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 March 31, 2000
COMMISSION FILE NUMBER 0-28720
SALES ONLINE DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1479833
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
4 Brussels Street, Worcester, Massachusetts 01610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 791-6710
Common Stock, $0.001 Par Value
(Title of each class)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve 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 May 1, 2000, the issuer had outstanding 47,056,140 shares of
its Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes___ No_X_
<PAGE>
Sales Online Direct, Inc.
Form 10-QSB
For the three months ended March 31, 2000
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements 3
Balance Sheet - 3
March 31, 2000 (unaudited)
Statements of Operations - 4
Three-months ended March 31, 2000 and 1999 (unaudited)
Statements of Cash Flows 5
Three-months ended March 31, 2000 and 1999 (unaudited)
Statement of Shareholders' Equity 7
Three months ended March 31, 2000 and 1999 (unaudited)
Notes to Financial Statements 8
Three-months ended March 31, 2000 and 1999 (unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operations 13
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SALES ONLINE DIRECT, INC.
BALANCE SHEETS
March 31, 2000
(unaudited)
Assets
Current assets:
Cash and cash equivalents $2,649,249
Accounts receivable 53,158
Inventory 505,137
Prepaid expenses 55,336
Other current assets 46,236
------
Total current assets 3,309,116
Property and equipment, net 583,904
Goodwill 44,024
Other intangible assets 283,300
Debt financing costs, net 266,250
Other assets 17,667
- ------------ ------
Total assets $4,504,261
==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $194,151
Accrued expenses 158,497
-------
Total current liabilities 352,648
-------
Convertible Debt 2,575,945
---------
Stockholders' equity:
Common stock, $.001 par value, 100,000,000 shares
authorized; 47,056,140 shares issued and outstanding 47,056
Additional paid-in capital 5,809,211
Accumulated deficit (3,714,129)
Unearned compensation (566,470)
---------
Total stockholders' equity 1,575,668
---------
Total liabilities and stockholders' equity $4,504,261
==========
See accompanying notes to unaudited financial statements
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SALES ONLINE DIRECT, INC.
STATEMENTS OF OPERATIONS
For the three months ended
(unaudited)
March 31, 2000 March 31, 1999
-------------- --------------
Revenues $442,370 $157,455
Cost of revenues 228,566 27,249
------- ------
Gross Profit 213,804 130,206
Selling, general and
administrative expenses 717,100 206,969
------- -------
Loss from operations (503,296) (76,763)
--------- --------
Other income (expense) -
Interest expense (1,014,955) -
Other income 11,293 -
------ --------
Total other income (expense) (1,003,662) -
---------- --------
Loss before income taxes (1,506,958) (76,763)
Provision for taxes on income - -
---------- --------
Net loss (1,506,958) $ (76,763)
=========== ===========
Loss per share
Basic $ (0.03) $ (0.00)
========== ===========
Weighted average shares 46,836,195 43,893,912
========== ===========
See accompanying notes to unaudited financial statements
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<PAGE>
<TABLE>
<CAPTION>
SALES ONLINE DIRECT, INC.
STATEMENTS OF CASH FLOWS
For the three months ended
(unaudited)
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss $(1,506,958) $(76,763)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities
Depreciation and amortization 48,823 2,125
Amortization of unearned compensation 47,441 -
Beneficial conversion feature of convertible debt 1,000,000 -
Amortization of debt discount 5,945 -
Changes in assets and liabilities:
Accounts receivable (4,476) 4,389
Inventory 124,592 14,006
Due from related parties 4,006
Accounts payable (159,518) 86,574
Accrued expenses 77,014 24,728
Income taxes payable -
Other, net (17,344) (10,985)
-------- --------
Net cash provided by (used in) operations (384,481) 48,080
--------- ------
Investing activities:
Cash received from acquisitions - 10,352
Property and equipment additions (4,671)
------- ------
Net cash provided by (used in) investing activities (4,671) 10,352
------- ------
Financing activities:
Proceeds from assignment of common stock call options 87,188 -
Net proceeds from convertible securities 2,300,000 -
Proceeds form sale of warrants 430,000 -
--------- --------
Net cash provided by financing activities 2,817,188 -
--------- --------
Net increase in cash and equivalents 2,428,036 58,432
Cash and equivalents, beginning 221,213 -
------- --------
Cash and equivalents, ending $2,649,249 $58,432
========== =======
</TABLE>
See accompanying notes to unaudited financial statements
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<PAGE>
<TABLE>
<CAPTION>
SALES ONLINE DIRECT, INC.
