UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________ to______________
Commission file number 00-28667
HOUSEHOLD DIRECT.com, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0388634
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
HOUSEHOLD DIRECT.com, INC.
900 MAIN STREET SOUTH
SOUTHBURY, CONNECTICUT 06488
(Address of principal executive offices) (Zip Code)
(203) 267-1400
(Registrant's telephone number, including area code)
----------
None
(Former name or former address, if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
CHECK WHETHER THE REGISTRANT FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE
FILED BY SECTION 12, 13 OR 15(d) OF THE EXCHANGE ACT AFTER THE DISTRIBUTION OF
SECURITIES UNDER A PLAN CONFIRMED BY A COURT.__{YES} ___{NO}
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each the issuer's class of common
stock, as of the latest practicable date:
CLASS OUTSTANDING ON SEPTEMBER 30, 2000
-------- ---------------------------------
Common stock 25,369,468
Transitional Small Business Disclosure Format: ___Yes ____No
<PAGE>
HOUSEHOLD DIRECT.COM, INC.
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2000
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999, nine Months Ended September 30, 2000 and 1999,
and from inception on May 18, 1998 to September 30, 2000
Consolidated Statements of Cash Flows for the three months ended and nine
months Ended September 30, 2000, and from inception on May 18, 1998 to
September 30, 2000
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2000
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 31,300
Service fee receivable 11,907
Prepaid expenses and other current assets 80,561
Inventory 120,500
-----------
Total current assets 244,268
PROPERTY AND EQUIPMENT, net 148,164
Intangible assets, net of accumulated amortization
of $7,014 55,224
Other Assets - Contract receivable 92,688
-----------
TOTAL ASSETS $ 540,344
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,040,049
Accrued salaries 561,741
Current portion of note payable 2,952
Amounts payable to related parties 431,379
-----------
Total current liabilities 2,036,121
NOTE PAYABLE, net of current portion 31,103
-----------
TOTAL LIABILITIES 2,067,224
-----------
DEFERRED REVENUE 92,688
COMMITMENTS AND CONTINGENCIES --
-----------
2,159,912
-----------
SHAREHOLDERS' DEFICIT
Common stock, 50,000,000 shares of $0.001 par value
authorized; 24,956,109, Shares issued and
outstanding at September 30, 2000 26,193
Additional paid-in capital 3,215,332
Common stock subscriptions receivable (64,379)
Deficit accumulated during the development stage (4,796,714)
-----------
TOTAL SHAREHOLDERS' DEFICIT (1,619,568)
-----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 540,344
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Cumulative
During
Development
Stage
May 18, 1998
to Sept. 30, 2000
------------------
<S> <C>
REVENUES:
Consulting services $ 221,718
Service fees 77,323
Sales 147,716
--------------
TOTAL REVENUES 446,757
--------------
OPERATING EXPENSES:
Cost of Goods Sold 133,843
Salaries and benefits 997,057
Research and development 184,383
Depreciation and amortization 73,304
Consulting fees 1,204,169
General and administrative 2,000,829
Professional Fees 328,681
--------------
TOTAL OPERATING EXPENSES 4,922,266
--------------
LOSS FROM OPERATIONS (4,475,509)
--------------
OTHER EXPENSE:
Interest expense (1,468)
Loss from subsidiary - PCNI (319,737)
--------------
TOTAL OTHER EXPENSE (321,205)
--------------
NET LOSS BEFORE INCOME TAX
PROVISION (4,796,714)
INCOME TAX PROVISION --
--------------
NET LOSS $ (4,796,714)
==============
Basic and diluted net loss per weighted
average share of common stock
outstanding $ (0.27)
==============
Weighted average number of shares of
basic and diluted common stock
outstanding 17,747,428
==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Consulting services $ 25,918 $ 65,000 $ 25,918 $ 168,300
Service Fees -- 21,730 -- 77,323
Sales -- 51,356 -- 147,716
-------------- -------------- -------------- --------------
TOTAL REVENUES 25,918 138,086 25,918 393,339
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Cost of Goods Sold -- 46,223 -- 133,843
Salaries and benefits 158,681 259,749 170,882 546,601
Research and development 62,415 -- 92,077 53,311
Depreciation and amortization 10,907 17,648 15,859 53,701
