FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the three month period ended: August 31, 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: 0-253335
EL GRANDE.COM, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0409024
(State of incorporation) (IRS Employer ID No.)
1040 Hamilton Street, Suite 308
Vancouver, B.C., CANADA V6B 2R9
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(604) 689 0808
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
As of October 1, 1999, the Registrant had 11,118,800 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one); Yes No X
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN THE GENERAL INSTRUCTIONS AND IS
THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
Part I Financial Information
- ------------------------------
<TABLE>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Aug 31, May 31,
A S S E T S 1999 1999
<S> <C> <C>
CURRENT ASSETS
Cash $ (19,273) $ 371,266
Employee expense advances 36,754 18,920
GST tax refundable 28,500 9,657
Prepaid expenses 50,134 51,401
----------------- ----------------
TOTAL CURRENT ASSETS 96,115 451,244
PROPERTY AND EQUIPMENT
Computer hardware 96,074 82,292
Furniture and fixtures 78,595 53,497
Database and software 545,645 408,370
Less accumulated depreciation and amortization (48,901) (19,522)
----------------- ----------------
TOTAL PROPERTY AND EQUIPMENT 671,413 524,637
----------------- ----------------
OTHER ASSETS
Deposits 49,193 43,460
Investments 60,000 -
TOTAL OTHER ASSETS 109,193 43,460
----------------- ----------------
TOTAL ASSETS $ 876,721 $ 1,019,341
----------------- ----------------
L I A B I L I T I E S & S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable $ 177,066 $ 29,976
Accounts payable, related party 25,000 25,000
Accrued liabilities 9,264 8,450
Accrued interest 5,282 5,811
Stock over-subscription payable 112,000 112,000
Current portion of long-term debt - 7,257
Revenue Clearing (2,247) -
Loans Payable 525,000 -
----------------- ----------------
TOTAL CURRENT LIABILITIES 851,365 188,494
----------------- ----------------
LONG-TERM DEBT
Lease, net of current portion 39,097 17,516
Note payable, net of current portion 39,543 39,543
TOTAL LONG-TERM LIABILITIES 78,640 57,059
----------------- ----------------
TOTAL LIABILITIES 930,004 245,553
----------------- ----------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares authorized,
$.001 par value; 11,118,800 and 10,793,800 shares
issued and outstanding, respectively 11,119 11,119
Additional paid-in capital 1,952,671 1,952,671
Subscriptions receivable - -
Deficit accumulated during development stage (2,059,575) (1,208,160)
Accumulated other comprehensive income 42,502 18,158
----------------- ----------------
TOTAL STOCKHOLDERS' EQUITY (53,283) 773,788
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 876,721 $ 1,019,341
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<CAPTION>
Quarter Quarter Inception
ended ended through
August 31, August 31, August 31,
1999 1998 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
R E V E N U E S $ - $ - $ -
---------------- --------------- -------------------
E X P E N S E S
Consulting fees 138,543 - 596,041
Marketing and public relations 210,374 262 385,308
Legal and professional fees 36,465 8,239 260,583
Office and administration 281,685 5,848 564,894
Software and internet services 154,969 - 190,318
Depreciation and amortization 29,379 - 52,839
Production and programming - - 1,950
---------------- --------------- -------------------
TOTAL OPERATING EXPENSES 851,415 14,348 2,051,933
---------------- --------------- -------------------
NET LOSS FROM OPERATIONS (851,415) (14,348) (2,051,933)
OTHER INCOME AND (EXPENSES)
Interest expense - - (7,642)
---------------- --------------- -------------------
NET LOSS (851,415) (14,348) (2,059,575)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain 24,344 - 42,502
COMPREHENSIVE LOSS $ (827,071) $ (14,348) $ (2,017,073)
================ =============== ===================
NET LOSS PER COMMON SHARE $ (0.0784) $ (0.0017) $ (0.1896)
================ =============== ===================
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING $10,865,550 $8,586,725 $ 10,865,550
================ =============== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock Other Total
Number Additional Subscriptions Accumulated Comprehensive Stockholders'
of Shares Amount Paid-in Receivable Deficit Income Equity
Capital
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
in April, 1998:
for cash at $.001
per share $ 4,000,000 $ 4,000 $ - $ - $ - $ - $ 4,000
for cash at $.01
per share 5,000,000 5,000 45,000 - - - 50,000
