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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 000-22251
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2CONNECT EXPRESS, INC.
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(exact name of registrant as specified in its charter)
FLORIDA 65-0674664
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 NW 65TH AVE., PLANTATION, FL. 33313
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954)797-7960
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(Former name, former address and former fiscal year,
if changed since last report) NOT APPLICABLE
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PROCEEDING 12 MONTHS (OR FOR SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO .
-- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK, $.01 PAR VALUE,
ON JUNE 17, 1997, WAS 3,752,500.
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INDEX
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<CAPTION>
PAGE
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Balance Sheet (Unaudited) March 31, 1997 and December 31, 1996 1
Condensed Statement of Operations (Unaudited) for the three months ended
March 31, 1997 2
Condensed Statement of Cash Flows (Unaudited) for the three months ended
March 31, 1997 3
Notes to Condensed Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 7
</TABLE>
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
2CONNECT EXPRESS, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
Assets MARCH 31, 1997 DECEMBER 31, 1996
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<S> <C> <C>
Current assets:
Cash $ 949,865 $ 1,939,985
Accounts receivable 81,517 34,909
Inventories 409,725 196,998
Prepaid expenses and other current assets 23,229 68,121
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Total current assets 1,464,336 2,240,013
Property and equipment, net 616,205 401,170
Deferred financing costs 255,601 220,065
Other assets 40,410 13,616
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Total assets $ 2,376,552 $ 2,874,864
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Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 475,319 $ 586,969
Accrued expenses 33,062 33,320
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Total current liabilities 508,381 620,289
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Shareholders' equity:
Common stock, $0.01 par value. Authorized 25,000,000
shares; issued and outstanding 2,710,000 shares 27,100 27,100
Paid-in capital 3,312,857 3,284,420
Accumulated deficit (1,471,786) (1,056,945)
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Total shareholders' equity 1,868,171 2,254,575
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Total liabilities and shareholders' equity $ 2,376,552 $ 2,874,864
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SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
1
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2CONNECT EXPRESS, INC.
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
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<S> <C>
Net sales $ 257,091
Cost of sales 184,969
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Gross profit 72,122
Selling, general and administrative expenses
Salaries 264,825
Professional services 82,646
Other 162,890
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Loss from operations (438,239)
Interest income 23,398
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Net Loss $(414,841)
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Net loss per share $ (.15)
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Number of shares used in calculating net loss per share 2,710,000
=========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
2
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2CONNECT EXPRESS, INC.
CONDENSED STATEMENT OF CASH FLOWS(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
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<S> <C>
Cash flows from operating activities:
Net loss $ (414,841)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 22,097
Stock compensation expense 28,437
Changes in assets and liabilities:
Accounts receivable (46,608)
Inventories (212,727)
Prepaid expenses and other assets 18,098
Accounts payable (111,650)
Accrued expenses (258)
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Net cash used in operating activities (717,452)
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Cash flows from investing activities:
Capital Expenditures (237,132)
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Net cash used in investing activities (237,132)
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Cash flows from financing activities:
Deferred financing costs (35,536)
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Net cash used in financing activities (35,536)
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Net decrease in cash and cash equivalents (990,120)
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Cash, beginning of period 1,939,985
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Cash, end of period $ 949,865
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
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2CONNECT EXPRESS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been prepared in
conformity with instructions to Form 10-QSB and, therefore, do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Certain items included in these
statements are based upon management's estimates. In the opinion of management,
the accompanying financial statements contain all adjustments, consisting of
normal, recurring accruals, necessary to present fairly the financial position
of the Company at December 31, 1996 and March 31, 1997 and the statements of
operations and statements of cash flows for the three month period ended March
31, 1997. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the operating results which may be expected
for the fiscal year ending December 31, 1997. These financial statements should
be read in conjunction with the Company's Form SB-2 Registration Statement
(Registration No. 333-15567) filed with the Securities Exchange Commission on
May 9, 1997.
2) NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
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Net loss per common share has been determined by dividing net loss by
the weighted average number of shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), outstanding during the respective
periods. Common Stock equivalents have been excluded because their effect was
antidilutive. The loss per share takes in effect the one-for-two reverse split
of the Company's issued and outstanding shares of Common Stock effective May 6,
1997.
4
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3) SUBSEQUENT EVENTS
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During May and June 1997, the Company entered into four noncancelable
operating leases for store site locations that expire in 2002.
Minimum future rental payments under these noncancelable operating
leases consist of the following:
Year ending
December 31, 1997
1997............................. $ 86,333
1998............................. 270,610
1999............................. 273,076
2000............................. 279,188
2001............................. 289,411
Thereafter....................... 200,175
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1,398,793
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On May 2, 1997, the Company's Board of Directors declared a one-for-
two reverse split of the Company's issued and outstanding shares of Common Stock
effective May 6, 1997. The par value of each common share remained $0.01 and a
total of $27,100 was reclassified from Common Stock to paid-in capital.
