<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-------------------------------------------------------------------------------
[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
Commission file number: 000-28721
WEBCATALYST, INC.
(Exact name of registrant as specified in its charter)
Georgia 582321232
-------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6690 Jones Mill Court, Suite A
Norcross, Georgia 77356
-------------------------------------- ---------------------
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number, including area code: (770) 448-4150
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
As of September 30, 2000 the registrant had 9,079,750 shares of Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 310,929 $ 2,857
Trade accounts receivable 168,564 112,993
Inventories 211,762 148,055
Prepaid expenses and other current assets 3,015 19,376
----------- ---------
Total current assets 694,270 283,281
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 132,267 74,623
Vehicles 55,482 55,482
----------- ---------
187,749 130,105
Less accumulated depreciation (60,226) (37,626)
----------- ---------
Net property and equipment 127,523 92,479
OTHER ASSETS
Goodwill, net 1,152,211 --
Deferred financing cost 250,518 425,196
Deposits 7,075 7,075
Total other assets 1,409,804 432,271
$ 2,231,597 $ 808,031
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term debt $ 8,431 $ 7,927
Note payable to officer 35,000 --
Note payable to related party 113,185 --
Notes payable 70,873 100,873
Trade accounts payable 670,399 387,965
Accrued expenses 234,694 190,619
Deferred revenue 50,197 --
Convertible debentures 1,099,540 --
----------- -----------
Total current liabilities 2,282,319 687,384
LONG-TERM DEBT, net of current maturities 20,256 18,626
CONVERTIBLE DEBENTURES -- 896,663
SHAREHOLDERS' DEFICIT
Capital stock (Note E) 4,033,843 1,566,659
Accumulated deficit (4,102,571) (2,361,301)
----------- -----------
(68,728) (794,642)
Deferred stock compensation (2,250) --
----------- -----------
Total shareholders' deficit (70,978) (794,642)
----------- -----------
$ 2,231,597 $ 808,031
=========== ===========
</TABLE>
3
<PAGE> 4
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
--------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue
Product sales $ 415,527 $ 883,801
----------- -----------
Costs and expenses
Cost of product sales 329,284 730,128
Selling, general and
administrative 238,554 515,741
----------- -----------
567,838 1,245,869
Loss from Operations (152,311) (362,068)
Other income (expense)
Interest income 199 2,565
Interest and financing costs (618,484) (375,394)
----------- -----------
Net loss before
income taxes (770,596) (734,897)
Income tax expense (benefit) -- --
----------- -----------
Net loss $ (770,596) $ (734,897)
=========== ===========
Net loss per common share
Basic $ (0.10) $ (0.12)
=========== ===========
Diluted $ (0.10) $ (0.12)
=========== ===========
Weighted average shares
Basic 7,737,127 6,197,337
=========== ===========
Diluted 7,737,127 6,197,337
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue
Product sales $ 1,870,724 $ 2,727,455
------------ ------------
Costs and expenses
Cost of product sales 1,526,266 2,253,134
Selling, general and
administrative 1,220,301 1,093,828
------------ ------------
2,746,567 3,346,962
------------ ------------
Loss from Operations (875,843) (619,507)
Other income (expense)
Interest income 285 1,832
Interest and financing costs (865,712) (375,394)
------------ ------------
Net loss before
income taxes (1,741,270) (993,069)
Income tax expense (benefit) -- --
------------ ------------
Net loss $ (1,741,270) $ (993,069)
============ ============
Net loss per common share
Basic $ (0.25) $ (0.16)
============ ============
Diluted $ (0.25) $ (0.16)
============ ============
Weighted average shares
Basic 6,963,697 6,144,726
============ ============
Diluted 6,963,697 6,144,726
============ ============
</TABLE>
5
<PAGE> 6
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Deferred
Number of Capital Accumulated stock
shares stock deficit compensation Total
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 6,236,292 $1,566,659 $ (2,361,301) $ -- $ (794,642)
Issuance of stock for services 187,663 310,602 -- -- 310,602
Conversion of convertible debentures 533,432 344,756 -- -- 344,756
Exercise of warrants 40,000 40,000 -- -- 40,000
Private placement 830,000 240,000 -- -- 240,000
Issuance of stock for interest
and penalties on convertible
