<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission file number 0-24687
INFORUM COMMUNICATIONS, INC.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1360029
---------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
600 South Cherry Street, Suite 400, Denver, Colorado 80246
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 316-0400
____________________________________________________
(Former Name or Address if Changed Since Last Report)
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 Issuer was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Registrant has filed all documents and reports required to
be filed by Sections 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 18, 2000, the Company had 24,116,401 shares of its $0.001 par
value common stock outstanding.
Transitional Small Business Disclosure Format (Check one). Yes [ ] No [X]
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INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2000 (unaudited) 4
Consolidated Statements of Operations for the three- and six-month
periods ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows for the six month periods
ended June 30, 2000 and 1999 8
Notes to Consolidated Financial Statements 10
Item 2. Management's discussion and analysis of financial condition and
results of operations
Results of Operations 15
Income Taxes 16
Liquidity and Capital Resources 16
Comprehensive Income 17
Recently Issued Accounting Pronouncements 17
Year 2000 Issues 17
Item 3. Quantitative and Qualitative Disclosures about Market Risks 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
<PAGE>
<PAGE>
Item 1. FINANCIAL STATEMENTS
Forward-Looking Statements
Certain statements made in this Form 10-QSB are "forward looking
statements" (within the meaning of the Private Securities Litigation Reform
Act of 1995) regarding the plans and objectives of management for future
operations. Such statements involve known and unknown risks, uncertainties
and other factors that may cause actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. The
forward-looking statements made in this Report are based on current
expectations that involve numerous risks and uncertainties. The Company's
plans and objectives are based, in part, on assumptions involving the growth
and expansion of business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive
and market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that its assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements made in this Report will prove to be
accurate. In light of the significant uncertainties inherent in the forward-
looking statements made in this Report, particularly in view of the Company's
early state of operations, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
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<TABLE>
<CAPTION>
INFORUM COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS June 30, 2000
------ --------------
(unaudited)
<S> <C>
CURRENT ASSETS:
Cash $ 4,890,987
Accounts receivable, net 1,326,458
Prepaid expenses and other current assets 390,222
-------------
Total current assets 6,607,667
PROPERTY AND EQUIPMENT, net 3,646,808
GOODWILL AND INTANGIBLE ASSETS, net of
amortization of $4,630,047 11,488,370
INVESTMENT IN SUBSIDIARY 750,000
-------------
Total assets $ 22,492,845
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,028,098
Deferred revenue 1,095,050
Obligations under capital leases, current 702,204
Dividends payable on preferred stock 378,258
Notes payable, current 17,672
-------------
Total current liabilities 4,221,282
OBLIGATIONS UNDER CAPITAL LEASES, net of current 214,163
NOTES PAYABLE, net of current 2,136
--------------
Total liabilities 4,437,581
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A 862,462
Convertible preferred stock, Series C 2,150,624
Convertible preferred stock, Series D-1 1,137,261
Convertible preferred stock, Series F 10,022,842
Common stock 23,072
Additional paid-in capital 82,178,622
Accumulated deficit (78,319,619)
------------
Total stockholders' equity 18,055,264
------------
Total liabilities and stockholders' equity $22,492,845
------------
</TABLE>
The accompanying notes are an integral part of this consolidated balance
sheet.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INFORUM COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- -----
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 2,760,703 $ 632,866 $ 4,949,241 $ 700,754
DIRECT COST OF SERVICES 1,062,697 400,798 1,971,785 431,046
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,993,748 9,434,903 9,897,312 12,616,460
DEPRECIATION & AMORTIZATION 1,607,093 463,165 3,105,115 611,966
------------ ---------- ----------- -----------
OPERATING LOSS (5,902,835) (9,666,000) (10,024,971) (12,958,718)
OTHER INCOME (EXPENSE):
Net interest (expense)
income 22,671 63,203 (604,466) 66,098
Loss on sale of
fixed assets - - (614,869) -
----------- ----------- ---------- -----------
Total other income
(expense) 22,671 63,203 (1,219,335) 66,098
----------- ----------- ----------- -----------
NET LOSS BEFORE PROVISION FOR
INCOME TAXES (5,880,164) (9,602,797) (11,244,306) (12,892,620)
PROVISION FOR INCOME TAXES - - - -
----------- ----------- ----------- -----------