Issuance of common stock
in September, 1998
for services at $.06
per share 850,000 850 49,150 - - - 50,000
Issuance of common stock in
November, 1998
for cash and subscription
at $1.00 per share
less expense of $9,010 943,800 944 933,846 (538,050) - - 396,740
Loss for year ended,
May 31, 1999 - - - - (1,208,160) 42,502 (1,208,160)
------------- ---------- ------------ --------------- ------------ ------------ --------------
Balance
May 31, 1999 10,793,800 10,794 1,027,996 (538,050) (1,208,160) 42,502 (707,420)
Subscriptions received - - - 538,050 - - 538,050
Issuance of common stock
in December, 1998
for services 25,000 25 24,975 - - - 25,000
Issuance of common stock
May, 1999 for cash at
$3.00 per share 300,000 300 899,700 - - - 900,000
Loss for period ending
August 31, 1999 - - - - (851,415) - (851,415)
Foreign currency translation
gain - - - - - 24,344 24,344
------------- ---------- ------------ --------------- ------------ ------------ --------------
Balance, August 31, 1999 $ 11,118,800 $ 11,119 $1,952,671 $ - $(2,059,575) $66,847 $ (71,441)
============= ========== ============ =============== ============ ============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Quarter April 2, 1998
Ended Ended (Inception)
August 31, August 31, Through
1999 1998 Aug 31, 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(851,415) $ (14,348) $(2,059,575)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 29,379 52,839
Services paid by issuance of common stock - 75,000
Increase in: -
Employee advance receivable (17,834) (36,754)
Other Receivables (17,576) (4,477) (17,576)
Other assets (5,733) (24,856)
Accounts payable, related party - 40,000 84,989
Accured liabilities 814 9,264
Accrued interest (529) 4,753
Decrease in: -
Accounts payable 684,166 1,442 504,726
---------- ---------- ------------
Net cash provided (used) in operating activities (178,728) 22,617 (1,407,190)
---------- ---------- ------------
Cash flows from investing activities:
Purchase of property and equipment (176,156) (2,098) (485,776)
JV Investment (60,000) (60,000)
Deposit on leased property - (3,600)
Payment on organizational costs - (106,000)
---------- ---------- ------------
Net cash used in investing activities (236,156) (2,098) (655,376)
---------- ---------- ------------
Cash flows from financing activities:
Over-subscriptions payable - 112,000
Issuance of stock 0 1,888,790
---------- ---------- ------------
0 - 2,000,790
Net increase in cash (414,884) 20,519 (61,776)
Foreign currency translation gain 24,344 - 42,502
Cash, beginning of period 371,266 208,918 -
---------- ---------- ------------
Cash, end of period $ (19,273) $ 229,437 $ (19,273)
========== ========== ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ 1,829 $ - $ 3,658
========== ========== ============
Income taxes $ - $ - $ -
========== ========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing lease for equipment $ - $ - $ 26,274
Note issued for purchase of property and equipment $ - $ - $ 39,543
Purchase commitment for database $ - $ - $ 174,200
Services paid by issuance of stock $ - $ - $ 75,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Quarter Ending August 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
- -------------------------------------------------
Elgrande.com Inc., formerly Intellicom Internet Corp (hereinafter "the
Company"), was incorporated in April 1998 under the laws of the State of Nevada
primarily for the purpose of developing and marketing internet applications,
specifically for books, software, audio and video media and computer games. The
name change to Elgrande.com Inc. was effective on September 19, 1998. The
Company maintains an office in Vancouver, British Columbia, Canada.
Elgrande.com Inc. formed a wholly owned subsidiary, Yaletown Marketing Corp, to
provide management and administrative services for the Company. Yaletown
marketing was incorporated February 23, 1999 in Victoria, British Columbia,
Canada.
The Company is in the development stage and as of August 31, 1999 had not
realized any significant revenues from its planned operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
This summary of significant accounting policies of Elgrande.com Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
that is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Principles of consolidation: The consolidated financial statements include the
accounts of the company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Development Stage Activities: The Company has been in the development stage
since its formation on on April 8, 1998. It is primarily engaged in developing
and marketing Internet applications.