STATEMENTS OF CASH FLOWS (continued)
For the three months ended
(unaudited)
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ -
============ ============
Income taxes $ 5,185 $ -
============ ============
Supplemental schedule of Non-cash Investing and Financing Activities:
Contributions of inventories $ - 769,764
============ ============
Contribution of the net assets of World Wide Collectors Digest, Inc. were
recorded at their fair values as follows:
Due form shareholder $ - $ 2,737
Other current assets - 1,000
Property and equipment - 29,877
Liabilities assumed - (385)
Paid-in capital - 33,229
Merger of Rotman Auction, Inc. accounted for utilizing the purchase
method of accounting. The assets were recorded at their fair values
as follows:
Cash received in the transaction - 9,864
Accounts receivable - 11,841
Inventory - 31,454
Due from affiliate - 10,919
Other current assets - 7,115
Property and equipment - 1,697
Due to shareholder - (11,820)
Other liabilities assumed - (129,975)
Goodwill - 68,905
Acquisition of Internet Collectible Awards for Common Stock $ 287,500 -
and Liabilities
Consulting fees paid in common stock 44,835 -
</TABLE>
See accompanying notes to unaudited financial statements
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<PAGE>
<TABLE>
<CAPTION>
SALES ONLINE DIRECT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For the three months ended March 31, 2000
(unaudited)
Common Stock
------------
Additional
Paid-in Accumulated Unearned
Shares Amount Capital Deficit Compensation Total
------ ------ ------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 46,711,140 $46,711 $4,010,033 $(2,207,171) $(613,911) $1,235,662
Common stock issued in connection
with call option agreement 110,000 110 (110) - - -
Common stock issued to consultant for services 35,000 35 44,800 - - 44,835
Acquisition of Internet Collectible Awards 200,000 200 237,300 - - 237,500
Proceeds from assignment of options - - 87,188 - - 87,188
Beneficial conversion discount - - 1,000,000 - - 1,000,000
Issuance of warrants - - 430,000 - - 430,000
Amortization of stock-based compensation - - - - 47,441 47,441
Net loss - - - (1,506,958) - (1,506,958)
---------- ------- ----------- ------------ --------- -----------
Balance, March 31, 2000 47,056,140 $47,056 $5,809,211 $(3,714,129) $(566,470) $1,575,668
========== ======= ========== =========== ========== ==========
</TABLE>
See accompanying notes to unaudited financial statements
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<PAGE>
UNAUDITED
SALES ONLINE DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
Three months ended March 31, 2000 and 1999
1. ORGANIZATION
On February 25, 1999, Securities Resolution Advisors, Inc. ("SRAD")
purchased all of the outstanding common stock of Internet Auction, Inc.
("Internet Auction"). The acquisition was made pursuant to an Agreement and Plan
of Reorganization (the "Agreement") dated January 31, 1999 between SRAD and the
principal shareholders ("IA Shareholders") of Internet Auction. Pursuant to the
Agreement, SRAD acquired all of the issued and outstanding shares of Internet
Auction in exchange for the issuance to the IA Shareholders of an aggregate of
37,368,912 shares, representing approximately 80%, of SRAD's issued and
outstanding common stock, and the business of Internet Auction became the
business of SRAD. In accordance with the Agreement, after the transaction
described above, the IA Shareholders were appointed to SRAD's Board of Directors
and became officers of SRAD. The previously serving directors resigned from the
Board.