NET LOSS (5,880,164) (9,602,797) (11,244,306) (12,892,620)
PREFERRED STOCK DIVIDENDS (124,174) (363,353) (4,324,550) (602,995)
ACCRETION OF BENEFICIAL
CONVERSION FEATURE OF
PREFERRED STOCK (97,550) (11,284,096) (16,760,489) (11,422,538)
----------- ----------- ----------- -----------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $(6,101,888)$(21,250,246) $32,329,345) $(24,918,153)
=========== ============ ============= ==============
NET LOSS PER SHARE-BASIC
AND DILUTED $ (.30) $ (1.90) $ (1.75) $ (2.28)
SHARES USED IN COMPUTING
NET LOSS 20,261,863 11,201,882 18,512,512 10,915,340
PER SHARE-BASIC AND DILUTED 20,261,863 11,201,882 18,512,512 10,915,340
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
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<TABLE>
<CAPTION>
INFORUM COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
-----------------------------
2000 1999
-------------- ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,244,306) $(12,892,620)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities-
Common stock issued for services 2,628,092 9,124,545
Depreciation and amortization 3,105,115 611,966
Loss on disposal of property and
equipment 614,869 -
Imputed interest expense on
convertible debt 641,012 -
Changes in operating assets and
liabilities, excluding effects
of purchases of assets (16,716) 258,121
-------------- --------------
Net cash used in operating
activities (4,271,934) (2,897,988)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,627,876) (342,226)
Purchase of subsidiaries, net of
cash acquired (2,858,722) (4,072,174)
-------------- --------------
Net cash used in investing
activities (4,486,598) (4,414,400)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of preferred
stock, net of offering costs 11,898,266 14,924,143
Proceeds from the issuance of common
stock, net of offering costs 184,546 303,960
Proceeds from the conversion of
Series A warrants - 506,232
Reimbursement of deposits on unissued
shares - (50,000)
Principal repayments of notes payable (12,484) (4,568)
Principal payments on obligations under
capital leases (368,791) (26,498)
------------ --------------
Net cash provided by financial
activities 11,701,537 15,653,269
------------ --------------
NET INCREASE IN CASH 2,943,005 8,340,881
CASH, beginning of period 1,947,982 512,925
------------ --------------
CASH, end of period $ 4,890,987 $8,853,806
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 115,538 $2,003
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired
under capital leases $ 141,491 $ -
Common stock issued for
acquisitions $ 1,745,329 $499,547
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
INFORUM COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND NAME CHANGE:
-------------------------------------
Prior to June 30, 1999, the consolidated financial statements were presented
in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 7, "Accounting and Reporting by Development Stage Enterprises."
As of April 26, 2000, pursuant to shareholder approval, SkyLynx
Communications, Inc. changed its name to Inforum Communications, Inc. (the
"Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
those rules and regulations. In the opinion of the Company's management,
these unaudited consolidated financial statements contain all adjustments
that are necessary to present fairly the financial position as of June 30,
2000, and the results of operations for the three- and six-month periods
ended June 30, 2000 and 1999. All such adjustments are of a normal,
recurring nature.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's Form 10-KSB.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective for the year ended December 31, 1998. This statement establishes
standards for the reporting and presentation of comprehensive income and its
components in financial statements and thereby reports a measure of all
changes in equity of an enterprise that result from transactions and other
economic events other than transactions with owners. Aside from net loss,
there are no other comprehensive income items for the three- and six-month
periods ended June 30, 2000.
Recently Issued Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. This statement was subsequently amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," which changed the
effective date to fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company intends to adopt the new accounting standard
in the first quarter of 2001, but does not expect it to have a material
effect on its financial statements.
In December 1999, the staff of SEC issued its Staff Accounting Bulletin
("SAB") No. 101, Revenue Recognition. SAB No. 101 provides guidance on the
measurement and timing of revenue recognition in financial statements of
public companies with an effective date of December 31, 2000. The Company
does not expect it to have a material effect on its financial statements.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretations ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." FIN No. 44 provides clarification and
guidance on applying Accounting Principles Board ("APB") No. 25. FIN No. 44
generally provides for prospective application for grants or modifications to
existing stock options or awards made after June 30, 2000.
