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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-22563
PC411, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4463937
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
100 SE 2ND STREET
MIAMI, FL 33131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 579-8000
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
9800 S. LA CIENEGA, BLVD., INGLEWOOD, CA 90301-4440
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE 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
------ ------
AS OF NOVEMBER 13, 1998, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE
ISSUER'S COMMON STOCK, $.01 PAR VALUE.
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PC411, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997.................................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30,
1998 and 1997................................................. 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997................. 5
Condensed Notes to Quarterly Consolidated Financial
Statements .................................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 19
Item 2 Changes in Securities and Use of Proceeds......................... 19
Item 5. Other Information................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................. 26
SIGNATURE............................................................................. 27
2
PC411, INC.
(A DEVELOPMENT STAGE ENTITY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1998 1997
------------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,337,558 $ 949,157
Investments -- 3,498,116
Restricted assets 100,000 100,000
Accounts receivable 2,842 8,963
Accrued interest receivable 7,402 70,233
Prepaid expenses and other current assets 26,954 103,232
----------- -----------
Total current assets 2,474,756 4,729,701
Machines held for lease, net of depreciation 469,394 --
Property and equipment, net 206,435 128,959
Intangible assets, net 410,238 --
----------- -----------
Total assets $ 3,560,823 $ 4,858,660
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 188,888 $ 178,789
Deferred revenue 29,657 54,035
----------- -----------
Total current liabilities 218,545 232,824
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, Series A $.01 par value.
Authorized 5,000,000 shares; no shares issued
and outstanding -- --
Common Stock, $.01 par value. Authorized
25,000,000 shares; 3,120,000 and 2,972,500
shares issued and outstanding, respectively 31,200 29,725
Additional paid-in capital 7,747,584 7,409,809
Deficit accumulated during the development stage (4,436,506) (2,813,698)
----------- -----------
Total stockholders' equity 3,342,278 4,625,836
----------- -----------
Total liabilities and stockholders' equity $ 3,560,823 $ 4,858,660
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
3
PC411, INC.
(A DEVELOPMENT STAGE ENTITY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended Period From
---------------------------- ---------------------------- December 29, 1993
September 30, September 30, September 30, September 30, (Date of Inception)
1998 1997 1998 1997 to September 30, 1998
------------- ------------- ------------- ------------- ---------------------
Revenues $ 24,466 $ 20,619 $ 71,977 $ 112,660 $ 285,979
Cost and expenses:
Cost of revenues................ 115,182 25,309 298,622 96,833 618,380
Research and development........ 31,867 100,690 149,540 125,329 864,632
Sales and marketing............. 133,538 80,076 453,792 146,252 789,447
General and administrative...... 380,330 237,028 922,097 523,674 2,528,277
----------- ----------- ----------- ----------- -----------
660,917 443,103 1,824,051 892,088 4,800,736
----------- ----------- ----------- ----------- -----------
Operating loss....................... (636,451) (422,484) (1,752,074) (779,428) (4,514,757)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest and other income....... 36,946 72,935 129,266 108,408 349,512
Interest expense................ -- -- -- (94,002) (268,861)
----------- ----------- ----------- ----------- -----------
36,946 72,935 129,266 14,406 80,651
----------- ----------- ----------- ----------- -----------
Loss before income taxes........ (599,505) (349,549) (1,622,808) (765,822) (4,434,106)
Income taxes......................... -- -- -- 800 2,400
----------- ----------- ----------- ----------- -----------
Net loss........................ (599,505) (349,549) (1,622,808) (765,822) (4,436,506)
Dividends on preferred shares........ -- -- -- (132,679)
----------- ----------- ----------- -----------
Net loss applicable to common stock.. $ (599,505) $ (349,549) $(1,622,808) $ (898,501)
=========== =========== =========== ===========
Net loss per share (basic
and diluted).................... $ (.19) $ (.12) $ (.53) $ (.38)
=========== =========== =========== ===========
Shares used in computing net
loss per share.................. 3,120,000 2,972,500 3,050,215 2,390,217
=========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
4
PC411, INC.
(A DEVELOPMENT STAGE ENTITY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Period From
---------------------------- December 29, 1993
September 30, September 30, (Date of Inception)
1998 1997 to September 30, 1997
------------- ------------- ---------------------
Cash flows used in operating activities:
Net loss $(1,622,808) $ (765,822) $(4,436,506)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 85,767 30,011 192,558
Interest component of stock options granted -- 70,000 70,000
Amortization of discount on loan payable -- -- 160,940
Changes in assets and liabilities:
Accounts receivable 6,121 10,947 (2,842)
Purchase of machines held for lease (470,638) -- (470,638)
Prepaid expenses and other current assets 139,109 44,776 (34,356)
Accrued expenses 10,099 (59,174) 188,888
Deferred revenues (24,378) 31,867 29,657
----------- ----------- -----------
Net cash used in operating activities (1,876,728) (637,395) (4,302,299)
----------- ----------- -----------
Cash flows from (used in) investing activities:
Increase in restricted assets -- -- (100,000)
Purchase of investments -- (4,847,779) (6,116,584)
Sale of short-term investments 3,498,116 98,917 6,116,584
Acquisition of business (104,250) -- (104,250)
Acquisition of property and equipment (118,737) (30,072) (354,487)
----------- ----------- -----------
Net cash flows from (used in) investing activities 3,275,129 (4,778,934) (558,737)
----------- ----------- -----------
Cash flows (used in) from financing activities:
Proceeds from loan payable -- 369,998 697,063
Repayment of loan to related party, net -- (619,016) (619,016)
Shareholder cash contribution -- -- 92,047
Issuance of common stock -- 5,885,000 6,037,500
Deferred finance charges (10,000) -- (10,000)
Issuance of preferred stock -- -- 1,001,000
----------- ----------- -----------
Net cash flows (used in) provided from financing activities (10,000) 5,635,982 7,198,594
----------- ----------- -----------
Net increase in cash 1,388,401 219,653 2,337,558
Cash and cash equivalents at beginning of period 949,157 8,605 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,337,558 $ 228,258 $ 2,337,558
=========== =========== ===========
Detail of acquisition:
Fair value of assets acquired $ 339,750 $ -- $ 397,750
Liabilities assumed 71,500 -- 71,500
See accompanying Notes to Condensed Consolidated Financial Statements
5
PC411, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BUSINESS AND ORGANIZATION
PC411, Inc. (the "Company") was incorporated in Delaware on December 29,
1993. Prior to May 8, 1998, the Company's principal business was an
on-line service that transmits name, address, telephone number and other
related information digitally to users of personal computers. On May 8,
1998, the Company acquired Controlled Distribution Systems, Inc. ("CDS",
formerly known as Coinexx Corporation).
