================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-Q
(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, 1999
OR
|_| 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 0-27215
PAWNBROKER.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0794473
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
85 Keystone, Suite F
Reno, Nevada
89503
(Address of principal executive offices)
(775) 332-5048
(Registrant's Telephone Number, Including Area Code)
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 X No ---
The number of outstanding common shares, no par value, of the Registrant
at September 30, 1999 was 16,914,750
================================================================================
<PAGE>
PAWNBROKER.COM, INC.
INDEX TO THE FORM 10-Q
For the quarterly period ended September 30, 1999
<TABLE>
Page
----
Part I - Financial Information
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets................................................................3
Consolidated Statements of Operations......................................................4
Consolidated Statements of Cash Flows......................................................5
Consolidated Statement of Changes in Stockholders' Equity .................................6
Notes to the Consolidated Financial Statements.............................................7
ITEM 2. Management's Discussion and Analysis of FINANCIAL
CONDITION AND Results of Operations........................................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..................................21
Part II - Other Information
ITEM 1. Legal Proceedings ........................................................................21
ITEM 2. Changes in Securities AND USE OF PROCEEDS.................................................21
ITEM 3. Defaults Upon Senior Securities ..........................................................22
ITEM 4. Submission of Matters to a Vote of Security Holders.......................................22
ITEM 5. Other Information.........................................................................22
ITEM 6. Exhibits and Reports on Form 8-K..........................................................22
Signatures .............................................................................................23
</TABLE>
<PAGE>
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
September 30,
1999
- ---------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current
Cash $ 1,915,991
Employee advances 3,312
Prepaid expenses 2,706
--------------
1,922,009
Deposit 1,313
Capital assets (Note 4) 358,381
Domain name (Note 5) 111,111
--------------
$ 2,392,814
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 43,467
--------------
Stockholders' equity Capital stock (Note 7)
Authorized
20,000,000 preferred stock with a par value of $0.00001
50,000,000 common stock with a par value of $0.00001
Issued and outstanding
September 30, 1999 - 16,914,750 common shares 170
Additional paid-in capital 3,086,149
Deficit accumulated during the development stage (736,972)
--------------
2,349,347
$ 2,392,814
==========================================================================================================
</TABLE>
On behalf of the Board:
Director
- -----------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Cumulative
Amounts From
February 5,
1999
(Incorporation) Six Month Three Month
to Period Ended Period Ended
September 30, September 30, September 30,
1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES
Contract services $ 83,732 $ 83,732 $ 75,113
Consulting 9,709 9,709 3,709
Depreciation and amortization 70,126 70,126 50,249
General and administrative 33,500 33,500 11,471
Management fees 82,800 82,800 61,800
Marketing and related expenses 162,650 162,650 162,650
Meals and entertainment 5,270 5,270 5,270
Professional fees 35,602 35,602 16,606
Promotion 35,826 35,826 11,318
Rent 34,377 34,377 12,512
Salary and wages 94,397 94,397 58,308
Selling costs 11,516 11,516 11,516
Shareholder information and transfer agent fees 17,115 17,115 16,380
Telephone 16,822 16,822 16,822
Travel and related 65,759 65,759 42,128
--------------- --------------- --------------
(759,201) (759,201) (555,852)
OTHER ITEM
Interest income 22,229 22,229 22,229
--------------- --------------- --------------
Loss for the period $ (736,972) $ (736,972) $ (533,623)
=======================================================================================================================
Basic and diluted loss per common share (Note 3) $ - $ (0.06) $ (0.03)
=======================================================================================================================
Weighted average shares outstanding - 11,873,212 16,914,750
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Cumulative
Amounts From
February 5,
1999
(Incorporation) Six Month
to Period Ended
September 30, September 30,
1999 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (736,972) $ (736,972)
Item not affecting cash:
Depreciation and amortization 70,126 70,126
Net change in non-cash working capital items:
Increase in employee advances (3,312) (3,312)
Increase in prepaid expenses (2,706) (2,706)
Increase in deposit (1,313) (1,313)
Increase in accounts payable and accrued liabilities 38,279 38,279
--------------- --------------
Net cash used in operating activities (635,898) (635,898)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (414,618) (414,618)
Purchase of domain name (125,000) (125,000)
Acquisition of cash on purchase of subsidiary 8,007 8,007
--------------- --------------
Net cash used in investing activities (531,611) (531,611)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,083,500 3,003,000
--------------- --------------
Net cash provided by financing activities 3,083,500 3,003,000
--------------- --------------
Change in cash position for the period 1,915,991 1,835,491
Cash position, beginning of period - 80,500
--------------- --------------
Cash position, end of period $ 1,915,991 $ 1,915,991
================================================================================================================
</TABLE>
Supplemental disclosure with respect to cash flows (Note 8)
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Deficit
Accumulated
Common Stock Additional During Total
---------------------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, February 5, 1999 - $ - $ - $ - $ -
Common stock issued for cash 8,500,000 85 80,415 - 80,500
------------- ------------ ------------- ------------- -------------
Balance, March 31, 1999 8,500,000 85 80,415 - 80,500
Capital stock of Pawnbroker.com, Inc. at
April 6, 1999 1,124,750 12 26,256 - 26,268
Deficit of Pawnbroker.com, Inc. at April 6, - - (23,261) - (23,261)
1999
Common stock issued pursuant to the
acquisition of Pawnbroker.com, Inc.