Reclassifications
Certain prior period balances have been reclassified to conform to current
period presentation.
3. LIQUIDITY:
---------
The Company has incurred operating losses since inception, including the
three- and six-month periods ended June 30, 2000 and 1999. At August 15,
2000, the Company had cash on hand of approximately $4.2 million. Although
the Company believes that its current cash on hand plus the cash flow
generated by its Internet service business will be sufficient to fund
operations through the remainder of the fiscal year, if the Company chooses
to pursue additional acquisitions, expand the range of Internet related
services it offers, or otherwise changes its strategy, it will likely be
required to issue additional equity or debt. There can be no assurance that
such equity or debt financing will be available to the Company, or that it
will be available on terms acceptable to the Company. Further, any
additional equity financing may be dilutive to existing shareholders, and any
debt financing may involve pledging all or some of the Company's existing
assets and may contain restrictive covenants with respect to raising future
capital and other financial and operational matters. The Company has been
advised by its independent certified public accountants that, if these
matters have not been resolved prior to the completion of their audit of the
Company's financial statements for the year ending December 31, 2000, their
auditors' report on those financial statements may be modified as to the
Company's ability to continue as a going concern.
4. PURCHASE OF ASSETS:
------------------
On February 11, 2000, the Company acquired substantially all of the capital
stock of Alternate Access, Inc. The acquisition was accounted for as a
purchase and has been reflected in the Company's consolidated financial
statements from the date of acquisition. The consideration paid for this
transaction consisted of $1.95 million in cash, 480,509 shares of the
Company's common stock with a fair value of $1,531,624, and an additional
203,922 shares that have been escrowed for six months from the purchase date
to secure any obligations of the seller. Goodwill and intangible assets
resulting from the purchase are stated net of accumulated amortization, and
amortization is provided using the straight-line method over three years.
In connection with the acquisition of Alternate Access, Inc., the Company
also obtained the right to acquire up to 30% equity ownership in PDGT.COM,
Inc. for a total purchase price of $1,150,000. On February 11, 2000, the
Company acquired 419 shares of the outstanding capital stock of PDGT.COM for
$750,000 for an equity ownership of 21.8%. This investment is accounted for
under the equity method. The remaining 224 shares of the outstanding capital
stock will be purchased by the Company for $400,000 ten days after the date
PDGT.COM's revenues for the preceding month is equal to or exceeds $25,000.
If PDGT.COM does not earn $25,000 in revenues within 12 months of the
original purchase date, the agreement for the remaining 224 shares of capital
stock terminates. As of June 30, 2000, PDGT.COM's revenues for the preceding
month did not equal or exceed $25,000.
On February 11, 2000, the Company purchased certain assets of Planetlink
Corporation, Inc. d/b/a Inforum Communications. The acquisition was
accounted for as a purchase and has been reflected in the Company's
consolidated financial statements from the date of acquisition. The
consideration paid in this transaction consisted of $237,450 in cash, 67,045
shares of the Company's common stock with a fair value of $213,705, and an
additional 7,449 shares that have been escrowed for one year from the
purchase date to secure any obligations of the seller. Goodwill and
intangible assets resulting from the asset purchase are stated net of
accumulated amortization, and amortization is provided using the straight-
line method over three years.
5. PREFERRED STOCK:
---------------
Series D
In March 2000, the Company changed the conversion price of the issued and
outstanding shares of Series D convertible stock from a floating rate with a
floor of $3.00 per share to a fixed rate of $1.00 per share. This was
effected by exchanging all of the outstanding shares of Series D convertible
stock for an identical number of shares of Series D-1 convertible preferred
stock. Other than the conversion price, the rights, preferences, and
privileges of the Series D-1 convertible preferred stock are substantially
the same as those of the Series D convertible preferred stock.
The Company recorded a beneficial conversion feature of $3,510,065 related to
this exchange, which was fully accreted as of March 31, 2000.
Series F
In February 2000, the Company sold 15,316 shares of Series F convertible
preferred stock for $1,000 per share.
The Company's Series F convertible preferred stock has a par value of $0.01
per share. Each share of preferred stock is convertible into 1,000 shares of
the Company's common stock, subject to adjustments. The preferred stock may
be converted at the option of the Series F investor or it will automatically
convert upon the third anniversary of the date of issue. The preferred stock
has a liquidation preference of $1,000 per share.
