UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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: 1-14076
VIZACOM INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3270045
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
Glenpointe Centre East
300 Frank W. Burr Boulevard, 7th Floor
Teaneck, New Jersey 07666
(Address of principal executive offices)
(201) 928-1001
(Issuer's telephone number)
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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 12,051,739 shares of Common Stock, as
of May 9, 2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<PAGE>
VIZACOM INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item Pages
- ---- -----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2000 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-19
2
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -----------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,598,631 $ 1,730,495
Marketable securities 152,928 2,746,678
Receivables
Trade, less allowances of $810,557 and $434,290 4,736,733 558,550
Other 200,621 88,842
Notes 80,356 86,018
Inventories 1,678,360 1,457,604
Prepaid expenses and other current assets 535,084 526,552
------------ ------------
Total current assets 11,982,713 7,194,739
Property and equipment, net 975,063 828,108
Goodwill, net of accumulated amortization of $401,421
and $256,066 12,953,470 118,665
Restricted cash 1,638,092 259,838
Deferred consulting costs 1,507,236 1,269,859
Other assets 1,090,144 803,762
------------ ------------
Total assets $ 30,146,718 $ 10,474,971
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,356,298 $ 4,111,748
Accrued liabilities 2,775,135 1,816,744
Subscription liability 1,378,254 -
Sales and value-added taxes payable 309,020 393,927
Current portion of capital lease obligations 157,916 63,792
Current portion of long-term debt 3,633,430 155,554
------------ ------------
Total current liabilities 12,610,053 6,541,765
Capital lease obligations, less current portion 110,990 98,265
Long-term debt, less current maturities 114,682 100,410
------------ ------------
Total liabilities 12,835,725 6,740,440
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.001 per share,
60,000,000 shares authorized, 11,885,634
and 7,235,578 shares issued 11,886 7,236
Additional paid-in capital 66,530,433 49,851,699
Accumulated deficit (49,256,155) (47,864,635)
Accumulated other comprehensive income 35,224 1,750,626
Treasury stock, 3,095 shares, at cost (10,395) (10,395)
------------ ------------
Total stockholders' equity 17,310,993 3,734,531
------------ ------------
Total liabilities and stockholders' equity $ 30,146,718 $ 10,474,971
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
----------------------------
<S> <C> <C>
Net sales $ 3,942,465 $ 4,935,528
Cost of sales 1,316,024 1,532,965
Gross profit 2,626,441 3,402,563
Selling, general and administrative expenses 4,740,481 4,004,396
Product development 162,574 153,369
Amortization of goodwill and purchased technology 145,355 594,320
Realized gain on marketable securities (1,095,348) --
Unrealized holding gain on marketable securities -- (660,000)
Other expenses (income), net 64,899 (17,580)
----------- -----------
4,017,961 4,074,505
Net loss (1,391,520) (671,942)
Dividends on Series A and Series C Preferred Stock -- (26,161)
----------- -----------
Net loss attributable to common stockholders $(1,391,520) $ (698,103)
=========== ===========
Net loss per common share:
Net loss per common share - basic and diluted $ (0.18) $ (0.13)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted 7,918,316 5,179,394
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated
Shares Amount Capital Deficit
-------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 7,235,578 $ 7,236 $ 49,851,699 $ (47,864,635)
Net loss - - - (1,391,520)
Unrealized holding gain - - - -
Currency translation adjustment - - - -
-------------
Total comprehensive income (1,391,520)
-------------
Sale of common stock in private placements, net 1,699,425 1,699 6,646,506 -
Common stock issued on exercise of warrants and stock options 318,943 319 644,356 -
Common stock issued in connection with acquisitions 2,631,688 2,632 8,497,368 -
Issuance of options to consultants in connection with an acquisition - - 186,500 -
Issuance of warrants in connection with line of credit - - 382,500 -
Issuance of options and warrants for consulting services - - 321,504 -
------------- -------- ------------ -------------
Balance at March 31, 2000 11,885,634 $ 11,886 $ 66,530,433 $ (49,256,155)
============= ======== ============ =============
<CAPTION>
Accumulated
Other Total
Comprehensive Treasury Stockholders'
Income (Loss) Stock Equity
-------------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1999 $ 1,750,626 $ (10,395) $ 3,734,531
Net loss - - -
Unrealized holding gain (1,696,578) - -
Currency translation adjustment (18,824) - -
-----------
Total comprehensive income (1,715,402) - (3,106,922)
-----------
Sale of common stock in private placements, net - - 6,648,205
Common stock issued on exercise of warrants and stock options - - 644,675
Common stock issued in connection with acquisitions - - 8,500,000
Issuance of options to consultants in connection with an acquisition - - 186,500
Issuance of warrants in connection with line of credit - - 382,500
Issuance of options and warrants for consulting services - - 321,504
----------- --------- ------------
Balance at March 31, 2000 $ 35,224 $ (10,395) $ 17,310,993
=========== ========= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
VIZACOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
----------- -----------
2000 1999
----------- -----------
Operating activities:
<S> <C> <C>
Net loss $(1,391,520) $ (671,942)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 407,235 635,205
Unrealized holding gain on trading securities -- (660,000)
Realized gain on marketable securities (1,095,348) --
Warrants and stock options issued for consulting services 321,504 --
Changes in assets and liabilities, net of effects of acquisitions:
Receivables (220,059) 608,508
Inventories 187,777 6,765
Prepaid expenses and other current assets 6,479 (526,686)
Other assets (162,732) (14,584)
Accounts payable (1,041,798) 191,685
Accrued liabilities 622,050 (753,029)
Sales and value-added taxes payable (63,954) --
=========== ===========
Net cash used in operating activities (2,430,366) (1,184,078)
=========== ===========
Investing activities:
Purchase of property and equipment (76,468) (13,519)
Investment in website (119,676) --
Increase in resricted cash (1,378,254) --
Collection of note receivable 5,662 --
Payment for acquisitions, net of cash acquired (1,694,990) --
=========== ===========
Net cash used in investing activities (3,263,726) (13,519)
=========== ===========
Financing activities:
Proceeds from sale of common stock - net 6,648,205 --
Capital stock subscriptions received 1,378,254 --
Proceeds from exercise of warrants and options 644,675 5,500
Payment of long-term debt and capital lease obligations (108,906) (55,127)
Costs related to issuance of equity instruments -- (33,905)
=========== ===========
Net cash provided by (used in) financing activities 8,562,228 (83,532)
=========== ===========
Increase (decrease) in cash and cash equivalents 2,868,136 (1,281,129)
Cash and cash equivalents at beginning of period 1,730,495 2,377,648
=========== ===========
Cash and cash equivalents at end of period $ 4,598,631 $ 1,096,519
=========== ===========
Supplemental disclosure of cash flow information:
Interest $ 27,091 $ 5,152
=========== ===========
Income taxes $ -- $ --
=========== ===========
Supplemental disclosure of non-cash financing and investing activities:
Fixed assets additions acquired with capital lease obligations $ 23,154 $ --
=========== ===========
Dividends accrued on preferred stock $ -- $ 26,161
=========== ===========
Fair value of net assets acquired for common stock,
stock options, and notes payable (see Note 3) $ 9,949,245 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Vizacom Inc. and its wholly owned subsidiaries, have been prepared in
accordance with generally accepted accounting principles for interim
financial information 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 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
three-month period ended March 31, 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
footnotes thereto included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999.