(Nevada) (Note 6) 6,240,000 62 - - 62
Common stock issued for cash 1,300,000 13 3,002,987 - 3,003,000
Share cancellation (250,000) (2) (248) - (250)
Loss for the period - - - (736,972) (736,972)
------------- ------------ ------------- ------------- -------------
Balance, September 30, 1999 16,914,750 $ 170 $ 3,086,149 $ (736,972) $ 2,349,347
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1999
================================================================================
1. ORGANIZATION OF THE COMPANY
Digital Sign Corporation ("the Company), a Delaware corporation, was
incorporated on February 13, 1998. On February 14, 1998, the Company issued
100,000 (25,000 post-consolidation) common shares at par value for all of
the issued and outstanding shares of Digital Signs, Inc. On April 6, 1999,
the Company acquired all of the issued and outstanding shares of Eriko
Internet Inc. in exchange for 34,000,000 (8,500,000 post-consolidation)
common shares of the Company. On September 10, 1999, the Company
consolidated its issued and outstanding shares of common stock on a four to
one basis, from 38,499,000 issued and outstanding to 9,624,750 issued and
outstanding. Effective June 14, 1999, the Company acquired all of the
issued and outstanding shares of Pawnbroker.com, Inc. (a Nevada
corporation), in exchange for 6,240,000 common shares of the Company. On
June 10, 1999, the Company changed its name to Pawnbroker.com, Inc.
These financial statements contain the financial statements of Eriko
Internet Inc. ("Eriko"), Pawnbroker.com, Inc., Digital Signs, Inc. and
Pawnbroker.com, Inc. (a Nevada Corporation) presented on a consolidated
basis. On April 6, 1999, Pawnbroker.com, Inc. acquired all of the issued
and outstanding share capital of Eriko by issuing 8,500,000 common shares
(Note 6). As a result of the share exchange, control of the combined
companies passed to the former shareholders of Eriko. This type of share
exchange has been accounted for as a capital transaction accompanied by a
recapitalization of Eriko. Recapitalization accounting results in
consolidated financial statements being issued under the name of
Pawnbroker.com, Inc., but are considered a continuation of Eriko. As a
result, the financial statements presented represent the consolidated
financial position of the above Companies as at September 30, 1999 and the
results of operations of Eriko for the six month period ended September 30,
1999 and the period from February 5, 1999 (incorporation) to September 30,
1999 and the results of operations and cash flows of Pawnbroker.com, Inc.,
Pawnbroker.com, Inc. (Nevada) and Digital Signs Inc. from their deemed
dates of acquisition during the period. The number of shares outstanding at
September 30, 1999 as presented are those of Pawnbroker.com, Inc.
The Company is a development stage electronic-commerce company created to
provide retail customers with the ability to search for and acquire, via
the Internet, merchandise in inventories of pawnshops throughout North
America.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary (consisting only of normal
recurring accruals) to present fairly the financial information contained
therein. These statements do not include all disclosures required by
generally accepted accounting principles and should be read in conjunction
with the audited financial statements of the Company for the year ended
March 31, 1999. The results of operations for the six month period ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the year ending March 31, 2000.
2. GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the company has no current source
of revenue. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern. It is management's plan in
this regard to obtain additional working capital through equity financings.
<TABLE>
------------------------------------------------------------------------------------------
September 30,
1999
------------------------------------------------------------------------------------------
<S> <C>
Deficit accumulated during the development stage $ (736,972)
Working capital 1,878,542
==========================================================================================
</TABLE>
-7-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include Pawnbroker.com, Inc.
(formerly Digital Sign Corporation) and its wholly-owned subsidiaries,
Digital Signs, Inc., Eriko Internet Inc. and Pawnbroker.com, Inc. (a Nevada
corporation). All significant inter-company balances and transactions have
been eliminated in consolidation.
Revenue recognition
The Company will recognize revenue from transaction fees charged to pawn
shops when completion of the sale of the related item has occurred and the
Company has received its portion of the sales proceeds released from
escrow.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the period. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
Loss per share
Earnings per share are provided in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Due to the Company's
simple capital structure, with only common stock outstanding, only basic
loss per share must be presented. Basic loss per share is computed by
dividing losses available to common stockholders by the weighted average
number of common shares outstanding during the period.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carryforwards. Deferred
tax expenses (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Accounting for derivative instruments and hedging activities
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments
and for hedging activities. SFAS 133 is effective for all fiscal quarters
of fiscal years beginning after September 15, 1999. The Company does not
anticipate that the adoption of the statement will have a significant
impact on its financial statements.
-8-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities" which provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 with initial
adoption reported as the cumulative effect of a change in accounting
principle. The Company has adopted this statement during the period.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income". This statement establishes
rules for the reporting of comprehensive income and its components. The
adoption of SFAS 130 had no impact on total stockholders' equity as of
September 30, 1999.
Software development
The Company has adopted Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", as its accounting policy for internally developed computer
software costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer software
costs incurred during the application development stage are capitalized and
amortized over the software's estimated useful life.
Capital assets
Capital assets will be recorded at cost less accumulated depreciation. The
cost of capital assets is depreciated over the estimated useful lives of
the related assets. Depreciation is computed on the Modified Accelerated
Cost Recovery System (MACRS) method for both financial reporting and income
tax purposes.
Domain names
The cost of domain name rights will be amortized over 3 years from the date
of commencement of operations.
Advertising costs
The Company recognizes advertising expenses in accordance with Statement of
Position 98-7, "Reporting on Advertising Costs". As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
-9-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1999
================================================================================
4. CAPITAL ASSETS
<TABLE>
==============================================================================================
Accumulated Net
Cost Depreciation Book Value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 34,846 $ 2,903 $ 31,943
Equipment and software 379,772 53,334 326,438
-------- ------- --------
$ 414,618 $ 56,237 $ 358,381
==============================================================================================
</TABLE>
5. DOMAIN NAME
===========================================================================
September 30,
1999
---------------------------------------------------------------------------
Domain name $ 125,000
Accumulated amortization (13,889)
--------------
$ 111,111
===========================================================================
6. BUSINESS COMBINATIONS
Eriko Internet Inc.