INITIAL PUBLIC OFFERING
On May 21, 1997, the Company completed an initial public offering ("IPO")
of 1,322,500 units (including 172,500 units from the exercise of the
Underwriter's over-allotment option), each unit consisting of one share
of Common Stock and one Redeemable Class A Warrant to purchase a share of
Common Stock. The units were sold for $5.75 each and the Company
received, after expenses of the IPO, approximately $5.9 million in net
proceeds. In connection with the IPO, the Company effected a
172.7336-for-1 stock split of the Company's Common Stock. All shares and
share amounts have been restated to reflect the stock split.
DAMI TRANSACTION
On November 5, 1998, PC411, Inc. (the "Company") contributed the non-cash
assets and certain liabilities of its on-line electronic delivery
information service (the "PC411 Service") to Digital Asset Management,
Inc. ("DAMI"). DAMI is a newly formed corporation organized by Dean
Eaker, the former President, Chief Executive Officer and a director of
the Company, and Edward Fleiss, the former Vice President and Chief
Technology Officer of the Company, to continue to operate and develop the
PC411 Service. The Company received preferred stock representing an
initial 42.5% interest in DAMI in exchange for the contribution of the
PC411 Service. Acxiom Corporation ("Acxiom") purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's
management, including Messrs. Eaker and Fleiss, will hold an initial 15%
interest in DAMI with options to increase their ownership position to 50%
upon satisfaction of operational and financial benchmarks over a
three-year period. As a result, the Company will account for its interest
in the PC411 Service by using the equity method of accounting after
November 5, 1998. See Part II - Item 5 - "Other Information" for
additional information concerning the DAMI transaction and certain pro
forma information. The Company has agreed, under certain conditions, to
fund up to $200,000 of an $800,000 working capital line to be provided to
DAMI by Acxiom, the Company and Dean R. Eaker.
6
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CDS ACQUISITION
On May 8, 1998, the Company acquired CDS, a development stage company
engaged in the marketing and leasing of an inventory control system for
tobacco products. Under the terms of the acquisition, the CDS
stockholders received 147,500 shares of the Company's Common Stock at
closing. In addition, the Company will issue an additional 147,500 shares
to CDS stockholders on each of the first, second and third anniversaries
of the closing provided that on each such delivery date CDS is actively
engaged in the business it is now engaged. The schedule for the deferred
deliveries of stock is subject to a delay of 12 months if the President
of CDS (the "Executive") is not employed by CDS on any of the three
anniversary dates and is subject to acceleration if the Company's Common
Stock trades at $15 per share for 60 consecutive trading days. In
connection with this acquisition, the Company entered into a three-year
employment agreement, subject to certain termination provisions, with the
Executive. The Executive was also granted options to purchase 110,000
shares of Common Stock of the Company at $1.50 per share. CDS did not
have any significant tangible assets at the time of acquisition. The
aggregate of the fair value of the shares issued and issuable to the CDS
stockholders as consideration for the acquisition of $339,250 and legal
and other costs incurred in the acquisition of $104,250 have been
capitalized and will be amortized over an estimated useful life of five
years.
(2) PRINCIPLES OF REPORTING
The consolidated financial statements of the Company as of September 30,
1998 presented herein include the accounts of PC411 and CDS and have been
prepared by the Company without an audit. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position as of September 30,
1998 and the results of operations and cash flows for all periods
presented have been made. Results for the interim periods are not
necessarily indicative of the results for the entire year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
1997 included in the Company's Form 10-KSB (Commission File No.
0001-22563).
Certain reclassifications have been made to prior year financial
information to conform with current year presentation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
7
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
STOCK OPTIONS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock options. In 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which, if fully adopted, changes the methods of
recognition of cost on certain stock options. The Company has elected to
apply the "disclosure only" provisions of SFAS No. 123. Such disclosures
are not required in interim financial statements.
RESTRICTED ASSETS
Restricted assets consist of cash pledged as collateral for a letter of
credit collateralizing a credit card facility $100,000.
NEW ACCOUNTING PRONOUNCEMENTS
For transactions entered into in fiscal years beginning after December
15, 1997, the Company adopted and is reporting in accordance with SOP
97-2, "Software Revenue Recognition". The adoption of SOP 97-2 did not
have a material impact on the Company's financial statements. In March
1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance that the carrying value of software developed or obtained for
internal use is assessed based upon an analysis of estimated future cash
flows on an undiscounted basis and before interest charges. SOP 98-1 is
effective for transactions entered into in fiscal years beginning after
December 15, 1998. The Company believes that adoption of SOP 98-1 will
not have a material impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which establishes standards
for the way that public business enterprises report information about
operating segments. SFAS No. 131 is effective for financial statements
for fiscal years beginning after December 15, 1997. The Company is
currently reviewing its operating segment disclosures and will adopt SFAS
No. 131 in the fourth quarter of 1998.