The Company recorded a beneficial conversion feature of $12,639,145 related
to its Series F convertible preferred stock, which was fully accreted as of
March 31, 2000.
On February 11, 2000, the Company issued two warrants to H.C. Wainwright,
exercisable to purchase an aggregate of 500,000 shares of the Company's
common stock at the following exercise prices: (i) with respect to 400,000
shares, an exercise price of $0.01 per share, in connection with their role
as placement agent in the Series F convertible preferred stock financing; and
(ii) with respect to 100,000 shares, an exercise price of $3.00 per share, in
connection with their role as placement agent in the November 1999
convertible loan transaction.
On March 1, 2000, the Company issued a warrant to purchase 1,000,000 shares
of the Company's common stock at an exercise price of $0.01 per share to one
investor as consideration for such investor having participated as the lead
investor in the Series F convertible preferred stock financing. The fair
value of this warrant, $3,741,756, is reflected as a dividend in the
accompanying unaudited consolidated statements of operations for the six
months ended June 30, 2000.
6. COMMON STOCK OFFERINGS:
----------------------
On January 31, 1999, the Company issued and sold 263,158 units to one
investor at a price of $1.90 per unit, for aggregate consideration of
$500,000. Each unit sold in this offering consisted of one share of the
Company's common stock, one warrant exercisable for three years to purchase
one additional share of common stock at a price of $6.00 per share and one
warrant exercisable for three years to purchase an additional share of common
stock at an exercise price of $8.00 per share. Both warrants associated with
the unit purchase made by the investor in January 31, 1999 were subsequently
cancelled in 2000 and re-issued by the Company as a warrant to purchase
526,316 shares of common stock of the Company at an exercise price of $4.00,
which expires three years from the date of the initial purchase of the units
described above.
7. SALE OF ASSETS:
--------------
On February 8, 2000, the Company sold all of the assets of Inforum
Communications (Sarasota), Inc., a wholly-owned subsidiary of the Company, to
LineShark Communications, an affiliate of a major stockholder for $112,156.
The Company also issued 164,300 options to employees of LineShark
Communications in connection with this transaction. The loss on the sale was
approximately $453,000.
On March 7, 2000, the Company entered into a sublease assignment, assumption,
and asset sale agreement with Sky Desk, Inc. an affiliate of a former
employee. The Company sold all of the assets at the premises of the Network
Operating Center in consideration for Sky Desk, Inc. assuming the lease on
the premises and the liabilities for invoices related to those assets sold
for which the Company had not yet paid. The loss on the sale was
approximately $173,000.
8. PRO FORMA RESULTS OF OPERATIONS:
-------------------------------
The following pro forma condensed consolidated statement of operations for
the six-month period ended June 30, 2000, includes the results of the Company
and Alternate Access, Inc. as if the acquisition had occurred as of
January 1, 2000.
The following pro forma condensed consolidated statement of operations for
the six-month period ended June 30, 1999, includes the results of the Company
and Interaccess Corporation, Simply Internet, Inc., Net Asset, LLC, CalWeb
Internet Services, Inc., Inficad Computing and Design, LLC, and Alternate
Access, Inc. as if the acquisitions had occurred as of January 1, 1999.
The pro forma condensed consolidated statements of operations may not be
comparable to, and may not be indicative of, the Company's post-acquisition
results of operations.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
2000 1999
-------------- ------------
<S> <C> <C>
Revenue $ 5,136,041 $ 3,211,080
Net loss available to common stockholders (32,522,241) (26,956,716)
Net loss per share-basic and diluted (1.75) (2.31)
Shares used in computing net loss per
share-basic and diluted 18,620,758 11,651,488
</TABLE>
<PAGE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the three and six-month periods ended June 30, 2000, the Company's
revenues from operations increased to $2,760,703 and $4,949,241,
respectively, from $632,866 and $700,754, respectively, for the three and
six-month periods ended June 30, 1999. These increases were primarily the
result of the acquisition of ten Internet Service Providers ("ISP's") between
January 1, 1999 and February 11, 2000 and the customer and revenue growth
experienced by those businesses during the six-month period ended June 30,
2000. The Company's revenues from operations consist primarily of customer
revenues received for Internet access services, equipment set-up and
installations, web hosting and design services and security related services.
