FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
--------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 0-23823
-------
PIPELINE TECHNOLOGIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1313024
------------------------ --------------------------
(State of incorporation) (I.R.S. Identification No.)
1001 Kings Avenue, Suite 200, Jacksonville, FL 32207
----------------------------------------------- ----------
(Address of principle executive offices) (Zip Code)
(904) 346-0170
-----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 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 XX No
----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class of Stock Amount Outstanding
------------------------ ----------------------------
$.001 par value 9,949,383 shares outstanding
Common Stock at November 10, 2000
<PAGE>
PIPELINE TECHNOLOGIES, INC.
Index
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet (unaudited) at September 30, 2000 1
Consolidated Statements of Operations (unaudited) for the
three months ended September 30, 2000 and from December 2, 1999
(inception) September 30, 2000. 2
Consolidated Statements of Cash Flows (unaudited) for the
three months ended September 30, 2000 and from December 2,
1999 (inception) to September 30, 2000. 3
Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation
and Financial Condition 6
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults on Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
ii
-2-
<PAGE>
PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 34,256
PROPERTY AND EQUIPMENT, net of depreciation 33,846
OTHER ASSETS
Deposits 40,000
----------------
$ 108,102
================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 254,929
Accrued expenses-related party 28,436
Accrued interest - related party 30,748
Notes payable - related party 1,025,000
----------------
Total current liabilities 1,339,113
----------------
STOCKHOLDERS' (DEFICIT)
Common stock, $0.001 par value, 15,000,000 shares
authorized, 9,949,383 shares issued
and outstanding 1,500
Additional paid in capital 252,459
Deficit accumulated during the development stage (1,484,970)
----------------
(1,231,011)
----------------
$ 108,102
================
The Notes to the Consolidated Financial Statements
are an integral part of these statements
1
-3-
<PAGE>
<TABLE>
PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
DECEMBER 2, 1999
THREE MONTHS (INCEPTION)
ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------ ------------------
<S> <C> <C>
REVENUES $ 12,753 $ 13,848
COST OF GOODS SOLD 64,858 66,995
------------------ ------------------
GROSS (LOSS) (52,105) (53,147)
------------------ ------------------
GENERAL AND ADMINISTRATIVE EXPENSES 422,589 1,408,766
------------------ ------------------
(LOSS) FROM OPERATIONS (474,694) (1,461,913)
------------------ ------------------
OTHER INCOME (EXPENSE)
Rental income 6,390 10,650
Interest expense (28,011) (33,707)
------------------ ------------------
(21,621) (23,057)
------------------ ------------------
NET (LOSS) $ (496,315) $ (1,484,970)
================== ==================
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) 9,949,383 8,952,078
================== ==================
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) $ (0.05) $ (0.17)
================== ==================
</TABLE>
The Notes to the Consolidated Financial Statements
are an integral part of these statements
2
-4-
<PAGE>
<TABLE>
PIPELINE TECHNOLOGIES, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
DECEMBER 2, 1999
THREE MONTHS (INCEPTION)
ENDED THROUGH
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------ ------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net cash flow from operating activities $ (290,195) $ (1,207,718)
------------------ ------------------
INVESTING ACTIVITIES
Purchase of property and equipment (3,604) (36,985)
------------------ ------------------
Net cash (used in) investing activities (3,604) (36,985)
------------------ ------------------
FINANCING ACTIVITIES
Proceeds from issuance of stock - 1,000
Proceeds from note payable 100,000 1,352,959
Payments on notes payable - (75,000)
------------------ ------------------
Net cash provided by financing activities 100,000 1,278,959
------------------ ------------------
Net increase (decrease) in cash (193,799) 34,256
CASH AT BEGINNING OF PERIOD 228,055 -
------------------ ------------------
CASH AT END OF PERIOD $ 34,256 $ 34,256
================== ==================
SUPPLEMENTAL CASHFLOW INFORMATION:
Cash paid for:
Interest $ - $ -
================== ==================
Income taxes $ - $ -
================== ==================
NON CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable to common stock $ - $ 252,959
================== ==================
</TABLE>
The Notes to the Consolidated Financial Statements
are an integral part of these statements
3
-5-
<PAGE>
PIPELINE TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and Item 310(b) of Regulation S-B. They do not include all
of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the audited consolidated financial statements of
the Company as of June 30, 2000, including notes thereto, included in the
Company's Form 10-KSB.
The Company was incorporated on December 2, 1999 and therefore, does not have
comparable information for the corresponding previous fiscal year.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented, common stock
equivalents were not considered as their effect would be anti-dilutive.