debentures 376,363 141,136 -- -- 141,136
Issuance of stock in conjunction
with acquisition of Webcat
Online, Inc. 870,000 340,170 -- -- 340,170
Issuance of warrants in conjunction
with acquisition of Webcat,
Online, Inc. -- 500,000 -- -- 500,000
Issuance of stock to employees 6,000 2,250 -- (2,250) --
Beneficial conversion feature of
convertible debentures -- 225,000 -- -- 225,000
Warrants issued to debenture holders -- 323,270 -- -- 323,270
Net loss for the period -- -- (1,741,270) -- (1,741,270)
---------- ---------- ------------ -------- ------------
Balance, September 30, 2000 9,079,750 $4,033,843 $ (4,102,571) $ (2,250) $ (70,978)
========== ========== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,741,270) $ (993,069)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 721,425 387,781
Issuance of stock to employees -- 87,840
Issuance of common stock for services 310,604 --
Issuance of common stock for penalties
and interest in convertible debentures 141,136 --
Change in assets and liabilities:
Accounts receivable 3,530 (70,377)
Inventories (63,707) (63,824)
Prepaid expenses and other current assets 18,536 (400)
Other assets -- (300)
Trade accounts payable 271,503 (393,831)
Accrued expenses 46,859 611
---------- -----------
Net cash used in operating activities (291,384) (1,045,569)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (13,033) (26,341)
Cash paid for Webcat Online acquisition,
net of cash acquired of $11,881 (233,673) --
---------- -----------
Net cash used in investing activities (246,706) (26,341)
---------- -----------
Cash flows from financing activities:
Net proceeds (payments) on notes payable (838) 96,090
Proceeds from issuance of common stock 240,000 170,000
Proceeds from convertible debentures 675,000 1,200,000
Financing costs (108,000) (132,500)
Exercise of warrants 40,000 4,000
---------- -----------
Net cash provided by financing activities 846,162 1,337,590
---------- -----------
Net increase in cash and short-term investments 308,072 265,680
Cash and short-term investments at beginning of year 2,857 72,540
---------- -----------
Cash and short-term investments at end of year $ 310,929 $ 338,220
========== ===========
</TABLE>
7
<PAGE> 8
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
--------------------------------------
2000 1999
-------------- ----------------
<S> <C> <C>
Supplemental Schedule of Noncash Investing and Financing Activities
Conversation of convertible debentures to stock $ 340,000 $ --
Stock issued for services $ 310,602 $ --
Stock issued for interest and penalties on convertible
debentures $ 145,892 $ --
Stock issued to employees $ 2,250 $87,840
Acquisition of Webcat Online, Inc.
Fair value of assets acquired $ 117,769 $ --
Goodwill 1,152,211 --
Cash paid (245,554) --
Stock and warrants issued (840,170) --
----------- -------
Liabilities assumed $ 184,256 $ --
=========== =======
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
NOTE A - BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by the Company without audit. These statements reflect all
adjustments which are, in the opinion of management, necessary to present
fairly the financial position, results of operations, cash flows and changes
in stockholders' equity for the periods presented. All such adjustments are
of a normal recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. The
Company believes that the financial statements and disclosures are adequate
to make the information not misleading. It is suggested that these financial
statements and notes be read in conjunction with the audited financial
statements and notes for the year ended December 31, 1999, included in the
Form 10-KSB filed by the Company.
NOTE B - ACQUISITION
Pursuant to a Purchase and Sale Agreement (the "Agreement") between Webcat
Online, Inc. ("Webcat"), Truco Enterprises, Inc. ("Truco") and Webcatalyst,
Inc. (formerly known as StupidPC) (the "Company") dated September 29, 2000,
the Company acquired from Truco 51% of the outstanding common stock of
Webcat, a Texas corporation in the business of building and hosting web sites
for small to medium size businesses, national associations, government
entities, minority vendors and consumers. The consolidated financial
statements include the accounts of the Company and Webcat from the date of
acquisition. All intercompany transactions and balances have been eliminated
in consolidation. Also, subsequent to September 30, 2000, the Company changed
its name from StupidPC, Inc. to Webcatalyst, Inc.