The Company earns access revenues primarily from subscriptions from its
customers for Internet connection and access. The subscription fees paid by
customers vary among the Company's ISP's and by the billing plans offered by
a particular ISP.
For the three and six-month periods ended June 30, 2000, the cost of
revenues increased to $1,062,697 and $1,971,785, respectively, from $400,798
and $431,046, respectively, for the three and six-month periods ended June
30, 1999. Cost of revenues consists primarily of data transport and backhaul
charges paid to various telecommunications providers in order to provide
Internet services to customers.
For the three and six-month periods ended June 30, 2000, selling,
general and administrative expenses decreased to $5,993,748 and $9,897,312,
respectively, from $9,434,903 and $12,616,460, respectively, for the three
and six-month periods ended June 30, 1999. Included in the selling, general,
and administrative expenses for the six-month period ended June 30, 2000, are
non-cash charges of $2,628,092, resulting from the vesting of stock options
granted to certain officers of the Company, from the issuance of stock
options and common stock warrants to consultants and professional services
vendors and from the issuance of common stock warrants to the Company's
placement agent in connection with the Series F convertible preferred stock
financing. For the six-month period ended June 30, 1999, selling, general
and administrative expenses included non-cash charges of $7,932,275, related
to grants of common stock to certain officers and directors of the Company
and to the vesting of stock options granted to certain officers of the
Company. The Company's primary ongoing operating costs include employee
salaries and benefits, non-capital equipment costs, office rent and
utilities, customer service and technical support costs and the sales and
marketing costs associated with acquiring new customers, including bonuses,
sales commissions and advertising. The increases incurred in these costs for
the three and six-month periods ended June 30, 2000 were primarily the result
of the costs associated with the acquisition of two ISP's during the period,
the ongoing operating costs associated with the existing customer base of the
Company's ISP operations, the costs associated with the growth of the
Company's customer and revenue base and the costs associated with providing
additional services to existing and new customers.
For the three and six-month periods ended June 30, 2000, depreciation and
amortization increased to $1,607,093 and $3,105,115, respectively, from
$463,165 and $611,966, respectively, for the three and six-
month periods ended June 30, 1999. This increase was primarily the result of
depreciation of fixed assets and amortization of goodwill associated with the
Company's acquired ISP operations.
For the three-month period ended June 30, 2000, other expenses included
a gain of $22,671 as compared to a gain of $63,203 for the three-month period
ended June 30, 1999. For the six-month period ended June 30, 2000, other
expenses were $1,219,335 as compared to a gain of $66,098 for the six-month
period ended June 30, 1999. Included in other expenses for the six-month
period ended June 30, 2000 are interest expense of $604,466 and a loss on the
sale of fixed assets of $614,869, of which $452,911 was a non-cash charge
associated with the cancellation and re-issuance of stock options to three
former employees who are officers or directors of an entity that acquired
certain fixed assets from the Company.
The Company's activities for the three and six-month periods ended June
30, 2000 resulted in a net loss of $5,880,164 and $11,244,306, respectively,
as compared to a net loss of $9,602,797 and $12,892,620, respectively, for
the three and six-month period ended June 30, 1999.
For the six-month period ended June 30, 2000, the net cash used by the
Company in operating activities was $4,271,934. Net cash used in investing
activities by the Company for the period was $4,486,598, of which $2,858,722
was related to the Company's acquisition of the capital stock of Alternate
Access, Inc., the acquisition of the assets of Planetlink Corporation, Inc.
d/b/a Inforum Communications and the acquisition of 21.8% of the equity
ownership of PDGT.COM. Net cash provided by the Company's financing
activities for the period was $11,701,537, resulting primarily from the sale
and issuance of the Company's Series F convertible preferred stock. These
activities resulted in a net increase in the Company's cash position of
$2,943,005.
Income Taxes
The Company has concluded that there exists substantial doubt as to the
recoverability of its deferred tax assets. As a result, the Company has
recorded a full valuation allowance against those deferred tax assets. The
Company's view as to the ultimate recoverability of its deferred tax assets
may change in the near term based principally upon the successful execution
of its business plan.