The condensed consolidated balance sheet as of December 31, 1999 has been
derived from the Company's audited consolidated balance sheet as of that
date.
2. Significant Accounting Policies
Business Combinations
The Company has accounted for all business combinations under the purchase
method of accounting. Under this method the purchase price is allocated to
the assets and liabilities of the acquired enterprise as of the acquisition
date based on their estimated respective fair values, which are subject to
revision for a period not to exceed one year from the date of acquisition.
The results of operations of the acquired enterprises are included in the
Company's consolidated financial statements for the period subsequent to
their acquisition.
Product Development Costs
Costs incurred in the development of new software products are expensed as
incurred until technological feasibility has been established. Product
enhancement costs for products which have established technological
feasibility are capitalized, and capitalization is discontinued when the
product is available for sale. Approximately $624,000 had been capitalized
through March 31, 2000. Amortization, which commences when the products are
available for general release to customers, is computed at the greater of
the straight-line rate over the estimated life of each product, or an
amount based on the ratio of current revenues to the total of current and
anticipated revenues.
Web Site Development Costs
Certain direct internal and external costs of web site development incurred
during the application development stage are being capitalized and
amortized over a three-year period. At March 31, 2000, $330,000 of these
remaining development costs, net of $58,081 of accumulated amortization,
are included in other assets.
7
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Acquisitions
On February 15, 2000, the Company acquired Renaissance Computer Art Center,
Inc., d/b/a Renaissance Multimedia, a New York City based website design
firm. The aggregate purchase price, including all direct costs, was
$2,662,101 and was paid through the issuance of 449,870 shares of the
Company's common stock and a $250,000 cash payment. The Company entered
into a three-year employment contract with the President of Renaissance
Multimedia at an annual salary of $175,000, with certain predetermined
performance bonus targets. Additionally, the Company granted options to
purchase an aggregate of 600,000 shares of its common stock under its 1994
Long Term Incentive Plan to certain employees of Renaissance Multimedia.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the consolidated financial statements of the Company include
the results of this business subsequent to the acquisition date. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values on the date of purchase. The $2,438,668 cost in
excess of net assets acquired of $223,433 is reflected as goodwill and is
being amortized over five years.
On March 9, 2000, the Company acquired all of the outstanding shares of
Junction 15 Limited, a London based website design firm. The aggregate
purchase price, including all direct costs, was $2,724,922 and was paid
through the issuance of 681,818 shares of the Company's common stock and a
$250,000 cash payment. The Company entered into three-year employment
agreements with two directors and stockholders of Junction 15, with
starting salaries of approximately $150,000 and $80,000, respectively, with
various provisions for pensions, commissions, and bonuses. Additionally,
the Company granted options to purchase an aggregate of 250,000 shares of
its common stock under its 1994 Long Term Incentive Plan to certain
employees of Junction 15. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the consolidated financial
statements of the Company include the results of this business subsequent
to the acquisition date. The purchase price was allocated to the assets
acquired and liabilities assumed based on their fair values on the date of
purchase. The $2,724,922 cost in excess of net assets acquired of $5,171 is
reflected as goodwill and is being amortized over five years.
On March 27, 2000, the Company acquired PWR Systems, a Long Island, New
York based interactive integrator and value-added reseller of computer and
digital information equipment, for $8,326,732. The purchase price included
a $1,000,000 cash payment, one-year promissory notes in the aggregate
principal amount of $500,000, convertible into the Company's common stock
at $3.00 per share, and payable in equal quarterly installments with
interest of 6.3% per annum, and 1,500,000 shares of the Company's common
stock, valued at $3 per share, issued to the two principals of PWR. The
acquisition agreement also calls for additional contingent consideration of
up to $350,000 per annum for the three-year period following the
acquisition based upon increases in PWR's earnings before interest, taxes,
depreciation, and amortization. The Company is further obligated to issue
additional common stock if, during the twelve months following the
acquisition, the market price of the Company's common stock falls below $1
per share for any thirty-consecutive day period. The Company entered into
three-year employment agreements with PWR's two principals providing for
annual salaries of $200,000 to each of them, and provisions for bonuses
upon attaining specified performance thresholds. Additionally, the Company
granted options to purchase an aggregate of 750,000 shares of its common
stock under its 1994 Long Term Incentive Plan to officers, employees and
independent contractors of PWR. Furthermore, the Company agreed to prepay,
upon receipt of gross proceeds of $15,000,000 from equity offerings, 6.3%
notes payable in the aggregate principal amount of $762,745 to the PWR
stockholders, equivalent to the retained earnings of PWR Systems at the
closing date. Otherwise, the note will be paid in quarterly installments
through March 2001. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the consolidated financial statements of
the Company include the results of this business subsequent to the
acquisition date. The purchase price was allocated to the assets acquired
and liabilities assumed based on their fair values on the date of purchase.
The $7,821,741 cost in excess of net assets acquired of $691,491 is
reflected as goodwill and is being amortized over seven years.
8
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Acquisitions (cont.)
