UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
For the fiscal year ended May 31, 1999.
ELGRANDE.COM, INC.
(Name of Small Business Issuer in its Charter)
Nevada E.I.N. 88-0409024
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 308, 1040 Hamilton St., Vancouver, B.C., Canada V6B2R9
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(Address of principal executive office) Zip/Postal Code
Registrant's telephone number: (604) 689 0808
SECURITIES REGISTERED UNDER SECTION 12 (b) OF THE ACT: NONE.
SECURITIES REGISTERED UNDER SECTION 12 (g) OF THE ACT:
Title of each class Name of each exchange on which each class is registered
- ------------------- -------------------------------------------------------
Common Stock OTC Electronic Bulletin Board
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 ninety (90) days.
YES ( X ) NO ( )
Check here if there is no disclosure of delinquent filers in response to Item
405 of Regulation SB is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. ( )
There were no operational revenues generated by the issuer for its most recent
fiscal year ending May 31, 1999. Issuer's Common Shares outstanding at August
31, 1999 was 11,118,800. The aggregate market value based on the voting stock
held by non-affiliates as of August 31, 1999 was $33,356,400 (based on
11,118,800 shares outstanding at a price of $3.00), being the most recent
private placement price per share.
Except for the historical information contained herein, the matters set forth in
this Form 10-KSB are forward looking statements within the meaning of the "Safe
Harbor" provision of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to risk and uncertainties that may cause
actual results to differ materially. These forward-looking statements speak only
as of the date hereof and the Company disclaims any intent or obligation to
update these forward-looking statements.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE: Certain exhibits
PART I
Item 1. Business
This Annual Report on Form 10KSB and the documents incorporated herein
by reference contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, and its own expectations
and beliefs as well as certain assumptions made by management. Further details
are included under "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Forward-Looking Statements."
General
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Elgrande.com Inc was incorporated in April 1998 under the laws of the State of
Nevada to invent and establish 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 of having a retail storefront. Third
party manufacturers and primary distributors provide products at or near
wholesale pricing. These products generate revenues in a variety of ways when
applied to different elements in the traditional retail process. The overall
effect of the Shop Engine is to "disintermediate" the retail process by
eliminating certain portions of the process that were traditionally necessary to
bring goods from the Source Company to the end user. This concept represents a
previously unavailable value proposition to consumers across all demographic
categories, in that the elimination of these elements will result in significant
savings for the consumer.
Internet retailers that have emerged through the Internet have to date replaced
traditional "bricks-and-mortar" retail stores with "virtual" versions.
Elgrande.com Inc is the first known enterprise to employ a business model, which
will successfully disintermediate the retail environment. Elgrande is the first
to establish a business model that successfully capitalizes on this fundamental
shift in consumer product economics as a result of the Internet.
Business Strategy
- -----------------
The Elgrande.com Inc business plan strategy calls for a multi-phased
implementation plan that will ultimately derive revenues from at least six (6)
separate sources:
1. Transaction Fees
Elgrande will charge a flat fee of US$1.50 per item sold to retail
users of its Internet web site. This will form the initial revenue
stream for the Company.
2. Licensing Fees
Elgrande will license components of the "Shop Engine" to Internet
Service Providers, existing web retailer, and others who may wish to
establish and/or enhance an e-commerce mechanism on their site.
<PAGE>
3. Banner Advertising and Sponsorship Fees
The Company will market banner ad inventories to corporate clients who
may wish to contract for a shorter term, graphical representations of
their company's products and/or services on certain sections of the
site, or during specific times or events. As well, the Company will
seek contracts with corporate sponsors who will typically sign longer
term deals for exclusive rights to advertise their products and/or
services on sections of the site with specific content, and
subsequently, specific demographic appeal.
4. Supplier Incentives
In certain industries, manufacturers and suppliers will make available
to retailers who have higher volumes of sales, funds to offset and
encourage advertising of their products more prominently.
5. Interest on Supplier Revenues
Elgrande.com Inc, in its capacity as Transaction Service Provider,
will escrow all of the funds that are within its possession as a
result of selling its suppliers' products, for an average duration of
30 to 45 days.
6. Demographic Data Sales
Elgrande.com Inc will market its accumulated demographic data to
marketing organizations and others who may wish to extrapolate
behavioral patterns from the purchasing habits of its customers and
visitors.
The Company has applied for a trademark in the United States, Canada, Europe and
Japan, and is currently negotiating to secure the domain "ShopEngine.com".
The "Shop Engine" was launched on the Company's web site on June 2, 1999. In its
first phase of deployment, the Company will initiate revenues through the sale
of printed matter, music, and videos. Baker and Taylor, Inc, who function as a
fulfillment facility, are shipping these products. The Company has a contract
with Baker and Taylor Inc for fulfillment running to March 2000. Negotiations
are currently underway to amend and extend the contract.
Brand development and advertising have been contracted out to Perich and
Partners of Ann Arbor, Michigan who in turn will develop creative and conceptual
brand elements such as logos, tag lines and service marks.