On April 6, 1999, Pawnbroker.com, Inc. ("Pawnbroker") acquired all of the
issued and outstanding share capital of Eriko Internet Inc. ("Eriko"). As
consideration, Pawnbroker issued 8,500,000 shares. Legally, Pawnbroker is
the parent of Eriko. However, as a result of the share exchange described
above, control of the combined companies passed to the former shareholders
of Eriko. This type of share exchange, has been accounted for as a capital
transaction accompanied by a recapitalization of Eriko rather than a
business combination. Accordingly, the net assets of Eriko are included in
the balance sheet at book values, with the net assets of Pawnbroker
recorded at fair market value at the date of acquisition. The revenues and
expenses and assets and liabilities reflected in the financial statements
prior to the date of acquisition are those of Eriko. Revenue and expenses
or assets and liabilities incurred subsequent to the date of acquisition
include the accounts of Pawnbroker.
The cost of an acquisition should be based on the fair value of the
consideration given, except where the fair value of the consideration given
is not clearly evident. In such a case, the fair value of the net assets
acquired is used.
At April 6, 1999, Pawnbroker was inactive with a thin market for its
shares, making it impossible to estimate the actual market value of the
8,500,000 common shares. Therefore, the cost of the acquisition, $3,007,
has been determined by the fair value of Pawnbroker 's net assets.
The total purchase price of $3,007 was allocated as follows:
Current assets $ 8,007
Accounts payable and accrued liabilities (5,000)
-------------
$ 3,007
-10-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1999
================================================================================
6. BUSINESS COMBINATIONS (cont'd.....)
Pawnbroker.com, Inc. (Nevada)
On June 14, 1999, Pawnbroker acquired all of the issued and outstanding
share capital of Pawnbroker.com, Inc., a Nevada corporation ("Pawnbroker
-Nevada"). As consideration, Pawnbroker issued 6,240,000 common shares at a
deemed value of $62, equal to the par value of the shares issued. As the
acquisition of Nevada was deemed to be from a promoter of Pawnbroker, the
pruchase has been recorded at the historical cost of the net assets of
Nevada, which approximate the par value of the shares issued.
7. CAPITAL STOCK
On May 19, 1999, a shareholder of Pawnbroker surrendered 250,000 shares of
common stock which were initially issued as a part of the total shares
issued for the acquisition of Eriko Internet Inc. Capital stock and
contributed surplus have been reduced by $2 and $248 respectively to
eliminate the values initially recorded on issuance.
8. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
--------------------------------------------------------------------------
September 30,
1999
--------------------------------------------------------------------------
Cash paid for income taxes $ -
Cash paid for interest -
==========================================================================
Non-cash investing and financing transactions during the period from
February 5, 1999 to September 30, 1999 were as follows:
a) The Company issued 8,500,000 shares of common stock at a deemed value
of $3,007 to acquire 100% of the outstanding of shares of Eriko
Internet Inc.
b) The Company issued 6,240,000 shares of common stock at a deemed value
of $62 to acquire 100% of the outstanding shares of
Pawnbroker.com-Nevada.
c) The Company received 250,000 shares of common stock for cancellation
at a deemed value of $250, of which amount is included in accounts
payable at September 30, 1999.
9. COMMITMENTS
a) On June 25, 1999, the Company entered into a one-year consulting
agreement commencing on July 1, 1999, whereby the Company is obligated
to pay $20,000 per month. The first month's fee was due and payable
upon execution of the agreement. The Company further agreed to pay the
consultant $100,000 (paid) upon execution of the agreement. In
addition, the consultant will be granted 400,000 options to purchase
common shares of the Company, exercisable at the market price, post
reverse stock split on the first day of trading of the newly
consolidated shares, for a period of one year from the date of
execution of the agreement. Of these options, 250,000 will vest
immediately upon board approval, the remaining 150,000 options will
vest in equal amounts of 50,000 for each successful financing of
$5,000,000.
-11-
<PAGE>
PAWNBROKER.COM, INC.
(formerly Digital Sign Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1999
================================================================================
9. COMMITMENTS (cont'd.....)
b) The Company has formed a stock option plan under which it may grant
stock options to acquire up to a total of 2,000,000 shares of the
Company's common stock, at a price to be determined by the plan
administrator. To date, no options have been granted under the plan.
10. SHARE PURCHASE WARRANTS
During the six month period ended September 30, 1999, the Company issued
1,300,000 units through a private placement at a price of $2.31 per unit,
for total proceeds of $3,003,000. Each unit consists of one common share
and one-half of a share purchase warrant. One full share purchase warrant
entitles the holder to acquire one additional common share at a price of
$2.31 per share until June 23, 2000 and at a price of $2.90 per share until
June 23, 2001. As of September 30, 1999, there were 650,000 share purchase
warrants outstanding.
11. RELATED PARTY TRANSACTIONS
During the six month period ended September 30, 1999, the Company paid the
following:
a) Management fees of $21,000 to officers and/or directors of the
Company.
-12-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements and information contained in this Report constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or developments in the Company's
industry, to differ materially from the anticipated results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: the Company's limited operating
history, history of losses, risks associated with the development of
technologies, risks involving the management of growth, risks associated with
the Internet, competition, product development risks and risks of technological
change, dependence on selected vertical markets and third-party marketing
relationships, the Company's ability to protect its intellectual property rights
and the other risks and uncertainties detailed in the Company's Securities and
Exchange Commission filings, including the Company's Registration Statement on
Form 10-K for filed with the Securities and Exchange Commission on November 3,
1999. "We," "our," "us" and the "Company" refer to Pawnbroker.com, Inc. and our
subsidiaries.