(3) Related Party Transactions
The Company leased office space to a company owned by an officer of the Company
for $2,130 per month. Total rental income collected for the three months ended
September 30, 2000 was $6,390.
Certain officers of the Company loan money to the Company at various times
during the year when cash is needed. The balance due these officers was $28,436
at September 30, 2000.
During the three months ended September 30, 2000, the Company received an
unsecured loan of $100,000 from a related party. The note earns interest at a
rate of 12% per annum and is due December 15, 2000.
(4) Contingencies
The Company is a defendant in a lawsuit filed by a former affiliate alleging
fraud in the inducement to enter into a settlement agreement. Plaintiff also
alleges lost opportunity. The Company feels that the claims are barred by the
former settlement agreement. Additionally, the Company has an indemnity
agreement with LM Investment Group ("LM"). The Company believes the claims are
4
-6-
<PAGE>
without merit and intends to vigorously defend them. The Company will also look
to LM if any loss is ascribed to the Company. The lost opportunity claim has
been dismissed by order of the court.
(5) Subsequent Events
In October 2000, the Company received a $150,000 convertible loan from an
unrelated party. The note earns interest at a rate of 12% per annum and is due
in November 2000.
In October 2000, the Company received a $150,000 convertible loan from a related
party. The note earns interest at a rate of 12% per annum and is due in November
2000.
In October 2000, the Company entered into a convertible preferred stock purchase
agreement with an unrelated third party. The third party agreed to purchase 200
shares of the Company's Series A Convertible Preferred Stock in exchange for
$10,000,000.
5
-7-
<PAGE>
PIPELINE TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
The following discussion and analysis covers (i) material changes in the
financial condition and liquidity of Pipeline Technologies, Inc. (the "Company")
since fiscal year end June 30, 2000 and (ii) the results of operations for the
three months ended September 30, 2000. This discussion and analysis should be
read in conjunction with "Management's Discussion and Analysis or Plan of
Operation" included in the Company's Annual Report on Form 10-KSB for the
transition period ended June 30, 2000 as filed with the Securities and Exchange
Commission.
This Report (including any documents incorporated herein by reference)
contains "forward- looking statements" within the meaning of the Federal
securities laws. Such forward-looking statements include, without limitation,
statements regarding the Company's need for working capital, future revenues and
plan of operation and are identified by words such as "anticipates,' "plans,"
"expects" and "estimates." A variety of factors could cause the Company's actual
results to differ materially from those contemplated by these forward-looking
statements, including, without limitation, those discussed below. Most of these
factors are beyond the control of the Company. Investors are cautioned not to
put undue reliance on forward-looking statements.
Reference is made to the exhibits to this Report. The discussion contained
herein is qualified in its entirety by reference to those exhibits.
Liquidity and Capital Resources
At September 30, 2000, Pipeline Technologies, Inc. (the "Company")
continued to suffer from a lack of working capital. At that date, the Company
had a deficit in working capital of $1,304,857, a decrease of $537,785 from
fiscal year end June 30, 2000. At September 30, 2000, the Company's current
liabilities of $1,339,113 substantially exceeded its current assets. The Company
also had a deficit in shareholder's equity of $1,231,011. The Company remains
dependent on receipt of financing from outside sources to continue in operation.
The Company's current liabilities include $254,929 of accounts payable and
accrued expenses payable to independent third parties. The most significant
obligations, however, are notes payable to related parties. The Company has
borrowed approximately $1,000,000 from directors and/or principal shareholders
to meet its short-term cash requirements. All of that amount, plus accrued
interest, is due in June, 2001.
Subsequent to September 30, 2000, the Company borrowed an additional
$300,000 on a short term basis. This obligation bears interest at 12% per annum
and is due in November, 2000 or upon closing of the financing discussed below,
whichever first occurs.
During the three month period ended September 30, 2000, the Company's cash
flow was limited to $100,000 advanced by a related party. Overall, cash
decreased $193,799 from fiscal year end. All of that amount was spent on
6
-8-
<PAGE>
operations. The Company expects that its operations in the future will continue
to use, rather than provide, cash as it continues efforts to implement its
business plan. Substantially all of its capital requirements are related to
costs and expenses of operation.
In an effort to satisfy its capital requirements, the Company executed an
agreement in October to sell $10,000,000 of preferred stock to a single
purchaser in a private placement. The closing of the transaction is scheduled
for late November, 2000. The terms of the agreement require the Company to sell
a convertible preferred stock carrying a 12% cumulative, preferred dividend. The
preferred stock is convertible into common stock at the option of the proposed
purchaser or, upon certain conditions, by the Company. The conversion rate is
based upon the trading price of the Company's common stock, subject to a minimum
of $5.00 under certain conditions. The Company has agreed to register the common
stock underlying the preferred stock after the closing to allow resale by the
purchaser.
