURE
The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year for dates after
December 31, 1999. This could result in system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar ordinary
business activities. The Year 2000 problem is not limited to information
technology systems, but may also impact embedded systems, such as those that
control elevators, alarm systems and many other devices.
The Company has examined all of its internal systems, both hardware and
software, that constitute core components of its operations, including both
computer systems and elements of the office environment. The Company believes
that its internal hardware and software systems will function properly with
respect to dates in the year 2000 and thereafter. Nonetheless, there can be no
assurance in this regard until such systems are operational in the year 2000.
Management anticipates that the Company's exposure from its internal systems is
minimal, the cost of recovery will be insignificant, and its business will not
be materially adversely impacted.
As a general matter, the Company builds its software on third-party products,
such as Microsoft's Windows NT and UNIX, which have been represented as Year
2000 compliant. Despite the Company's testing and other assurances, if any,
the Company may receive from third-party providers of software or technology
incorporated into the Company's products, the Company's products may contain
undetected errors or defects associated with Year 2000 date functions, which
may result in material costs to the Company. In general, the Company does
not warrant to clients that its work will be Year 2000 compliant, although
certain clients have requested and received such warranties. In such cases,
the Company does not warrant the compliance of third-party software; rather,
the Company warrants only that software created by the Company will be Year
2000 compliant. In addition, the Company generally provides clients with a
limited 90-day warranty on its services and products, and the Company
believes that many clients provide further updates or additions to their Web
sites after delivery by the Company and the Company cannot assess the Year
2000 compliance of any such additions. However, even absent a specific Year
2000 warranty or other warranty, there is a risk that clients for whom the
Company has created or implemented software will attempt to hold the Company
liable for any damages that result in connection with Year 2000 problems.
The Company is also examining Year 2000 issues as they relate to third-party
vendors, suppliers and service providers with which it has a material
relationship. Management believes that internally used third-party tools,
such as operating systems, databases and other design and development
applications, are materially Year 2000 compliant. Management believes that
any failures of these systems would have negligible impact on the Company's
operations.
Historical and estimated future costs of Year 2000 remediation are not
significant. The Company is in the process of establishing a contingency plan
and expects it to be in place prior to December 31, 1999.
10
<PAGE>
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of factors,
including, but not limited to, the ability of the Company to develop and
expand relationships with new and existing clients, the ability to accurately
estimate costs for fixed-fee contracts, the increased level of competition in
the market, the ability to retain and hire experienced and qualified
personnel. In addition, if the acquisition by ARIS Corporation does not
close, whether due to the failure of the Company's shareholders to approve
the acquisition or some other reason, the Company's business and financial
prospects will be materially adversely affected. All of the above factors are
difficult for the Company to forecast, and any one of which may materially
adversely affect the Company's business and operating results for one quarter
or a series of quarters.
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 August 11, 1997. From
the effective date of the Registration Statement through the end of the
Company's fiscal quarter ended April 30, 1999, the Company has applied its net
proceeds as follows:
<TABLE>
<S> <C>
Net proceeds from IPO $6,228,000
Accounts receivable, work-in-process and other working capital requirements (2,630,000)
Capital expenditures for fixed assets (1,968,000)
Acquisition of Meta4 Digital Design, Inc. and other businesses (450,000)
Repayment of indebtedness (545,000)
---------
Unapplied proceeds held in money market funds $635,000
-------
-------
</TABLE>
The Company believes that none of these payments were made, directly or
indirectly, to: (i) directors or officers of the Company or their affiliates;
(ii) persons owning ten percent or more of the Company's common stock; or (iii)
affiliates of the Company. The Company believes that it has used the offering
proceeds in a manner consistent with the use of proceeds described in the
Registration Statement and Prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial data schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fiscal quarter
ended April 30, 1999.
11
<PAGE>
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, on June 9, 1999.
fine.com International Corp.
By /s/ Daniel M. Fine
--------------------------------------------
Daniel M. Fine
President and Chief Executive Officer
(principal executive officer)
By /s/ Timothy J. Carroll
--------------------------------------------
Timothy J. Carroll
Executive Vice President of Finance and Operations
(principal financial and accounting officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-2000 JAN-31-1999
<PERIOD-START> FEB-01-1999 FEB-01-1998
<PERIOD-END> APR-30-1999 APR-30-1998
<CASH> 704,708 279,206
<SECURITIES> 0 1,593,032
<RECEIVABLES> 1,218,078 1,130,958
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,258,351 3,637,856
<PP&E> 2,159,853 1,177,769
<DEPRECIATION> 792,009 426,311
<TOTAL-ASSETS> 3,701,545 7,648,287
<CURRENT-LIABILITIES> 477,949 1,285,703
<BONDS> 0 0
0 0
0 0
<COMMON> 6,946,409 6,881,409
<OTHER-SE> (3,768,077) (583,349)
<TOTAL-LIABILITY-AND-EQUITY> 3,701,545 7,648,287
<SALES> 1,875,011 1,331,793
<TOTAL-REVENUES> 1,875,011 1,331,793
<CGS> 855,006 952,478
<TOTAL-COSTS> 855,006 952,478
<OTHER-EXPENSES> 1,004,246 962,345
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,106 9,047
<INCOME-PRETAX> 15,524 (488,428)
<INCOME-TAX> 0 (120,000)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,524 (368,428)
<EPS-BASIC> 0.01 (0.14)
<EPS-DILUTED> 0.01 (0.14)
</TABLE>