(3) RELATED PARTY TRANSACTIONS
Certain accounting and related finance functions are performed on behalf
of the Company by employees of New Valley Corporation ("NVC"), the
Company's principal stockholder. Expenses incurred relating to these
functions are allocated to the Company and paid as incurred to NVC based
on management's best estimate of the cost involved. The amounts allocated
were immaterial for all periods presented herein.
8
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) NET LOSS PER SHARE
Basic loss per share of common stock is computed by dividing net loss
applicable to common shareholders by the weighted average shares of
common stock outstanding during the period. Diluted per share results
reflect the potential dilution from the exercise or conversion of
securities into common stock.
Stock options, warrants and contingent shares (both vested and
non-vested) totaling 3,767,933 and 3,368,954 shares at September 30, 1998
and 1997, respectively, were excluded from the calculation of diluted per
share results presented because their effect was accretive. Accordingly,
diluted net loss per common share is the same as basic net loss per
common share.
(5) CONTINGENCIES
The Company is a defendant in a lawsuit asserted by a former employee
seeking a severance payment of $150,000. The Company believes the claim
is without merit; however, no assurance can be given that the Company
will prevail in its defense of the claim.
9
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Financial Condition and Results of
Operations of the Company should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and the notes thereto included in the
Company's Form 10-KSB (Commission File No. 0001-22563) relating to the year
ended December 31, 1997.
OVERVIEW
The Company presently has two lines of business: the delivery of an on-line
electronic directory information service (the "PC411 Service") and the marketing
of an inventory control system for tobacco products through its subsidiary,
Controlled Distribution Systems, Inc. ("CDS").
PC411 SERVICE - The Company has conducted the PC411 Service since 1994. The
PC411 Service licenses a database for Acxiom Corporation ("Acxiom") with more
than 110 million U.S. and Canadian residence and business telephone numbers,
addresses and ZIP codes. A customer can access the PC411 Service using a
computer by either dialing directly into the Company's server, in which the
database is housed, or indirectly via the Internet. Either method requires the
use of the Company's copyrighted, Windows-based, software program, PC411 FOR
WINDOWS 3.0, which was introduced in November 1997. Designed to operate in a
Windows 95 environment, PC411 FOR WINDOWS 3.0 is Internet compatible and has
been enhanced to provide a quicker, easier to use search tool. In addition, a
limited version of the PC411 Service is available at no charge via the Internet
at the address http://www.pc411.com.
On November 5, 1998, the Company contributed the non-cash assets and certain
liabilities of its on-line electronic delivery information service (the "PC411
Service") to Digital Asset Management, Inc. ("DAMI"). The assets contributed
include the tradename for "PC411 for Windows 3.0", distribution agreements with
equipment manufacturers, subscriber contracts for the PC411 Service, the
Company's internet site and domain name, all property, plant and equipment,
including hardware and software, relating to the PC411 Service and all accounts
receivable, inventories and prepaid expenses relating to the PC411 Service. The
contributed assets do not include the Company's cash and marketable securities
and other financial investments. The liabilities assumed by DAMI include the
Company's obligations under the Acxiom data licensing agreement, up to $10,000
of liabilities under the OEM distribution agreements, obligations of the Company
to provide the PC411 Service to subscribers and up to $10,000 of other
pre-closing liabilities.
DAMI is a newly formed corporation organized by Dean Eaker, the former
President, Chief Executive Officer and a director of the Company, and Edward
Fleiss, the former Vice President and Chief Technology Officer of the Company,
to continue to operate and develop the PC411 Service. The Company received
preferred stock representing an initial 42.5% interest in DAMI in exchange for
the contribution of the PC411 Service. Acxiom purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's management,
including Messrs. Eaker and Fleiss, will hold an initial 15% interest in DAMI
with options to increase their ownership position to 50% upon satisfaction of
operational and financial benchmarks over a three-year period. As a result, the
Company will account for its interest in the PC411 Service by using the equity
method of accounting after November 5, 1998. See Part II - Item 5 - "Other
Information" for additional information concerning the DAMI transaction and
certain pro forma information.
10
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CDS - In May, 1998, the Company acquired the stock of CDS, a development stage
company engaged in the marketing and leasing of an inventory control system for
tobacco products. Under the terms of the acquisition, the former CDS
stockholders received 147,500 shares of the Company's Common Stock at closing.
In addition, the Company will issue an additional 147,500 shares in the
aggregate to the former CDS stockholders on each of the first, second and third
anniversaries of the closing provided that on each such delivery date CDS was
actively engaged in the business it is now engaged. The schedule for the
deferred deliveries of stock is subject to a delay of 12 months if the current
President of CDS (the "Executive") is not employed by CDS on any of the three
anniversary dates and is subject to acceleration if the Company's Common Stock
trades at $15 per share for 60 consecutive trading days. In connection with this
acquisition, the Company entered into a three-year employment agreement, subject
to certain termination provisions, with the Executive. The Executive was also
granted options to purchase 110,000 shares of Common Stock of the Company at
$1.50 per share. CDS did not have any significant tangible assets at the time of
acquisition. The aggregate of the fair value of the shares issued and issuable
to the CDS stockholders as consideration for the acquisition of $339,250 and
legal and other costs incurred in the acquisition of $104,250 have been
capitalized and will be amortized over an estimated useful life of five years.