Consulting fees 250,893 77,223 385,873 363,399
General and administrative 165,036 205,423 328,313 845,979
Professional Fees 39,729 67,653 65,126 328,681
Bad debt expense 190,444 -- 190,444 --
Rent expense 15,000 -- 15,000 --
Website Design 131,072 -- 131,072 --
-------------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES 1,024,177 673,919 1,394,646 2,325,515
-------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (998,259) (535,833) (1,368,728) (1,932,176)
-------------- -------------- -------------- --------------
OTHER EXPENSE:
Interest expense -- (201) -- (591)
-------------- -------------- -------------- --------------
TOTAL OTHER EXPENSE -- (201) -- (591)
-------------- -------------- -------------- --------------
NET LOSS BEFORE INCOME TAX
PROVISION (998,259) (536,034) (1,368,728) (1,932,767)
INCOME TAX PROVISION -- -- -- --
-------------- -------------- -------------- --------------
NET LOSS $ (998,259) $ (536,034) $ (1,368,728) $ (1,932,767)
============== ============== ============== ==============
Basic and diluted net loss per weighted
average share of common stock
outstanding $ ( .06) $ (0.02) $ ( .08) $ (0.08)
============== ============== ============== ==============
Weighted average number of shares of
basic and diluted common stock
outstanding 17,448,931 23,303,865 17,448,931 23,303,865
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
For the For the Cumulative
Period from Period from During
July 1, January 1, Development
2000 to 2000 to Stage
September 30, September 30, May 18, 1998 to
2000 2000 September 30, 2000
------------- ------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (536,034) $ (1,932,764) $ (4,796,714)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 14,415 46,470 63,057
Amortization 3,233 7,231 10,247
Shares issued for services, consulting and
purchases of Company's 16,000 154,750 771,940
Interest paid with stock -- -- 20,500
(Increases) decreases in operating assets:
Accounts receivable -- (99,995) (104,595)
Prepaid expenses and other current assets (18,398) (70,996) ( 80,561)
Inventory (19,197) (120,500) (120,500)
Increases (decreases) in operating liabilities:
Accounts payable and accrued salaries 232,085 530,449 1,601,790
Amounts payable to related parties -- -- --
Deferred revenue -- 92,688 92,688
Deferred compensation -- 15,000 --
----------- ----------- ----------
Net cash used in operating activities (307,896) (1,377,667) (2,542,148)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits on Web construction -- -- --
Investment in Software ( 10,000) ( 26,785) ( 36,441)
Cash acquired from acquisition of Thunderstick -- -- --
Additions to property and equipment ( 43,375) (121,005) (211,221)
---------- ---------- ---------
Net cash used in investing activities ( 53,375) (147,790) (247,662)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issued for cash -- 1,225,318 2,310,957
Cash received on stock subscriptions receivable 93,984 -- --
Advances on notes payable -- -- --
Loans Payable to shareholders 243,463 273,992 476,098
Payments on notes payable ( 1,420) ( 4,669) ( 6,516)
Increase in notes payable 30,571 31,103 40,571
---------- ---------- ---------
Net cash provided by financing activities 366,598 1,525,744 2,821,110
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,327 287 31,300
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,973 31,013 --
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,300 $ 31,300 $ 31,300
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 201 $ 591 $ 1,468
========== ========== =========
Cash paid during the period for income taxes -- -- --
========== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
SUPPLEMENTAL INFORMATION SEPTEMBER 30, 2000:
SUPPLEMENTAL INFORMATION
During the nine months ended September 30, 2000, the Company issued:
SUPPLEMENTAL INFORMATION
The Company had the following non-cash transactions since inception:
1998
1. The Company issued 10,000,000 shares for the acquisition of PCNI for
$10,000.
2. The Company issued 914,000 shares valued at $100,540 for services.
3. The Company issued 175,905 shares in lieu of $20,500 interest payable
on a note payable.
4. The Company received subscriptions for 200,000 shares for $50,000.
1999
1. The Company issued 1,488,800 shares for services valued at 369,372.
2. The Company received subscriptions for 50,000 shares valued at
$23,000.