Overview
We were incorporated in the State of Delaware on February 13, 1998 under the
name "Digital Sign Corporation" with an authorized share capital of 70,000,000
shares consisting of 20,000,000 Preferred shares of a par value of $0.00001 each
and 50,000,000 Common shares of a par value of $0.0001 each.
On April 6, 1999, we acquired all of the issued and outstanding shares of common
stock of Eriko Internet Inc., a Washington corporation engaged in the business
of developing Internet technologies, pursuant to a statutory share exchange
under the laws of the state of Washington. Our transaction with Eriko Internet
Inc. was considered a merger of non-operating entities with nominal assets and
Eriko Internet Inc. is deemed to be the surviving entity for accounting
purposes.
On May 14, 1999, we acquired all of the issued and outstanding shares of
Pawnbroker (Nevada). Pawnbroker (Nevada) was a shell company with no assets,
liabilities, revenues or expenses. After we acquired Pawnbroker (Nevada), we
undertook the process of designing, building and operating an Internet based
electronic-commerce Web site to provide retail customers with the ability to
search for and acquire, via the Internet, merchandise in inventories of
pawnshops throughout North America. At the time we acquired Pawnbroker (Nevada),
our operations were insignificant.
The financial statements filed with our quarterly report on Form 10-Q and our
management's discussion and analysis of financial condition and results of
operation are for the period from February 5, 1999, the date of inception of
Eriko Internet Inc., to September 30, 1999.
Our Business
We, Pawnbroker.com, Inc., are a Delaware corporation in the development stage,
which means we are in the process of developing our business and have no
revenues from our operations and have not generated any profits. We intend to
launch a web site designed to provide online customers a fundamentally new
method to search for and buy merchandise from the inventories of pawnshops. Our
web site is located at www.pawnbroker.com.
We intend to enter into agreements with "brick-and-mortar" pawnshops with
existing physical locations under which each participating pawnshop will agree
to make certain items or all of their inventory available for purchase through
Pawnbroker.com at prices established by the pawnshop or on a "make an offer"
basis. Based on our discussion with potential participants, we believe that our
Pawnbroker.com web site services will be particularly attractive to independent
pawnshops and small pawnshop chains, who sell their merchandise exclusively
through their physical locations and may be limited by the scope of their
geographic market. We intend to generate revenues by charging pawnshops a
transaction fee, ranging between 5% to 10% of the purchase price, on
successfully completed transactions. The Company's management and its board of
advisors are in the process of determining an appropriate transaction fee
policy, and the Company anticipates that the transaction fee policy will be
finalized in December 1999.
-13-
<PAGE>
We are currently in the process of completing the development of the software
and technology related to our business and intend to beta test our web site in
December 1999 with approximately 65 pawnshops who have orally committed to
participate in the tests by each listing approximately 500 items of merchandise
on our site. After completing beta tests and debugging our software, we intend
to launch our site to the general public in two phases:
1. Soft Launch: Our soft launch is scheduled for January 2000 and is
anticipated to feature between 65 and 100 participating pawnshops. The
general public will be allowed to access general information about (i) the
pawn industry, (ii) our web site, (iii) our participating pawnshops, (iv)
our policies related to purchasing merchandise on our web site and our
Pawnbroker.com Satisfaction Program and (iv) the schedule for our hard
launch when they will be able to purchase merchandise on our web site.
Participating pawnshops will be able to (i) use Pawnbroker.com email; (ii)
complete applications to become a participating pawnshop; (iii) upload
inventory lists of merchandise to sell on our web site when we complete the
hard launch of our web site; and (iv) access information specifically
designed for pawnshops including pawnshop regulatory information,
instructions and guidelines related to listing merchandise for sale on our
web site, our policies and procedures related to participating pawnshops
and information posted on our web site by our participating pawnshops. We
do not anticipate that visitors will be able to purchase merchandise on our
web site during our soft launch.
2. Hard Launch: Our hard launch is scheduled for March 2000 and is anticipated
to feature between 100 and 200 participating pawnshops. After our hard
launch, we anticipate that our web site will be fully operational and that
we will begin to facilitate transactions between visitors and our
participating pawnshops. We anticipate that each participating pawnshop
will feature approximately 300 to 500 items for sale on our pawnbroker.com
web site.
Our goal is to have a total of up to 2,000 participating pawnshops offering an
average of 275 items each by December 2000.
We have presented our web site concept to over 3,000 pawnshops at conventions
and tradeshows and have oral expressions of interest or requests for additional
information from approximately 2,000 pawnshops. We do not intend to enter into
any definitive agreements with pawnshops until we have completed the beta
testing of our web site. We also cannot assure you that we will successfully
complete the development of the technology required to launch our web site or
enter into any definitive agreements with pawnshops as planned or that we will
generate sufficient revenues to become profitable.
Participating pawnbrokers will be able to run our Pawnbroker.com software on
IBM-compatible PCs with Microsoft Windows 95/98. We anticipate that
participating pawnbrokers will be able to purchase an IBM-compatible PC with
Microsoft Windows 95/98 and a laser printer to print invoices and shipping
labels at a cost of less than $2,000. We will also recommend the use of a
digital camera to display pictures of merchandise on our web site. See
"Participating Pawnbroker Systems Requirements."