CDS markets a dispensing machine for cigarettes, which is controlled by a
remote-control device. The dispensing machine is designed to replace the current
money-operated cigarette vending machine. The Company's product is
differentiated from the current money-operated vending machine by a
remote-control transmitter, which may only be activated by an authorized
individual. Thus, the operation of the machine requires a face-to-face
transaction between the operator (typically a cashier) and the customer wishing
to purchase cigarettes. CDS' management believes that this method for dispensing
cigarettes would be permitted under the final Food and Drug Administration
regulations issued August 28, 1996 and various bills proposed before Congress
this year which would restrict the sale and distribution of cigarettes. CDS
believes that the principal market for its equipment consists of restaurants,
bars and taverns. The Company intends to lease its equipment to these entities
for a 36-month term and intends to derive additional revenues by selling
advertising space on the machine's panels. CDS will depreciate the equipment
over five years. As of November 13, 1998, CDS had entered into 17 leases for
machines.
11
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company may also seek to acquire other businesses and/or properties, which
may or may not be related to its existing businesses. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations and
products or services of the acquired companies, the expenses incurred in
connection with the acquisition and subsequent assimilation of operations and
products or services, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. The Company may also face increased competition for acquisition
opportunities which may inhibit its ability to consummate suitable acquisitions
on terms favorable to the Company. There can be no assurance that the Company
will successfully identify, complete or integrate any future acquisitions, or
that acquisitions, if completed, will contribute favorably to the Company's
operations and future financial condition.
The limited operating history of the Company makes the prediction of future
results of operations difficult or impossible. The Company believes that period
to period comparisons of its operating results for any period should not be
relied upon as an indication of future performance. The continued development of
the CDS businesses will require the Company to significantly increase its
operating expenses in order to build its sales and marketing staff, increase
product development spending, and invest in infrastructure. As a result, the
Company expects to continue to incur significant losses for the foreseeable
future.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
In addition, the Company does not have historical financial data for any
significant period of time on which to base planned operating expenses. The
Company's expense levels are based in part on its expectations concerning future
revenue and to a large extent are fixed. Quarterly revenue and operating results
depend substantially upon signing up new customers and retaining such customers
which are difficult to forecast accurately. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
and any significant shortfall in revenue in relation to the Company's
expectations would have an immediate adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company
currently expects CDS to increase significantly its operating expenses as it
builds its sales and marketing staff, increases product development spending and
invests in infrastructure. To the extent that such expenses precede or are not
subsequently followed by increased revenue, the Company's business, results of
operations and financial condition will be materially and adversely affected.
RECENT ACCOUNTING DEVELOPMENTS. For transactions entered into in fiscal years
beginning after December 15, 1997, the Company adopted and is reporting in
accordance with SOP 97-2, "Software Revenue Recognition". The adoption of SOP
97-2 did not have a material impact on the Company's financial statements. In
March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance
that the carrying value of software developed or obtained for internal use is
assessed based upon an analysis of estimated future cash flows on an
undiscounted basis and before interest charges. SOP 98-1 is effective for
transactions entered into in fiscal years beginning after December 15, 1998. The
Company believes that adoption of SOP 98-1 will not have a material impact on
the Company's financial statements.
12
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information about operating segments.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company is currently reviewing its operating
segment disclosures and will adopt SFAS No. 131 in the fourth quarter of 1998.
YEAR 2000 COSTS. The Company, its subsidiary and its affiliate have evaluated
the implementation of the century date change on their internal computer systems
and believes they are year 2000 compliant. CDS believes that its dispensing
machine is Year 2000 compliant and the Company has been informed by DAMI that
the PC411 Service is Year 2000 compliant. Furthermore, the Company uses personal
computers less than three years old for all accounting functions. However, the
failure of the Company's service providers to resolve their own processing
issues in a timely manner could result in a material financial risk. As a
result, the Company is presently confirming that its service providers are
adequately addressing Year 2000 issues. However, there can be no complete
assurance of success, or that interaction with service providers will not impair
the Company, its subsidiary and its affiliate's services.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1998, the results of
operations of the Company's primary operating units, which include the PC411
Service and CDS were as follows. Effective November 5, 1998, the Company
contributed the PC411 Service to DAMI in exchange for preferred stock in DAMI.
See Part I - Item 2 - "Overview". The Company will account for its interest in
the PC411 Service using the equity method of accounting subsequent to November
5, 1998.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
PC411 SERVICE
Sales $ 24,466 $ 20,619 $ 70,608 $ 112,660
Cost of sales 86,360 25,309 269,800 96,833
Research and development 31,867 100,690 120,291 125,329
Sales and marketing 45,526 76,076 365,781 134,252
General and administrative 140,975 199,889 525,914 481,689
----------- ----------- ----------- -----------
Total expenses 304,728 401,964 1,281,786 838,103
----------- ----------- ----------- -----------
Operating loss $ (280,262) $ (381,345) $(1,211,178) $ (725,443)
=========== =========== =========== ===========
CDS(1)
Sales $ 1,369 $ -- $ 1,369 $ --
Cost of sales 28,822 -- 28,822 --
Research and development -- -- -- --
Sales and marketing 88,012 -- 88,012 --
General and administrative 221,061 -- 307,034 --
----------- ----------- ----------- -----------
Total expenses 337,895 -- 423,868 --
----------- ----------- ----------- -----------
Operating loss $ (337,895) $ -- $ (422,499) $ --
=========== =========== =========== ===========
13
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
CORPORATE AND OTHER
Sales $ -- $ -- $ -- $ --
Cost of sales -- -- -- --
Research and development -- -- 29,249 --
Sales and marketing -- 4,000 -- 12,000
General and administrative 18,294 37,139 89,148 41,985
--------- --------- --------- ---------
Total expenses 18,294 41,139 118,397 53,985
--------- --------- --------- ---------
Operating loss $ (18,294) $ (41,139) $(118,397) $ (53,985)
========= ========= ========= =========
(1) CDS' results for the nine months ended September 30, 1998 are for the
period from the date of acquisition (May 8, 1998) through September 30, 1998.
