U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: July 31, 1999
Commission File Number: 0-22607
MERCHANTONLINE.COM, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
84-1233073
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(IRS Employer Identification No.)
1600 S. Dixie Highway
Boca Raton, FL 33432
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(Address of principal executive offices)
33432
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(Zip Code)
(561) 395-3585
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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 Securities Exchange Act of 1934 during the past 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 ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of July 31, 1999, was 17,525,000 shares.
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PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the nine month period ended July 31,
1999, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited financial statements and notes thereto included herein. In connection
with, and because it desires to take advantage of, the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company cautions
readers regarding certain forward looking statements in the following discussion
and elsewhere in this report and in any other statement made by, or on the
behalf of the Company, whether or not in future filings with the Securities and
Exchange Commission. Forward looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Forward looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. The Company disclaims any obligation to update forward
looking statements.
OVERVIEW
MerchantOnline.com, Inc., f/k/a Tarcyn Corporation (the "Company" or
"MOL"), was incorporated under the laws of the State of Colorado on March 19,
1993. On February 16, 1999, pursuant to the terms of an Agreement and Plan of
Reorganization, the Company undertook a forward split of its issued and
outstanding common stock whereby 3.5 shares of common stock were exchanged for
every share then issued and outstanding and thereafter, the Company acquired all
of the issued and outstanding securities of CreditCo, Inc., a Delaware
corporation, in exchange for 15,750,000 (post forward split) "restricted" common
shares of the Company. As a result, the Company was the surviving entity. As
part of the terms of the aforesaid transaction, the Company amended its Articles
of Incorporation, changing its name to its present name, as well as
reincorporating in the State of Florida.
The Company's principal business is to provide a diverse selection of
services which it has developed to allow Internet merchants to quickly and
easily establish a method of conducting business on the Internet with a minimal
initial investment and with low transaction costs. MOL intends to attempt to
take advantage of the anticipated enormous growth of the Internet by providing
an electronic payment solution for merchants that market and sell their products
and services on the Internet. The electronic commerce services ("E-commerce")
provided by MOL include allowing merchants to accept credit cards, debit cards
and online checks from customers in a secure, technologically advanced
environment. MOL is currently a single source of customer service which offers a
variety of Internet services including electronic shopping carts, web site
development and hosting, merchant accounts and real-time credit card processing
in a single package for one installation fee and only one, combined monthly
billing. To date, most of MOL's revenues have been generated from credit card
transactions and set up fees.
MOL has developed proprietary real-time credit card processing programs
which it calls MOLcharge, which management believes meets or exceeds the
capabilities of all currently available software. It intends to provide small
and medium sized merchants with a single vendor that furnishes everything needed
to begin participating in E-commerce. Its proposed client base includes
merchants that already have merchant bankcard accounts that require real-time
processing only. CreditCo commenced marketing its business in February 1998 and,
in September 1998, it began offering complete services to allow merchants to
become active on the Internet.
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The following information is intended to highlight developments in the Company's
operations to present the results of operations of the Company, to identify key
trends affecting the Company's businesses and to identify other factors
affecting the Company's results of operations for the nine month periods ended
July 31, 1999 and 1998.
RESULTS OF OPERATIONS
Results of Operations for the nine month periods ended July 31, 1999 and
1998.
During the nine month period ended July 31, 1999, the Company's revenues
were $529,985, compared to $316,935 for the similar period in 1998. This
increase was attributable to the growth of the Company's business. Costs of
sales were $251,981 for the nine month period ended July 31, 1999, compared to
$208,970 for the nine month period ended July 31, 1998.
During the nine month period ended July 31, 1999, general and
administrative expense totalled $362,262, which expense included $107,982 in
independent contractor expense. General and administrative expense in the nine
month period ended July 31, 1998 were $121,971, including $49,464 in independent
contractor expense. The Company has retained nine separate independent
contractors who provide the Company with technical support, website design,
public relations and marketing. General and administrative expense increased
during the nine month period ended July 31, 1999 compared to the similar period
in 1998 as a result of the Company moving its principal place of business to a
larger facility in order to accommodate the growth of the business and salaries
of the Company's increased number of employees. It is expected that these
expenses will remain relatively constant or increase in the foreseeable future
by reason of anticipated expanded volume of transactions processed by the
Company. As a result, the Company generated a net loss from operations of
$(341,193) during the nine month period ended July 31, 1999 ($.01 per share),
compared to a net loss of $(89,232) for the similar period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At the close of the nine month period ended July 31, 1999, the Company had
$(3,912) in cash and $189,465 in accounts receivable. Its accounts payable and
commissions payable were, in the aggregate, $1,936,017. The amount of $1,530,000
is due to Pagan Lewis Motors, Inc.(PLM) for advertising costs. An agreement has
been reached with PLM, that this shall be paid in twelve monthly installments,
starting on September 1, 1999, and PLM will release in the same amount
advertising on Yahoo!.