SRAD subsequently changed its name to Sales OnLine Direct, Inc. (the
"Company"). For accounting purposes, the transaction described above is
considered, in substance, a capital transaction rather than a business
combination. It is equivalent to the issuance of common stock by Internet
Auction for the net assets of the Company, accompanied by a recapitalization.
This accounting treatment is identical to that resulting from a reverse
acquisition, except that no goodwill or other intangible asset has been
recorded. Accordingly, the accompanying financial statements reflect the
acquisition by Internet Auction of the net assets of the Company and the
recapitalization of Internet Auction's common stock based on the exchange ratio
in the Agreement.
On March 7, 2000, the Company acquired Internet Collectible Awards
(www.collectiblenet.com), an internet business that polls consumers and reports
on the best Internet collectibles Web sites in a variety of categories. As
consideration for the acquisition, the Company recorded accounts payable of
$50,000 and issued 200,000 shares of the Company's common stock valued at
$237,500 (based on the Company's stock price at the date of acquisition). The
acquisition has been accounted for under the purchase method of accounting. The
excess of the purchase price, $287,500, over the fair value of the assets
acquired has been allocated to other intangible assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the United States
Securities and Exchange Commission for interim reporting and include all
adjustments (consisting only of normal recurring
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adjustments) which are, in the opinion of management, necessary for a fair
presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report for the year ended
December 31, 1999 which is included in the Company's Form 10KSB.
Goodwill
Goodwill is being amortized on a straight-line basis over an estimated
useful lives of three to five years.
Other intangible assets
The other intangible assets acquired from Internet Collectible Awards
are being amortized over their estimated useful life of five years.
Debt financing costs
Debt financing costs associated with the convertible debt are being
amortized over the two year term of the related debt.
Revenue Recognition
The Company generates revenue on sales of its purchased inventory and
from fees and commissions on sales of merchandise under consignment type
arrangements.
For sales of merchandise owned and warehoused by the Company, the
Company is responsible for conducting the auction, billing the customer,
shipping the merchandise to the customer, processing merchandise returns and
collecting accounts receivable. The Company recognizes the gross sales amount as
revenue upon verification of the credit card transaction and shipment of the
merchandise.
For sales of merchandise under consignment-type arrangements, the
Company takes physical possession of the merchandise, but is not obligated to
and does not take title to or ownership of the merchandise. When an auction is
completed, consigned merchandise which has been sold is shipped upon receipt of
payment. The Company recognizes the net commission and service revenues relating
to the consigned merchandise upon receipt of the gross sales proceeds. The
Company then releases the net sales proceeds to the Consignor.
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Income Taxes
Deferred tax asset and liabilities are recorded for temporary
differences between the financial statement and tax bases of assets and
liabilities using the enacted income tax rates expected to be in effect when the
taxes are actually paid or recovered. A deferred tax asset is also recorded for
net operating loss, capital loss and tax credit carry forwards to the extent
their realization is more likely than not. The deferred tax expense for the
period represents the change in the deferred tax asset or liability from the
beginning to the end of the period.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the amounts reported of assets and liabilities as of the date of the
balance sheet and reported amounts of revenue and expenses during the reporting
period. Material estimates that are particularly susceptible to significant
change in the near term relate to the inventory valuation and the deferred tax
asset valuation. Although these estimates are based on management's knowledge of
current events and actions, they may ultimately differ from actual results.
Earnings Per Common Shares
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the Company relate to
outstanding stock options. Convertible debt and common stock warrants and are
determined using the treasury stock method. The potential common shares have
been excluded from the computation of diluted earnings per share because they
were antidilutive as a result of the Company's net loss for the year.
3. COMMON STOCK
Call Option Agreement
In connection with the Agreement described in Note 1, on February 25,
1999, SRAD entered into a Call Option Agreement ("Option Agreement") with
Universal Funding, Inc. (Universal), a shareholder of SRAD and a beneficial
owner of 3,000,000 shares of SRAD's common stock. Under the Agreement, Universal
agreed to grant certain options to SRAD to acquire 2,000,000 shares of SRAD's
common stock owned by Universal. The options consist of 1,000,000 shares at $.50
per share exercisable through February 25, 2000 and 1,000,000 shares at $.75 per
share exercisable through February 25, 2001. The exercise price was reduced to
$.375 per share through April 30, 1999.