3. The Company replaced the shares it had borrowed from related parties
and reclassified $9,999 payables to related parties as paid-in
capital.
2000
1. The Company issued 958,800 shares valued at $186,897 for services.
2. The Company issued 500,000 shares to a shareholder to replace 500,000
shares that shareholder loaned to the Company to purchase Thunderstick,
Inc valued at $5,000.
3. The Company issued 100,000 shares to acquire a public Company shell
valued at $19,030.
4. The Company issued 124,000 shares to pay related parties loans in the
amount of $34,720.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
On January 2, 1992, RDI Marketing, Inc. ("RDI") (AKA Household Direct.com)
was formed as a Florida corporation. Upon formation, RDI issued 1,000 shares of
common stock. RDI essentially remained dormant with no direct or indirect
business activity until reinstatement on May 18, 1998. On May 18, 1998, RDI
adopted a plan of recapitalization whereby the 1,000 shares of common stock were
converted into 1,000,000 shares of .001 par value common stock. In addition to
the recapitalization on May 18, 1998, RDI filed a disclosure statement under
Rule 15C2-11 of the Securities and Exchange Act of 1934 (hereafter the "Exchange
Act") with the National Association of Securities Dealers ("NASD"). As a result,
commencing on June 11, 1998, RDI's common stock was quoted on the OTC Bulletin
Board.
On July 10, 1998, RDI exchanged 10,000,000 shares of common stock for all
of the outstanding stock of Preferred Consumer Network International, Inc.
("PCNI") (see Note 3).
PCNI, incorporated on June 13, 1997, was engaged in the business of
developing and operating a wholesale buying club which provided buying,
marketing and financial services to third party owned wholesale buying clubs.
The traditional buying club business model (the "Traditional Model") being
utilized by PCNI was predicated on the sale of memberships to the general
public, which memberships entitled the holders to purchase goods and services
through the wholesale buying club at wholesale prices (exclusive of separately
charged taxes, handling and shipping charges and a processing fee of up to 10%).
During the fourth quarter of 1998, RDI elected to abandon the Traditional Model
in preference to a new business model (the "New Model") predicated on the mass
marketing (through telemarketing and the internet) of memberships. Additionally,
the operations of PCNI, based on the Old Model were suspended and PCNI became
inactive. Subsequently, RDI sold all of the issued and outstanding capital stock
of PCNI to Mr. John Folger (the President, a member of the Board of Directors
and a principle shareholder of RDI) for nominal consideration (see Note 3).
RDI, in furtherance of the development of the New Model, entered into
several acquisitions during 1999.
On May 7, 1999, the Company acquired all of the common stock of
Thunderstick in exchange for 1,000,000 shares of the Company's common stock. A
shareholder donated 500,000 shares to the Company and the shares were given as
50% consideration to the former shareholders of Thunderstick. The Company
recorded a liability of $5,000 as balance owed in acquisition, pending an
additional 500,000 shares. In May 2000, the Company issued the additional
500,000 shares to the former shareholders of Thunderstick and charged off the
liability.
On May 14, 1999, RDI entered into an acquisition agreement whereby RDI
agreed to acquire all of the issued and outstanding capital stock of
Thunderstick, Inc. ("Thunderstick") in exchange for 1,000,000 shares of common
stock. Thunderstick, through its wholly-owned affiliate Thunderstick Software,
LLC, is engaged in the business of developing and marketing internet software
which will be utilized to support RDI's website and e-commerce operations (see
Note 3).
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION (CONTINUED)
In July, 1999, RDI, changed its corporate domicile from Florida to
Delaware, and its name to HouseHold Direct.com, Inc. (the "Company"). These
changes were effectuated by merging the Company into its wholly-owned Delaware
subsidiary, and such merger had no impact on the shareholders or the capital
accounts of the Company.
In September, 1999, the Company entered into an acquisition agreement with
Megappliance, Inc. ("Mega") pursuant to which the Company agreed to acquire a
website (including software, technology and related commercial relationships) in
exchange for shares of the Company's common stock (see Note 3).
