U.S. 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 period ended June 30, 1997
[ ] 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 33-90672
RESOURCENET COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
California 93-1026060
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
One Sansome St., Suite 2000
San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number including area code (415) 721-0299
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act 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
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of August 13, 1997 - 1,482,256 shares of common stock
DOCUMENTS INCORPORATED BY REFERENCE
Form 8-K filed on June 6, 1997
Form SB-2 Post-Effective Amendment No. 1 filed on June 17, 1997
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Balance Sheets ............................................................F-2
Statements of Operations ...................................................F-3
Statements of Stockholders' Equity .........................................F-4
Statements of Cash Flows ..................................................F-5
Notes to Financial Statements ..............................................F-6
F-1
<PAGE>
RESOURCENET COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<S> <C> <C>
December 31, 1996 June 30, 1997
----------------------- ------------------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 304,328 65,404
Payroll tax refund 0 2,838
----------------------- ------------------------
Total current assets 304,328 68,242
----------------------- ------------------------
FIXED ASSETS
Computer equipment 1,983 7,915
Furniture and fixtures 0 684
Less: accumulated depreciation (826) (1,530)
----------------------- ------------------------
Total fixed assets 1,157 7,069
----------------------- ------------------------
OTHER ASSETS
Prepaid expenses 4,500 8,979
Internet site development, net of amortization (note 8) 3,599 3,599
Deferred offering costs (note 7) 35,036 65,009
----------------------- ------------------------
Total other assets 43,135 77,587
----------------------- ------------------------
Total Assets $ 348,620 152,898
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 42,692 23,352
Payroll taxes payable 2,976 0
Accrued salaries 5,692 0
State franchise tax payable 0 0
State sales tax payable 0 0
----------------------- ------------------------
Total current liabilities 51,360 23,352
----------------------- ------------------------
LONG-TERM LIABILITIES
Notes payable (note 1b) 8,842 8,842
----------------------- ------------------------
Total long-term liabilities 8,842 8,842
----------------------- ------------------------
Total Liabilities 60,202 32,194
----------------------- ------------------------
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized 5,000,000
shares; issued and outstanding 2,058,064 in 1996 and 583,959 583,959
1,482,256 in 1997. (note 5)
Preferred stock, no par value, authorized 1,000,000
shares; 0 shares issued and outstanding. (note 5) 0 0
Deficit accumulated during the development stage (295,541) (463,255)
----------------------- ------------------------
Total Stockholders' Equity 288,418 120,704
----------------------- ------------------------
Total Liabilities and Stockholders' Equity $ 348,620 152,898
======================= ========================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-2
<PAGE>
RESOURCENET COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C>
Period from
April 6, 1990
6 Months ended June 30, (Inception) to
1996 1997 June 30, 1997
REVENUE
Sales $ 0 0 6,813
Interest 0 229 642
-------------- ------------- -----------------
Total revenue 0 229 7,455
-------------- ------------- -----------------
COST OF SALES
Cost of sales 0 0 6,823
-------------- ------------- -----------------
Gross profit/(loss) 0 229 632
EXPENSES
Advertising 0 3,140 3,348
Auto expenses 0 2,791 2,791
Bank charges 0 56 549
Concept development cost 0 0 120,000
Contract labor 10,981 3,629 69,319
Depreciation 198 704 1,530
Dues and subscriptions 0 0 507
Franchise offering document preparation 0 25,394 31,349
State franchise filing fee 1,260 0 3,697
Insurance 0 7,975 7,975
Internet site fee 2,450 185 1,640
Licenses, taxes, and fees 0 7,997 14,879
Office expenses 864 3,062 14,044
Postage 12 1,565 4,691
Printing 0 153 2,341
Professional Services 0 25,966 86,949
Rent 0 4,045 4,045
Salaries 0 68,955 76,955
Telephone 0 3,721 3,721
Travel and entertainment 1,792 7,075 11,364
Miscellaneous 0 1,550 2,193
-------------- ------------- -----------------
Total expenses 17,557 167,943 463,887
-------------- ------------- -----------------
Net loss before tax benefit (17,557) (167,714) (463,255)
-------------- ------------- -----------------
Income tax benefit (note 4) 0 0 0
-------------- ------------- -----------------
Net loss $ (17,557) (167,714) (463,255)
============== ============= =================
Weighted average number of shares outstanding 2,006,684 2,058,064 2,058,064
============== ============= =================
Net loss per share $ (0.01) (0.08) (0.23)
============== ============= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
RESOURCENET COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares of Total
Common Common Preferred Accumulated Stockholders'
Stock Stock Stock Deficit Equity
BALANCE, December 31, 2,058,064 $ 583,959 0 (295,541) 288,418
1996
Net loss 0 0 0 (167,714) (167,714)
-------------- ------------- -------------- ------------------ -----------------
BALANCE, June 30,
1997 (Unaudited) 2,058,064 $ 583,959 0 (463,255) 120,704