In addition, the Company assigned options to purchase 160,000 shares of
stock from Universal to Richard Singer, the former President of SRAD, for
services rendered to SRAD in connection with the acquisition of Internet
Auction, Inc. Also, the Company assigned options to purchase 700,000 shares of
stock from Universal in connection with the acquisition of certain inventories.
In April 1999, the Company assigned options to purchase 500,000 shares
of stock from Universal to certain individuals in exchange for $2,450,000, which
was added to the paid-in capital of the Company.
In March 2000, the Company assigned options to purchase 142,500 shares
of stock from Universal to certain individuals in exchange for $87,188, which
was added to the paid-in capital of the Company.
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At March 31, 2000, the Company had a balance of 497,500 shares
remaining under the agreement with an exercise price of $.75 and an expiration
date of February 25, 2001.
4. INCOME TAXES
There was no provision for income taxes for the periods ended March 31,
2000 or 1999 due to the Company's net operating loss and its valuation reserve
against deferred income taxes.
The difference between the provision for income taxes from amounts
computed by applying the statutory federal income tax rate of 34% and the
Company's effective tax rate is due primarily to the net operating loss incurred
by the Company and the valuation reserve against the Company's deferred tax
asset.
At March 31, 2000 the Company has federal and state net operating loss
carryforwards of approximately $2,200,000 available to offset future taxable
income that will expire in 2020.
5. CONVERTIBLE DEBT FINANCING
On March 23, 2000, the Company entered into a Securities Purchase
Agreement (the "Agreement"), whereby the Company sold an 8% convertible note in
the amount of $3,000,000, due March 31, 2002 to Augustine Fund, L.P. (the
"Buyer").
The note is convertible into common stock at a conversion price equal
to the lesser of: (1) one hundred ten percent (110%) of the lowest of the
closing bid price for the common stock for the five (5) trading days prior to
March 23, 2000, or (2) seventy-five percent (75%) of the average of the closing
bid price for the common stock for the five (5) trading days immediately
preceding the conversion date.
Had the Buyer converted the note on March 23, 2000, the Buyer would
have received $4,000,000 in aggregate value of the company's common stock upon
the conversion of the $3,000,000 convertible note. As a result, for the period
ended March 31, 2000, the intrinsic value of the beneficial conversion feature
of $ 1,000,000 has been allocated to debt discount and additional paid-in
capital. Since the debt was convertible at date of issuance, the debt discount
was charged to interest expense in the period ended March 31, 2000.
In connection with the Agreement, the Company also issued warrants to
the Buyer and Delano Group Securities to purchase 300,000 and 100,000 shares of
common stock, respectively. The purchase price per share of common stock is
equal to one hundred and twenty percent (120%) of the lowest of the closing bid
prices for the common stock during the five (5) trading days prior to the
closing date. The warrants are exercisable on June 23, 2000 and expire on March
31, 2005. The fair value of the warrants granted is estimated to be $430,000
using the Black-Scholes option-pricing model. The amount of the proceeds
allocated to the warrants results in a debt discount of $430,000 which will be
amortized as additional interest expense during the two years ending March 23,
2002. Amortization of $5,945 has been charged to operations during the three
months ended March 31, 2000.
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In addition, the Company entered into a Registration Rights Agreement,
whereby the Company agreed to file a Registration Statement with the Securities
and Exchange Commission (SEC), within 180 days of the closing date, covering the
common stock to be issued upon the conversion of the convertible note and stock
purchase warrants. All fees and expenses related to the registration of the
common stock will be paid by the Company. Estimated fees and expenses to be
incurred in connection with this agreement in the amount of $35,000 have been
accrued during the three months ended March 31, 2000.