On March 9, 2000, the Company executed an Agreement and Plan of Merger with
Cross Check Corp., a Colorado corporation ("Cross") and a Letter Agreement with
the shareholders of Cross. Pursuant to such agreements, the Company merged Cross
(which had no business operations but was registered, and fully reporting, under
the Exchange Act) into the Company so that the Company could achieve "successor
issuer" status under the Exchange Act. In connection with such merger which was
consummated on March 20, 2000, the Company paid $150,000 in cash and issued
100,000 shares of common stock of the Company to the former shareholders of
Cross.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate the
continuation of the Company as a going-concern. However, the Company is in the
development stage, and since inception has been engaged primarily in raising
capital and developing its website, product, and market strategy. The Company
has not generated significant revenues from operations, and in the course of
funding product and website development and other start-up activities, has
experienced cumulative net losses of $4,796,714 for the period from May 18, 1998
(inception) to September 30, 2000, and has used cash in operations of $2,542,148
for the period from May 18, 1998 (inception) to September 30, 2000. The Company
expects that it will continue to incur net operating losses as it expends
substantial resources on product development and sales and marketing in an
attempt to capture market share and develop market recognition. Management is in
the process of raising additional capital through continued issuance of stock.
Management of the Company believes that its additional capital that is expected
to be raised in the future will be sufficient to cover its working capital needs
until the Company's revenue volume reaches a sufficient level to cover operating
expenses. Without the assurances of additional capital, these factors raise a
substantial doubt about the Company's ability to continue as a going-concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. Intercompany transactions and
balances have been eliminated in consolidation.
Revenue Recognition
Revenue for services is recognized when the service is rendered, while
product revenue is recognized when the product is shipped to the customer.
Revenue consisted of products sold and shipped from the PCNI subsidiary. Revenue
relates to consulting services performed by Thunderstick. Revenue consists of
service income earned related to the contract entered into with Personal
Consumer Services, Inc.
Deferred Revenues
Deferred revenue, as presented on the balance sheet, relates to unpaid
service agreement fees to be paid by PCS from uncollected accounts receivable of
Personal Consumer Services, Inc (PCS). Due to the uncertainty of collection
history of PCS, only the fee actually paid by PCS to the Company in the first
six months and fees received subsequent to the second quarter were recorded as
revenue. Only revenues projected to be collected in the next year are shown as
current service fee receivable. The balance is shown as other assets.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives, ranging from three to
five years. Maintenance and repair costs are expensed as incurred.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosure About Fair
Value of Financial Instruments," requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. At
September 30, 2000, the carrying value of all of the Company's accounts
receivable, accounts payable and accrued liabilities approximate fair value
because of their short term nature. The note payable carrying value approximates
fair value based on the borrowing rate currently available to the Company for
loans with similar terms.
Research and Development Costs
Research and development costs are expensed as incurred.
Goodwill
Goodwill reflects the excess of purchase price over the fair value of net
assets purchased and is amortized on a straight-line basis over 3 years. As of
September 30, 2000, amortization expense for the nine months ended was $7,014.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with initial maturities of three months
or less to be cash equivalents.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
principally on the average cost method. Inventory at September 30, 2000 were as
follows:
Merchandise for Resale $120,500
=======
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted net loss per
share is computed by dividing net loss by the weighted average number of common
shares and dilutive common stock equivalents outstanding for the period. Net
loss per share has been stated for all periods presented in accordance with SFAS
No. 128.
(3) ACQUISITIONS AND SALES
Preferred Consumer Network International, Inc.
On July 10, 1998, the Company purchased PCNI in exchange for 10,000,000
shares of common stock at $0.001 par value per share. This acquisition was
accounted for by using the purchase method of accounting, and accordingly the
deficit assumed was initially recorded by the Company based on estimated fair
values at the date of acquisition:
<TABLE>
<S> <C>
Deficit $ (693,716)
Goodwill 703,716
---------------
Purchase consideration $ 10,000
===============
</TABLE>
On December 31, 1998, the Company sold PCNI to a major shareholder of the
Company for $1.
Thunderstick, Inc.
