U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
Commission File Number: 0-25761
LOG ON AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 05-04966586
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Regency Plaza, Providence, Rhode Island 02903
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(Address of principal executive offices) (Zip Code)
(401) 453-6100
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(Registrant's telephone number, including area code)
Check mark whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
[ ] Yes [X] No
As of May 31, 1999, a total of 7,140,716 shares of the Registrants Common Stock,
$.01 par value, were issued and outstanding.
<PAGE>
LOG ON AMERICA, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of March 31, 1999 ....................... 3
Statements of Operations for the Three Months Ended
March 31, 1998 and 1999 ................................. 4
Statements of Cash Flows .................................. 5
Notes to Financial Statements ............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .........................................10
Item 2. Changes in Securities .....................................10
Item 3. Defaults in Senior Securities .............................10
Item 4. Submission of Matters to a Vote of Security Holders .......10
Item 5. Other Information .........................................10
Item 6. Exhibits and Reports on Form 8-K ..........................10
Signatures ..................................................................11
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1: Financial Statements
LOG ON AMERICA, INC.
BALANCE SHEET
(unaudited)
March 31, 1999
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CURRENT ASSETS
Cash $ 220,113
Accounts receivable, net .................................... 98,735
Other current assets ........................................ 213,481
----------
TOTAL CURRENT ASSETS ..................................... 532,329
PROPERTY & EQUIPMENT, net ...................................... 86,142
OTHER ASSETS
Goodwill, net ............................................... 226,105
Notes receivable ............................................ 90,688
Other assets ................................................ 18,291
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TOTAL OTHER ASSETS ....................................... 335,084
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TOTAL ASSETS ................................................... $ 953,555
==========
CURRENT LIABILITIES
Note payable ................................................ $ 15,039
Accounts payable ............................................ 430,563
Accrued expenses ............................................ 39,586
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TOTAL CURRENT LIABILITIES .................................. 485,188
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 20,000,000 shares,
4,610,716 issued and outstanding at March 31, 1999 ........ 21,763
Additional paid-in capital .................................. 1,056,688
Accumulated deficit ......................................... (610,084)
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TOTAL STOCKHOLDERS' EQUITY ................................. 468,367
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $ 953,555
==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LOG ON AMERICA, INC.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended March 31,
---------------------------
1999 1998
----------- ------------
REVENUES
Dial up ........................................ $ 65,681 $ 53,325
Dedicated access service ....................... 144,169 97,286
Web services ................................... 25,285 19,263
Other .......................................... 3,509 --
----------- -----------
Total Revenues ................................ 238,644 169,874
OPERATING EXPENSES
Communication and internet services ............ 119,941 72,383
General and administrative ..................... 307,187 124,891
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Total Operating Expenses ...................... 427,128 197,274
----------- -----------
OPERATING LOSS ................................... (188,484) (27,400)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense ............................... (280) (60)
Interest income ................................ 743 --
----------- -----------
463 (60)
----------- -----------
NET LOSS ......................................... $ (188,021) $ (27,460)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES USED IN COMPUTING
BASIC AND DILUTED LOSS PER SHARE ................ 4,610,716 3,329,434
----------- -----------
BASIC AND DILUTED LOSS PER COMMON SHARE .......... $ (0.04) $ (0.01)
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
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LOG ON AMERICA, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $(188,021) $ (27,460)
Adjustments:
Stock issued for services .................................................... -- 1,578
Stock issued for settlements of prior obligations ............................ -- 7,588
Notes receivable forgiven related to stock issuance .......................... -- 36,110
Notes receivable officer forgiven ............................................ 7,845 --
Deprecation and amortization ................................................. 19,336 18,870
Bad debt provision ........................................................... 1,660 --
Changes in:
Accounts receivable ........................................................ (7,233) (24,419)
Other current assets ....................................................... (207,915) (37,415)
Other assets ............................................................... (17,586) --
Accounts payable ........................................................... 1,988 17,869
Accrued expenses ........................................................... 7,479 12,355
Deferred revenue ........................................................... (3,389) 23,965
--------- ---------
Total Adjustments ........................................................ (197,815) 56,501
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES ............................................ (385,836) 29,041
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .......................................... (22,680) (10,597)
Payments on note receivable officer ............................................ -- (15,384)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ............................................ (22,680) (25,981)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable ....................................................... (1,502) (2,375)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................................ (1,502) (2,375)
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NET INCREASE (DECREASE) IN CASH .................................................. (410,018) 685
CASH BEGINNING OF YEAR ........................................................... 630,131 --
--------- ---------
CASH END OF PERIOD ............................................................... $ 220,113 $ 685
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES: ......................................................... 1999 1998
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Details of acquisition
Fair value of assets acquired .................................................. -- $ 362,665
========= =========
Goodwill established ........................................................... -- $ 125,739
========= =========
Liabilities assumed ............................................................ -- $ 488,404
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
A. Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results may
differ from those estimates. The financial statements at March 31, 1999 and for
the three month periods ended March 31, 1998 and 1999 are unaudited, but include
all adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for a fair presentation of financial position and
operating results. Operating results for the three month periods ended March 31,
1998 and 1999 are not necessarily indicative of results that may be expected for
any future periods. The information included in this report should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Registration Statement on Form SB-2.