If the Registration Statement is not declared effective by the SEC on
or before September 30, 2000, then with respect to any portion of the note not
previously converted into common stock, the applicable conversion percentage
will decrease by two percent (2%) each thirty day period until the Registration
Statement is declared effective by the SEC. If the SEC has not declared the
Registration Statement effective within one year after March 23, 2000, the
applicable conversion percentage shall be fifty percent (50%).
Also, if the Registration Statement is not filed by the filing date and
not declared effective by the SEC on or prior to September 30, 2000, the Company
shall pay cash, as liquidating damages, for such failure. The required payment
will be equal to two (2%) of the purchase price of the note and warrant for each
thirty-day period, until the breach of the Registration Rights Agreement is
cured.
Expenses incurred in connection with the sale of the convertible
debentures amounted to $270,000. These expenses are being amortized to expense
over the term of the convertible debentures.
Issuance of Common Stock
On February 17, 2000, the Company issued 75,000 shares of its common
stock to Universal Funding, Inc. for payment of certain fees due in connection
with the granting of the common stock call options and temporary reduction of
the call option exercise price. In addition, the Company issued 35,000 shares of
its common stock to an investment consultant for service rendered in connection
with the common stock option grant transactions. The aggregate value of the
common stock issued was $140,000 treated as a cost of raising capital, with no
impact on the net worth of the Company. Also, the Company issued 35,000 shares
to a consultant for services rendered in the first quarter of 2000.
The fair value of the shares issued, $44,800, was charged to expense
and added to additional paid in capital in the first quarter of 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements (within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934) regarding the Company and
its business, financial condition, results of operations and prospects. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions or variations of such words are intended to
identify forward-looking statements in this Report. Additionally, statements
concerning future matters such as the development of new services, technology
enhancements, purchase of equipment, credit arrangements, possible changes in
legislation and other statements regarding matters that are not historical are
forward-looking statements.
Although forward-looking statements in this Report reflect the good
faith judgment of the Company's management, such statements can only be based on
facts and factors currently known by the Company. Consequently, forward-looking
statements are inherently subject to risks, contingencies and uncertainties, and
actual results and outcomes may differ materially from results and outcomes
discussed in this 10-QSB. Although the Company believes that its plans,
intentions and expectations reflected in these forward-looking statements are
reasonable, the Company can give no assurance that its plans, intentions or
expectations will be achieved. For a more complete discussion of these risk
factors, see Exhibit 99.1, "Risk Factors", in the Company's Form 10-KSB for the
fiscal year ended December 31, 1999.
Overview
The Company's primary business is collectibles. Because of the large
growth in both the online auction and e-commerce industries, and the concomitant
increase in mergers and strategic alliances, the Company has focused its
resources and efforts to create a unique suite of Internet applications for the
collectibles industry that includes a collectibles portal, a global auction
search and a research center. All visitors to the Company's new website at
"www.collectingexchange.com" will be able to use the collectibles portal and
establish home pages tailored to their individual preferences and needs.
Results of operations
The following discussion compares the Company's results of operations
for the three months ended March 31, 2000, with those for the three months ended
March 31, 1999. The Company's consolidated financial statements and notes
thereto included elsewhere in this report contain detailed information that
should be referred to in conjunction with the following discussion.
Revenue. For the three months ended March 31,2000 revenue was $442,370,
substantially all of which is attributable to sales of the Company's own product
and fees from buyers and sellers through the Rotman Auction operations. This
represents an increase of approximately $284,915, or 180%, for the three-month
period ended March 31, 2000 from the corresponding period of the prior fiscal
year, in which revenue was $157,455. Gross profit for the three months ended
March 31, 2000 was $213,804 compared with $130,206 for the comparable 1999
quarter. The primary reason for the change is that, since the third quarter
1999, the Company switched from an 80% consignment model to approximately 20%
consignment sales. As a result, most of the Company's sales consist of
Company-owned product.