The following table summarizes the net assets of such acquired businesses:
<TABLE>
<CAPTION>
Renaissance
Category Multimedia Junction 15 PWR Systems Total
------------------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets $ 365,983 $ 163,614 $ 4,086,805 $ 4,616,402
Noncurrent assets 97,990 42,728 21,467 162,185
----------- ----------- ----------- -----------
Total assets 463,973 206,342 4,108,272 4,778,587
----------- ----------- ----------- -----------
Current liabilities 209,997 167,997 3,416,781 3,794,775
Noncurrent liabilities 30,543 33,174 63,717
----------- ----------- ----------- -----------
Total liabilities 240,540 201,171 3,416,781 3,858,492
----------- ----------- ----------- -----------
Net tangible assets acquired 223,433 5,171 691,491 920,095
Goodwill 2,438,668 2,719,751 7,821,741 12,980,160
----------- ----------- ----------- -----------
Purchase price $ 2,662,101 $ 2,724,922 $ 8,513,232 $13,900,255
=========== =========== =========== ===========
</TABLE>
Under an August 1999 agreement with a third party, the Company agreed to
transfer certain of our marketable securities, consisting of shares of
common stock of Xceed Inc., based upon the consideration paid for
acquisitions of any company identified by this third party. The Company
recorded a realized gain of $1,095,348 during the quarter ended March 31,
2000 related to 59,813 Xceed shares transferred to this third party for the
Company's acquisitions of Renaissance Multimedia and PWR Systems. The gain
represents the realization of the appreciation in market value at the dates
of these acquisitions. The third party received 14,953 Xceed shares for the
Renaissance Multimedia acquisition and 44,860 Xceed shares for the PWR
acquisition, resulting in respective gains of $371,962 and $723,386.
4. Loss per Share
Basic loss per share is computed based upon the weighted average number of
common shares outstanding during each period presented. Stock options did
not have an effect on the computation of diluted earnings per share in the
three month periods ended March 31, 2000 and 1999 since they were
anti-dilutive.
5. Debt
On January 8, 2000, as amended March 15, 2000, the Company entered into an
agreement for a maximum $1,000,000 unsecured line of credit note
arrangement with a foreign company. Advances under the arrangement bear
interest at 8%. The Company borrowed $1,000,000 on February 17, 2000. This
borrowing was paid in full with accrued interest on March 20, 2000. With
the exception of the first advance, all future advances are payable within
180 days of the receipt of the advance, and the credit facility has a
two-year term. In connection with the first advance under this credit
facility, the Company issued seven-year warrants to purchase an aggregate
of 250,000 shares of its common stock exercisable at $3.00 per share. The
warrants were valued at $382,500 and are being charged to interest expense
over the two-year agreement period.
9
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Stockholders' Equity
On January 8, 2000, the Company entered into a three-year consulting
agreement under which the Company issued 650,000 three-year warrants
exercisable at $3.00 per share. One hundred thousand of these warrants are
exercisable immediately, and 400,000 warrants are exercisable upon the
attainment of specified performance targets. In addition, 150,000 warrants
are being held in escrow and are to be released on January 7, 2003, or
earlier with the Company's approval. The Company has recorded a charge of
$172,404 related to the currently exercisable 100,000 warrants in the first
quarter of 2000, as well as a $55,354 pro-rata variable charge for the
150,000 warrants subject to escrow.
In March 2000, the Company completed two private placements under which it
sold 1,699,425 shares of its common stock for gross proceeds of $7,609,290.
Under the first of these private placements, the Company sold 936,954
shares of its common stock and received gross proceeds of $4,216,294. In
the second private placement, conducted in Europe, the Company sold 762,471
shares of its common stock for gross proceeds of $3,392,996.
The Company has received additional subscriptions in the second European
private placement for 331,518 shares with an aggregate gross subscription
price of $1,415,255, of which subscriptions for 309,720 shares, for
aggregate gross proceeds of $1,378,254, were received by the Company as of
March 31, 2000. The Company has not as yet accepted these subscriptions.
Accordingly, at March 31, 2000 the Company has recorded the $1,378,254
received as restricted cash as well as a subscription liability in the same
amount. The Company is awaiting a final determination by the Nasdaq Stock
Market relating to the non-integration of the two first quarter private
placements under the Nasdaq Marketplace Rules, or alternatively, that
notwithstanding any such integration of the two private placements that the
number of shares of common stock issued and issuable does not exceed 20% of
the Company's outstanding common stock for purposes of such Marketplace
Rules.
7. Litigation
In the fourth quarter of 1998, an action was commenced against Vizacom in
California in which plaintiff is seeking $300,000 in damages for the
Company's alleged violation of a lease for office space located in San
Jose, California. This is the location at which one of our subsidiaries,
Software Publishing Corporation, had its principal place of business and at
which the Company had its principal executive offices during the period of
January 1997 through January 1998. The Company no longer has any offices at
this location. The Company has filed an answer in this action denying the
plaintiffs' claims and plans to file a summary judgement motion seeking a
determination in its favor on the claims. The Company believes that the
plaintiffs claims are without merit and intends to vigorously defend itself
in this action.
In February 2000, the Company received a demand for arbitration with
respect to certain fees payable in connection with an investment banking
agreement which it terminated. The claim calls for payment of $45,000 and
reinstatement of warrants to purchase 150,000 shares of common stock,
cancelled upon termination of the investment banking agreement, and legal
and other expenses in connection with the arbitration. The Company believes
that the claims in this action are without merit and intends to vigorously
defend itself in this action.
On January 30, 1998, an action was commenced against the Company, its
current chief executive officer and its former chief executive officer. The
action alleged that the plaintiffs' investment in 296,333 shares of common
stock for $919,495 was made based upon certain information that was
intended to deceive the plaintiffs. The plaintiffs sought to rescind the
investment and certain other relief. In April 2000, this case was dismissed
with prejudice with no further cost to the Company.
10
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Litigation (cont.)
The Company has other litigation matters in progress in the ordinary course
of business. In the opinion of management, all pending litigation of the
Company will be resolved without a material adverse effect on the Company's
financial position, results of operations or cash flows.