Going Concern: The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company incurred a net
loss of $851,415 and $14,348 for the periods ended August 31, 1999 and August
31, 1998, respectively. The Company has generated no revenues since inception.
The Company, being a developmental stage enterprise, is currently putting
technology in place which will, if successful, mitigate these factors which
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence. Management has established plans designed to
increase the sales of the Company's products. Management intends to seek new
capital from new equity securities issuances that will provide funds needed to
increase liquidity, fund internal growth and fully implement its business plan.
<PAGE>
Accounting Method: The Company's financial statements are prepared using the
accrual method of accounting. In 1999, the Company changed its year-end from
November 30 to May 31.
Loss Per share: Loss per share was computed by dividing the net loss by the
weighted average number of shares outstanding during the period. The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighting them by the amount of time that they were outstanding.
Cash and Cash Equivalents: For purposes of the Statement of Cash Flows, the
Company considers all short-term debt securities purchased with a maturity of
three months or less to be cash equivalents.
Provision for Taxes: At August 31, 1999, the Company had net operating
accumulated loss of approximately $2,059,575. No provision for taxes or tax
benefit has been reported in the financial statements, as there is not a
measurable means of assessing future profits or losses.
Use of Estimates: The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Compensated Absences: Employees of the company are entitled to paid vacation,
paid sick days and personal days off, depending on job classification, length of
service, and other factors. It is impracticable to estimate the amount of
compensation for future absences, and, accordingly, no liability has been
recorded in the accompanying financial statements. The Company's policy is to
recognize the costs of compensated absences when actually paid to employees.
Year 2000: The Company, like other firms, could be adversely affected if the
computer systems used by it, its suppliers or customers do not properly process
and calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment.
At this time, because of the complexities involved in the issue, management
cannot provide absolute assurances that the Year 2000 issue will not have an
impact on the Company's operations. The Company has reviewed its technology,
including software and hardware, and has determined that there will be no
adverse effects to the Company's operations regarding Year 2000 issues.
Management also believes that Year 2000 issues should not adversely affect the
ability of its clients and customers to conduct business with the Company. Any
costs associated with Year 2000 compliance are expensed when incurred.
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight- line method over the estimated useful lives of the
assets. The useful lives of property, plant and equipment for purposes of
computing depreciation and amortization are five - seven years. The following is
a summary of property, equipment and accumulated depreciation and amortization:
August 31, 1999 May 31, 1999
--------------- ------------
Computers $ 96,074 $ 82,292
Furniture and fixtures 78,595 53,497
Database 545,645 408,370
--------- ---------
Total assets 720,314 554,159
Less accumulated depreciation
And amortization (48,901) (19,522)
---------- ---------
$671,413 $524,637
========== =========
Depreciation and amortization expense for the period ending August 31, 1999 was
$29,379 compared to $19,522 for the fiscal period ending May 31, 1999.
NOTE 4 - OTHER ASSETS
- ---------------------
During the quarter ending August 31, 1999, the Company invested $60,000 in a
joint venture with Hydrogen Media for the development of a joint sales and
marketing program for products in both companies.
The Company has capitalized $545,645, of which $408,370 is the contractual cost
of data base software purchased from an independent software supplier. No
portion of this software--acquired at May 31, 1999--was internally developed
and, accordingly, there are no internal costs associated with this software
which were charged to research and development. The balance represents purchased
software and licensing fees. Consistent with SOP 98-1, the costs of this
software--which was purchased solely for internal use and will not be marketed
externally--have been capitalized.
NOTE 5 - COMMON STOCK AND WARRANTS
Upon incorporation, 4,000,000 shares of common stock were distributed at $.001
per share to the board of directors for $4,000. The second share issuance was
for 5,000,000 common shares at $.01 per share for $50,000. Under Regulation D,
Rule 504, 943,800 shares of common stock were issued at $1.00 per share for cash
and subscriptions. A May 1, 1999 issuance was for 300,000 units each consisting
of one share of common stock and three common stock purchase warrants (Class A,
Class B and Class C) at $3.00 per unit under Regulation D, Rule 501. Each Class
A warrant entitles the holder to acquire an additional share of common stock for
$7.50 per share at any time prior to May 31, 2006. Each Class B warrant entitles
the holder to acquire an additional share of common stock for $15.00 per share
at any time prior to May 31, 2006 and each Class C warrant entitles the holder
to acquire an additional share of common stock for $25.00 per share at any time
prior to May 31, 2006. The warrants have no assigned value according to the
Black-Scholes Option Price Calculation.