The Company has five outstanding notes payable, including two loans from
affiliates, including one note to Tarek Kirschen, President and a Director of
the Company, with an outstanding principal balance of $24,700 and the other to
Steven Landau in the principal amount of $25,000, each of which accrues interest
at the rate of 8% per annum and is due on demand. The remaining outstanding
notes aggregate $360,000 and are payable to minority shareholders pursuant to
the same terms and conditions as Mr. Kirschen's loan.
Management has recognized the Company's need for additional operating
capital. In response thereto, in May 1999, the Company commenced a private
offering of its common stock wherein it is offering shares of its common stock
at a price of $1.00 per share for aggregate gross proceeds of up to $2 million.
As of the date of this report, the Company had sold an aggregate of 25,000
shares of its common stock for gross proceeds of $25,000 pursuant to the
offering. While no assurances of closing the maximum dollar amount proposed to
be raised can be provided, it is anticipated that this offering will continue
through the end of August 1999. There can be no assurances that all of the
shares of common stock currently being offered will be sold, or that the Company
will generate sufficient interest in this offering to solve its cash shortage.
It is expected that the proceeds of this offering will be utilized primarily for
advertising the Company's services using electronic banners on the major
internet services, attendance of the Company at trade shows, research and
development and repayment of debt.
The Company's common stock was approved for trading on the OTC Bulletin
Board operated by the National Association of Securities Dealers, Inc. in the
end of April 1999.
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TRENDS
Management believes that the Company will continue to operate the Company's
business at a loss for the next several months, but is optimistic that the
Company will begin generating profits from its operations beginning thereafter.
This is based upon numerous opportunities for expansion of the services offered
by the Company with major internet companies, as well as establishing strategic
alliances with existing internet companies. Discussions have already commenced
in this regard, but as of the date of this report no definitive agreements have
been made and there can be no assurances that such agreements will be
consummated in the future. Further, there can be no assurances that the Company
will become profitable within the time parameters described herein, or at all.
The Company is currently processing over 1,000 clients and while no assurances
can be provided, it has targeted 10,000 clients by the end of 1999. Once
additional cash becomes available to the Company from the private offering
referenced above (of which there can be no assurance), it is anticipated that
the Company's sales campaign will be enhanced.
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material affect on
the results of operations during the nine month period ended July 31, 1999.
YEAR 2000 DISCLOSURE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. As a result, many companies will be required to undertake major projects
to address the Year 2000 issue. The Company presently owns approximately $83,000
worth of computers and computer related equipment. However, the Company utilizes
Linux servers and Windows 98 personal computers with the modern ROM BIOS. Both
of these technologies are fully Y2K compliant, as the internal calendars do not
use truncated date representations. In addition, there can be no assurances that
the Company's business will not be negatively affected by other third party
failures, should they occur after January 1, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - On August 4, 1999, at the Palm Beach County
Courthouse, Palm Beach County, Florida, a judgement was entered in favor of
James Pruden, case #SC-99-010542-RD in the amount of $15,000. The Company has
entered into a collatorized agreement that the debt will be settled by August
30, 1999, at which time a Satisfactory of Judgement will be filed.