B. Earnings (Loss) Per Share
Basic earnings per share is computed by dividing income or loss applicable to
common shareholders by the weighted average number of shares of the Company's
common stock ("Common Stock"), after giving consideration to shares subject to
repurchase, outstanding during the period.
Diluted earnings per share is determined in the same manner as basic earnings
per share except that the number of shares is increased assuming exercise of
dilutive stock options and warrants using the treasury stock method. The diluted
earnings per share amount has not been reported because the Company has a net
loss and the impact of the assumed exercise of the stock options and warrants is
not dilutive.
C. Subsequent Events
Effective April 22, 1999, the Company completed an initial public offering of
its Common Stock. A total of 2,530,000 shares were issued at $10.00 per share;
net proceeds to the Company were approximately $22,453,750 after payment of
underwriting fees but before payment of related issue expenses.
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
notes thereto. Certain statements set forth below constitute "forward-looking
statements". Forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance
or achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, investors and prospective
investors are cautioned not to place undue reliance on forward-looking
statements. We disclaim any obligation to update information contained in any
forward-looking statement.
Overview
We are a Northeast regional Information/Internet service provider and
competitive local exchange carrier. We have been providing on-line services, and
related products, to individual and corporate clients since November 1992.
As an Internet service provider, we provide business and home Internet users
with access to the Internet via a personal computer and modem or dedicated
access line. This service is called dial-up access. We currently maintain a
national dial-up Internet service throughout the Northeast. We have developed a
base of corporate and institutional customers for our Internet services and have
built the necessary network infrastructure for an Internet service network. A
large part of our current operations is providing dedicated access lines for
commercial accounts. Dedicated access lines are telecommunication lines which
are used solely for a specific use, such as facsimile or Internet communication.
In October 1998, we were approved as a competitive local exchange company in the
State of Rhode Island. A competitive local exchange carrier is a company that
provides local access lines as opposed to long-distance or other services. This
allows us to send a telephone line into a home or business and enables us to
provide a full range of local telecommunications services to our customers, such
as Internet, voice, data and cable programming. Our clients include residential
users, Internet services providers, wireless carriers and business, government
and institutional end users. We intend to provide all of these services in
selected cities with populations of 200,000 to 2,000,000.
Results of Operations
During the first quarter of 1999, our efforts were focused on the preparation
and completion of a registration statement on Form SB-2 filed with the
Securities and Exchange Commission on January 9, 1999. Pursuant to this
registration statement, we registered 2,530,000 shares of our common stock. This
initial public offering was declared effective by the SEC on April 22, 1999 and
we raised approximately $25,300,000 in gross proceeds thereby.
Three Months Ended March 31, 1999
versus Three Months Ended March 31, 1998
- ----------------------------------------
Revenues
- --------
Our revenues are primarily comprised of dial-up, dedicated access service and
web services. Revenues grew 40% from $169,873 to $238,643 for the three months
ended March 31, 1999 as compared to the comparable period in 1998. Revenue
growth performance is attributable to an increase in sales efforts, services
offered and an aggressive marketing campaign in our local market, Rhode Island.
7
<PAGE>
Dial-up
During the first quarter of 1999, our dial-up base in Rhode Island continued to
expand. This was accomplished through cost-effective marketing campaigns. As a
result, dial-up revenue grew from $53,325 to $65,681 for the three months ended
March 31, 1999 as compared to the comparable period in 1998 for an increase of
23%.
Dedicated Access Service
During the first quarter of 1999, we increased our sales efforts for dedicated
Internet access service. As a result revenues grew from $97,286 to $144,169 for
the three months ended March 31, 1999 as compared to the comparable period in
1998 for an increase of 48%.
Web Services
During the first quarter of 1999, web site hosting and consulting continued to
become more important to our new and existing customers as the popularity of the
web increased as a business tool. As a result, web services revenue grew from
$19,263 to $25,285 for the three months ended March 31, 1999 as compared to the
comparable period in 1998 for an increase of 31%.
Gross Profit
Gross profit consists of total revenue less the cost of delivering services and
equipment. Gross profit increased from $97,491 to $118,703 for an increase of
22% as compared to the comparable period in 1998.
Selling General, and Administrative Expenses
Selling, general, and administrative expenses increased from $124,891 to
$307,187 for the three months ended March 31, 1999 for an increase of 146%.