At May 31, 1999 the Company's third stock offering was over-subscribed by
$112,000. This amount is still outstanding at August 31, 1999 has been converted
to a loan and is recorded on the Company's balance sheet as a current liability.
See Note 11.
At August 31, 1999, 25,000 shares of common stock had been granted but not
issued to a director for services. The Company valued these services at $25,000
and accordingly has recorded an accrual for this amount. This transaction
occurred in April 1999.
<PAGE>
NOTE 6--STOCK OPTIONS
In September 1998, the Company adopted the Elgrande.com Inc. 1998 Directors and
Officers Stock Option Plan, a non-qualified plan. This plan allows the Company
to distribute up to 1,000,000 shares of common stock to officers, directors,
employees and consultants through the authorization of the Company's Board of
Directors
In the period ending November 30, 1998, the Company issued 850,000 common stock
shares for the services of consultants. The Company valued these services at
$50,000. The shares issued include negotiation rights and began to vest in
April, 1999 with 20% of shares vesting every six months until the consultants
are fully vested in their shares. See Note 7.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made in
estimating fair value. Risk-free interest rate is 5% and expected life is 5
years. During the year ending May 31, 1999, the Company issued 1,000,000 common
stock options that may be exercised at any time before March 15, 2004 at $1.00
per share. The strike price of these options exceeds the options' minimum value
calculated using the Black-Schole model therefore, no compensation costs have
been recognized pursuant to Financial Accounting Standard No.123.
Following is a summary of the stock options to August 31, 1999.
Weighted
Number Average
of Exercise
Shares Price
Outstanding at 4-8-98 (inception) - $ -
Granted 850,000 0.06
Exercised - -
Forfeited - -
Outstanding at 08-31-99 850,000 $ 0.06
===================== =================
Options exercisable at 08-31-99 170,000 $ 0.06
===================== =================
Weighted average fair value of
options granted during 1998
$ 0.06
=====================
Outstanding at 5-31-99 1,850,000 $0.57
Exercised - -
Forfeited - -
Outstanding at 8-31-99 1,850,000 $0.57
====================== ==================
Options exercisable at 8-31-99 1,170,000 $0.86
====================== ==================
Weighted average fair value of
options granted during 1999
$ 1.00
======================
<PAGE>
NOTE 7 - RELATED PARTIES
- ------------------------
Certain consultants that received common stock under the Company's non-qualified
stock option plan are related to the Company's directors and stockholders. Of
the 850,000 shares issued to consultants, 187,500 shares were issued to family
members of directors who provided services to the Company. See Note 6.
The Company paid $66,000 for legal and consulting services to a company
partially owned by the step-father of one of the directors of Elgrande.com, Inc
in the fiscal period ending May 31, 1999. There have been no such payments in
the period ending August 31, 1999.
During the fiscal period ending August 31, 1999, the Company paid its officers
and directors $111,000 in consulting fees. In the fiscal period ending May 31,
1999 the company paid its officers and directors $249,000 in consulting fees.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Lease Commitments: The Company leases office space in Vancouver, B.C., Canada
from Yaletown Centre Investment Ltd. for $5,620 per month. The lease is
effective from September 1, 1998 to August 31, 2001. The terms of the lease
required the Company to give the lessor a $8,608 refundable security deposit.
Future minimum rental commitments under the operating lease are as follows:
Year Ending May 31, 2000 $ 48,691
Year Ending May 31, 2001 18,623
Year Ending May 31, 2002 4,683
----------
$ 71,997
==========
The Company leases telephone equipment under a capital lease expiring June 23,
2002. The asset and liability under the capital lease is recorded at the lower
of the present value of the minimum lease payments or the fair value of the
asset. Depreciation of the asset under capital lease is included in depreciation
expense at August 31, 1999.
Future minimum lease commitments under capital lease are as follows:
Year Ending May 31, 2000 $ 7,257
Year Ending May 31, 2001 7,977
Year Ending May 31, 2002 8,969
Year Ending May 31, 2003 769
--------
$24,972
========
NOTE 9 - TRANSLATION OF FOREIGN CURRENCY
- ----------------------------------------
The Company has adopted Financial Accounting Standard No. 52. Foreign currency
translation resulted in an aggregate exchange gain of $24,344 for the period
ended August 31, 1999. The Company had recorded this transaction in the
Statement of Stockholders' Equity.