============== ============= ============== ================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
RESOURCENET COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C> <C> <C>
Period from
April 6, 1990
6 Months ended June 30, (Inception) to
1996 1997 June 30, 1997
------------------- ---------------- -----------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (17,557) (167,714) (463,255)
Adjustments to reconcile net loss to net cash used for
development activities:
Stock issued for concept development costs 0 0 120,000
Depreciation 198 704 1,530
Changes in operating assets and liabilities:
(Increase) decrease in receivables 0 (2,838) (2,838)
(Increase) decrease in prepaids 0 (4,479) (8,979)
(Increase) decrease in internet site development 0 0 (3,599)
(Increase) decrease in deferred offering costs 0 (29,973) (65,009)
Increase (decrease) in accounts payable (1,693) (19,340) 23,352
Increase (decrease) in state taxes payable 0 0 0
Increase (decrease) in payroll taxes payable 0 (2,976) 0
Increase (decrease) in accrued salaries 0 (5,692) 0
------------------ --------------- ---------------
Net cash used for development activities (19,052) (232,308) (398,798)
------------------ --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets 0 (6,616) (8,599)
------------------ --------------- ---------------
Net cash provided by investing activities 0 (6,616) (8,599)
------------------ --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 0 0 388,974
Cash contributed by existing stockholders 0 0 74,985
Cash received for notes payable 0 0 8,842
------------------ -------------- ---------------
Net cash provided by financing activities 0 0 472,801
------------------ -------------- ---------------
Increase (decrease) increase in cash (19,052) (238,924) 65,404
------------------ -------------- ---------------
CASH, beginning of period 47,698 304,328 0
------------------ -------------- ---------------
CASH, end of period $ 28,646 65,404 65,404
================== ============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 0 0 0
================== ============== ===============
Stock issued for intangible asset $ 0 0 120,000
================== ============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
RESOURCENET COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Unaudited)
(1) Summary of significant accounting policies
The Company ResourceNet Communications, Inc. (the Company) is a California
chartered development stage corporation which conducts business from
its headquarters in San Francisco which was incorporated on April 6,
1990.
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
dates of the statements of financial condition and revenues and
expenses for the periods then ended. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near-term relate
to the book-tax difference of accounting for the development expenses
(see note 4). The financial statements for the six months ended June
30, 1996 and 1997 include all adjustments which in the opinion of
management are necessary for fair presentation. The following summarize
the more significant accounting and reporting policies and practices of
the Company:
a) Fixed assets Fixed assets are recorded at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of
the assets, generally five or seven years. Expenditures for maintenance
and repairs are charged to operations as incurred. Depreciation was
$198 and $706 at June 30, 1996 and 1997, respectively.
b) Notes payable The Company issued notes payable to two principal
stockholders in exchange for cash. These notes carry no stated interest
rate or maturity date.
c) Net loss per share Net loss per share is computed by dividing the net
loss by the number of shares outstanding during the period.
d) Concept development At inception the Company exchanged common stock for
$120,000 of concept development costs previously expended by two indiv-
iduals that were unrelated to the founders of the Company. The Company
chose to immediately expense these costs.
(2) Franchise offering document expenses The franchise offering document
expenses pertain exclusively to the development of the Uniform
Franchise Offering Circular, (UFOC), which represents the bulk of the
Company's near-term future marketing efforts and revenues. SFAS 2
requires that all generated development costs be charged to expense
when incurred. Accordingly, the Company has expensed the costs to
develop its UFOC.
(3) Franchise revenues The Company has not yet received any franchise fee
revenues, but it expects to record such revenue in accordance with SFAS
45.
(4) Income taxes The Company recorded the franchise offering document costs
as expenses in the period when incurred for financial statement
purposes, per note 2 above. The Company also recorded the concept
development costs as expense immediately, per note 1d above. However,
for income tax purposes, these costs were recorded as an intangible
asset to be amortized over future years. The primary purpose for this
treatment for tax purposes is to retain the tax benefit of the
development costs. California tax law did not recognize operating loss
carryforwards as the Federal tax code does, at that time. Therefore, by
capitalizing and amortizing these costs, the tax benefit of these
expenses is retained for state tax purposes rather than being lost
forever as immediate expensing would have caused. This treatment will
require a longer time before the tax benefit of the costs is realized,
but will increase the tax benefit realized over time. California tax
law was changed for tax years beginning after January 1, 1994.