In consideration for the Webcat stock and the cancellation of approximately
$500,000 of Webcat's indebtedness, Truco received from the Company (i)
870,000 shares of the Company's Common Stock, no par value; and (ii) a
warrant for the purchase of 500,000 shares of the Company's Common Stock at
$1.00 per share; and (iii) cash of $200,000 and related expenses of $45,554.
The warrants are exercisable immediately and expire on September 29, 2010.
The purchase price has been allocated to the face value of assets acquired
and the excess of purchase price over face value has been allocated to
goodwill in the amount of $1,152,211. This goodwill is to be amortized on a
straight line basis over 3 years. There was no amortization of goodwill for
the three and nine months ended September 30, 2000 as the effective date of
the acquisition was September 30, 2000. The cash portion of the acquisition
was financed through the issuance of $675,000 of convertible debentures.
Upon the closing of the acquisition, the Company and Truco, which after the
acquisition own, respectively, 51% and 49% of Webcat, entered into a
Shareholders Agreement which imposes certain restrictions on the transfer by
either party of their stock in Webcat, and provides for a right of first
refusal in favor of the other party in the event of a third party offer.
Prior to the acquisition, the Company had no material relationship with
Webcat or Truco. The required financial information relating to the
acquisition will be filed via Form 8K prior to the Form 8K's filing deadline.
9
<PAGE> 10
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2000
NOTE C - CONVERTIBLE DEBENTURES
8% Convertible Debentures
On July 31, 1999, the Company issued $1,200,000 of 8% Convertible Debentures
due June 30, 2001 (the "8% Debentures"). Proceeds were $1,200,000, less debt
issuance costs of $132,500. In addition, the Company issued 120,000 common
stock purchase warrants to the holders of the 8% Debentures and 100,000
purchase warrants to a broker of the debenture transaction. The warrants,
which expire on July 30, 2002, entitle the holder to purchase one common
share of the common stock of the Company at the price of $5.50. The 8%
Debentures are convertible into shares of common stock of the Company at the
lesser of (i) $6.25 per share or (ii) 80% of the market price of the common
stock at the conversion date. The convertible debenture holders converted
$50,000 of the 8% debentures into 26,042 shares at a conversion price of
$1.92 on October 20, 1999. During the nine months ended September 30, 2000,
an additional $344,756, including accrued interest, of the 8% debentures were
converted into 533,432 shares of common stock.
In connection with the issuance of 120,000 stock purchase warrants to 8%
debenture holders during 1999, the Company valued the warrants in accordance
with SFAS No. 123, Accounting for Stock-Based Compensation utilizing the
following assumptions: expected volatility of 86%, risk free interest rate of
5.5%, and an expected term of three years, and allocated $323,710 of the
proceeds to Capital Stock in accordance with APB 14, Accounting for
Convertible Debt issued with Stock Purchase Warrants. This warrant value will
be amortized to interest expense over the stated term of the debt which is 23
months. The 100,000 warrants issued to a broker of the debenture transaction
were valued at $410,809 using the Black Scholes option pricing model
utilizing the same assumptions as described above. This value was recorded as
deferred financing costs.
The related deferred financing costs is included as "Other Assets" in the
Company's balance sheet to be amortized over the stated term of the debt,
which is 23 months upon conversion. The unamortized portion of the warrant
value and deferred financing charges related to debentures converted is
amortized. Amortization expense in the amount of approximately $234,000 and
$448,000 was recorded for the three months and nine months ended September
30, 2000, respectively. Additionally, the Company issued 376,363 shares of
common stock to the 8% debenture holders in satisfaction of accrued interest
and penalties in the amount of $141,136.