NOTE 10 - CONCENTRATION OF CREDIT RISK FOR CASH HELD AT BANKS
- -------------------------------------------------------------
The Company maintains cash balances at two banks. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation up to $100,000
<PAGE>
NOTE 11 - NOTES PAYABLE
- -----------------------
Short-term: The short-term loan payable of $112,000 is payable upon demand or,
at the option of the noteholder, convertible into common shares of restricted
stock under Rule 144 at $1.00 per share.
Long-term: The Company's long-term debt consists of a note secured by furniture
and computers for $47,000. The terms of this agreement call for a balloon
payment of all principal on November 30, 2000. The Company's management expects
to pay this amount by the due date of the loan, which does not contain a
stipulated rate of interest. Upon origination, the estimated current value of
this debt was $39,543. Imputed interest accrued at 8% per annum from November
30, 1998 to May 31, 1999 was $4,753. This adjustment is made annually, and
accordingly, no adjustment was made in the period ending August 31, 1999.
NOTE 12 - LOANS PAYABLE
- -----------------------
At August 31, 1999, the company had received $525,000 as an installment payment
on a subscription agreement dated July 1, 1999 of $1,000,000 for 200,000 Units
at $5 per Unit. Each unit will consist of one share of common stock and five
warrants entitling the holder to acquire an additional share of common stock at
$6.00; $6.50; $7.00; $8.00; and $10.00 per share. Subsequent to August 31, 1999,
the company received an additional $260,000, for a total of $785,000. The
Company has recorded these subscription proceeds as loans as it is not obligated
to issue the shares or warrants until the subscription is fully paid.
<PAGE>
Item 2 - Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN
THE FORM 10-QSB
OVERVIEW
- --------
Elgrande.com Inc. (the "Company") was incorporated in April 1998 to create a
group of technologies that will collectively be known as the Shop Engine(TM).
The "Shop Engine" is a group of software programs that, when made available to
consumers through a network like the world wide web, enables retail consumers to
purchase products directly from distributors and manufacturers without the
necessity for a retail storefront.
In August, 1998, the Company commenced the creation of a web based contact
management system, which will enable the Company to manage contacts, clients,
and customers located anywhere in the world, through the use of the Internet.
This included the development and deployment of a central data base system,
which will allow the Company to display on its site descriptive web pages of
products available through its fulfillment agency, Baker & Taylor.
Effective June 2, 1999, the company commenced operation of its web site on a
test mode basis. This process is continuing at August 31, 1999 and the company
expects to have a beta launch before the end of the year.
Elgrande.com Inc is a U.S. corporation, located in Nevada, and through a wholly
owned subsidiary, Yaletown Marketing Corp, maintains its' development and
administrative operations and web site development in Vancouver, B.C.
RESULTS OF OPERATIONS
- ---------------------
There are no revenues as of August 31, 1999, nor was there any revenue as at May
31, 1999, as the Company has not as yet activated its web site. The Company
activated its web site for test purposes in June 1999 and expects to have a beta
launch in late fall, 1999.
A summary of expenses for the quarter ending August, 1999 is as follows:
Consulting $ 138,543
Marketing and public relations 210,374
Software and internet fees 154,969
Administration and other 318,150
Depreciation and amortization 29,379
----------
$ 851,415
==========
Marketing charges include payments to company hired to handle all advertising,
design and implementation of marketing program. These payments amount to
$156,000 to August 31, 1999.
The balance of the funds in Marketing related to Investor Communications and
sundry advertising.
<PAGE>
Software costs include database development costs incurred of $150,000 to August
31, 1999. While the company continues to develop this database site, it is
currently identifying and sourcing technology partners to assist in the growth
of our database technology.
Administration costs include payroll costs of $111,000 and general office
expenses of $74,999 to August 31, 1999.
The Company budgeted its cash requirements in order to develop the web based
contact management system, and the central database that holds product data. To
date, costs have been within the established budget, and the company has
sufficient funds to continue this development. The site was activated on June 2,
1999 for test purposes and is planning a beta test launch late fall of 1999.