THE PC411 SERVICE
REVENUES. The Company's revenues from the PC411 Service have been derived from
registration fees and usage charges for the modem dial-up PC411 service.
Revenues are recognized over the period in which the related services are to be
provided. Revenues for the PC411 Service for the three and nine months ended
September 30, 1998 were $24,466 and $70,608, respectively, compared to $20,619
and $112,660 for the same periods in the prior year. The decrease in revenues
for the nine-month period was due primarily to lower sales due to the
cancellation of a bundling agreement with an OEM partner in the third quarter of
1997.
COST OF REVENUES. Cost of revenues for the PC411 Service consists primarily of
the cost of data and the distribution fees payable to OEM partners in 1997 and
1998. Cost of revenues in 1998 also includes employee compensation and
depreciation associated with the maintenance of the PC411 Service. The Company's
contract with Acxiom for the listing data provides for payment based on a
specified percentage of revenues that the Company generates from the
distributing the data, with minimum annual payments. The Company has been only
required to pay the minimum quarterly payments. Cost of revenues for the three
months and nine months ended September 30, 1998 were $86,360 and $269,800,
respectively, as compared to $25,309 and $96,833 for the same periods in the
prior year. The increase is due primarily to the increased costs in the
maintenance of the PC411 Service.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
employee compensation associated with the design, programming, and testing of
the PC411 Service. Research and development expenses for the three months and
nine months ended September 30, 1998 were $31,867 and $120,291, respectively, as
compared to $100,690 and $125,329 for the same periods in the prior year. The
decrease in research and development for the three month period was primarily
attributable the development of PC411 FOR WINDOWS VERSION 3.0 in the third
quarter of 1997 and the curtailment of the re-engineering of PC411 FOR WINDOWS
VERSION 3.0 in the third quarter of 1998.
14
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of
direct mail, public relations, print advertising, and trade shows. Sales and
marketing expenses for the PC411 Service for the three and nine months ended
September 30, 1998 were $45,526 and $365,781, respectively, as compared to
$76,076 and $134,252 for the same periods in the prior year. The Company
initiated several sales and marketing programs in the third quarter of 1997 in
an effort to expand distribution of PC411 FOR WINDOWS VERSION 3.0. The Company
also incurred expenses in the initiation of a renewal program for current
subscribers to the PC411 Service in the first and second quarters of 1998. The
Company curtailed its sales and marketing expense related to the PC411 Service
significantly in the third quarter of 1998, which resulted in significantly
lower expenses from the comparable quarter in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
PC411 Service consisted primarily of expenses for administration, office
operations, and general management activities, including legal, accounting, and
other professional fees. General and administrative expenses for the PC411
Service were $140,975 and $525,914 for the three months and nine months ended
September 30, 1998, respectively, as compared to $199,889 and $481,689 for the
same periods in the prior year. The decrease for the three-month period is the
result of the Company's initiative to reduce administrative expenses associated
with the PC411 Service in the third quarter of 1998.
CDS
CDS' results for the nine months ended September 30, 1998 are for the
period from the date of acquisition (May 8, 1998) through September 30, 1998.
REVENUES. CDS had leasing revenues of $1,369 for the three and nine months ended
September 30, 1998. CDS did not realize any advertising revenues for the three
and nine months ended September 30, 1998.
COST OF SALES. Cost of sales for CDS consists primarily of warehouse expenses
and shipping of machines held for lease. CDS depreciates its machines held for
lease over five years once the asset is placed in service.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for CDS were $88,012
for the three and nine months ended September 30, 1998. The expenses consisted
principally of personnel costs and expenses associated with trade shows.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
CDS were $221,061 and $307,034 for the three and nine months ended September 30,
1998. The CDS expenses consisted principally of payroll, amortization of
intangible assets, consulting and office expenses.
CORPORATE AND OTHER
Expenses associated with corporate activities were $18,294 and $118,397 for the
three months and nine months ended September 30, 1998, respectively, as compared
to $41,139 and $53,985 for the same periods in the prior year. The expenses were
primarily associated with costs necessary to maintain a public company and costs
incurred in searching for potential merger and acquisition candidates.
15
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME
OTHER INCOME (EXPENSE). Interest expense was $0 and $94,002 for the three months
and nine months ended September 30, 1997, respectively. The interest expense was
attributed entirely to the loan from New Valley Corporation ("NVC"), the
principal shareholder of the Company. Included in interest expense was $35,000
and $70,000 for each respective period in imputed interest attributable to stock
options granted to Direct Assist Holding Inc. ("DAH"), a wholly-owned subsidiary
of NVC, on January 29, 1997. Interest and other income was $36,946 and $129,266
for the three months and nine months ended September 30, 1998, compared to
$72,935 and $108,408 for the three and nine months ended September 30, 1998. The
increase for the nine-month period is principally related to interest on the
funds received on May 22, 1997 from the Company's initial public offering
("IPO").
LIQUIDITY AND CAPITAL RESOURCES
The Company has not been able to generate sufficient cash from operations and,
as a consequence, financing has been required to fund ongoing operations. The
Company has financed its operations to date primarily through the sale of its
Preferred Stock to DAH, secured short-term borrowings from NVC and the proceeds
of the IPO. Three of the Company's directors and its interim President and its
Chief Financial Officer are or have been executive officers of NVC.