On May 7, 1999, a related party exchanged 500,000 shares of .001 par value
per share personally held common stock (par value $5,000) of the Company for 50%
of the purchase consideration for all of the stock of Thunderstick. The Company
agreed to replace the shares so applied and therefore, $5,000 was included in
amounts payable to related parties. The outstanding portion, 500,000 shares of
common stock (par value $5,000), was issued in May 2000.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) ACQUISITIONS AND SALES (CONTINUED)
This acquisition was accounted for by using the purchase method of
accounting, and accordingly the equity assumed was initially recorded by the
Company based on estimated fair values at the date of acquisition:
<TABLE>
<S> <C>
Equity $ 28,580
Negative goodwill (18,580)
---------------
Purchase consideration $ 10,000
===============
</TABLE>
The market value of the Company's shares on May 7, 1999 was $0.346 per
share, equating to a value of $346,000. Based on the substance of the purchase
agreement, as well as the underlying net assets of the acquired company, the
transaction was recorded at fair value and subsequently written down to the par
value of the Company's shares.
The non-current assets of the purchased company were reduced by the
negative goodwill.
Megappliance, Inc.
On September 9, 1999, a related party exchanged personally held stock of
the Company valued at $34,720 for the assets of Mega. This acquisition was
accounted for by using the purchase method of accounting, and accordingly the
assets assumed were initially recorded by the Company based on estimated fair
values at the date of acquisition:
<TABLE>
<S> <C>
Computer equipment $ 16,000
Goodwill 18,720
---------------
Purchase consideration $ 34,720
===============
</TABLE>
The Company agreed to replace the shares so applied.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) RELATED PARTY TRANSACTIONS
Since inception of the operations, directors and shareholders have
contributed $222,686 additional paid-in capital to the Company.
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2000:
<TABLE>
<S> <C>
Office equipment $ 77,601
Motor Vehicles 49,565
Computer equipment 58,603
Computer software 25,452
-------
211,221
Less: accumulated depreciation ( 63,057)
--------
$ 148,164
========
</TABLE>
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FORMATION OF ADDITIONAL SUBSIDIARIES
During the first nine months of 2000, the Company formed additional wholly
owned subsidiaries for the purpose of expanding and pursuing other related
business opportunities.
(7) AGREEMENT WITH PERSONAL CONSUMER SERVICES, INC.
In January 2000, the Company entered into a service agreement (the
"Agreement") with a third party wholesale buying club, Personal Consumer
Services, Inc. ("PCS"). The Company is to provide services for PCS members in
exchange for a base fee and monthly retainer as defined in the Agreement. The
Agreement expires in December 2005 with an option to extend the term for an
additional five years. As of September 30, 2000, the Company is owed $652,872
from PCS, of which $612,688 has been recorded as deferred revenue. The Company
has had no prior history of collection on this receivable, which is secured by
only memberships receivable of PCS that in most instances are at least one year
old. Because of this fact, the Company has set up a reserve of $520,000 against
the receivable which is offset as a reduction of deferred revenue.
(8) PURCHASE OF CROSS CHECK CORP.(CROSS)
On March 9, 2000, the Company executed an Agreement and Plan of Merger with
Cross and a Letter of Agreement with the shareholders of Cross. Pursuant to such
agreements, the Company merged Cross (which had no business operations but was
registered, and fully reporting, under the Exchange Act) into the Company so
that the Company could achieve "successor issuer" status under the Exchange Act.
In connection with such merger which was consummated on March 20, 2000, the
Company paid $150,000 in cash and issued 100,000 shares of common stock of the
Company to the former shareholders of Cross.
Pro-forma information is not presented for this acquisition since Cross was
an inactive company with no significant assets and liabilities.
(9) UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim consolidated financial information as of June 30,
2000 and for the quarters and the nine months ended September 30, 2000 has been
prepared on the same basis as the audited consolidated financial statements. In
the opinion of management, such unaudited information includes all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of this interim information. Operating results for the nine months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2000.