These increases were primarily attributed to increases in personnel cost related
to an increase in the staff headcount, an increase in office expense, and
additional equipment costs associated with the build out of our network backbone
to accommodate increased usage of our network.
Net Loss
As a result of the previously mentioned factors, net loss grew from $27,460 to
$188,021 for the three months ended March 31, 1998 and 1999, respectively.
Liquidity and Capital Resources
The development and expansion of our business requires significant capital
expenditures. These capital expenditures primarily include build-out costs such
as the procurement, design, and construction of our connection points and metro
service center locations in each market, as well as other costs that support our
network design.
The number of targeted central offices in each market varies, as does the
average capital cost to build our connection points in the given market. Capital
expenditures were nominal during the first quarter of 1999. We expect our
capital expenditures to be substantially higher in future periods, arising
primarily from payments of colocation fees and the purchase of infrastructure
equipment necessary for the development and expansion of our network.
Our capital requirements may vary based upon the timing and success of our
rollout and as a result of regulatory, technological, and competitive
developments, or if
8
<PAGE>
- demand for our services or our anticipated cash flow from operations
is less or more than expected;
- our development plans or projections change or prove to be
inaccurate;
- we engage in any acquisitions; or
- we accelerate deployment of our network services or otherwise alter
the schedule or targets of our rollout plan.
We intend to continue to expand our operations at a rapid pace and expect to
continue to operate at a loss for the foreseeable future. The nature of expenses
contributing to our future losses will include network and service costs in
existing and new markets; legal, marketing, and selling expenses as we enter
each new market; payroll-related expenses as we continue to add employees;
general overhead to support the operational increases; and interest expense
arising from financing our expenditures.
We have not paid any dividends to our shareholders and will not pay dividends
for the foreseeable future.
Through March 31, 1999, we have financed our operations and market build-outs
primarily from the sale of our common stock in 1998, for which we received
approximately $1,250,000 in net proceeds. As of March 31, 1999, we had $220,113
in cash and investments and we had an accumulated deficit of $610,084.
Subsequent to the end of the first quarter, on April 22, 1999, we completed our
initial public offering of common stock, from which we received $22,453,750
after payment of underwriting fees but before payment of related issue expense.
We anticipate, based upon our current plans and assumptions relating to
operations, that the cash available following completion of this offering will
be sufficient to satisfy our contemplated cash requirements for 12 months
following completion of this offering.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessing to organize and properly address certain fields containing a
two-digit year is commonly referred to as the Year 2000 problem. As the year
2000 approaches, computer systems may be unable to accurately process certain
date-based information.
We have implemented a Year 2000 program to ensure that our computer systems and
applications will function properly beyond 1999. We have identified vendor and
business partner software with which we electronically interact, or from which
we purchase supplies, and have requested Year 2000 compliance certifications. We
have received verbal assurances from those vendors and business partners that
they and their respective suppliers are Year 2000 compliant. Although we believe
all of our systems are and will be Year 2000 compliant, there can be no
assurances that all of our vendors' and business partners' systems will be Year
2000 compliant. Our cost to comply with the Year 2000 initiative is not expected
to be material.
In June 1998, we began converting our computer system to be Year 2000 compliant.
As of December 15, 1998, all of our non-IT systems were compliant. As of March
31, 1999, we spent approximately $1,500 on our Year 2000 compliance efforts.
This figure includes all labor and expenses.
9
<PAGE>
PART II
OTHER INFORMATION
Item 1: Legal Proceedings
There are no legal proceedings pending or threatened against the Company.
Item 2: Changes in Securities
Not Applicable
Item 3: Defaults in Senior Securities
Not Applicable
Item 4: Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5: Other Information
Not Applicable
Item 6: Exhibits and Reports on Form 8K
(1) Exhibits:
27.1 Financial Data Schedule
(2) Reports on Form 8-K: None
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LOG ON AMERICA, INC.
By: /s/ Kenneth M. Cornell
-----------------------
Date: June 4, 1999 Kenneth M. Cornell,
Chief Financial Officer (Principal
Financial and Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 220,113
<SECURITIES> 0
<RECEIVABLES> 116,631
<ALLOWANCES> (17,896)
<INVENTORY> 0
<CURRENT-ASSETS> 532,329
<PP&E> 258,392
<DEPRECIATION> (172,250)
<TOTAL-ASSETS> 953,555
<CURRENT-LIABILITIES> 485,612
<BONDS> 0
0
0
<COMMON> 21,763
<OTHER-SE> 446,604
<TOTAL-LIABILITY-AND-EQUITY> 953,555
<SALES> 238,644
<TOTAL-REVENUES> 238,644
<CGS> 119,941
<TOTAL-COSTS> 119,941
<OTHER-EXPENSES> 307,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280
<INCOME-PRETAX> (188,021)
<INCOME-TAX> 0
<INCOME-CONTINUING> (188,021)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (188,021)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