Our web site will include an automated, easy-to-use search and retrieval system
that is designed to make purchasing merchandise on our Pawnbroker.com web site
easy and popular. We plan to incorporate visual displays on our web site that
permit a visitor to view pictures of merchandise and interactive capabilities
that allow buyers to make offers on merchandise at any point in their visit.
We believe that our Pawnbroker.com web site will be attractive to consumers of
merchandise typically offered at pawnshops, such as jewelry, consumer
electronics, tools, collectibles, coins, cameras and musical instruments. We
intend to attract buyers by offering consumers an opportunity to locate and
purchase merchandise from an inventory that we anticipate will be larger than
any single pawnshop or pawnshop chain. We do not intend to post firearms, adult
materials or other potentially illegal merchandise for sale on our web site. Our
web site is designed to facilitate seamless, secure transactions, unlike other
existing systems that require buyers to visit other web sites or contact the
pawnshop directly to complete a secure transaction. We intend to create buyer
confidence by offering a unique 10-day Pawnbroker.com Satisfaction Program that
is intended to reduce the risk and uncertainty of purchasing merchandise from
independent pawnshops.
We intend to increase repeat purchases and build loyalty to our service by using
post-sale marketing techniques including follow-up email messages to remind
customers of our web site and personalized services that will allow visitors to
(i) request merchandise that is not listed for sale on our web site, (ii)
notification by email when a
-14-
<PAGE>
particular item of merchandise is available on our web site, and (iii) automatic
email reminders of specific occasions like birthdays, holidays or anniversaries.
We anticipate that the number of transactions facilitated on Pawnbroker.com will
increase and decrease during certain times of the year, similar to the sales
fluctuations experienced by physical pawnshops in their retail sales. Based on
our management's experience in the pawnshop industry, we anticipate our sales
will be higher during the periods immediately prior to Christmas, Valentine's
Day, Mother's Day and Father's Day than during other times of the year.
Our revenues will depend on transaction fees, ranging from 5% to 10% of the
purchase price, paid by pawnshops for successful transactions completed with
purchasers. Based on our discussions with potential advertisers, we believe that
when and if our site traffic reaches 10,000 or more visitors per day, we may
receive additional revenues by selling banner ads. In the future, we plan to
generate additional revenue by licensing a point-of-sale & inventory management
application that allows participating pawnshops to seamlessly post items in
their inventory database for sale on our web site and to manage their in-store
and online inventory in an effective, efficient manner.
We have no revenues from our operations and we have a history of losses. As of
September 30, 1999, we had an accumulated deficit of $739,972. We anticipate
that we will continue to incur substantial losses for the foreseeable future. We
estimate that we will require additional financing of at least $5 million to
meet our cash requirements through the fiscal quarter ending June 30, 2000. Our
ability to fully implement our business strategy will depend on our ability to
raise future financing. Factors that will affect our ability to raise such
financing may include, among other things:
o the market acceptance of our Pawnbroker.com web site by buyers of
pawnshop merchandise;
o traffic on our web site;
o our ability to obtain participating member pawnshops; and
o the revenues generated from our operations.
We anticipate that we will raise additional financing through private placements
of our equity or debt during the fourth quarter of 1999 or the first quarter of
2000. We have engaged Jefferies and Company to advise the company on financial
matters. We cannot assure you that we will successfully complete any private
placements or that we will obtain additional financing to implement our business
plans on acceptable terms, if at all.
We intend to compete in the highly competitive Internet commerce industry. Many
of our competitors have substantially greater financial, technical and other
resources than us. Several competitors already have established web sites, brand
names, strategic relationships with advertisers and other web sites and user
loyalty, all of which create a competitive advantage over us. We have not
launched our web site or begun the process of developing our brand name or
promoting our web site. We cannot guarantee that we will be able to compete
effectively or that we will ever generate sufficient revenues from our
operations to make our business commercially viable.
-15-
<PAGE>
Summary of Financial Data
The following table sets forth, for the periods indicated, certain
components of the selected financial data of the Company:
<TABLE>
Period from
Three months ended February 5, 1999
September 30, 1999 (inception) to
September 30, 1999
---------------------- ----------------------
<S> <C> <C>
(Unaudited) (Unaudited)
Revenue $ -- $ --
---------------------- ----------------------
-- --
---------------------- ----------------------
Operating expenses
Consulting fees, salaries and wages, etc.... 198,930 270,638
General and administrative/Overhead......... 46,075 89,969
Sales and marketing ........................ 227,612 275,751
Shareholder communication and transfer
agent fees 16,380 17,115
Professional fees 16,606 35,602
Amortization of intangible assets........... 50,249 70,126
---------------------- ----------------------
555,852 759,201
---------------------- ----------------------
Operating income (loss)...................... $(555,852) $(759,201)
Other income ................................
Interest.................................... $22,229 $22,229
Net income (loss).............................. $(533,623) $(736,972)
====================== ======================
</TABLE>
Results of Operations
We expect expenses related to research and development and administrative
expenses to continue to be a material component of our expenses during the
start-up phase of our development. We also anticipate that expenses related to
marketing and sales will increase substantially during the fourth quarter ending
December 31, 1999 and the first half of 2000, as we begin an extensive campaign
to market and promote our Pawnbroker.com Web site and develop strategic
alliances with participating pawnshops.