On May 21, 1997, the Company sold 1,322,500 units (including 172,500 units from
the exercise of the underwriter's over-allotment option) in the IPO, each unit
consisting of one share of Common Stock and one Redeemable Class A Common Stock
Purchase Warrant to purchase one share of Common Stock. The units were sold for
$5.75 each and the Company received, after expenses of the IPO, approximately
$5.9 million in net proceeds. After the repayment of the indebtedness to NVC,
cumulative Preferred Stock dividends in the amount of $171,953 and an $80,000
consulting fee to the underwriter of the IPO, approximately $5.4 million
remained for the completion of the introduction of the PC411 Service over the
Internet, to expand marketing, sales and advertising, to develop or acquire new
services or databases, and for general corporate purposes. Cash used in
operations for the nine months ended September 30, 1998 and 1997 was $1,876,728
and $637,395, respectively.
Cash provided from investing activities for the nine months ended September 30,
1998 was $3,275,129, compared with cash used in investing activities of
$4,778,934 during the nine months ended September 30, 1997. The primary source
of cash provided from investing activities in 1998 was the maturity of certain
short-term investments and subsequent conversion to cash-investment accounts in
1998. Cash used in investing activities for the 1997 period resulted primarily
from the investment of proceeds from the IPO into the aforementioned short-term
investments. Capital expenditures for the nine months ended September 30, 1998
and 1997 were $118,737 and $30,072, respectively. The expenditures in 1998 were
primarily for CDS' office furniture and computers. The expenditures for 1997
were primarily for computer equipment. The Company also incurred $104,250 of
costs, principally legal and other fees, in connection with the CDS acquisition.
The Company will amortize these costs over an estimated useful life of five
years.
16
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash provided from financing activities for the nine months ended September 30,
1997 consisted of $5,635,982, which was primarily associated with the Company's
IPO. On May 22, 1997, the Company issued to NVC warrants in satisfaction of
$250,000 of indebtedness owed to NVC. The balance of the indebtedness to NVC,
$447,064, including accrued interest, was paid from the net proceeds from the
IPO. The Company also paid preferred stock dividends in arrears of $171,953 to
NVC.
In connection with the DAMI transaction, the Company agreed, under certain
circumstances, to fund up to $200,000 of an $800,000 line of credit to be
provided to DAMI by various of its stockholders.
The Company expects that cash used in operating activities could increase in the
future. The timing of the Company's future capital requirements, however, cannot
be accurately predicted. The Company's capital requirements depend upon numerous
factors, principally the acceptance and use of CDS's product and the Company's
ability to generate revenue. If capital requirements vary materially from those
currently planned, the Company may require additional financing, including, but
not limited to the sale of equity or debt securities. The Company has no
commitments for any additional financing, and there can be no assurance that any
such commitments can be obtained. Any additional equity financing may be
dilutive to the Company's existing stockholders, and debt financing, if
available, may involve pledging some or all of the Company's assets and may
contain restrictive covenants with respect to raising future capital and other
financial and operational matters.
The Company believes that the net proceeds from the IPO will be sufficient to
meet the Company's operations and capital requirements for the next 12 months,
although there can be no assurance in this regard. Although there can be no
assurance, management believes that the Company will be able to continue as a
going concern for the next 12 months.
The Company or its affiliates, including NVC, may, from time to time, based upon
present market conditions, purchase shares of the Company's Common Stock in the
open market or in privately negotiated transactions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make oral or written
"forward-looking statements" within the meaning of the Private Securities Reform
Act of 1995 (the "Reform Act"), including any statements that may be contained
in the foregoing "Management's Discussion and Analysis of Financial Condition
and Results of Operations", in this report and in other filings with the
Securities and Exchange Commission and in its reports to stockholders, which
represent the Company's expectations or beliefs with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties and, in connection with the "safe-harbor"
provisions of the Reform Act, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the Company.
17
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company's plans and objectives are based, in part, on assumptions involving
the market acceptance of its services, continued growth and expansion of the
Internet, the Company's ability to market successfully the CDS product as a more
convenient and reliable alternative to current comparable and widely used
inventory control systems and that there will be no unanticipated material
adverse change in the Company's business or regulatory developments. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive, regulatory and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors particularly in light
of the Company's early stage operations. Due to such uncertainties and risks,
readers are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date on which such statements are made.
The Company does not undertake to update any forward-looking statement that may
be made from time to time on behalf of the Company.
18
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to information entitled "Contingencies" in Note 5 to
the Financial Statements of PC411, Inc. included elsewhere in this
report on Form 10-QSB.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 21, 1997, the Company completed an initial public offering
("IPO") of 1,322,500 units (including 172,500 units from the exercise
of the underwriter's over-allotment option), each unit consisting of
one share of Common Stock and one Warrant. The units were sold for
$5.75 each and the Company received, after expenses of the IPO,
approximately $5.9 million in net proceeds.
On August 14, 1997, the Company filed its initial report of sales of
securities and use of proceeds therefrom on Form SR. Form SR has been
discontinued and the Company will continue to report the following
information in the Company's quarterly and annual filings until the
proceeds have been fully used.
1. The offering commenced May 14, 1997 and all registered securities
were sold.
2. The managing underwriter was Biltmore Securities, Inc.
3. Title of Securities:
a. Units - Each Unit consists of one share of Common
Stock and one Warrant.
b. Common Stock - Common Stock included in Units,
par value $.01.
c. Warrants - Each Warrant is convertible into
one share of Common Stock at an exercise price of
$6.10.
d. Common stock issuable upon conversion of the
Warrants ("Other Common Stock").
e. Underwriter's Options - The Underwriter's Options
are convertible into Units at an exercise price
of $9.49 per Unit.