Liquidity and Capital Resources
The Company funds its working capital requirements principally from the
proceeds of private equity financings and from internally generated funds
from its ISP operations. During the six-month period ended June 30, 2000,
the Company raised $13,366,000 through the sale of its Series F convertible
preferred stock. The Company has used the proceeds of this financing to fund
the cash portion of two acquisitions, as well as to fund the Company's
operating deficits.
The Company anticipates that its current cash on hand plus the cash flow
from its ISP operations will be sufficient to fund existing operations
through the remainder of the fiscal year. However, the Company expects to
expand the range of Internet related services it offers, such as security
services and web hosting and design services, and to possibly make additional
acquisitions. These activities will likely require the use of the Company's
cash on hand, cash from the ISP operations and the issuance of additional
equity, debt or both. There can be no assurance that such equity or debt
financing will be available to the Company, or, if available, on terms
acceptable to the Company. Any additional equity financing may be dilutive
to our existing shareholders and any debt financing may involve pledging some
or all of our assets and may contain restrictive covenants with respect to
raising future capital and other financial and operational matters. If the
Company is unable to obtain necessary additional capital, it may not be able
to fully execute its business strategy or may be required to reduce its
operations, which could have a material adverse effect on its business,
financial condition or results of operations.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective for the year ended December 31, 1998. This statement establishes
standards for the reporting and presentation of comprehensive income and its
components in financial statements and thereby reports a measure of all
changes in equity of an enterprise that result from transactions and other
economic events other than transactions with owners. Aside from net loss,
there are no other comprehensive income items for the three- and six-month
periods ended June 30, 2000.
Recently Issued Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. This statement was subsequently amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," which changed the
effective date to fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company intends to adopt the new accounting standard
in the first quarter of 2001, but does not expect it to have a material
effect on its financial statements.
In December 1999, the staff of the SEC issued its Staff Accounting Bulletin
("SAB") No. 101, Revenue Recognition. SAB No. 101 provides guidance on the
measurement and timing of revenue recognition in financial statements of
public companies with an effective date of December 31, 2000. The Company
does not expect it to have a material effect on its financial statements.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretations ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." FIN No. 44 provides clarification and
guidance on applying Accounting Principles Board ("APB") No. 25. FIN No. 44
generally provides for prospective application for grants or modifications to
existing stock options or awards made after June 30, 2000.
Year 2000 Issues
Many existing computer systems and applications currently use two-digit
date fields to designate a particular year. Date sensitive systems and
applications may recognize the year 2000 as 1900 or not at all. The
inability to recognize or properly treat the year 2000 issue may cause
computer systems and applications to incorrectly process critical information
and operational information. During 1999, the Company undertook an effort to
identify and correct any potential year 2000 issues that may have existed
with its information systems, suppliers and facilities. As of the date of
this report, the year 2000 issue has not materially affected the Company's
business. The Company intends to continue to monitor the impact of the year
2000 issue on its business throughout the year ended December 31, 2000.
There can be no assurance that the year 2000 issue will not adversely affect
the Company's business, financial condition or result of operations in future
periods.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risks represent the risk of loss that may impact the Company's
financial position, operating results or cash flows due to adverse changes in
financial market prices and rates. The Company is exposed to market risks
from changes in United States interest rates. Changes in the level of
interest rates would not have a material effect on the Company's financial
position, as the Company's borrowings are not material. Historically, and as
of June 30, 2000, the Company has not used derivative instruments or engaged
in hedging activities.
<PAGE>
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None other than as previously disclosed.
Item 2. Changes in Securities
See Notes 5 and 6 to Financial Statements.
Item 3. Default 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
Exhibits:
None.
Reports on Form 8-K:
Current Report on Form 8-K dated February 11, 2000
Item 2: Acquisition of Assets
Item 7: Financial Statements and Exhibits
Current Report on Form 8-K dated April 26, 2000
Item 5: Other Events
<PAGE>
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFORUM COMMUNICATIONS, INC.
Dated: August 21, 2000 By: /s/ Jeffery A. Mathias
-----------------------------------
Jeffery A. Mathias, President
Dated: August 21, 2000 By: /s/ James Maurer
-----------------------------------
James Maurer, Chief Financial Officer
