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U.S. 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 November 30, 1999
Commission File Number: 33-96638-A
ecom.ecom.com, inc.
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(Exact name of small business issuer as specified in its charter)
Florida 65-0538051
- ---------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3801 PGA Boulevard, Suite 1000
Palm Beach Gardens, FL 33410
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(Address of principal executive offices including zip code)
(561) 622-4395
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(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 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 30, 1999, the Registrant had 13,458,600 shares of common stock,
$.0001 par value per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes__ No X
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INDEX
PAGE
NUMBER
Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets - November 30,
1999 (Unaudited) and May 31, 1999 3
Consolidated Statements of Operations - Six Months
Ended November 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Operations -
Three Months ended November 30, 1999 and 1998
(Unaudited) 5
Consolidated Statements of Cash Flows - Six Months
Ended November 30, 1999 and 1998 (Unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 8
Part II. Other Information 11
Signatures 12
2
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ECOM.ECOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1999 AND MAY 31, 1999
November 30, 1999 May 31, 1999
----------------- ------------
Assets (Unaudited)
Current Assets
Cash $ 8,182 $ 105,857
Accounts receivable 9,708 19,155
Inventories 262,479 155,893
Prepaid expense 81,310 15,749
---------- ---------
Total current assets 361,679 296,654
Property and equipment 146,615 97,263
Intangible assets 56,602 67,135
Other assets 6,556 6,773
---------- ---------
Total assets $ 571,452 $ 467,825
========== =========
Liabilities
Current liabilities
Accounts payable and accrued expenses $ 561,564 $ 130,683
Current portion of notes payable 100,000 100,000
Current portion of accrued interest 13,114 5,937
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Total current liabilities 674,678 236,620
Loan from stockholders 388,647 212,344
Notes payable, less current portion 7,295 7,295
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Total liabilities 1,070,620 456,259
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Stockholders' equity
Common stock, $.0001 par value:
Authorized 50,000,000 shares;
Issued 13,458,600 shares at
November 30, 1999 and 12,883,600
shares at May 31, 1999 1,346 1,288
Additional paid-in capital 1,245,170 935,284
Accumulated deficit (1,740,684) (920,006)
Less treasury stock at cost,
2,000 shares (5,000) (5,000)
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Total stockholders' equity (499,168) 11,566
---------- ---------
Total liabilities and stockholders'
equity $ 571,452 $ 467,825
========== =========
See notes to financial statements.
3
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ECOM.ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six-Month Periods Ended November 30, 1999 and 1998
(Unaudited)
Six Months Six Months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Net sales $ 451,571 $ 53,986
Cost of sales 410,937 29,161
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Gross profit 40,634 24,825
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Other operating expenses
Sales and marketing 282,330 42,555
Product development 264,949 0
General and administrative 274,594 79,085
Depreciation and amortization 32,260 17,692
----------- -----------
Total operating expenses 854,133 139,332
Loss from operations (813,499) (114,507)
Interest Expense 7,178 7,975
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Net loss $ (820,677) $ (122,482)
============ ===========
Net loss per common share (primary
and diluted) $ (.063) $ (.010)
============ ===========
Weighted average shares outstanding 13,027,350 11,934,600
============ ===========
See notes to financial statements
4
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ECOM.ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Month Periods Ended November 30, 1999 and 1998
(Unaudited)
Three Months Three Months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Net sales $ 259,673 $ 31,019
Cost of sales 256,091 19,210
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Gross profit 3,582 11,809
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Other operating expenses
Sales and marketing 136,881 14,483
Product development 146,660 0
General and administrative 119,960 37,099
Depreciation and amortization 16,649 9,086
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Total operating expenses 420,150 60,668
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Loss from operations (416,568) (48,859)
Interest Expense 3,615 3,903
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Net loss $ (420,183) $ (52,762)
============ ===========
Net loss per common share (primary
and diluted) $ (.032) $ (.004)
============ ===========
Weighted average shares outstanding 13,171,100 11,965,600
============ ===========
See notes to financial statements
5
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ECOM.ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Month Periods Ended November 30, 1999 and 1998
(Unaudited)
Six Months Six Months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Cash flows from operating activities
Net loss $(820,677) $(122,482)
Reconciling adjustments:
Depreciation and amortization 32,260 17,692
(Increase) Decrease in:
Accounts receivable 9,447 (21,153)
Inventories (106,586) (1,005)
Prepaid expense (65,561) 13,239
Other assets 0 (7,261)
Increase (Decrease) in:
Accounts payable and accrued expenses 430,881 2,653
Accrued interest 7,177 7,974
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Net cash used by operating activities (513,059) (110,343)
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Cash flows from investing activities
Acquisition of property and equipment (70,863) (5,878)
Acquisition of intangible assets 0 0
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Net cash used by investing activities (70,863) (5,878)
--------- ---------
Cash flows from financing activities
Capital contributions 309,944 45,777
Notes payable 0 (4,317)
Loans from stockholders 176,303 65,395
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Net cash provided by financing
activities 486,247 106,855
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Net increase (decrease) in cash (97,675) (9,366)
Cash balance, beginning of period 105,857 89,542
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Cash balance, end of period $ 8,182 $ 80,176
========= =========
See notes to financial statements.