During the three month period ended September 30, 1999, we terminated our
relationship with Banshee, Inc. Under an agreement between Banshee and
Pawnbroker.com (Nevada), Banshee was engaged to develop the software and the
e-commerce architecture for the in-store item listing component, the
Pawnbroker.com database and the Pawnbroker.com Web site. Our management
evaluated our relationship with Banshee and determined that it was in the
company's best interest to begin staffing our own in-house development team to
further develop our technologies and software. In connection with that effort,
we hired Vahid Rafizadeh as our Chief Technical Officer in October 1999 and have
begun staffing a development team, which has assumed the development of our web
site and related technologies. We intend to use currently available technology
and products and to contract out most technical services required for
customization. We also intend to retain rights to the proprietary intellectual
property embodied in our technology including, wherever possible, source code,
and to maintain a continual right to use the system for our purposes
-16-
<PAGE>
Three Months Ended September 30, 1999
Revenues. We had no revenues from operations. Our loss during our three
month interim period ended September 30, 1999 of $555,852 was as a result of
costs associated with corporate acquisition expenses, developing our business
plan, research and development expenditures related to the development of our
Pawnbroker.com web site and technologies and general overhead and administrative
expenses. We anticipate that our expenses and losses will increase as we
increase our web site development and marketing efforts.
Consulting Fees, Contract Services, Salaries and Wages. Our expenses
related to consulting fees, contract services, management fees, salaries and
wages during our three month interim period ended September 30, 1999 was
$198,930. During this period, we paid consultants fees of $3,709 and contract
service fees of $75,113 to outside consultants for assistance related to the
evaluation and development of our Internet business strategies. We also paid
management fees of $61,800 to Joseph Schlader, our President, and William
Galine, our Vice President, related to management services provided to us in
connection with the development of our business plan and management of our
operations. We paid salaries and wages in the amount of $58,308 paid to our
employees. We anticipate that expenses related to compensation to personnel and
consultants will increase substantially during the remainder of our fiscal year
and through December 31, 2001, as we hire additional employee to provide
services in the areas of technology development, customer service, sales,
marketing and systems maintenance. We intend to continue committing a
significant portion of our working capital to completing the development and the
soft launch of our web site during January 2000 and the hard launch of our web
site by March 2000. Thereafter, we intent to commit a significant portion of
enhance existing products and develop new products, resulting in an anticipated
increase in the dollar amounts of research and development expenses for future
periods.
General and Administrative/Overhead. General and administrative and
overhead expenses were $46,075 for the three months period ended September 30,
1999. During the period we expanded administrative activity to support the
development of our business, including general expenses of $11,471, meals and
entertainment expense $5,270, rent expense of $12,512 and telephone expenses of
$16,822. We expect that the dollar amounts will continue to increase as the
Company expands its customer service operations, establishes new corporate
headquarters in the Silicon Valley area of California and a research and
development office in Pennsylvania and other administrative requirements
increase to support this growth. We added as company CEO, Mr. Neil McElwee, a
long-time internet eCommerce expert and software business consultant to lead the
company in its next stages of growth.
Sales and Marketing. Sales and marketing expenses were $227,612 for the
three months ended September 30, 1999. The increase was primarily due to an
increase in marketing, sales and technical support personnel supporting our
increased marketing activities related to attending Pawnbroker industry
tradeshows and marketing our Web based marketing concept to the pawnbroker
industry. Our sales and marketing expenses included expenses related to general
marketing expenses of $2,650, promotion expenses of $171,318, selling costs of
$11,516 and travel costs of $42,128.
We anticipate that our sales and marketing expenses will increase
substantially after we launch our web site and begin promotional campaigns
targeted at buyers of merchandise. In addition, our efforts prior to our hard
launch scheduled for March 2000 are anticipated to increase substantially as we
continue our marketing efforts to the pawnbroker industry.
Shareholder Communications and Transfer Agent Fees. During the three months
ended September 30, 1999, expenses related to providing shareholder
communication and expenses related to transfer agent fees were $16,380 for the
three month period ending September 30, 1999.
Professional Fees. During the three months ended September 30, 1999, we
paid professional fees of $16,606 related to legal and accounting services in
connection with the filing of our Form 10 registration statement with the
Securities and Exchange Commission.
Other Income. During the three months ended September 30, 1999, we had
revenues from interest paid on short-term deposits in the amount of $22,229.
-17-
<PAGE>
The Period from February 5, 1999 (inception) to September 30, 1999
Revenues. We had no revenues from operations. Our loss during the period
from our inception to September 30, 1999 of $736,972 was as a result of costs
associated with corporate acquisition expenses, developing our business plan,
research and development expenditures related to the development of our
Pawnbroker.com web site and technologies and general overhead and administrative
expenses. We anticipate that our expenses and losses will increase as we
increase our web site development and marketing efforts.
Consulting Fees, Contract Services, Salaries and Wages. Our expenses
related to consulting fees, contract services, management fees, salaries and
wages during the period from our inception to September 30, 1999 was $270,638.
During this period, we paid consultants fees of $9,709 and contract service fees
of $83,732 to outside consultants for assistance related to the evaluation and
development of our Internet business strategies. We also paid management fees of
$82,800 related to management services provided to us in connection with the
development of our business plan and management services, including a total of
$61,800 to Joseph Schlader, our President, and William Galine, our Vice
President. We paid salaries and wages in the amount of $94,397 paid to our
employees. We anticipate that expenses related to compensation to personnel and
consultants will increase substantially during the remainder of our fiscal year
and through December 31, 2001, as we hire additional employee to provide
services in the areas of technology development, customer service, sales,
marketing and systems maintenance. We intend to continue committing a
significant portion of our working capital to completing the development and the
soft launch of our web site during January 2000 and the hard launch of our web
site by March 2000. Thereafter, we intent to commit a significant portion of
enhance existing products and develop new products, resulting in an anticipated
increase in the dollar amounts of research and development expenses for future
periods.