On May 14, 1997, the Company completed an initial public offering of
520,000 Units. Each Unit consists of two shares of Common Stock and one Common
Stock Purchase Warrant (a "Warrant") of the Company. Each Warrant entitles the
holder to purchase one share of Common Stock at a purchase price of $6.00 per
share for a period of sixty days commencing one year from the date of the final
prospectus, May 9, 1997. Neither the shares of Common Stock nor the Warrant
contained in the Units are detachable or separately transferable from the Units
until May 9, 1998, at which time the Units will automatically terminate. The
Units are listed for quotation on the OTC Bulletin Board and the National
Quotation Bureau, Inc.'s pink sheets under the symbol CNTCU. The price to the
public was $12.50 per Unit and the Company received gross proceeds of $6,500,000
before underwriting discounts and offering expenses of $520,000 and
approximately $602,000, respectively.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
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The Company's net sales for the quarter ended March 31, 1997 was
$257,091. The Company commenced operation of the first of its three stores on
December 6, 1996. The second and third stores commenced operations on April 4,
1997 and April 26, 1997, respectively. The Company does not have sufficient
operating history to determine sales seasonality and the revenues generated for
the three months ended March 31, 1997 are not necessarily indicative of results
to be generated for the fiscal year ended December 31, 1997.
Gross profit as a percent of net sales was 28.1% during the three
months ended March 31, 1997. In order to maintain or increase its market share
and as new stores are opened, the Company anticipates that it will price its
products competitively and from time to time may use certain incentives to
increase sales. This pricing strategy has the potential to lower the average
selling price per unit and may cause declines in gross margin beyond the most
recent performance. The Company does not yet have sufficient operating history
to determine if gross margins generated for the three months ended March 31,
1997 are indicative of results to be generated for the fiscal year ended
December 31, 1997.
Selling , general and administrative expenses ("S,G, & A") as a
percent of sales was 199%. The majority of S,G, & A incurred for the three
months ended March 31, 1977 was for salaries, professional fees, advertising
and other expenses related to the corporate support center and operation and
development of 2Connect stores. The Company anticipates that it will incur
significant costs and expenses and will continue to incur losses until, at the
earliest, the Company establishes a number of 2Connect stores generating
sufficient revenue to offset its operating costs and the costs of its proposed
continuing expansion.
Interest income for the three months ended March 31, 1997 was $23,398
and was derived from investment of excess cash balances in short term money
market accounts.
FINANCIAL CONDITION
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Net cash used by operating activities was approximately $717,000 for
the three months ended March 31, 1997. The Company had working capital of
approximately $956,000 at March 31, 1997, as compared to the approximately
$1,620,000 in working capital at December 31, 1996 for an overall decrease of
$664,000. The decrease in current assets of $776,000 during the three month
period was primarily related to the decrease in cash of $990,000 offset
partially by an increase in inventory of $213,000.
Cash used by investing activities for the three month period ended
March 31, 1997 includes a portion of property and equipment additions for two
stores that opened in April 1997 and equipment for the Company's corporate
offices.
As a result of completion of an initial public offering in May 1997,
the Company raised gross proceeds of $6,500,000 before underwriting discounts
and offering expenses of $520,000 and approximately $602,000, respectively. The
Company plans to open 7 to 11 stores during the 12 months following this
offering. The Company believes that the proceeds from the sale of the Units
will enable the Company to satisfy its anticipated financing needs for a period
of at least 12 months from the completion of the offering. If the Company's
plans change, or the capital resources available to the Company otherwise prove
to be insufficient to implement its business plan as a result of unanticipated
expenses, problems or difficulties, or otherwise, the Company would be required
to seek additional financing or curtail its activities.
6
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed with this report:
EXHIBIT NO. DESCRIPTION
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27. Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the quarter ended March 31, 1997.
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.
2CONNECT EXPRESS, INC.
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(Registrant)
Date JUNE 23, 1997 /s/ MARC D. FISHMAN
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Marc D. Fishman, Chairman of the Board,
President and Chief Executive Officer
Date JUNE 23, 1997 /s/ STEVEN D. STEDMAN
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Steven D. Stedman, Vice President,
Finance and Chief Financial Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 949,865
<SECURITIES> 0
<RECEIVABLES> 81,517
<ALLOWANCES> 0
<INVENTORY> 409,725
<CURRENT-ASSETS> 1,464,336
<PP&E> 646,457
<DEPRECIATION> 30,252
<TOTAL-ASSETS> 2,376,552
<CURRENT-LIABILITIES> 508,381
<BONDS> 0
0
0
<COMMON> 27,100
<OTHER-SE> 1,841,071
<TOTAL-LIABILITY-AND-EQUITY> 1,868,171
<SALES> 257,091
<TOTAL-REVENUES> 257,091
<CGS> 184,969
<TOTAL-COSTS> 184,969
<OTHER-EXPENSES> 510,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23,398)
<INCOME-PRETAX> (414,841)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (414,841)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