10
<PAGE> 11
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2000
NOTE C - CONVERTIBLE DEBENTURES - Continued
No interest convertible debentures
On September 18, 2000 the Company issued $675,000 of no interest Convertible
Debentures (the "Debentures") due February 18, 2001, the proceeds of which
are being utilized for the acquisition of Webcat Online, Inc. and working
capital purposes. Proceeds were $675,000, less debt issuance costs of
$108,000. In addition, the Company issued 2,227,500 common stock purchase
warrants to the holders of the Debentures. The warrants, which expire on
September 18, 2005, entitle the holder to purchase one common share of the
Company at the price of $0.40. The Debentures are convertible into shares of
common stock of the company at the lesser of (i) $0.50 per share or (ii) 75%
of the market price of the common stock on the conversion date. The
debentures are collateralized by 90% of the Company's 51% interest in Webcat
Online, Inc.
In connection with the issuance of the convertible debentures, $225,000 of
the debt issuance proceeds were allocated to capital stock to recognize the
beneficial conversion feature of the debentures. This debt discount was
expensed as financing costs on September 30, 2000 based on the convertible
debentures being immediately convertible at the option of the holder.
In connection with the issuance of 2,227,500 stock purchase warrants to the
debenture holders, the Company valued the warrants in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation utilizing the following
assumptions: expected volatility of 121%, risk free interest rate of 5.85%,
and an expected term of three years, and allocated $323,270 of the proceeds
to Capital Stock in accordance with APB 14, Accounting for Convertible Debt
issued with Stock Purchase Warrants. This warrant value will be amortized to
interest expense over the stated term of the debt, which is 5 months.
Amortization expense of $64,654 was recognized for the three and nine months
ended September 30, 2000.
The $108,000 deferred financing costs related to this transaction are
included in "Other Assets" in the Company's balance sheet to be amortized
over the stated term of the debt, which is 5 months. Amortization expense in
the amount of approximately $8,640 related to the amortization of these
financing costs was recorded for the three and nine months ended September
30, 2000.
11
<PAGE> 12
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2000
NOTE D - REVENUE RECOGNITION
Revenue from product sales of computer systems and related hardware is
recognized upon shipment. Revenue from hosting of websites is recognized over
the period the services are to be provided. No website hosting revenues have
been recorded for the three months and nine months ended September 30, 2000.
NOTE E - SHORT-TERM NOTES PAYABLE
During 1999, the Company received loans totaling $100,873 from three private
individuals at an interest rate of 10%. Principal and accrued interest on
these loans are due on June 21, 2001. During the quarter ended March 31,
2000, the Company received an additional loan from a private individual in
the amount of $65,000. Interest accrues on the loan at 10 % with principal
and interest due August 30, 2000. All short-term notes are uncollateralized.
During the nine months ended September 30, 2000, $95,000 of these loans were
repaid.
Additionally, the Company's 51% owned subsidiary has a note payable to the
49% minority interest owner in the amount of $113,185 at September 30, 2000.
This note accrues interest at prime plus two percent (11.75% at September 30,
2000) with interest and principal due September 27, 2001.
NOTE F - PRIVATE PLACEMENTS
On July 14, 2000, the Company entered into a common stock purchase agreement
with a stockholder whereby the Company sold 130,000 shares of common stock
and a warrant to purchase an additional 50,000 shares of the Company's common
stock at $0.5625 per share, for $30,000. These warrants are exercisable
immediately and expire on July 14, 2003. The proceeds of this sale were used
to repay certain short term notes payable.
On July 25, 2000, the Company entered into a Unit Subscription Agreement with
another shareholder whereby the shareholder purchased 700,000 units,
consisting of one share of common stock and one half of a stock purchase
warrant, for $210,000. As a result of this transaction, the Company issued
700,000 shares of common stock and 350,000 stock purchase warrants which
entitle the holder to purchase 350,000 shares of the Company's common stock
at $0.5625 per share. The warrants are exercisable immediately and expire on
July 25, 2003.
