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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............ to ............
Commission File Number 33-27603
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DIRECTCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2942013
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20 Maple Avenue
Armonk, New York 10504
(Address of principal executive offices)
(914) 273-8620
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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
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The number of shares of Common Stock of the Registrant outstanding as of June
30, 2000 was 1,336,981.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Information
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<TABLE>
<CAPTION>
<S> <C>
Page No.
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Consolidated balance sheets - June 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated statements of operations (unaudited) - Three months ended
June 30, 2000 and 1999 4
Consolidated statements of operations (unaudited) - Six months ended
June 30, 2000 and 1999 5
Consolidated statements of cash flows (unaudited) - Six months ended
June 30, 2000 and 1999 6
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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There is no material litigation or other proceeding currently pending against
the registrant.
Item 2. Changes in Securities
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other information
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The basic and diluted earnings per common share for the six months ended June
30, 2000 is calculated as follows:
Common shares outstanding 1,336,981
Common shares equivalents outstanding 64,000
Continuing Operations
---------------------
Net Loss $ (79,272)
Per share - Basic loss $ (.02)
Per share - Diluted loss $ (.02)
Discontinued Operations
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Net Loss $ (590,055)
Per share - Basic loss $ (.16)
Per share - Diluted loss $ (.20)
1
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits: Page
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3.1 Amended and Restated Certificate of
Incorporation. The Certificate of Ownership
and Merger was filed with Registrant's
Form 10-K on April 20, 1990 and is hereby
incorporated by reference. ___
3.2 Bylaws of the Corporation already have been filed
with Registrant's prior Registration Statement
effective May 18, 1989 and are hereby incorporated
by reference. N/A
4.1 Form of Common Stock Certificate (specimen) has been
filed with Registrant's Registration Statement
effective May 18, 1989, and is hereby
incorporated by reference. N/A
10.1 Office Lease Agreement between Garrett Mountain ___
Office Center Associates-I and DirectCom, with
regard to the Armonk, New York office has
been filed with Registrant's 10-K for the year
ended December 31, 1996 and is hereby incorporated
by reference.
10.2 Stock Option Plan ___
10.3 Stock Purchase Agreement (filed herewith) 13
10.4 Asset Purchase Agreement (filed herewith) 16
11.1 Statement regarding the computation of per-share
earnings is included in Note __ to Financial
Statements on sequentially numbered page __ and
is hereby incorporated by reference. N/A
27 Financial Data Schedule (filed herewith) ___
(b) Reports on Form 8-K
Registrant filed a Form 8-K on July 17, 2000 reporting under Item 2 of
that Form of the sale of substantially all of Registrant's assets to North
American Communications, Inc. ("NAC"), a related party, to a Stock Purchase
Agreement dated as of June 30, 2000 and an Asset Purchase Agreement dated as of
July 1, 2000. Registrant's pro forma financial information and financial
statements for the transactions with NAC required under Item 7 of Form 8-K have
not yet been filed and will follow.
2
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DIRECTCOM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, 2000 December 31, 1999
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(Unaudited)
<S> <C> <C>
CASH $ 513,069 $ 351,012
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Total current assets 513,069 351,012
NOTE RECEIVABLE - RELATED COMPANY 650,000 -
OTHER ASSETS 269,909 267,209
NET (LIABILITIES) ASSETS OF DISCONTINUED OPERATIONS (146,809) 1,235,574
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TOTAL ASSETS $ 1,286,169 $ 1,853,795
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 9,279 6,100
Accrued expenses and other current liabilities 19,250 -
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Total current liabilities 28,529 6,100
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TOTAL LIABILITIES 28,529 6,100
SHAREHOLDERS' EQUITY
Preferred stock $.00001 par value - authorized 10,000,000
shares; issued and outstanding: none - -
Common stock $.00001 par value - authorized 60,000,000 shares;
shares are held as treasury stock. 38 38
issued: 3,661,983, of which 2,325,002 shares are held as
treasury 659,777 659,777
Retained earnings 4,090,325 4,680,380
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4,750,140 5,340,195
Less treasury stock, at cost (3,492,500) (3,492,500)
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TOTAL SHAREHOLDERS' EQUITY 1,257,640 1,847,695
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,286,169 $ 1,853,795
=============== ==============
</TABLE>
See notes to consolidated financial statements
3
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DIRECTCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
REVENUES $ - $ -
Total revenues - -
Selling, general and administrative expenses 83,542 93,971
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Total costs and expenses 83,542 93,971
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OTHER INCOME
Miscellaneous income 11,331 15,179
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Total other income 11,331 15,179
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Loss from continuing operations before income taxes and
discontinued operations (72,211) (78,792)
Benefit for income taxes (28,884) (31,517)
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Loss from continuing operations before discontinued operations (43,327) (47,275)
(Loss) income from discontinued operations (Note 2) (510,783) 181,257
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Net (loss) income $ (554,110) $ 133,982
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BASIC EARNINGS PER SHARE
Continuing operations $ (0.01) $ (0.06)
=========== =========
Discontinued operations $ (0.16) $ (0.06)
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DILUTED EARNINGS PER SHARE
Continuing operations $ (0.01) $ (0.01)
=========== =========
Discontinued operations $ (0.16) $ (0.05)
=========== =========
</TABLE>
See notes to consolidated financial statements.