General and Administrative/Overhead. General and administrative and
overhead expenses were $89,969 for the period from our inception to September
30, 1999. During the period we expanded administrative activity to support the
development of our business, including general expenses of $33,500, meals and
entertainment expense $5,270, rent expense of $34,377 and telephone expenses of
$16,822. We expect that the dollar amounts will continue to increase as the
Company expands its customer service operations, establishes new corporate
headquarters in the Silicon Valley area of California and a research and
development office in Pennsylvania and other administrative requirements
increase to support this growth.
Sales and Marketing. Sales and marketing expenses were $265,751 for the
period from our inception to September 30, 1999. The increase was primarily due
to an increase in marketing, sales and technical support personnel supporting
our increased marketing activities related to attending Pawnbroker industry
tradeshows and marketing our Web based marketing concept to the pawnbroker
industry. Our sales and marketing expenses included expenses related to general
marketing expenses of $2,650, promotion expenses of $195,826, selling costs of
$11,516 and travel costs of $65,759. We anticipate that our sales and marketing
expenses will increase substantially after we launch our web site and begin
promotional campaigns targeted at buyers of merchandise. In addition, our
efforts prior to our hard launch scheduled for March 2000 is anticipated to
increase substantially as we continue our marketing efforts to the pawnbroker
industry.
Shareholder Communications and Transfer Agent Fees. During the period from
our inception on February 5, 1999 to September 30, 1999, expenses related to
providing shareholder communication and expenses related to transfer agent fees
were $17,115 for the period from our inception to September 30, 1999.
Professional Fees. During the period from our inception to September 30,
1999, we paid professional fees of $35,602 related to legal and accounting
services in connection with our acquisition of Pawnbroker (Nevada), corporate
matters, preparing an audit and the filing of our Form 10 registration statement
with the Securities and Exchange Commission.
Other Income. During the three months ended September 30, 1999, we had
revenues from interest paid on short-term deposits in the amount of $22,229.
Liquidity and Capital Resources
As at September 30, 1999 we have $1,915,991 in cash or term deposits, which we
believe will be sufficient to satisfy our cash requirements through our third
fiscal quarter ending December 31, 1999. We will need to raise additional
financing to fund our operations after December 31, 1999. We intend to raise
such financing through
-18-
<PAGE>
private equity or debt offerings during the fourth calendar quarter of 1999;
however, we cannot assure you that we will acquire this financing on acceptable
terms, if at all.
Since our inception on February 5, 1999, we raised net cash from financing of
$3,293,326 during the fiscal quarter ended June 30, 1999, including $3,003,000
in capital through private placements of our common stock and $290,326 in
advances to us. Since our inception on February 5, 1999 to September 30, 1999,
we used net cash of $1,167,509. We received no cash from our operations during
these periods, and our use of cash during such periods were primarily as a
result of expenses related to research and development of our web site, expenses
related to marketing and promotion, salary expenses, professional fees and
expenses related to general administrative expenses and overhead.
During the period from our inception on February 5, 1999 to June 30, 1999, we
applied cash of $414,618 towards the purchase of capital assets and $125,000
towards the purchase of the domain names "pawnbroker.com" and "pawnbrokers.com".
Our operating budget for the period beginning July 1, 1999 through December 31,
1999 is estimated to be approximately $2.3 million, and $3.6 million for the
period beginning January 1, 2000 through June 30, 2000. We cannot assure you
that our actual expenditures for these periods will not exceed our estimated
operating budget. Actual expenditures will depend on a number of factors, some
of which are beyond our control, including, among other things:
(i) timing of the development and testing of our software and web site,
(ii) our ability to attract visitors to our web site,
(iii) our ability to attract pawnshops to use our services,
(iv) our ability to launch our web site in a timely manner,
(v) our ability to successfully complete transactions,
(vi) the availability of financing on acceptable terms,
(vii) reliability of the assumptions of management in estimating cost and
timing,
(viii) the time spent by consultants and professionals developing our web
site,
(ix) competition; and
(x) other factors that may be beyond our control.
We estimate that we will be required to raise approximately $5 million in
additional capital during the first calendar quarter 2000 to meet our
anticipated cash needs during the first two calendar quarters of 2000. In their
independent auditor's report dated November 2, 1999, Davidson & Co., our
auditors, expressed substantial doubt about our ability to continue as a going
concern due to our lack of working capital for our planned business activities.
We estimate that our minimum cash requirement for the period from July 1, 1999
through June 30, 2000 is approximately $4 million, primarily for expenses
related to general over head and administration, launching and web site, web
site maintenance, web site and data base development, server maintenance and
costs associated with facilitating transactions between our customers and
participating pawnshops. As such, we will need to raise at least $1,250,000
during the first half of 2000 to remove the going concern threat raised by our
auditors.
We intend to raise additional financing through private placements of our equity
or debt in the fourth quarter of 1999 and first quarter of 2000. We engaged
Investor Relations Group to assist us in develop a strategy to raise additional
financing and to provide investor relations services. Our relationship with IRG
has been as follows:
o IRG assisted in defining our investor relations goals and objectives;
o IRG assisted us in preparing a corporate fact sheet for distribution
to targeted investment professionals and certain accredited investors;
o IRG arranged periodic meetings with interested retail brokers, fund
managers and investment advisers;
o IRG provided potential investors with certain company approved due
diligence/investor relations kits; and
-19-
<PAGE>
o IRG agreed to assist us in developing relationships with merchant and
investment banks, private placement professionals and other
intermediaries which could provide us with additional private
placement financing;
We have presented our business concept and marketing strategy to several
potential investors.