California tax law now recognizes net operating loss carryforwards on
the same basis as the federal tax code.
F-6
<PAGE>
RESOURCENET COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Notes to Financial Statements, continued
(4) Income taxes, continued The amount recorded as deferred income tax
assets at June 30, 1997, $185,300, represents the amount of tax benefit
of loss carryforwards. The Company has established a $185,300 valuation
allowance against this asset, as the Company has no history of
profitable operations. At June 30, 1997, the Company has a net
operating loss carry-forward for income tax purposes of approximately
$463,200, expiring as follows: $126,490 in 2005, $6,891 in 2006, $2,921
in 2007, $45,483 in 2008, $23,513 in 2009, $36,403 in 2010, $53,840 in
2011 and $167,731 in 2012.
(5) Stockholders' equity The Company has authorized 5,000,000 shares of no
par value common stock and 1,000,000 shares of no par preferred stock.
In April 1990, the Company issued 1,550,000 shares of common stock in
exchange for $3,900 in cash and $120,000 of previously expended concept
development costs. In May 1993, the Company issued 273,530 shares of
common stock in exchange for $29,970 in cash. In November 1993, the
Company issued 150,000 shares of common stock in exchange for $150 in
cash. In February 1994, the Company issued 33,334 shares of common
stock in exchange for $50,000 in cash. In May 1995, and June 1995,
existing stockholders contributed $50,000 and $24,985 in cash to the
Company. In December 1996, the Company sold 51,200 shares of common
stock in exchange for $307,200 in cash, which was the minimum required
to break escrow under the Company's public offering.
On February 24, 1997, certain officers and founders of ResourceNet
Communications, Inc. returned 575,808 of their shares, or approximately
30%, to the Company. This transaction was accomplished as a direct
result of a request by the purchasers of the minimum shares in the
Company's public offering.
(6) Common stock public offering The board of directors authorized the
Company to sell up to 850,000 shares of the Company's common stock in a
"self-underwritten" public offering pursuant to a Registration
Statement on Form SB-2 under the Securities Act of 1933. This offering
is being made with a 50,000 share minimum, and is effective for one
year from the effective date of the registration, June 26, 1996. In
December 1996, the Company completed the sale of the minimum shares
under its registration, and therefore broke its escrow. The Company is
proceeding with the continued sale of its shares. The Company is
preparing a Post-Effective Amendment to extend the offering and reflect
certain changes in the Company.
(7) Deferred offering costs The Company's public offering is a continuous
offering. The Company has incurred costs directly related to the
offering, but which are not directly related to specific portions of
security sales. The Company has chosen to capitalize such costs and
amortize them directly to paid-in capital in direct proportion of such
securities sales to the total offering. At such time as the Company has
completed its offering, all such costs will have been amortized against
paid-in capital. Should the Company terminate its offering without
fully subscribing the offering the Company then intends to amortize any
balance remaining of such costs to paid-in capital.
(8) Website development costs The Company has begun the development of its
Internet, (or World Wide Web), website. The Company expects to employ
its website as its primary introductory selling tool in the sale of its
franchises. The Company expects to employ a variety of outside
third-party companies and contractors to develop the website. Upon
completion of the website development, the Company expects to amortize
this cost over its expected useful life, currently projected as three
years.
F-7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company hereby incorporates its Form SB-2 Post-Effective Amendment No.
1 filed on June 17, 1997.
PART II - Other Information
Item 1. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 2. Changes in Securities
The Company hereby incorporates its Form 8-K filed on June 6, 1997 and its
Form SB-2 Post-Effective Amendment No. 1 filed on June 17, 1997.
Item 3. Defaults Upon Senior Securities
None to report.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company hereby incorporates its Form 8-K filed on June 6, 1997 and its
Form SB-2 Post-Effective Amendment No. 1 filed on June 17, 1997.
Item 5. Other Information
None to report.
Item 6. Exhibits and Reports on Form 8-K and 8-K/A.
The Company hereby incorporates its Form 8-K filed on June 6, 1997.
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.
Date: August 14, 1996
RESOURCENET COMMUNICATIONS, INC.
a California Corporation
By: /s/ Michael Hinshaw
Michael Hinshaw
President and CEO
By: /s/ Henry L. Corona
Henry L. Corona
Chief Financial Officer
<PAGE>