4
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DIRECTCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
REVENUES $ - $ -
------------ -----------
Total revenues - -
Selling, general and administrative expenses 160,033 183,258
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Total costs and expenses 160,033 183,258
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OTHER INCOME
Miscellaneous income 27,915 30,104
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Total other income 27,915 30,104
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Loss from continuing operations before income taxes and
and discontinued operations (132,118) (153,154)
Benefit for income taxes (52,846) (61,261)
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Loss from continuing operations before discontinued operations (79,272) (91,893)
(Loss) income from discontinued operations (Note 2) (510,783) 1,050,436
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Net (loss) income $ (590,055) $ 958,543
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BASIC EARNINGS PER SHARE
Continuing operations $ (0.02) $ (0.03)
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Discontinued operations $ (0.16) $ .33
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DILUTED EARNINGS PER SHARE
Continuing operations $ (0.02) $ (0.03)
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Discontinued operations $ (0.16) $ .29
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</TABLE>
See notes to consolidated financial statements.
5
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DIRECTCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (590,055) $ 958,543
Adjustments to reconcile net income
to net cash provided by operating activities:
(Increase) decrease in:
Note receivable - related company (650,000) -
Other assets (2,700) -
Increase (decrease) in:
Accounts payable 3,179 -
Accrued expenses and other current liabilities 19,250 -
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Net cash (used) provided by operating activities (1,220,326) 958,543
Cash flows from financing activities:
Excercised stock options - 9,600
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Net cash provided by financing activities - 9,600
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Net cash provided (used) by discontinued operations 1,382,383 (1,222,933)
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Net increase (decrease) in cash 162,057 (254,790)
Cash at beginning of period 351,012 1,205,089
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Cash at end of period $ 513,069 $ 950,299
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</TABLE>
See notes to consolidated financial statements.
6
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DIRECTCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and related footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
NOTE 2 - DISCONTINUED OPERATIONS
Effective June 30, 2000 the Company sold two hundred thirty two and one-third
(232 and 1/3) shares of Common Stock (the "Shares") of its subsidiary Color
Graphics, Inc. ("Color Graphics") to a related party, North American
Communications, Inc. (NAC) for $800,000, plus the assumption of a payable to
Color Graphics, Inc. of $2,347,588. The Company also sold its Agency division to
NAC for $50,000. Effective September 30, 1999 the Company closed its database
operations in West Paterson, New Jersey.
Accordingly, the results of the discontinued operations with the prior year
restated in accordance with Accounting Principles Board Opinion No. 30.
Components of amounts reflected in the statements of operations, balance sheets
and statements of cash flow are as follows:
Statement of operations data for the six months ended June 20,
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Revenues $ 4,603,313 $ 13,181,907
Costs and expenses (4,735,929) (11,432,471)
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Operating (loss) income (132,616) 1,749,436
Income tax provision 53,345 (699,000)
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Net (loss) income (79,271) 1,050,436
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Loss on sale of Color Graphics (557,105)
Gain on sale of DirectLine Agency 46,322
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Loss (510,783)
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590,054
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Balance sheet data for the period ended
6/31/00 12/31/99
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<S> <C> <C>
Current Assets - 2,689,060
Property plant and equipment, net - 6,393,502
Other assets - 366,450
Current liabilities - 1,337,579
Deferred income taxes 3,400 531,600
Non current liabilities 143,409 6,344,259
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Net liabilities of discontinued operations (146,809) 1,235,574
=========== ============
</TABLE>
<TABLE>
<S> <C> <C>
Cash flow data for the six months ended June 30,
Cash flow from operations $ 1,536,721 $ (951,110)
Cash used in investments - (92,712)
Cash flow from financing activities (137,754) (179,111)
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Cash provided (used) by discontinued operations $ 1,398,967 $ (1,222,933)
=========== ============
</TABLE>
7
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DIRECTCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3 - RELATED-PARTY TRANSACTIONS
Certain of the Company's major shareholders also exercise control over North
American Communications, Inc. (NAC), a related party Company. The Company's note
receivable related company is the balance due on the remaining installments
relating to the sale of Color Graphics, Inc. and the sale of the Company's
DirectLine Production Agency to North American Communications, Inc. The loan
payable related party payable resulted from cash transfers to the Company from
Color Graphics, Inc.