Closing of the transaction is subject to certain conditions, of which there
is no assurance. If successfully completed, proceeds of the sale will be used to
repay short-term indebtedness and finance future operations.
Results of Operations
The Company remained in the development stage for accounting purposes
during the first quarter of 2000, as it had not received significant revenues
from operations. However, based upon contracts executed by the Company to date
and subject to receipt of sufficient working capital, management expects that
the Company will receive revenues beginning in calendar 2001.
During the three month period ended September 30, 2000, the Company
continued to incur a net loss from operations, as revenues were insufficient to
cover costs of goods sold and other expenses. During that three month period,
the Company realized a net loss from operations of $496,315, or $.05 per share,
on revenues of $12,753. There were no comparable results for the three months
ended September 30, 1999, as the Company only commenced operation in December of
last year.
During the three months ended September 30, 2000, costs of revenue exceeded
revenue by $52,105. This resulted from the fact that revenue was insufficient to
cover the minimum monthly payments to the Company's network communications
provider. The Company continued efforts to market its service as it tries to
overcome that deficit.
General and administrative expenses of $422,589 for the quarter consisted
primarily of salaries, payroll expenses and professional fees. Management and
staff positions have been maintained or expanded as the Company continues
efforts to implement its business plan and expand revenues. Professional fees
were related to expenses of preparing and filing reports with the Securities and
Exchange Commission, the special shareholders meeting and defense of a civil
lawsuit. The Company also incurred $136,875 in advertising and marketing related
expenses, including $85,000 in development of its Web site. Management believes
that development of a Web site is integral to the Company's marketing efforts.
7
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In its annual report on Form 10-KSB, the Company reported that it was a
defendant in a civil lawsuit. Plaintiffs in that action sued the Company, its
wholly-owned subsidiary and its president alleging misappropriation of corporate
opportunity and breach of a settlement agreement.
In October, 2000, plaintiffs' claim for misappropriation was dismissed by
the court. There remains pending a claim for breach of a settlement pursuant to
which plaintiffs allege they are entitled to recoup $175,000 from the
defendants. The Company denies the material allegations of that claim and
intends to defend the suit vigorously.
Item 2. Changes in Securities.
No report required.
Item 3. Defaults Upon Senior Securities.
No report required.
Item 4. Submission of Matters to a Vote of Security Holders.
As reported in its Current Report on Form 8-K dated October 27, 2000, the
Company held a special meeting in lieu of its annual meeting of shareholders on
October 19, 2000. At that meeting, each member of the Board of Directors was
re-elected and the shareholders ratified an amendment to the Articles of
Incorporation changing the Company's name to "Pipeline Technologies, Inc." and
deleting certain unnecessary provisions from its Articles. The number of votes
cast in favor of the amendment to the Articles of Incorporation was 9,230,255,
and the number cast against such amendment was -0-.
An additional proposed amendment to the Articles of Incorporation which
would have increased the Company's authorized capital to 40,000,000 shares of
common stock will be reconsidered at a later meeting. Following notice to the
shareholders in accordance with applicable law, the Board of Directors will
again recommend that the shareholders ratify the increase in capital.
Item 5. Other Information.
No report required.
8
-10-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
3.1 Articles of Amendment to the Articles of Incorporation
of the Company as filed with the Secretary of State on
October 27, 2000.
10.1 Preferred Stock Purchase Agreement between the Company
and Global Asset Fund dated October 13, 2000, with
exhibits.
10.2.Form of Bridge Loan Agreement between the Company and
lender.
99 Financial Data Schedule.
B. Reports on Form 8-K:
The Company filed the following reports on Form 8-K during the
period covered by this report:
1. Form 8-K, regarding Changes in Registrant's Certifying
Accountant, dated July 24, 2000.
2. Form 8-K/A, regarding Changes in Registrant's
Certifying Accountant, dated July 24, 2000.
3. Form 8-K, reporting Change in Fiscal Year, dated August
22, 2000.
4. Form 8-K, reporting a change in the Company's name,
dated October 27, 2000.
9
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PIPELINE TECHNOLOGIES, INC.
Date: November 14, 2000 By: /s/ Robert L. Maige
----------------------- -----------------------
Robert L. Maige, Authorized Signatory
and Chief Financial Officer
10
-12-