8. Segment Information
During the quarter ended March 31, 2000, the Company completed three
acquisitions described in Note 3. Collectively, the three acquisitions form
the foundation for the Company's international interactive e-commerce
solutions business. Revenues from this business segment consist primarily
of e-commerce consulting, website design, web and system integration
services and hardware sales.
The Company's historical business consists primarily of its direct sale of
software and digital cameras, collectively referred to as visual
communication products, utilizing the Company's direct mail marketing and
telemarketing operations at our Nashua, New Hampshire, Nottingham, England
and Aachen, Germany call center locations, and its internet-based
e-commerce network portal VisualCities.com. During the first quarter of
2000, the Company began to market its web-enabled call center capabilities
to third party customers. During the second quarter of 2000, the Company
anticipates reorganizing its historical business into two segments: visual
communication products and web-enabled call centers. In addition, the
Company anticipates that its visual communication segment will discontinue
the sale of digital cameras, except for promotional activities and the
liquidation of existing inventories.
Information concerning our first quarter segment operations is set forth
below:
<TABLE>
<CAPTION>
Visual
Communication
Products Interactive Corporate Consolidated
-------- ----------- --------- ------------
Quarter ended March 31, 2000:
<S> <C> <C> <C> <C>
Net sales $ 3,498,871 $ 443,594 $ -- $ 3,942,465
Investment gains -- -- (1,095,348) (1,095,348)
Segment profit (loss) (1,283,198) (93,519) (14,803) (1,391,520)
Total assets 4,631,176 19,958,237 5,557,305 30,146,718
Depreciation and amortization 96,734 130,301 180,200 407,235
Quarter ended March 31, 1999:
Net sales $ 4,935,528 $ -- $ -- $ 4,935,528
Investment gains -- -- (660,000) (660,000)
Segment profit (loss) (6,757) -- (665,185) (671,942)
Total assets 4,472,465 -- 4,500,323 8,972,788
Depreciation and amortization 628,602 -- 6,603 635,205
</TABLE>
11
<PAGE>
VIZACOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Related Party Transactions
During the first quarter of 2000, the Company incurred approximately
$424,000 of legal fees, primarily in connection with the Company's
acquisition and financing transactions, to a law firm of which a director
of the Company is a member. Approximately $480,000 owed to this law firm is
included in accounts payable at March 31, 2000.
10. Subsequent Events
In April 2000, the Company entered into a letter of intent to acquire
certain operating assets of Silkroad Interactive Inc. in a cash and stock
transaction. Silkroad Interactive Inc. is a New York City based web and
systems integration company focused on internet security systems, customer
relationship management software, and e-commerce systems development
activities. The consummation of this acquisition is subject to customary
closing conditions.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Quarterly Report on Form 10-QSB include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Forward-looking statements involve
known and unknown risks, uncertainties and other factors which could cause our
actual results, performance and achievements, whether expressed or implied by
such forward-looking statements, not to occur or be realized. Such
forward-looking statements generally are based upon the Company's best estimates
of future results, performance or achievement, based upon current conditions and
the most recent results of operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue" or similar terms,
variations of those terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as:
o the market acceptance and amount of sales of our products and services,
o the success of our expansion into Internet and other interactive e-commerce
solutions offerings, such as web site design, web-enabled customer service
and systems integration,
o our success in integrating the operations of acquired companies, including
Renaissance Multimedia, Junction 15 and PWR Systems, into a coordinated and
complementary operation,
o the extent that we are able to generate e-commerce revenues from, build
membership in and implement technological enhancements to our
VisualCities.com Internet commerce network,
o our ability to retain an active user base, attract new users and maintain
customer satisfaction for our software products, as well as our
VisualCities.com and other web sites,
o the extent that our direct marketing operations achieve satisfactory
response rates,
o our ability to obtain sufficient supplies of marketable products,
o the competitive environment within the industries in which we operate,
o our ability to raise additional capital,
o the extent to which we are successful in developing, acquiring or licensing
products which are accepted by the market,
o consumer confidence in the security of transactions on our web sites,
o our ability to attract and retain qualified personnel,
o business and consumer trends,
o the cost-effectiveness of our product development activities, and
o the other factors and information disclosed and discussed under "Risk
Factors" below and in other sections of this Quarterly Report on Form
10-QSB.
Investors should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements. We undertake
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Business Overview
We provide business-to-business and business-to-consumer interactive e-commerce
solutions to businesses seeking to improve their operations through the use of
internet, intranet, and extranet-based technologies. We also develop and market
visual communication software products, resell third-party computer software,
hardware and ancillary products, and provide web-enabled internet and
traditional call center services to third parties.
Our interactive e-commerce solutions are intended to aid our clients in
improving business efficiencies, enhancing customer relationships, and marketing
or branding their businesses, products and services. We combine our
industry-specific knowledge and local implementation abilities in providing
interactive e-commerce solutions to companies based in the U.S. and Europe. Our
interactive e-commerce solutions clients primarily consist of small and
mid-sized companies and divisions and local offices of large, multi-national
corporations. We believe that our highly respected and worldwide brand name,
web-enabled call centers and intellectual property, in conjunction with our core
competencies of direct marketing, telemarketing, customer service, technical
support and fulfillment provide a significant foundation for the growth of our
interactive e-commerce solutions business. We believe that we can provide
significantly valuable interactive e-commerce solutions to our customers. Our
interactive e-commerce solutions business includes the following services:
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<PAGE>
o web site development, including web site graphic design, e-business
consulting, marketing and implementation systems integration services,
including Internet, intranet and extranet development, web site-to-legacy
systems integration, computer network design and implementation, and acting
as an authorized value-added- reseller of computer and other digital
communication equipment, and
o e-commerce call center services, including multi-national, multi-lingual
web-enabled call-center sales, customer and technical-support services, and
related direct marketing, telemarketing and product fulfillment services.
We gained our competencies in web site development and systems integration
through our recent acquisitions of Renaissance Multimedia, Junction 15 and PWR
Systems.
We gained our competencies in customer service, telemarketing, direct marketing
and product fulfillment services through our historical business of developing
and marketing our own and third-party computer products. We currently operate
three telemarketing call centers in Nashua, New Hampshire, Nottingham, England,
and Aachen, Germany. We have web-enabled each of these three centers using an
Internet protocol-based multimedia contact center technology that we licensed on
a worldwide basis from a third-party. As such, our call centers are capable of
providing real-time chat, audio and video internet communication services
between our call-center representatives, acting on behalf of our clients, and
our clients' customers, under current bandwidth capabilities. Our call centers
are operated on a 24 hours per day, seven days per week, 365 days per year,
commonly referred to as on a 24/7/365, basis.