6
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ECOM.ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999 and 1998
(Unaudited)
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
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 six month period
ended November 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending May 31, 2000. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Form 10-KSB for the year ended May 31, 1999.
NOTE 2 - BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that offer
different products and services. The Company currently has two reportable
segments: paintball products and Internet commerce. The paintball segment
produces a mid-priced paintball marker and distributes related accessories.
The Internet segment develops and operates Internet web sites including the
Trading Club. There have been no intersegment sales or transfers. Revenues
from sales of the Company's paintball products over the Internet are reported
within the paintball segment. Internet revenues consist of the sale of
products through the electronic Trading Club's auction web site.
Following is a summary of segment information:
Six Months Ended November 30, 1999
Total Paintball Internet All Other(a)
------- --------- ---------- ------------
Revenues 451,571 448,603 2,968 -
Interest 7,178 7,178 - -
Depreciation
and Amortiza-
tion 32,260 15,092 13,707 3,461
Profit (Loss) (820,677) (2,832) (595,198) (222,647)
Assets 571,452 379,696 137,456 54,300
Six Months Ended November 30, 1998
Total Paintball Internet All Other(a)
------- --------- ---------- ------------
Revenues 53,986 53,986 - -
Interest 7,975 7,146 - 829
Depreciation
and Amortiza-
tion 17,692 12,530 - 5,162
Profit (Loss) (122,482) (22,418) - (100,064)
Assets 318,561 (112,832) - (205,729)
(a) Includes amounts not allocated to operating segments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the accompanying
consolidated financial statements for the six month periods ended November 30,
1999 and 1998 and the Form 10-KSB for the fiscal year ended May 31, 1999.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report and elsewhere (such as in other filings by
the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company of its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended
to identify these forward-looking statements. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements. Factors that might cause or contribute to such differences
include, among others, competitive pressures, the growth rate of the paintball
industry and electronic commerce, constantly changing technology and market
acceptance of the Company's products and services. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED NOVEMBER 30, 1999 WITH THE SIX MONTHS ENDED
NOVEMBER 30, 1998
Revenue for the six month period ended November 30, 1999 was $451,571 compared
to $53,986 of revenue recorded during the same period of the prior year. This
increase, equivalent to 836%, was created by expansion of our paintball
business. During the prior period, production of the Viper M1 paintball
marker was stifled by the inability of our primary subcontractor to assemble
the markers in sufficient quantities to satisfy demand. With production
transferred to in-house facilities, this problem has been solved, allowing us
to meet a demand that is accelerating as a result of our advertising efforts.
The success of our advertising program stems from use of the 1-800-paintball
toll-free telephone number acquired earlier in 1999. Our advertising copy
promotes use of the number in addition to use of our web site at
www.800paintball.com.
During this start-up period of the 800-paintball program, we have relied on
other paintball distributors for procurement of paintball products other than
the Viper. With the growth in volume, we are now able to negotiate directly
with manufacturers which will allow us to reduce our cost of sales and
increase gross profit margins. Although our gross profit increased from
$24,825 in the prior period to $40,634 in the current period, this represented
a decline in gross profit margin from 46.0% of sales in the prior period to
9.0% in the current period.
A portion of the decline in gross profit resulted from recording costs related
to the electronic hosting of our web sites within current period cost of
sales. Our e-commerce web sites began operating in late April 1999 with use
of the sites free to members for the initial six-month period. Significant
revenues from these sites will develop only after the funds needed for
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promotion of our new e-commerce program, the eCom eCom SuperHUB, are received
through our financing activities described below. The SuperHUB concept, which
we expect to be operational by the end of January 2000, allows us to integrate
our auction, classified ad and barter web sites with storefront software that
will provide small business clients with a comprehensive package of tools to
establish their own web presence.