19
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
4. The Amount and Aggregate Offering Price of Securities Registered
and Sold to Date For the Account of the Issuer:
AGGREGATE PRICE OF
AMOUNT OFFERING AMOUNT
TITLE OF SECURITY REGISTERED REGISTERED AMOUNT SOLD
- ---------------------- -------------------- ---------------------- --------------
Units 1,322,500 $7,604,375 1,322,000
Common Stock 1,322,500 -- --
Warrants 1,322,500 -- --
Other Common Stock 1,322,500 $8,067,250 --
Underwriter's Options 73,600 $1,147,424 --
5. Expenses Incurred in Connection with Issuance of Securities:
Underwriting discounts and commissions $760,438
Expenses paid to underwriters $228,131
Other expenses (estimated) $730,880
(All expenses were direct or indirect to others)
6. Net offering proceeds after the total expenses above were $5,885,000.
7. Amount of net offering proceeds used for each of the purposes listed
below:
Amounts paid to affiliates of the Company:
Repayment of Indebtedness; preferred stock dividends $ 619,016
Amounts paid to others:
Temporary investments:
Money-market cash accounts $ 2,127,174
Commercial paper $ 100,000
Purchase of machines held for lease $ 470,638
Purchase of equipment $ 153,600
Employee compensation - estimated $ 983,494
Costs associated with acquisition of CDS $ 104,250
Other working capital - estimated $ 1,326,828
20
PC411, INC.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
NASDAQ SMALLCAP MARKET LISTING
The Company's common stock, par value $.01 per share (the "Common
Stock"), and Redeemable Class A Common Stock Purchase Warrants (the "Warrants")
are traded in the over-the-counter market and are quoted through the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") on the
SmallCap Market System under the symbols PCFR and PCFRW, respectively. The
Company has recently been advised by Nasdaq that its securities will be delisted
on December 16, 1998 unless prior to that date the Company's common stock
achieves a market value of the public float greater than $1,000,000 for ten
consecutive trading days.
DAMI TRANSACTION
On November 5, 1998, PC411, Inc. (the "Company") contributed the
non-cash assets and certain liabilities of its on-line electronic delivery
information service (the "PC411 Service") to Digital Asset Management, Inc.
("DAMI"). See Part I - Item 2 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview". DAMI is a newly
formed corporation organized by Dean Eaker, the former President, Chief
Executive Officer and a director of the Company, and Edward Fleiss, the former
Vice President and Chief Technology Officer of the Company, to continue to
operate and develop the PC411 Service. The Company received preferred stock
representing an initial 42.5% interest in DAMI in exchange for the contribution
of the PC411 Service. Acxiom Corporation ("Acxiom") purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's management,
including Messrs. Eaker and Fleiss, will hold an initial 15% interest in DAMI
with options to increase their ownership position to 50% upon satisfaction of
operational and financial benchmarks over a three-year period.
The Company has agreed, under certain conditions, to fund up to
$200,000 of an $800,000 working capital line to be provided to DAMI by Acxiom,
the Company and Dean R. Eaker.
Effective with the closing of the DAMI transaction, Dean R. Eaker and
Edward A. Fleiss resigned their positions with the Company and entered into an
agreement with Company terminating their employment agreements. The Board of
Directors of the Company has elected Richard J. Lampen, a director of PC411, as
interim President and Chief Executive Officer, and J. Bryant Kirkland III, Vice
President and Chief Financial Officer of PC411, as a director. Messrs. Lampen
and Kirkland also serve as executive officers of New Valley Corporation, the
Company's principal stockholder. The Company's principal executive offices have
been relocated to Miami, Florida. The Company will continue to be engaged in the
marketing of an inventory control system for tobacco products through its
wholly-owned subsidiary CDS, and in the delivery of the PC411 Service through
its interest in DAMI.
21
PC411, INC.
PART II. OTHER INFORMATION
The contribution of the PC411 Service to DAMI was effected pursuant to
a Stock Purchase Agreement (the "Purchase Agreement"), dated as of October 31,
1998, by and among DAMI, Acxiom and the Company. The sale was negotiated on an
arm's-length basis between the executive officers and directors of the Company,
other than Messrs. Eaker and Fleiss, and Acxiom. Except as noted above, there is
no material relationship between DAMI and the Company or any of its affiliates,
any director or officer of the Company, or any affiliate or associate of any
such director or officer.
The foregoing summary of the contribution of the PC411 Service to DAMI
is qualified in its entirety by reference to the text of the Purchase Agreement
and related agreements, which are attached hereto as exhibits and are
incorporated herein by reference.
PRO FORMA FINANCIAL INFORMATION
On November 5, 1998, the Company consummated the contribution of the
PC411 Service to DAMI. The Unaudited Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1997 and for the nine months ended
September 30, 1998 present the results of operations of the Company assuming the
contribution of the PC411 Service to DAMI had been consummated as of the
beginning of the periods presented.
The Unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1998 reflects the assets, liabilities and capitalization of the Company after
giving effect to the elimination of the assets and liabilities relating to the
PC411 Service and the acquisition of preferred stock in DAMI.
The pro forma information does not purport to be indicative of the
results of operations or the financial position which would have actually been
obtained if the contribution of the PC411 Service to DAMI had been consummated
as of the beginning of the periods presented or at September 30, 1998. In
addition, the pro forma financial information does not purport to be indicative
of results of operations or financial position which may be obtained in the
future.
The pro forma financial information should be read in conjunction with
the Company's historical Consolidated Financial Statements and Notes thereto
contained herein and in the Company's 1997 Annual Report on Form 10-KSB and the
Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June
30, 1998.