We anticipate we will require approximately $16 million to meet our cash
requirements for the period from July 1, 2000 through December 31, 2000, and
approximately $42 million to meet our cash requirements for the calendar year
2001. Our cash requirements for these periods will primarily be to satisfy
expenses related to marketing our web site and web site and data base
development costs. Our marketing costs are expected to constitute approximately
65% - 75% of our total budget for these periods. We intend to meet our cash
requirements through revenues generated from our operations and private or
public placements of our equity or debt. We have not had any discussions related
to raising additional financing beyond our planned private placement in the
fourth calendar quarter 1999, and have no definitive plan to raise such
financing. Our auditors expressed substantial doubt about our ability to
continue as a going concern due to our lack of working capital for our planned
business activities. We estimate that our minimum cash requirement to remove the
going concern threat raised by our auditor is approximately $7.5 million for the
18 month period from July 1, 2000 through December 31, 2001, primarily for
expenses related to general over head and administration, web site maintenance,
web site and data base development, server maintenance and costs associated with
facilitating transactions between our customers and participating pawnshops.
In November 1999, we engaged Jefferies & Company, Inc., the principal operating
subsidiary of Jefferies Group, Inc., as our financial advisor.
We cannot assure you that we will successfully obtain additional financing on
acceptable terms, if at all. If we are unable to secure additional financing, we
intend to concentrate our resources on developing our web site and intend to
reduce the amount of resources we have budgeted for marketing our web site. Such
a reduction may have a material adverse affect on our business and results of
operations.
Year 2000
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (i.e. December 31, 1999 would appear as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000, and
calculations using or reporting the date will not be correct and errors will
arise (the "Year 2000 Issue"). To prevent this from occurring, information
systems need to be updated to ensure they recognize dates during and after the
Year 2000.
The potential exists that we and each of our subsidiaries are exposed to a risk
that certain aspects of their businesses will fail or suffer impairment as a
result of internally operated or externally contracted hardware or software
systems and services not being able to correctly "rollover" dates to the new
century. The risk stems from our reliance on certain hardware, software and
services to carry out the daily operation of our proposed respective businesses.
The exposure may result from, amongst other things, the use of computers,
general software and servers for office purposes and data storage; connections
to and use of the services of Internet Service Providers and telephone companies
for office purposes and customer and investor relations; the software underlying
the operation of the Web site web site and the online business operations and
the Registrant's servers.
We have only been operating and developing our business during the last four
months and the office hardware, administrative general software, software
development tools, servers and services of Internet Service Providers and
telephone companies have been acquired during this period. As a result, and in
oral consultation with the suppliers of this hardware, software and services, we
believe the related systems that we intend, directly or indirectly, to use in
our respective businesses are Year 2000 compliant. Our due diligence also
included an evaluation of supplier provided technology and the implementation of
new policies to require our suppliers to confirm in writing that they have
disclosed and will correct Year 2000 compliance issues. We have not received
written confirmation from all of our vendors. Although we are relying primarily
on systems developed with current technology and on systems designed to be Year
2000 compliant, we may have to replace, upgrade or reprogram certain systems to
ensure that all interfacing technology will be Year 2000 compliant when running
jointly.
-20-
<PAGE>
In the event that we incur expenses associated with resolving Year 2000
compliance issues, we intend to expense the operating costs as they are incurred
and capitalize the capital costs as they are incurred. However, our purchases of
hardware and general and specific purpose software have been relatively recent,
and the more expensive of the hardware and general and specific software items
that we have purchased are covered under warranties that will extend over the
rollover period to January 1, 2000. As a result, we do not expect to incur any
major operating or capital expenditures that would have a material impact on our
financial condition or results of operations.
While we believe that our hardware and general and specific purpose software
applications will be Year 2000 compliant, there can be no assurance until the
Year 2000 occurs that all systems will function adequately. In the worst case
scenario, a Year 2000 problem would cause Internet systems to fail and we would
not be able to commercially launch our web site. Such a failure would cause us
to delay our commercial launch until the Internet is operational, and would have
a material adverse affect on our business.
We do not currently anticipate any disruption in our operations as the result of
the Year 2000 issue. We do not have any information concerning the Year 2000
compliance status of our suppliers and customers that would affect our
operations. Any failure of our material systems, our vendors' material systems
or the Internet to be Year 2000 compliant may have a material adverse effect on
our business and results of operations.
In order to protect against the possibility of any material disruption in our
operations as the result of the Year 2000 issue we have taken the following
precautions:
- - developed, initiated and maintained procedures that ensure that the
information stored on the office computer hard drives are backed up on a
regular basis and stored safely;
- - copies of the source code for the special purpose software are maintained
in secure offsite locations by the developers of the software;
- - installed a backup server in Minden, Nevada at the headquarters of Banshee,
Inc.; and
- - implemented a policy of acquiring name brand hardware and retained
experienced consultants upon whose warranties we believe that we can rely.
We do not believe the Year 2000 issue will have any material affect on our
business or that we will have any material expenditures related to problems
arising out of the Year 2000 issue.
ITEM 3: QUANTITIATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that it does not have any material exposure to interest or
commodity risks. The Company is exposed to economic and political changes in
international markets where the Company competes, such as inflation rates,
recession, foreign ownership restrictions, domestic and foreign government
spending, budgetary and trade policies and other external factors over which the
Company has no control.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company is a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
-21-
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
b) Reports on Form 8-K
None.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAWNBROKER.COM, INC.
Date: December 17, 1999 By: /s/ NEIL MCELWEE
------------------------------------------
Name: Neil McElwee
Title: Chief Executive Officer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,915,991
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,922,009
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,392,814
<CURRENT-LIABILITIES> 43,467
<BONDS> 0
0
0
<COMMON> 170
<OTHER-SE> 3,086,149
<TOTAL-LIABILITY-AND-EQUITY> 2,349,347
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 555,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22,229)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (533,623)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