NOTE 4 - INCOME TAXES
The income tax benefit consists of the Company's current credit for federal and
state taxes. The effective tax rate was 40% for the six months ended June 30,
2000 and June 30, 1999.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number of
outstanding common shares for the period. Diluted earnings per share adjusts the
weighted average for the potential dilution that could occur if stock options,
warrants or other convertible securities were exercised or converted into common
stock.
8
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Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Periods Ended June 30, 2000 and June 30, 1999
General
Effective June 30, 2000 the Company sold its 82% ownership in Color Graphic,
Inc. and their DirectLine Productions Agency operations to North American
Communications, Inc. ("NAC"), a related party. The selling price of Color
Graphics, Inc was $800,000, of which $200,000 was paid at the time of the
closing and the balance payable in three annual installments of $200,000 (plus
simple interest at the rate of 8%), plus the assumption of a payable to
ColorGraphics, Inc. of $2,347,588. The DirectLine Productions Agency selling
price was $50,000. The proceeds from the Agency sale were subsequently paid in
July. Additionally, in September of 1999 the Company phased out their database
operations.
The Company is currently re-evaluating directional and growth strategies for the
future. The Company will continue to maintain executive offices in Armonk, New
York. At present the Company does not anticipate any further revenue for the
remainder of the year 2000.
(a) Results of Operations -- Three Months Ended June 30, 2000 and June 30, 1999
Selling, General and Administrative Expenses
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The selling, general and administrative cost for the three month period ended
June 30, 2000 relate to executive operational costs and reflect officer
salaries, travel and entertainment, consulting and legal expenditures for the
period.
Other Income
------------
Miscellaneous income primarily represents interest income on the Company's cash
deposits. The current period decrease in interest income is attributed to the
decreased cash balances during the second quarter of 2000 as compared to the
same period in 1999.
Income Taxes
------------
The income tax benefit resulted from a loss from operations. The effective tax
rate was 40% for the three months ended June 30, 2000 and 1999, respectively.
Selling, General and Administrative Expenses
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(b) Results of Operations -- Six Months Ended June 30, 2000 and June 30, 1999
The selling, general and administrative cost for the six month period ended June
30, 2000 relate to executive operational costs and reflect officer salaries,
travel and entertainment, consulting and legal expenditures for the period.
Other Income
------------
Miscellaneous income primarily represents interest income on the Company's cash
deposits. The current period decrease in interest income is attributed to the
decreased cash balances during the second quarter of 2000 as compared to the
same period in 1999.
Income Taxes
------------
The income tax benefit resulted from a loss from operations. The effective tax
rate was 40% for the six months ended June 30, 2000 and 1999, respectively.
9
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Liquidity and Capital Resources
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<TABLE>
<CAPTION>
6/30/00 12/31/99
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<S> <C> <C>
Working capital $ 484,540 $ 344,912
Cash 513,069 351,012
<CAPTION>
6/30/00 6/30/99
----------- -----------
<S> <C> <C>
Cash (used) provided by operating activities (1,328,222) 958,543
Cash used in financing activities - 9,600
</TABLE>
Working capital increased as of June 30, 2000 by $139,628 as compared to
December 31, 1999, primarily as a result increased cash.
The decrease in cash flows from operations in 2000 resulted primarily from the
current period loss and the activity relating to the Company's sale of its Color
Graphics, Inc. and DirectLine Productions Agency division.
10
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable
11
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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.
DIRECTCOM, INC.
By: /s/ Nicholas Robinson
--------------------------------
Nicholas Robinson
Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title Date
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<S> <C> <C>
By: /s/ Nicholas Robinson President and Chief 8//14/00
---------------------------------------- Executive Officer
Nicholas Robinson, Chairman of the Board
By: /s/ Robert W. Paltrow Director, 8/14/00
---------------------------------------- Secretary/Treasurer
Robert W. Paltrow
By: /s/ Robert E. Norman Director 8/14/00
----------------------------------------
Robert E. Norman
</TABLE>
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