(10) SUBSEQUENT EVENTS
In September 2000, 624,000 shares were issued to Officers and Directors to
replace shares they had loaned the Company, which the Company used to purchase
Thunderstick, Inc. and Megappliance, Inc.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Overview
HouseHold Direct.com, Inc. ("the Company") is in the process of creating a
unique new Internet "consumer services membership club" by offering direct
access to "cost-plus" prices from manufacturers and distributors. The Company
believes manufacturers are seeking a new Internet based consumer service
solution for the first time. Through its fulfillment partners and direct
relationships, the Company provides direct pricing from brand name
manufacturers/distributors on their entire current product line. The Company is
positioned as a massive new "membership club" for the Internet similar to the
proven market acceptability of Costco, Sam's Club and BJ's Warehouse. The
Company believes the Management Team possesses the required skills and
experience from corporate to startup backgrounds; and, is experienced in
business development, marketing, operations, web-site design and management, and
database application support.
The services being developed by the Company create a substantial benefit
for two constituent groups - consumer and manufacturer. The consumers benefit by
a dramatic reduction in product prices. While supplying this price advantage,
the Company collects significant and valuable personal data and product
preferences information. This rich demographic product and psychographic data
helps manufacturers in developing a consumer-direct, knowledge based, product
order and fulfillment capability. These manufacturers will contribute
advertising dollars and participation fees for these services. Value added
service providers, such as insurance and financial services have also allied
strategically with the Company. This innovative concept of "cost-plus-handling
charge" will position the Company in a groundbreaking new category for Internet
service and content providers, and drive revenue for membership fees and
advertising. A number of strategic alliances and acquisitions have been
completed. Additional relationships are in discussion and review stages that
combine the reach of the Internet with physical locations serving key
geographical markets.
The Company expects to expand its membership base by using a "members only"
style of telemarketing program. Residual monthly membership revenues will be
increased by the introduction of additional bundled services. The inexpensive
monthly fee for core services allows for the bundling of additional ISP
(Internet Service Provider), Telco and utility payment services. This revenue
stream, coupled with rich consumer data, will become a valuable corporate asset.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
RESULTS OF OPERATIONS
The Company has been at developmental stage since May 18, 1998. Net
Revenues for the nine months ended September 30, 2000 were $393,339 comprising,
sale of merchandise of $147,716, consulting services of $168,300 and membership
fees of $77,323. Revenues for the nine months ended September 30, 1999 were
$25,918 from the consulting services. The increase in sales of merchandise for
the nine months ended September 30, 2000 resulted from the Company's service
agreement with PCS, a member-based consumer product organization. Consulting
services are for third party website design and management which are a result of
the acquisition of Thunderstick. Membership fees are for the wholesale buying
club which allows the members to purchase goods at wholesale prices plus 10%
processing fees on the internet.
OPERATING EXPENSES
Total Operating Expenses other than Cost of Sales for the nine months ended
September 30, 1999 were $1,394,646 compared with $2,191,672 for the same period
in 2000, an increase of 57%. Cost of sales of merchandise approximate 91% of
sales.
Salaries and related costs increased from $170,882 for the nine months
ended September 30, 1999 to $546,601 for the nine months ended September 30,
2000; a 220% increase. This is primarily attributable to the Company's hiring of
executives in key positions in order to begin operations and the personnel of
Thunderstick.
Consulting fees decreased by $22,474, a 5% decrease, from $385,873 for the
nine months ended September 30, 1999 to $363,399 for the nine months ended
September 30, 2000.
Professional fees increased from $65,126 for the nine months ended
September 30, 1999 to $328,681 for the nine months ended September 30, 2000; an
increase of 404%. This increase was primarily due to an increase in accounting
and legal fees.
General and Administrative expenses increased from $328,313 for the nine
months ended September 30, 1999 to $845,979 for the same period in 2000. The
increase of 158% is primarily the result of total bad debt expense of $190,000,
total write off of the purchase of Cross Check Corp of $169,030 and total
investor relations cost of $126,989.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
INCOME TAX
The Company had net operating losses (NOLs) of $4,796,714 at September
30,2000, primarily because of past expenses associated with development stage
activities. These NOLs and corresponding estimated tax assets, computed at a 38%
tax rate, expire at various dates through the year 2018. Realization of deferred
tax assets associated with the NOL is dependent upon generating sufficient
taxable income prior to their expiration.
Management believes that there is a risk that these NOLs may expire unused
and, accordingly, has established a 100% valuation allowance against them and
has not recognized any tax benefit to the NOLs.