We continue to develop and market visual communications products. We currently
offer twenty-eight software products, which we developed and own, that operate
on Windows-based operating systems for personal and networked computers. Our
current flagship software products include Serif PagePlus 6, Harvard Graphics
98, Harvard Graphics Easy Presentations, Serif DrawPlus 4 and Serif PhotoPlus 6.
We also offer a number of hardware products, primarily digital cameras,
manufactured by third parties, and sell software products packaged together with
hardware products. As a result of declining revenues and margins for digital
cameras in the first quarter of 2000, we intend to discontinue the sale of
digital cameras in the second quarter of 2000, except for promotional activties
and the liquidation of existing inventories.
Through our Serif Inc. and Serif (Europe) Limited subsidiaries, two companies we
acquired in May 1996, we have over ten years of experience in software
development and international direct marketing and telemarketing. We believe the
Serif brand is highly regarded and well-known throughout the United Kingdom for
its line of visual communication graphic software products. Through our Software
Publishing Corporation subsidiary, which we acquired in December 1996, we own
the Harvard Graphics brand and product line. We believe the Harvard Graphics
brand is internationally recognized as a pioneer in computer software
applications, and is respected internationally for its presentation graphics
software products. We continue to explore additional uses of our intellectual
property, including our exporting of the technologies to operating systems other
than Windows, such as the open source Linux operating system. We have not as of
yet made a determination as to the feasibility, marketability or profitability
of such products or activities.
We also operate VisualCities.com, a destination web site that offers
information, content, membership benefits, products and services targeted at the
visual communication computer products community. We intend to utilize this web
site to sell visual communications products, including our own products and
products manufactured by third parties, to users in our targeted market.
14
<PAGE>
Results of Operations
Three Month Period Ended March 31, 2000 Compared to the Three Month Period Ended
March 31, 1999
General. We entered the interactive e-commerce solutions business during the
first quarter of 2000, as we completed three acquisitions and raised over
$7,000,000 from sales of our common stock. On February 15, 2000, we acquired
Renaissance Multimedia, a New York City based website design firm; on March 9,
2000 we acquired Junction 15 Limited, a London based website design firm; and on
March 27, 2000 we acquired PWR Systems Inc., a Long Island, New York based
interactive integrator and value-added reseller. Collectively these three
companies form the foundation for our international interactive e-commerce
solutions business serving the needs of the new economy.
Our historical business consists primarily of our direct sale of software and
digital cameras, collectively referred to as visual communication products,
utilizing our direct mail marketing operations at our New Hampshire, Nottingham,
England and Aachen, Germany call center locations. During the first quarter of
2000, we began marketing our web-enabled call center capabilities to third party
customers. As a result of declining revenues and margins for digital cameras in
the first quarter of 2000, we intend to discontinue the sale of digital cameras
in the second quarter of 2000, except for promotional activities and the
liquidation of existing inventories.
Further, we continued to build-out our web portal community, Visualcities.com,
which is targeted to visual communication software users.
Our results of operations were not materially impacted by our acquisitions in
the first quarter due to the short time that these acquired companies were owned
by us in the quarter. We anticipate that these acquired companies, as well as
potential future acquisitions, will be significant contributors to our future
growth strategy. We are currently in negotiations with several acquisition
targets in the United States and in Europe. On April 27, 2000, we entered into a
letter of intent to acquire Silkroad Interactive, Inc., a New York City based
company focused on internet security systems, customer relationship management
software, and e-commerce systems development activities, in a cash and stock
transaction. Management is currently integrating these acquired companies.
During the first quarter of 2000 we experienced a decline in the response rates
in our domestic market, to our customer lead generation programs for our visual
communication computer software applications and digital cameras. We are
currently reviewing our United States new customer lead generation programs in
relation to its cost structure and may determine to decrease the level of direct
marketing expenditures related to new customer lead generation. We may terminate
our United States new customer lead generation programs if we are unable to
identify programs which are less costly or produce higher response rates. We do
not believe that our software upgrade programs to our existing customer base,
which we intend to continue, would be adversely affected by any such decision.
Management is considering various actions to restructure our visual
communications operations, including:
o Altering our product mix,
o Refocusing, and/or reducing our direct marketing lead generation activities
and costs,
o Charging for technical support,
o Implementing or expanding our Internet distribution and marketing methods,
and
o Increasing revenues through third party contracts for our call center
operations.
Net Sales. Net sales decreased in the 2000 first quarter by $993,063, or 20.1%,
to $3,942,465 from $4,935,528 in the 1999 first quarter. Our new interactive
e-commerce solutions segment contributed $443,594, or 11%, of first quarter
sales. Seventy-nine percent of our sales were through our direct marketing
channel and 10% of our sales were through retail channels. The decline in net
sales resulted primarily from a significant decrease in sales of digital cameras
as compared to the 1999 first quarter, which was our strongest quarter for
digital camera sales. We also experienced a decline in response rates to our
lead generation software direct marketing offers. We provided for returns and
allowances at 13% of gross sales in the 2000 first quarter as compared to 18% of
gross sales in the 1999 first quarter, primarily as a result of a decline in
hardware sales in the first quarter of 2000, which have higher historical rates
of returns and allowances.
15
<PAGE>
North America and International net sales for first quarter 2000 and 1999 were
as follows:
2000 % 1999 %
------------- ------ ------------- ------
North America........... $ 1,277,511 32.4 $ 1,685,370 34.1
International........... 2,664,954 67.6 3,250,158 65.9
------------- ----- ------------- ------
Total................... $ 3,942,465 100.0 $ 4,935,528 100.0
============= ===== ============= ======
In the 2000 first quarter, approximately 68% of our net sales were generated
outside the United States as compared to approximately 66% in the 1999 first
quarter. We expect that the percentage of visual communications net sales
derived from international net sales will continue to increase as we continue to
expand our foreign visual communications sales operations. We initially expect
that a higher percentage of our overall net sales will be derived from the
United States since our United States based interactive e-commerce solutions
business is currently larger than it is internationally.