12
<PAGE> 13
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2000
NOTE G - CAPITAL STOCK
At September 30, 2000 and December 31, 1999, the Company has the following
classes of capital stock:
Preferred Stock - authorized 5,000,000 shares of no par value with no
shares issued and outstanding.
Common Stock - authorized 95,000,000 shares of no par value with
9,079,750 and 6,236,292 shares issued and outstanding on September 30,
2000 and December 31, 1999, respectively.
NOTE H - EMPLOYEE STOCK GRANT
On September 29, 2000, the Company issued 6,000 shares of stock to certain
employees. The stock vests in two years and as a result, at September 30,
2000, the Company recorded deferred stock compensation in the amount of
$2,250 based on the face value of shares issued, to be amortized over the two
year vesting period.
NOTE I - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in a lawsuit where the plaintiff is alleging
ownership of certain shares of StupidPC, Inc. prior to the original merger
between StupidPC, Inc. and World Net Holdings, Inc. The Company's transfer
agent is holding 440,735 shares in escrow pending the outcome of the lawsuit.
Based on the outcome of this lawsuit, all of these shares will be issued,
either to the plaintiff in the lawsuit or to the original shareholders of
StupidPC, Inc. in proportion to their ownership prior to the merger.
The Company is also involved in various claims and legal actions. In the
opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial position or results
of operations.
13
<PAGE> 14
WEBCATALYST, Inc.
(Formerly known as StupidPC, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2000
NOTE J - LOSS PER SHARE
Net loss per share was computed using the requirements of Statement of
Financial Accounting Standards No. 128, Earnings per share, and Staff
Accounting Bulletin No. 98. Net loss per share-basic was computed by dividing
net loss attributable to common stock by the weighted average number of
shares of common stock outstanding during the period. The denominator for net
loss per share-diluted also considers the dilutive effect of outstanding
stock options, warrants, and convertible debentures. Due to the Company's net
loss, the amounts reported for basic and diluted are the same for both
periods presented. Potentially dilutive securities as at September 30, 2000
consist of 1,979,112 options exercisable at $0.20 per share and 3,747,500
warrants exercisable at prices ranging from $0.40 to $5.50 per share.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The following discussion should be read in conjunction with the
financial statements and accompanying notes thereto of the Company contained
elsewhere in this Quarterly Report on Form 10-QSB.
WebCatalyst, Inc. cautions readers that certain important factors may
affect the Company's actual results and could cause such results to differ
materially from any forward-looking statements that may be deemed to have been
made in this Form 10-QSB or that are otherwise made by or on behalf of the
Company. For this purpose, any statement contained in the Form 10-QSB that is
not a statement of historical fact may be deemed to be a forward-looking
statement. Without limiting the generality of the foregoing, words such as
"may," "expect," believe," "anticipate," "intend," "could," "estimate," or
"continue" or the negative variations thereof or comparable terminology are
intended to identify forward-looking statements. Factors that may affect the
Company's results include, but are not limited to, the Company's history of
losses, its need for additional financing and its competitive marketing
environment. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. In this Quarterly Report on Form 10-QSB, the terms
"WebCatalyst," the "Company" and "we" refer to WebCatalyst, Inc.
WebCatalyst designs, assembles and sells affordably-priced customized
personal computer systems and provides customized web sites for small to
medium-sized businesses, associations, and consumers. We provide a broad range
of related services, including installation, consulting, training, networking,
and customer support. The retail price of most of our computer systems does not
exceed $900 and includes one hour of in-home computer installation and training
conducted by a WebCatalyst sales technician. Our primary target market consist
of cost-conscious, first time and/or "computer-phobic" personal computer
purchasers who may be intimidated by the high-cost and multitude of computer
products and services currently available. We also market our web site products
and hosting services to small businesses and associations. We market our
products and services from two retail locations in the Atlanta area and from a
web site development and hosting services office in Dallas, Texas. In addition,
we offer consumers an e-commerce Internet-based method for ordering and paying
for our products and services through our web site at www.stupidpc.com, and the
ability to purchase web site development services at www.webcatonline.com.