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Sales, General, and Administrative Expenses. Sales, general and
administrative ("SG&A") expenses during the quarter ended March 31, 2000 were
$717,100, compared to $206,969 for the quarter ended March 31, 1999. The
increase in SG&A costs include professional fees for the three months ended
March 31, 2000 of $87,000, some of which is attributable to the Company's
financing activities. SG&A also included marketing and advertising costs of
approximately $81,000 for the quarter ended March 31, 2000, compared to $28,000
for the quarter ended March 31, 1999. Marketing expenses were primarily
attributable to print and online marketing and advertising programs designed to
create brand awareness for the Company's online sites. Personnel salaries,
consulting fees and recruitment expenses were approximately $238,000, the
majority of which were paid to engineers devoted to supporting, enhancing and
developing the Company's software systems and products. The Company believes
that significant investments in product development are required to remain
competitive and handle increased growth.
Loss. As a result of the Company's financing activities, the Company
sustained a $1,000,000 one-time charge to earnings associated with the
beneficial conversion discount in the convertible debt. Consequently, the
Company realized a loss for the quarter ended March 31, 2000 of $1,506,958, or
approximately ($.03) per share.
Inflation. The Company believes that inflation has not had a material
effect of its results of operations.
Working Capital and Lquidity
Cash and cash equivalents were $2,649,249 at March 31, 2000, compared
to $58,432 at March 31, 1999.
In March 2000, the Company assigned options to purchase 142,000 shares
of the Company's common stock from Universal Funding Inc. The net proceeds to
the Company were approximately $87,188.
On March 23, 2000, the Company entered into a Securities Purchase
Agreement (the "Agreement"), whereby the Company sold an 8% convertible note in
the amount of $3,000,000, due March 31, 2002 to Augustine Fund, L.P. (the
"Buyer"). The note is convertible into common stock at a conversion price equal
to the lesser of: (1) one hundred ten percent (110%) of the lowest of the
closing bid price for the common stock for the five (5) trading days prior to
March 23, 2000, or (2) seventy-five percent (75%) of the average of the closing
bid price for the common stock for the five (5) trading days immediately
preceding the conversion date. Had the Buyer converted the note on March 23,
2000, the Buyer would have received $4,000,000 in aggregate value of the
company's common stock upon the conversion of the $3,000,000 convertible note.
As a result, the intrinsic value of the beneficial conversion feature of
$1,000,000 was allocated to debt discount and additional paid-in capital. Since
the debt was convertible at date of issuance, the debt discount was charged
to interest expense in the period ended March 31, 2000.
In connection with the Agreement, the Company also issued warrants to
the Buyer and Delano Group Securities to purchase 300,000 and 100,000 shares
of common stock, respectively. The purchase price per share of common stock
is equal to one hundred and twenty percent (120%) of the lowest of the closing
bid prices for the common stock during the five (5) trading days prior to
the closing date. The warrants expire on March 31, 2005. The fair value of
the warrants granted is estimated to be $430,000 using the Black-Scholes
option-pricing model. The amount of the proceeds allocated to the warrants
results in a debt discount of $430,000 which will be amortized as additional
interest expense during the two years ending March 23, 2002. Amortization of
$5,945 has been charged to operations during the three months ended March 31,
2000.
In addition, the Company entered into a Registration Rights Agreement,
whereby the Company agreed to file a Registration Statement with the Securities
and Exchange Commission (SEC), within 180 days of the closing date, covering the
common stock to be issued upon the conversion of the convertible note and stock
purchase warrants. All fees and expenses related to the registration of the
common stock will be paid by the Company. Estimated fees and expenses to be
incurred in connection with this agreement in the amount of $35,000 have been
accrued during the three months ended March 31, 2000.
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If the Registration Statement is not declared effective by the SEC on
or before September 30, 2000, then with respect to any portion of the note not
previously converted into common stock, the applicable conversion percentage
will decrease by two percent (2%) each thirty day period until the Registration
Statement is declared effective by the SEC. If the SEC has not declared the
Registration Statement effective within one year after March 23, 2000, the
applicable conversion percentage shall be fifty percent (50%).