Gross Profit. Our gross profit for first quarter 2000 was $2,626,441, or 67% of
our net sales, compared to $3,402,563, or 69%, in the 1999 first quarter. The
decline in gross margins for 2000 reflects a change in product mix resulting
from ordinary fluctuations in our sales of software and hardware, mainly digital
cameras. Digital cameras produced by third parties carry lower margins than our
proprietary software products. Our cost of sales consisted primarily of product
costs, royalties and inventory allowances for damaged and obsolete products.
Product costs have historically consisted of the costs to purchase the
underlying materials and print both boxes and manuals, media costs (CD-ROMs and
other media), assembly costs, and hardware costs. Cost of sales was $1,316,024
for the first quarter of 2000 as compared to $1,532,965 for 1999, a decrease of
14%, reflecting decreased sales in 2000 as well as the change in product mix.
Our gross margins and operating income have been affected in particular periods
by the mix of distribution channels used, the mix of international and domestic
revenues, the mix of products sold and the timing of product introductions,
promotional pricing and rebate offers, return privileges and marketing
promotions in connection with new product introductions and upgrades. These
promotions have had a negative influence on average selling prices and gross
margins. In addition, gross margins have fluctuated on a quarterly basis as we
utilize alternative direct response promotions. Gross margins have also been,
and may continue to be, adversely affected by competitive pricing strategies in
the software industry as a whole, including competitive upgrade pricing, the OEM
business and alternative licensing arrangements. We expect additional gross
margin fluctuations for the balance of 2000 as we expand our interactive
e-commerce solutions business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by $736,085, or 18%, to $4,740,481 in
the 2000 first quarter from $4,004,396 in the 1999 first quarter. Approximately
$270,000 of the increase in SG&A is related to our newly acquired companies.
Approximately $280,000 of the increase is related to various increases in
consulting fees primarily associated with financial and investment banking
agreements relating to long term growth initiatives including our acquisition
strategy. Additionally, our core direct mail business expended more on list
rentals due to declining response rates to our marketing offers. We establish
several of our marketing expenditure levels based on expected net revenues, and
periodically review and adjust these variable expenditure levels based on actual
sales volumes. We have also incurred costs related to the introduction of a
direct mail program in Germany. Additionally, we experienced increases in
recruiting costs related to the competitive technical environment in which we
operate, and salaries and wages increased as additional staffing and increased
compensation expenses, including for marketing personnel, were incurred in
connection with VisualCities.com Inc., our United States and European expansion,
and the development and implementation of our acquisition strategy.
Amortization of Goodwill and Purchased Technology. This represents our
amortization of purchased technology and goodwill associated with our
acquisitions of Serif and SPC in the 1999 fiscal period. In 2000, $126,618
represents the amortization of goodwill for our newly acquired businesses.
Realized and Unrealized Gains on Marketable Securities. The realized gain of
$1,095,348 in the 2000 first quarter represents the gain recognized upon the
transfer of 59,813 shares of Xceed stock to a finder in connection with an
August 1999 agreement, based upon the appreciation in the market value of such
shares. The agreement set forth a formula to determine the number of shares to
be paid the finder upon the closing of an acquisition target identified
16
<PAGE>
by such finder. The finder received 14,953 Xceed shares for the Renaissance
acquisition and 44,860 Xceed shares for the PWR acquisition, resulting in
respective gains of $371,962 and $723,386.
The unrealized gain of $660,000 in the 1999 first quarter represented the
Company's gain as a result of holding Xceed stock during that period.
Product Development. Product development expenses in the 2000 first quarter
increased by $9,205 or 6%, to $162,574 from $153,369 in the 1999 first quarter.
Product development costs as a percentage of net sales were 4% in the 2000 first
quarter and 3% for the 1999 first quarter. We capitalized approximately $146,000
in the 2000 first quarter and $50,000 in the 1999 first quarter of our product
development costs associated with product designs where technological
feasibility has been established and where the product will not be brought to
market for at least twelve months. All other development costs have been
expensed in the period incurred. We intend to continue to acquire externally
developed technology, explore strategic alliances and other methods of acquiring
or licensing technology, and invest in certain internal development projects,
including the updating of existing products. We believe that development
expenses may increase in dollar amount in the future, although our long-term
goal is to continue to reduce product development costs as a percentage of
sales. Because of the inherent uncertainties associated with software
development projects, there can be no assurance that our research and
development efforts will result in successful product introductions or increased
revenues or profitability.
Other (income) expense. Other expense, net amounted to $64,899 in the 2000 first
quarter, as compared to other income, net of $17,580 in the 1999 first quarter,
primarily because of a non-cash interest charge of approximately $47,000 related
to the amortization of the warrants issued in connection with the Company's line
of credit facility.
Liquidity and Capital Resources
Our cash and cash equivalents increased by $2,868,136 to $4,598,631 at March 31,
2000 from $1,730,495 at December 31,1999, primarily as a result our receipt of
$7,292,880 in proceeds from financing activities, which more than offset
$2,430,366 of cash used for operations and $1,885,472 used primarily for
investments relating to the cash portion of three business acquisitions. In
addition, we received $1,378,254 of advance payments for stock subscriptions
which are reflected as restricted cash and a corresponding subscription
liability pending acceptance of such subscriptions by the Company. Our operating
and investing activities for the 2000 first quarter were primarily related to
the acquisition of three new companies, increased direct marketing expenditures,
the development of our VisualCities.com website, our European expansion, and the
costs associated with the development of future software products. We intend to
continue to utilize our working capital in 2000 to finance the costs of our
interactive e-commerce solutions business, including the costs of acquisitions
and the respective working capital needs of acquired companies, for Internet web
site development, European expansion, product development, marketing and
advertising, for capital expenditures, including the purchase of computer,
accounting and internet services equipment and software, and for internal and
external software development. Our cash requirements, however, may change
depending upon numerous factors, including, without limitation, the cost of
integrating our businesses and the need to finance the licensing or acquisition
of third party software, as well as increased inventory and accounts receivable
arising from the sale and shipment of new or additional products. Our first
quarter 2000 financing activities consisted of the receipt of net proceeds of
$6,648,205 from the sale of our common stock, $644,675 from option and warrant
exercises, and the repayment of $108,906 of debt and lease obligations. We had
working capital of $(627,340) at March 31, 2000, a decline of $1,280,314 from
our working capital at December 31, 1999 of $652,974, primarily as a result of
operating losses and investments in new businesses.