Since our inception in September 1997, we have engaged principally in
the development of the technology and activities related to the commencement of
our business operations. Accordingly, our historical results of operations are
not indicative of, and should not be relied upon, as an indicator of our future
performance.
Our future operating results will depend on many factors, some of which
are beyond our control. If our financial results are below the expectations of
securities analysts or our investors in some future quarter, it is likely our
stock price will decline, perhaps significantly. Factors that affect our
operating results may include:
- rate and price at which customers purchase our products;
- amount and timing of capital expenditures and other costs relating to
the
15
<PAGE> 16
expansion of our services and infrastructure;
- the introduction of new products and services by us or our competitors;
- price competition by competitors;
- unavailability of product components;
- loss of key employees and the time required to train replacements;
- the overall and long-term acceptance of the Internet by individuals and
organizations for e-commerce; and
- general economic conditions that might cause a decrease in personal
computer sales.
In addition, we expect that our operating expenses will increase,
perhaps significantly, as we intend to expand our inventory, personnel and
infrastructure, open new retail outlets and improve our operational and
financial systems. If our revenues do not increase along with these expenses,
our financial condition could be seriously harmed.
Our future operating results are likely to be adversely affected by
these and other factors. Accordingly, we believe that quarter-to-quarter
comparisons of operating results for prior periods are not meaningful. You
should not rely on the results of any one quarter as an indication of our future
performance.
RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. Revenues for the Quarter ended SEPTEMBER 30, 2000 were
$415,527, a 53% decrease from revenues of $883,801 for the Quarter ended
September 30, 1999. Revenues for the nine months ended September 30, 2000 were
$1,870,724, a 31% decrease from revenues of $2,727,455 for the nine months ended
September 30, 1999. Revenues decreased during this period as a result of a
decrease in the number of units sold. During the Third Quarter of 2000, we sold
approximately 344 units compared with 688 units during the Third Quarter of
1999, a 50% decrease. The average price for a unit for the same periods was
approximately equal. We believe that the decrease in the number of units sold is
a result of increased competition in the lower end retail computer market and
offers of significant rebates by large retailers.
COST OF PRODUCT SALES. Cost of product sales was $329,284 for the Third
Quarter of 2000, a decrease of 55% from cost of product sales of $730,128 for
the Third Quarter of 1999. Cost of product sales was $1,526,266 for the nine
months ended September 30, 2000, a 32% decrease from cost of product sales of
2,253,134 for the nine months ended September 30, 1999. This decrease is a
function of fewer units sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $238,554 for the Third Quarter of 2000, a decrease
of 54% from selling, general and administrative costs of $15,741 for the Third
Quarter of 1999. Selling, general and administrative expenses were $1,220,301
for the nine months ended September 30, 2000, an increase of 12% from $1,093,828
for the nine months ended September 30, 1999. These expenses increased primarily
as a result of increased costs for additional personnel, accounting and legal
services, as well as an increase in advertising expenditures.
OTHER INCOME (EXPENSE). During the Third Quarter of 2000 and the nine
months ended September 30, 2000, we incurred $618,484 and $865,712 of interest
and
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financing costs, respectively, a substantial increase over the 1999 same period
expenditures of $375,394. This increase is related to the September 2000
issuance of our no interest, collateralized convertible debentures, the proceeds
of which were used for the Webcat Online, Inc. acquisition and working capital
purposes.
INCOME TAXES. Income taxes will consist of federal, state and local
taxes, when applicable. We expect significant net losses for the foreseeable
future which should generate net operating loss carryforwards ("NOL"). However,
utilization of NOL's is subject to substantial annual limitations. In addition,
income taxes may be payable during this time due to operating income in certain
tax jurisdictions. We recognized no provision for taxes for the fiscal years
ended 1999 or 1998, as we generated net losses.
NET LOSS. For the reasons stated above, we incurred a net loss of
$770,596, or $0.10 per share, for the Third Quarter of 2000 compared with a net
loss of $734,897 or $0.12 per share, for the Third Quarter of 1999, and a net
loss of $1,741,270, or $0.25 per share, for the nine months ended September 30,
2000 compared with a net loss of $993,069, or $0.16 per share for the nine
months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operations and from the sale of our securities. As of September 30, 2000, we had
an accumulated deficit of $4,102,571.