Sales and marketing expenses have increased by $239,775, or 563.0%, primarily
as a result of the implementation of test marketing programs for our e-
commerce program. Product development expense of $264,949 incurred in the
current period ($0 in the prior period) results from our efforts to develop
and refine our e-commerce properties. General and administrative expenses
have risen $195,509, or 247.2%, as the result of additional salaries,
consulting, and professional fees associated with our Company's overall
growth. Depreciation and amortization expense increased $14,568, or 82.3%,
primarily as the result of the addition of computers and related electronic
hardware. Interest expense is down slightly as the result of less interest
bearing debt outstanding.
Our developmental activities and the related expenditures resulted in a net
loss of $820,677 in the current year-to-date period compared to a loss of
$122,482 in the same period of the prior year.
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 1999 WITH THE THREE MONTHS
ENDED NOVEMBER 30, 1998
Revenue grew to $259,673 during the three-month period ended November 30, 1999
compared to $31,019 of revenue recorded during the same period of the prior
year. This represented a 737.1% increase over the prior year quarter.
Increases in cost of sales and operating expenses, consistent with the
description in the year-to-date comparison above, created a net loss of
$420,183 in the current quarter compared to $52,762 in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1999, current assets totaled $361,679 compared to $296,654 at
the end of the prior fiscal year. Increases of $106,586 in inventories and
$65,561 in prepaid advertising offset decreases in cash and accounts
receivable. A $97,675 reduction in cash resulted from the Company's net loss
year-to-date. Current liabilities grew from $236,620 at the prior year end to
$674,678 at the end of the current period. This growth primarily resulted
from an increase of $430,881 in accounts payable and accrued expenses, an
increase created by the growth in inventories and operating expenses.
Net cash used by investing activities increased $64,985 due to the addition of
computer hardware and related electronic equipment.
Net cash provided by financing activities consists of loans from stockholders,
which bear no interest, and capital contributions recorded from the private
sale of restricted stock.
The Company continues to be reliant upon the combination of revenues, loans
from stockholders and capital contributions to fund operations. The Company
has not generated any profits from its existing operations and continues to
incur substantial costs related primarily to development and maintenance of
its e-commerce web sites. The Company's continued existence is dependent upon
its ability to secure financing or its ability to generate sufficient cash
flows through operations to meet its operating costs and repay current
9
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obligations as they come due. In this regard, in April of 1999, the Company
entered into a financing agreement with a third party whereby the Company may
sell to the third party and that third party must buy a number of the
Company's shares of common stock, subject to restrictions (the "Put Option").
The more salient of the restrictions under the Put Option includes that the
Company must first register the shares which may be subject to the put, and
the number of the shares which may be put to the third party in any 30 day
period is dependent upon the Company's share price as determined on the OTC
Bulletin Board and volume of trading activity. The Company can make no
assurances that it will be successful in registering the subject shares or
that the market in the Company's stock will remain adequate to allow the
Company to raise necessary funds through the use of the Put Option. Until the
Company obtains sufficient funds necessary to capitalize the growth of its
existing operations, expenditures required to increase revenues, including
advertising and promotion of both its e-commerce web site and paintball
products, will be substantially limited. Should the Company be unable to
obtain continued funding from existing shareholders or under the terms of Put
Option agreement its operations may be adversely affected.
10
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PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company is not involved in any material legal proceedings or litigation,
and the officers and directors are aware of no other pending litigation which
would have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER EVENTS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended November 30, 1999.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ecom.ecom.com, inc.
Dated: January 14, 2000 By: /s/ David J. Panaia
David J. Panaia, Chief Executive Officer
and Principal Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages 3 and 4 of the
Company's Form 10-QSB for the quarter ended November 30, 1999, and is
qualified in its entirety by reference to such financial statements.
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 8,182
<SECURITIES> 0
<RECEIVABLES> 9,708
<ALLOWANCES> 0
<INVENTORY> 262,479
<CURRENT-ASSETS> 361,679
<PP&E> 238,179
<DEPRECIATION> 91,564
<TOTAL-ASSETS> 571,452
<CURRENT-LIABILITIES> 674,678
<BONDS> 0
0
0
<COMMON> 1,346
<OTHER-SE> (500,514)
<TOTAL-LIABILITY-AND-EQUITY> 571,452
<SALES> 451,571
<TOTAL-REVENUES> 451,571
<CGS> 410,937
<TOTAL-COSTS> 1,265,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,178
<INCOME-PRETAX> (820,677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (820,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (820,677)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