We believe that our existing cash and cash equivalents and cash generated from
operations, if any, together with the proceeds of any financings, should be
sufficient to meet our currently anticipated liquidity and capital expenditure
requirements for the next twelve months. We intend to seek additional financing
through one or more debt, equity or convertible securities offerings; however,
there can no assurance that we will be successful in completing any such
offering or offerings, or that the terms of any such offering or offerings will
be beneficial to the Company or its stockholders. In March 2000, we completed
private placements of our common stock for an aggregate of 1,699,425 shares
raising aggregate gross proceeds of $7,609,290, before associated placement
costs. We utilized approximately $5,000,000 of these proceeds to fund our
acquisitions and associated legal and other costs thereof; for working capital
needs of Renaissance Multimedia, Junction 15, and PWR Systems in February and
March 2000; and for repayment of our $1,000,000 line of credit loan. We plan to
utilize the remaining proceeds to pursue additional acquisition targets, expand
our VisualCities.com website, including promotional activities, develop our
interactive e-commerce solutions business, expand our European operations,
develop additional software products, and fund our other working capital
requirements. In the first quarter of 2000 we entered into a two-year unsecured
line of credit agreement for maximum borrowings of $1,000,000, at an 8% interest
rate, with a foreign company. We borrowed
17
<PAGE>
$1,000,000 under this agreement in February 2000. This loan was repaid in full
with accrued interest on March 20, 2000, and we now have $1 million available
under this line of credit. We have letter of credit facilities of approximately
$260,000 relating to certain lease obligations. Serif (Europe) Limited has a
letter of credit facility of approximately $200,000, which was fully drawn upon
as of March 31, 2000, with its primary bank in the United Kingdom, and which is
secured by Serif (Europe) Limited cash reserves of a similar amount. Serif
(Europe) Limited has bank loans of approximately $108,000 at March 31, 2000,
which are secured by substantially all of its assets. Our PWR Systems subsidiary
has a $1,000,000 bank credit facility, which we have guaranteed, and an
additional $1,000,000 credit facility, both of which are secured by PWR's
assets. There can be no assurance that we will be successful in attaining our
sales or strategic goals, or that attaining such goals will have the desired
effect on our cash resources.
Our exposure to foreign currency gains and losses is partially mitigated as we
incur operating expenses in the principal foreign currency in which we invoice
foreign customers. As of March 31, 2000, the Company had no foreign exchange
contracts outstanding. The Company's foreign exchange gains and losses may be
expected to fluctuate from period to period depending upon the movement in
exchange rates.
In 1999, we entered into a five-year consulting agreement pursuant to which we
are required to pay 0.3% of our net revenue (subject to an annual minimum fee of
$125,000, and an annual maximum fee of $250,000) to the consultant. The term of
the agreement may be extended automatically by an additional eighteen months if
we report annual net revenues of $40,000,000, and an additional eighteen months
should net revenues exceed $60,000,000. At March 31, 2000, we have accrued
$156,250 of consulting fees in connection with this agreement.
On July 27, 1999 we entered into a minimum annual purchase commitment of
approximately $230,000 with a distributor of certain software the Company
intends to sell in its direct mail operation. We anticipate that we will fulfill
such commitment from our operational resources.
Net Operating Loss Carryforwards
We estimate our consolidated tax net operating loss carryforwards to be
approximately $35 million at December 31, 1999, after consideration for
limitations on the use thereof, which expire in years 2002 through 2019. Under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
changes in the ownership or the business of a corporation that has net operating
loss carryforwards can result in the inability to use or the imposition of
significant restrictions on the use of such net operating loss carryforwards to
offset future income and tax liability of such corporation. An "ownership
change" may be deemed to have occurred under Section 382 of the Code and the
regulations thereunder with respect to both the Company and SPC, and the use by
the Company of these net operating loss carryforwards will be limited.
Utilization of the net operating loss carryforwards of SPC may be further
limited by reason of the consolidated return/separate return limitation year
rules. We estimate the maximum utilization of such net operating loss
carryforwards to be approximately $1,200,000 per year for losses through
December 31, 1996. There can be no assurance that we will be able to utilize all
of our net operating loss carry- forwards. In addition, the foreign losses
incurred by SPC may decrease or otherwise restrict our ability to claim U.S. tax
credits for foreign income taxes.
Possible Tax Obligation
We have applied for a closing agreement with the IRS pursuant to which we would
become jointly and severally liable for SPC's tax obligations upon occurrence of
a "triggering event" requiring recapture of dual consolidated losses previously
utilized by SPC. Such closing agreement would avoid SPC's being required to
recognize a tax of approximately $8 million on approximately $24.5 million of
SPC's previous dual consolidated losses. The IRS notified us that it determined
not to act on our application until SPC submitted certain filings pertaining to
pre-acquisition consolidated tax year return filings made by SPC. We have
submitted these filings in an application for relief. We believe that should the
IRS accept the application for relief, and once a re-application for a closing
agreement is made, the IRS should agree to such a closing agreement. However, no
assurance can be given that the IRS will do so, and any failure to do so could
result in the recognition of this tax liability. Should such a closing agreement
be obtained, in certain circumstances, a future acquirer of Vizacom may also be
required to agree to a similar closing agreement in order to avoid the same tax
liability, to the extent it is able to do so. This could have a material adverse
effect on our future ability to sell SPC. The report of our auditors covering
the December 31, 1999 consolidated financial statements contains a paragraph
emphasizing these dual consolidated losses.
18
<PAGE>
Seasonality
The computer software market is characterized by significant seasonal swings in
demand, which typically peak in the fourth quarter of each calendar year. The
seasonal pattern is due primarily to the increased demand for software during
the year-end holiday buying season and reduced retail and corporate demand for
business software during the European Easter and summer vacation period. We
expect our net sales and operating results from our historical operations to
continue to reflect this seasonality. Our revenues may also experience
substantial variations as a result of a number of factors, such as consumer and
business preferences and introduction of competing titles by competitors, as
well as limited time promotional pricing offers. There can be no assurance that
we will achieve consistent growth or profitability on a quarterly or annual
basis.