Net cash used in our operating activities for the period was $875,843
and $619,507 for the nine months ended September 30, 2000 and the nine months
ended September 30, 1999, respectively. The net cash used in operations during
these periods was primarily due to net losses and increases in current assets,
offset by increases in accounts payable and accrued liabilities.
We believe that the net proceeds from the sale of our no interest,
collateralized debentures and cash from operations will be sufficient to fund
our aggregate capital expenditures and working capital requirements, including
operating losses, only through the first quarter of 2001. As a result, we will
need to secure additional financing to open new retail locations or to meet
higher-than-expected product sales. We may obtain additional funding through the
sale of public or private debt and/or equity securities or through securing a
bank credit facility. We cannot guarantee that we will be able to obtain
additional financing, or that such financing, if obtained, will be on
satisfactory terms. If sufficient financing is not available or is not available
on satisfactory terms, we may be forced to sell assets or seek to refinance our
outstanding obligations. We may also be unable to:
- purchase computer components and equipment;
- take advantage of future opportunities, such as opening a new
retail outlet; or
- respond to changing consumer needs and technological
innovations.
Any of these events could seriously harm our business, financial
condition and results of operations. For a description of our no interest,
collateralized debentures, see Note C - Convertible Debentures in the Notes to
our Consolidated Financial Statements September 30, 2000.
We expect to experience substantial negative cash flow for at least the
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next several months due to continued development of our products and our
Internet distribution channel including the costs of advertising and marketing
associated with these. Our future cash requirements, as well as our revenues,
will depend on a number of factors including:
- the number of retail locations opened, the timing of the
opening and products offered;
- the rate at which customers purchase our products and the
pricing of such products;
- the level of marketing required to attract and retain
customers and to attain a competitive position in the
marketplace; and
- the rate at which we invest in engineering and development and
intellectual property with respect to existing and future
technology.
ACQUISITION OF 51% OF STOCK IN WEBCAT ONLINE, INC.
For a description and summary of this September 29, 2000, transaction,
please see "Note B - Acquisition" in the Notes to our Consolidated Financial
Statements September 30, 2000.
NAME CHANGE
On October 13, 2000, the Company amended its Articles of Incorporation
to effect a change of corporate name to WebCatalyst, Inc. In that connection,
the new CUSIP Number for the Company's registered Common Stock, $0.001 par
value, is 947619102.
YEAR 2000 IMPACT
The Year 2000 problem could affect computers, software and other
equipment that we use. Accordingly, we reviewed internal computer programs and
systems to determine if they would be Year 2000 compliant. As a result of our
planning and review efforts, we experienced no significant disruptions in our
critical systems or applications, and believe those systems successfully
responded to the Year 2000 date change. We are not aware of any material
problems resulting from Year 2000 issues, either with our internal systems or
the products and services of third parties. We will continue to monitor our
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1, 2, 3, 4 and
5 have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1(1) Articles of Incorporation, as amended, of
WebCatalyst, Inc.
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Exhibit 3.2(1) Bylaws of WebCatalyst, Inc.
Exhibit 4.1(1) See Exhibits 3.1 and 3.2 for provisions in the
Articles of Incorporation, as amended, and the Bylaws
defining the rights of the holders of common stock of
WebCatalyst, Inc.
Exhibit 4.2 (1) Specimen common stock certificate
Exhibit 27.1 Financial Data Schedule (for SEC use only)
--------------
(1) Filed previously on registration statement Form SB-2 SEC File No. and
incorporated by reference herein.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the Securities Act, this report has been signed
below by the following persons on behalf of the undersigned, thereunto duly
authorized.
WebCatalyst, Inc.
Date: November 14, 2000 By: /s/ Stephen B. Brannon
-----------------------------------
Stephen B. Brannon
President, Chief Executive Officer,
Director (Principal Executive
Officer and Principal Financial and
Accounting Officer)
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