Also, if the Registration Statement is not filed by the filing date and
not declared effective by the SEC on or prior to September 30, 2000, the Company
shall pay cash, as liquidating damages, for such failure. The required payment
will be equal to two (2%) of the purchase price of the note and warrant for each
thirty-day period, until the breach of the Registration Rights Agreement is
cured.
Management believes that the proceeds from this Convertible Note and
cash from operations will provide sufficient liquidity and capital resources to
finance the Company's operations through the end of the current fiscal year.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On February 17, 2000, the Company issued 75,000 shares of its
common stock to Universal Funding, Inc. for payment of certain fees due in
connection with the granting of the common stock call options and temporary
reduction of the call option exercise price. In addition, the Company issued
35,000 shares of its common stock to an investment consultant for service
rendered in connection with the common stock option grant transactions. Also,
the Company issued 35,000 shares to a consultant for services rendered in the
first quarter of 2000.
In March 2000, the Company assigned options to investors to purchase
142,500 shares of the Company's common stock from Universal Funding, Inc. The
net proceeds to the Company were approximately $87,188. Such transaction is
exempt from registration under Section 4(2) of the Securities Act of 1933. The
transaction was privately negotiated and the offeree and purchaser was an
accredited investor that represented that it acquired the option for its own
account. No public offering or public solicitation was used by the registrant in
the placement of these securities.
On March 23, 2000, the Company entered into a Securities Purchase
Agreement (the "Agreement"), whereby the Company sold an 8% convertible note in
the amount of $3,000,000, due March 31, 2002 to Augustine Fund, L.P. (the
"Buyer"). The note is convertible into common stock at a conversion price equal
to the lesser of: (1) one hundred ten percent (110%) of the lowest of the
closing bid price for the common stock for the five (5) trading days prior to
March 23, 2000, or (2) seventy-five percent (75%) of the average of the closing
bid price for the common stock for the five (5) trading days immediately
preceding the conversion date. In connection with the Agreement, the Company
also issued warrants to the Buyer and Delano Group Securities to purchase
300,000 and 100,000 shares of common stock, respectively. The purchase price per
share of common stock is equal to one hundred and twenty percent (120%) of the
lowest of the closing bid prices for the common stock during the five (5)
trading days prior to the closing date. The warrants expire on March 31, 2005.
Such transaction is exempt from registration under Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder. The transaction
was privately negotiated and the purchaser was an accredited investor that
represented that it acquired the convertible note and warrants for its own
account. No public offering or public solicitation was used by the registrant in
the placement of these securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No.
27 Financial Data Schedule
-16-
<PAGE>
(b) Reports on Form 8-K:
On March 29, 2000, the Company filed a Form 8-K disclosing
that the Company's Board of Directors approved the termination of the accounting
services provided by Stephen P. Higgins, C.P.A. on March 28, 2000 and had also
previously approved the, on March 24, 2000, the appointment of Wolf & Company,
P.C. as the Company's independent certified accountants to provide accounting
and auditing services for the year ended December 31, 1999.
-17-
<PAGE>
SIGNATURES
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.
Dated: May 15, 2000 SALES ONLINE DIRECT INC.
Registrant
/s/ Gregory P. Rotman
--------------------------------------
Gregory Rotman, President
/s/ Richard S. Rotman
--------------------------------------
Chief Financial Officer, Vice President
and Secretary
-18-
<PAGE>
LIST OF EXHIBITS
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001017655
<NAME> SALES ONLINE DIRECT, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,649,249
<SECURITIES> 0
<RECEIVABLES> 53,158
<ALLOWANCES> 0
<INVENTORY> 505,137
<CURRENT-ASSETS> 3,309,116
<PP&E> 583,904
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,504,261
<CURRENT-LIABILITIES> 352,648
<BONDS> 0
0
0
<COMMON> 47,056
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,504,261
<SALES> 442,370
<TOTAL-REVENUES> 442,370
<CGS> 228,566
<TOTAL-COSTS> 717,100
<OTHER-EXPENSES> 11,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,014,955
<INCOME-PRETAX> (1,506,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,506,958)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