We are hopeful that we can mitigate the seasonal nature of the software market
with the typically non-seasonal pattern of our interactive e-commerce solutions
business segment.
Inflation
We believe that inflation has generally not had a material impact on our
operations.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is hereby made to Item 3 of our Annual Report on Form 10-KSB,
for the fiscal year ended December 31, 1999, filed April 15, 2000
(Commission File No.:1-14076), and to the references therein, for a
discussion of all material pending legal proceedings to which we or any
of our subsidiaries are parties.
Item 2. Changes in Securities and Use of Proceeds.
In the first quarter of 2000, we issued an aggregate of 226,695 shares
of our common stock to a total of fifteen individuals and entities for
gross proceeds of $469,226 upon exercise of warrants held by these
individuals and entities. The issuance of such shares were private
transactions exempt from registration under Section 4(2) of the
Securities Act.
In connection with our acquisition of Renaissance Multimedia in
February 2000, we sold and issued an aggregate of 449,870 shares of our
common stock to the former shareholders of Renaissance Multimedia. The
issuance of such shares was a private transaction exempt from
registration under Section 4(2) of the Securities Act.
In connection with our acquisition of Junction 15 in March 2000, we
sold and issued an aggregate of 681,818 shares of our common stock to
the former shareholders of Junction 15. The issuance of such shares was
a private transaction exempt from registration under Section 4(2) of
the Securities Act.
In connection with our acquisition of PWR Systems in March 2000, we
sold and issued an aggregate of 1,500,000 shares of our common stock to
the former shareholders of PWR Systems. The issuance of such shares was
a private transaction exempt from registration under Section 4(2) of
the Securities Act.
In March 2000, we sold a total of 936,954 shares of our common stock to
45 accredited investors for gross proceeds of $4,216,294. The issuance
of these shares were private transactions exempt from registration
under Section 4(2) of the Securities Act of 1933.
In March 2000, we accepted subscriptions for and sold a total of
762,471 shares of our common stock to eleven foreign investors for
gross proceeds of $3,392,996. The issuance of these shares were private
transactions exempt from registration pursuant to Section 4(2) of, and
Regulation S promulgated under, the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Set forth below are all exhibits to this Quarterly Report on Form
10-QSB.
Number Description
------ -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On February 22, 2000, we filed a Current Report on Form 8-K (Date
of Report: February 15, 2000) with the SEC reporting, as an Item
2 disclosure, our acquisition of Renaissance Multimedia.
Additionally, we reported as an Item 5 disclosure that we
borrowed $1 million on February 17, 2000 under our line of credit
facility. Financial statements for Renaissance Multimedia were
included in our Annual Report on Form 10-KSB for the year ended
December 31, 1999, filed with the SEC April 15, 2000. On April
17, 2000, we filed an amendment to our Form 8-K incorporating by
reference the financial statements of Renaissance Multimedia.
This amendment to the Form 8-K also included pro forma
information concerning us, Renaissance Multimedia, Junction 15,
and PWR Systems.
On March 3, 2000, we filed a Current Report on Form 8-K (Date of
Report: February 28, 2000) with the SEC reporting, as an Item 5
disclosure, our entering into an agreement to acquire PWR
Systems.
On March 21, 2000, we filed a Current Report on Form 8-K (Date of
Report: March 9, 2000) with the SEC reporting, as an Item 2
disclosure, our acquisition of Junction 15. Additionally, we
reported as an Item 5 disclosure that we modified and extended
our original line of credit facility, appointed Rand Schulman as
Executive Vice President on March 16, 2000, and sold a total of
936,954 shares of our common stock to 45 investors for aggregate
gross proceeds of $4,216,293 on March 17, 2000. Financial
statements of Junction 15 were included in our Annual Report on
Form 10-KSB for the year ended December 31, 1999, filed with the
SEC on April 15, 2000. On April 17, 2000 we filed an amendment to
this Form 8-K incorporating by reference to our Form 10-KSB the
financial statements of Junction 15. This amendment to Form 8-K
also included pro forma information concerning us, Renaissance
Multimedia, Junction 15, and PWR Systems.
On April 4, 2000, we filed a Current Report on Form 8-K (Date of
Report: March 27, 2000) with the SEC reporting, as an Item 2
disclosure, our acquisition of PWR Systems. Additionally, we
reported an Item 5 disclosure that on March 20, 2000 we repaid
all outstanding amounts due under our line of credit facility.
Further, we disclosed in Item 5 that on March 27, 2000 we
accepted subscriptions for and sold a total of 762,471 shares of
our common stock to eleven foreign investors for gross proceeds
of $3,392,996. Financial statements of PWR Systems were included
in our Annual Report on Form 10-KSB for the year ended December
31, 1999, filed with the SEC on April 15, 2000. On April 17,
2000, we filed an amendment to this Form 8-K incorporating by
reference to our Form 10-KSB the financial statements of PWR
Systems. This amendment to our Form 8-K also included pro forma
information concerning us, Renaissance Multimedia, Junction 15,
and PWR Systems.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VIZACOM, INC.
Dated: May 16, 2000 By: /s/ Mark E. Leininger
--------------------------------------------
Mark E. Leininger
President and Chief Executive Officer
(Principal Executive Officer)
Dated: May 16, 2000 By: /s/ Alan W. Schoenbart
--------------------------------------------
Alan W. Schoenbart
Vice President - Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
22
<PAGE>
VIZACOM INC.
INDEX TO EXHIBITS
Exhibit No. Description
27. Financial Data Schedule.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
condensed financial statements for the period ended March 31, 2000 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<SECURITIES> 152,928
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<ALLOWANCES> (810,557)
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<PP&E> 1,988,320
<DEPRECIATION> (1,013,257)
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<CURRENT-LIABILITIES> 12,610,053
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0
0
<COMMON> 11,886
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<CGS> 1,316,024
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<OTHER-EXPENSES> 162,574
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<NET-INCOME> (1,391,520)
<EPS-BASIC> (0.18)
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</TABLE>