ITEM 2. CHANGES IN SECURITIES - On or about May 18, 1999 the Company issued
25,000 restricted shares of stock to Marx Four Enterprises, Inc. for
cash.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
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ITEM 5. The financial consulting agreement between Worldwide Corporate Finance
and the Company that was entered on January 26, 1999, was terminated
as of August 18, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
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MerchantOnline.com, Inc
Statement of Cash Flows
For the Nine Months Ended July 31, 1999
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (341,193)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 25,352
(increase) decrease in current assets:
Account receivable (177,103)
Employee advances (300)
Increase (decrease) in current liabilities:
Accounts payable 1,795,433
Commissions payable (2,983)
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Net Cash (used in) Operating Activities 1,299,206
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (83,849)
Prepaid Advertising (1,530,000)
Security Deposits (2,442)
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Net Cash (used in) Investing Activities (1,616,291)
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Cash Flows from Financing Activities:
Increase in short term debt 285,674
Increase in capital 25,000
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Net Cash provided by Financing Activities 310,674
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Net Increase (Decrease) in cash (6,411)
Cash beginning of period 2,499
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Cash end of period $ (3,912)
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<TABLE>
<CAPTION>
MerchantOnline.com, Inc
Statement of Income
July 31, 1999
(unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 217,776 $ 237,128 $ 529,985 $ 316,935
COST & EXPENSES
Cost of Sales 21,320 150,703 251,891 208,970
Labor 131,172 34,343 257,025 75,226
General & Admin 148,488 72,349 362,262 121,971
------------ ------------ ------------ ------------
Total Cost & Expenses 300,980 257,395 871,178 406,167
------------ ------------ ------------ ------------
NET (LOSS) $ (83,204) $ (20,267) $ (341,193) $ (89,232)
============ ============ ============ ============
Net loss per share - Basic and diluted $ (.01) $ (.00) $ (.01) $ (.00)
============ ============ ============ ============
Weighted shares outstanding 17,181,818 15,750,000 16,450,000 15,750,000
============ ============ ============ ============
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</TABLE>
<PAGE>
MerchantOnline.com, Inc
Balance Sheet
July 31, 1999
(unaudited)
CURRENT ASSETS
Cash $ (3,912)
Accounts Receivable 189,465
Employee Advances 300
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TOTAL CURRENT ASSETS 185,853
PROPERTY AND EQUIPMENT
Fixed Assets 166,642
Less accumulated Depreciation (37,309)
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129,333
Prepaid Advertising 1,530,000
Security Deposits 9,007
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TOTAL ASSETS $ 1,854,193
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CURRENT LIABILITIES
Accounts Payable $ 1,923,477
Commission Payable 12,540
Notes Payable 409,700
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Total Current Liabilities 2,345,717
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Common Stock -Par Value is .001
100,000,000 shares authorized
17,525,000 issued and outstanding 17,500
Additional paid in capital 57,500
Accumulated deficit (341,193)
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Total Stockholder's deficit (491,524)
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Total Liabilities and Equity $ 1,854,193
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MERCHANTONLINE.COM, INC.
Notes to Financial Statements (unaudited)
July 31, 1999
Note 1. BASIS OF PRESENTATION
The financial statements presented herein have been prepared by
MerchantOnline.com, Inc. (the "Company"), without audit, and do not include all
of the information and notes required by generally accepted accounting
principles for annual financial statements. These statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
period from November 1, 1997 to October 31, 1998, included in the Company's Form
8-K as filed with the Securities and Exchange Commission.
In the opinion of management, the information included herein reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of results for these interim periods. The results of operations for
the interim periods ended July 31, 1999, are not necessarily indicative of the
results to be expected for the entire fiscal year ending October 31, 1999.
NET LOSS PER SHARE
Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during each period
giving effect to the 1,750,000 shares referred to in Note 2 as outstanding since
February 15, 1999.
Note 2. REVERSE MERGER
On February 16, 1999, Tarcyn Corporation (Tarcyn) entered into a transaction
whereby Tarcyn acquired all of the issued and outstanding shares of
MerchantOnline.com, Inc. (the "Company") in exchange for 15,750,000 common
shares of Tarcyn stock. Tarcyn had 500,000 shares outstanding prior to the
acquisition. In connection with and prior to this transaction, Tarcyn authorized
a "forward split" whereby three and one-half of common stock were issued for
each share outstanding or an aggregate of 1,750,000 common shares. Accordingly,
the shareholders of the "Company" will own 90% of the Tarcyn issued and
outstanding shares after the acquisition.
Tarcyn had no assets or operating activity, accordingly the transaction is
hereby accounted for as a reverse merger and recapitalization on February 15,
1999, for an additional 1,750,000 shares (the outstanding Tarcyn shares) in
exchange for no assets. As a result the shares issued (15,750,000) for the
"Company" have been treated as if they were issued since the "Company's"
inception (November 20, 1997).
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MERCHANTONLINE.COM, INC.
(Registrant)
Dated: August 26, 1999
By:/s/ Tarek S. Kirschen
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Tarek S. Kirschen,
President
9
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> (3,912)
<SECURITIES> 0
<RECEIVABLES> 189,465
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,854,193
<PP&E> 0
<DEPRECIATION> 37,309
<TOTAL-ASSETS> 166,642
<CURRENT-LIABILITIES> 2,345,717
<BONDS> 0
0
0
<COMMON> 17,500
<OTHER-SE> (283,693)
<TOTAL-LIABILITY-AND-EQUITY> 1,854,193
<SALES> 529,985
<TOTAL-REVENUES> 529,985
<CGS> 251,891
<TOTAL-COSTS> 251,891
<OTHER-EXPENSES> 619,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (341,193)
<INCOME-TAX> (341,193)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,193)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
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