22
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 1998
----------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
------------------ ------------------- ------------------------
ASSETS:
Current assets:
Cash and cash equivalents............................... $2,337,558 $ 2,337,558
Investments............................................. -- --
Restricted assets....................................... 100,000 100,000
Accounts receivable..................................... 2,842 $ (1,385) (1) 1,457
Accrued interest receivable............................. 7,402 7,402
Prepaid expenses and other current assets............... 26,954 -- 26,954
---------- --------- -----------
Total current assets............................... 2,474,756 (1,385) 2,473,371
Machines held for lease, net of depreciation................ 469,394 469,394
Property and equipment, net................................. 206,435 (100,980) (1) 105,455
Investment in DAMI.......................................... -- 553,651 553,651
Intangible assets, net...................................... 410,238 -- 410,238
---------- --------- -----------
Total assets....................................... $3,560,823 $ 451,286 (2) $ 4,012,109
========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses................... $ 188,888 $ (20,000) (1) $ 168,888
Deferred revenue........................................ 29,657 (29,657) (1) --
---------- --------- -----------
Total current liabilities.......................... 218,545 (49,657) 168,888
---------- --------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, Series A $.01 par value.
Authorized 5,000,000 shares; no shares
issued and outstanding............................... --
Common Stock, $.01 par value. Authorized
25,000,000 shares; 3,120,000 shares issued
and outstanding...................................... 31,200 31,200
Additional paid-in capital.............................. 7,747,584 500,943 (2) 8,248,527
Deficit accumulated during the development stage........ (4,436,506) -- (4,436,506)
---------- --------- -----------
Total stockholders' equity......................... 3,342,278 500,943 3,843,221
---------- --------- -----------
Total liabilities and stockholders' equity......... $3,560,823 $ 451,286 $ 4,012,109
========== ========= ===========
(1) To eliminate assets transferred to and liabilities assumed by DAMI.
(2) To record initial equity investment in PC411's 42.5% ownership interest of
DAMI.
23
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
--------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- ------------
Revenues.................................. $ 143,132 $ (143,132) (1) $ --
----------- ------------ ------------
Cost and expenses:
Cost of revenues...................... 119,759 (119,759) (1) --
Research and development.............. 168,959 (168,959) (1) --
Sales and marketing................... 192,313 (180,313) (1) 12,000
General and administrative............ 943,883 (760,742) (1) 183,141
----------- ------------ ------------
1,424,914 (1,229,773) (1) 195,141
----------- ------------ ------------
Operating loss................... (1,281,782) 1,086,641 (195,141)
----------- ------------ ------------
Other income (expense):
Interest income....................... 169,428 -- 169,428
Interest expense...................... (94,002) -- (94,002)
Equity loss in DAMI................... -- (461,822) (2) (461,822)
----------- ------------ ------------
75,426 (461,822) (387,396)
----------- ------------ ------------
Loss before income taxes......... (1,206,356) -- (582,537)
Income taxes.............................. 800 -- 800
----------- ------------ ------------
Net Loss......................... (1,207,156) 624,819 (583,337)
Dividends on preferred shares............. (132,679) -- (132,679)
----------- ------------ ------------
Net loss applicable to common stock....... $(1,339,835) $ 624,819 $ (716,016)
=========== ============ ============
Net loss per share (basic and diluted).... $ (0.53) $ 0.25 $ (0.28)
=========== ============ ============
Shares used in computing net loss
per share............................. 2,542,524 2,542,524
=========== ============
(1) To eliminate results from operations related to the PC411 Service.
(2) To record 42.5% interest in DAMI's operations.
24
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30, 1998
-----------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- -----------
Revenues $ 71,977 $ (70,608) (1) $ 1,369
Cost and expenses:
Cost of revenues 298,662 (269,800) (1) --
Research and development 149,540 (120,291) (1) 28,862
Sales and marketing 453,792 (365,781) (1) 88,011
General and administrative 922,097 (525,914) (1) 396,183
----------- ----------- -----------
1,824,051 (1,281,786) 542,305
----------- ----------- -----------
Operating loss (1,752,074) (1,211,178) (540,896)
----------- ----------- -----------
Other income (expense):
Interest and other income 129,266 129,266
Interest expense -- -- --
Equity loss in DAMI -- (514,751) (2) (514,751)
----------- ----------- -----------
129,266 (514,751) (388,485)
----------- ----------- -----------
Loss before income taxes (1,622,808) 696,427 (929,381)
Income taxes -- -- --
----------- ----------- -----------
Net loss applicable to common stock $(1,622,808) $ 696,427 $ (929,381)
=========== =========== ===========
Net loss per share (basic and diluted) $ (.53) $ .23 $ (.30)
=========== =========== ===========
Shares used in computing net loss per
share 3,050,215 3,050,215
=========== ===========
(1) To eliminate results from operations related to the PC411 Service.
(2) To record 42.5% interest in DAMI's operations.
25
PC411, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
2.1 Stock Purchase Agreement, dated as of October 31, 1998, by and
between DAMI, Acxiom and the Company.
10.1 Voting Agreement, dated as of October 31, 1998, by and between
DAMI, Acxiom, the Company and the other stockholders of DAMI.
10.2 Shareholders Agreement, dated as of October 31, 1998, by and
between DAMI, Acxiom, the Company and the other stockholders
of DAMI.
10.3 Bridge Loan and Security Agreement, dated as of October 31,
1998, by and among DAMI, Acxiom, the Company and Dean R.
Eaker.
27.0 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
None
26
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
SIGNATURE
Pursuant to the requirements 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.
PC411, INC.
(Registrant)
Date: November 13, 1998 By: /s/ J. Bryant Kirkland III
---------------------------
J. Bryant Kirkland III
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
27