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL COMMITMENTS
For the nine months ended September 30, 2000, net cash used by operations
was $1,377,667 principally due to the year-to-date loss of $1,932,767. This was
partially offset by depreciation of $46,470, amortization of $7,231 and shares
issued for services in the amount of $154,750, while current assets and
liabilities provided $346,646. For the year ended 1999, net cash used by
operations was $918,833 which was offset by depreciation and amortization of
$23,610 and shares issued for services of $479,503, while current liabilities
provided cash of $817,485.
Cash used by investing activities for the nine months ended September 30,
2000 were principally related to the investment in software $26,785 (Profitware)
and the addition of computer and office equipment in the amount of $121,005. For
the year ended December 31, 1999, cash used in investing activities was $61,788,
primarily for the acquisition of property and equipment amounting to $79,603.
The Company anticipates that the current negative working capital of
$1,791,853 will be supplemented in the short term by the sale of common stock.
For a description of certain factors that could adversely affect the
Company's future capital requirements and the adequacy of its available funds,
including factors that are beyond the Company's control, see the discussion
under Note 2 to the financial statements in the Company's Report on Form 8KA for
the month of March 2000 which included the Company's financial statement for the
year ended December 31, 1999.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
RESULTS OF OPERATIONS
Net Revenues for the three months ended September 30, 2000 were $138,086
comprising, sale of merchandise of $51,356, consulting services of $65,000 and
membership fees of $21,730. Revenue for the three months ended September 30,
1999 was $25,918. Sales of merchandise for the three months ended September 30,
2000 resulted from the Company's service agreement with PCS, a member-based
consumer product organization. Consulting services are for third party website
design and management which are a result of the acquisition of Thunderstick.
OPERATING EXPENSES
Total Operating Expenses other than Cost of Sales for the three months
ended September 30, 1999 were $1,024,177, compared with $627,696 for the same
period in 2000,a decrease of 39%. Cost of sales of merchandise approximate 90%.
Salaries and related costs increased from $158,681 for the three months
ended September 30, 1999 to $259,749 for the three months ended September 30,
2000; a 64% increase. This is primarily attributable to the Company's hiring of
executives in key positions in order to begin operations and the personnel of
Thunderstick.
Consulting fees decreased by $173,670, a 69% decrease, from $250,893, for
the three months ended September 30, 1999 to $77,223 for the three months ended
September 30, 2000.
Professional fees increased from $39,729 for the three months ended
September 30, 1999 to $67,653 for the three months ended September 30, 2000; an
increase of 70%. This increase was primarily due to the cost of the audit of the
Company's financial statements from the inception of its activities and the
legal and accounting fees involved with securities, exchange compliance and
filings.
General and Administrative expenses increased from $165,036 for the three
months ended September 30, 1999 to $205,423 for the same period in 2000. The
increase of 26% is primarily the result of investor relations expenses.
<PAGE>
HOUSEHOLD DIRECT.com, INC.
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
INCOME TAX
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL COMMITMENTS
For the three months ended September 30, 2000, net cash used by operations
was $307,896 principally due to the quarterly loss of $536,034. This was
partially offset by depreciation of $14,415, amortization of $3,233 and shares
issued for services in the amount of $16,000, while current assets and
liabilities provided $194,490.
Cash used by investing activities for the three months ended September 30,
2000 were $53,375 principally related to the investment in software of $10,000
(Profitware) and the addition of computer and office equipment in the amount of
$43,375.
For a description of certain factors that could adversely affect the
Company's future capital requirements and the adequacy of its available funds,
including factors that are beyond the Company's control, see the discussion
under Note 2 to the financial statements in the Company's Report on Form 8KA for
the month of March 2000 which included the Company's financial statement for the
year ended December 31, 1999.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any material litigation
and is not aware of any threatened material litigation.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of a Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits None
(b) Financial Data Schedule
Form 8-K was filed during the
period July 1, 2000 to September 30, 2000 for a change
of accountants.
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 hereunto duly authorized.
November 13, 2000 /s/ John Folger
------------------ ----------------------------------
Date President and
Chief Executive Officer