The Company currently employees 18 people, and 8 consultants under contract,
providing various services.
The Company changed its fiscal year end to May 31, to more properly reflect its
business cycle. The Company filed a 10K report September 5, 1999 and is filing a
10QSB for the period ending August 31, 1999. The previous year-end was November
30.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
To date, the Company has financed its development stage by the sale of common
stock. At August 31, 1999, the Company had 11,118,800 shares outstanding and had
raised $2,488,790. As of August 31, 1999, the Company had received $525,000 in
subscription proceeds pursuant to a subscription agreement dated July 1, 1999
for the purchase of 200,000 units of the Company's stock at $5.00 each. Each
unit consists of one share of common stock and five warrants entitling the
holder to acquire an additional share of common stock at $6.00; $6.50; $7.00;
$8.00; and $10.00 per share. As of October 14, 1999 the Company had received an
additional $260,000 in subscription proceeds. The remaining $215,000 is due on
or before October 31, 1999. The Company has recorded these subscription proceeds
as loans as it is not obligated to issue the shares or warrants until the
subscription is fully paid. These funds were used mainly to develop the database
site, and purchase computer equipment and software. The Company had $361,000 on
hand at May 31, 1999 and expects to continue to raise funds by private
placement.
In August, 1999 the Company also executed an Investment Agreement with Swartz
Equity Private Investment, L.L.C., wherein subject to an effective registration
statement to be filed with the U.S. Securities and Exchange Commission, the
Company will have the right to require Swartz to purchase the Company's common
stock at amounts and prices as set forth in the Investment Agreement. Subject to
all of the terms and conditions, the Company will be able to put shares to
Swartz approximately equal to 15% of the aggregate daily trading volume over a
twenty day period at ninety-three percent of the lowest closing bid price during
the pricing period. The Investment Agreement is for a maximum of $100,000,000
and will be effective for three years from the effective date of the
registration statement. The Company has not yet filed the registration
statement.
On October 6, 1999, the Company's common stock began trading on the OTC Bulletin
Board Market under the symbol "EGND". The Company believes that the existence of
the trading market will have a positive effect upon the Company's ability to
raise capital through the sale of its securities.
The Company maintains cash equivalents with a large Canadian financial
institution and a large U.S. financial institution. Excess cash will be invested
in highly liquid investments that are readily convertible into cash. The Company
has sufficient cash to finance its operations. While staff requirements will
continue to grow, the Company does not anticipate problems in the financing of
this growth and plans to manage its growth based on the timely availability of
funds.
<PAGE>
The inventory database developed to date is in excess of 2,500,000 products,
being books, music, video and software titles.
YEAR 2000 COMPUTER SOFTWARE CONVERSION
- --------------------------------------
All computer equipment owned by the Company has been acquired in the past 12
months. Because this equipment is not considered to be a problem for Year 2000
concern; the same assurance cannot be given for third party equipment for which
the Company has no control.
While the Company is confident that its systems will be compatible, no assurance
can be given that this will not impact the Company's results of operations.
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings: There are no proceedings to report.
Item 2. - Changes in Securities: In July, 1999 the Company entered into a
subscription agreement for 200,000 Units of its securities at $5 per Unit with a
single accredited investor. Each Unit consists of one share of common stock and
five warrants entitling the holder to acquire an additional share of common
stock at $6.00; $6.50; $7.00; $8.00 and $10.00 per share. Pursuant to the terms
of the Subscription Agreement, the investor is required to tender payment to the
Company in installments of not less than $250,000 on or before July 31, 1999; an
additional $350,000 on or before September 30, 1999; and $300,000 on or before
October 31, 1999. As of October 14, 1999, the Company has received a total of
$785,000 pursuant to the Subscription Agreement. The Company is not obligated to
issue any of the securities until the entire purchase price has been paid. The
common stock is entitled to be included in any registration statement the
Company may file with the U.S. Securities and Exchange Commission under which
the shares may be registered for public resale. The Company relied upon the safe
harbor exemption from the registration requirements of the Securities Act of
1933 provided by Regulation S.
Item 3. - Default Upon Senior Securities: There are no defaults to report.
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: None
<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.
EL GRANDE.COM, INC.
Dated: October 21, 1999
/s/ RANDAL PALACH
Randal Palach, President, Chief Executive Officer
<PAGE>
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