A study undertaken by the Gartner Group, of San Jose, California, in the fall of
1998, and updated in September '99 indicates that publisher/manufacturer
participation in the "Shop Engine" concept is forthcoming in at least 85% of
respondents surveyed. It is the intention of Elgrande.com Inc to invest
significantly in the education of the manufacturing sector across most product
categories, to accelerate the shift in traditionally accepted product
distribution paradigms that are necessary for the Company to fully integrate its
business model.
The business strategy of Elgrande.com to achieve real disintermediation for the
retail consumer is broken into three phases:
1. The June 2, 1999 launching of the beta test version of Shop Engine at
its Internet site www.elgrande.com. As there is no mark-up for any
sold products, the retail entity has been eliminated.
<PAGE>
2. The second phase, due in the spring of 2000, will have Elgrande
offering products directly from the manufacturer/publisher, as well as
primary distributors.
3. The third, and final phase, will occur in the future when distributors
in the Elgrande model are phased out from the system because all of
the products would be offered directly by the manufacturer. At this
point, the Shop Engine will realize its full potential.
Elgrande.com Inc will be different from its Internet counterparts because they:
Have no inventory
Have competitive and lowest priced Wholesale Pricing
Have deepest Selection
The Elgrande.com Inc system is composed of eight major functions that are all
web-based. They are:
1. Retail Shopping
Retail shoppers will be able to keyword search according to subject,
author, manufacturer, ISBN, description, price, etc or browse through
hierarchical directories logically grouped by subject. They will be
able to select merchandise and accumulate it in a "shopping cart",
which will track the number of items in the cart, their prices, and
will allow the user to edit these variables as they proceed with the
session. When finished, they will be able to compare the prices of the
items they have selected to the prices for the same items at
competitor's sites. Once they are satisfied, they can close the
shopping session and proceed to checkout where delivery and payment
options are selected, and the total price calculated. They are then
prompted for a credit card number, which is transmitted through a
secure connection to the credit card verification service.
The transaction tracking number provided to the shopper will allow
them to return to the web site at any time to determine the precise
status of their order. If this is not satisfactory, the shopper can
then call a toll free number and receive information and assistance
from a live Customer Service Representative. The customer is charged
the wholesale price from the supplier, plus the cost of delivery plus
a flat fee of $1.50 per item.
2. Inventory Database Management
Companies participating in the Elgrande.com Inc system are capable of
maintaining current inventory accuracy on the Elgrande Inventory
Database through any of three ways:
Custom Record Structure Filter
------------------------------
This means the participating supplier company will be capable of
installing the filter on their primary inventory system, and
schedule regular Internet-based data dumps to the Elgrande
servers based on pre-set times, and /or preset number of changes
in their inventory.
<PAGE>
Elgrande Record Structure Filter
--------------------------------
Elgrande has developed a filter/translator that will be deployed
for free to member companies. This filter installs easily onto
the most common inventory database programs and allows the user
to schedule regular Internet-based data dumps to the Elgrande
servers based on pre-set times, and/or preset number of changes
in their inventory.
Manual Update through Internet-based Graphical User Interface
-----------------------------------------------------------------
(GUI)
-----
Suppliers who carry only a few products or who have little
fluctuation in their inventories will be able to connect to an
Elgrande interface through the Internet that will enable them to
manually configure and update product data.
3. Content Management
The pages that are served to shoppers who use the Elgrande service are
generated dynamically from the central database based upon the queries
that the shopper presents to the server in the form of keyword
searches or by drilling down through hierarchical directories. This
does not include the top level pages such as the front page of the
site, the front pages of the other product categories, help screens,
product reviews and other information, which exist statically on the
web server, and are compiled daily, weekly, or several times per year
by live content editors. These editors are for the most part,
employees of Elgrande, and they ensure that the pages required be
refreshed every day, and that all the other pages are configuring
accurately out of the database. This is accomplished through a user
interface much like the Database Management interfaces - password
protected HTML pages that enable certain functions specific to the
task of content management.
4. Banner Ad Placement, Distribution, and Audit Management
The database has been designed to accommodate highly targeted banner
advertising to companies who may wish to advertise at Elgrande.com.
The compilation and accessibility to demographic data across all
functions of the site will allow accurate placement of banner
advertising to target audiences. This will allow Elgrande.com to
charge a premium for advertising space, and enable advertisers to
realize superior response and click-through rates.
5. Fulfillment Management
As Elgrande does not actively handle the merchandise, special
vigilance must be maintained to ensure Elgrande's retail shoppers do
not receive damaged and/or inferior merchandise. The timely
fulfillment by member companies must be monitored proactively to
protect Elgrande's customer base growth. Elgrande has entered into an
agreement with Baker & Taylor to provide fulfillment services and to
accomplish drop shipping. Elgrande has been actively involved with
Baker & Taylor representatives re implementation of their existing EDI
systems with the Elgrande System, and testing is ongoing to ensure
smooth order flow.
<PAGE>
6. Telemarketing and Client Management
Elgrande has established within a central database a listing of some
112,000 companies worldwide who are publishers, manufacturers, or
distribution agents of the type of merchandise Elgrande will be
selling on its web site. Elgrande's own telemarketing division has
begun contacting these companies to obtain their agreement to
participate in the Elgrande System.
7. Customer Service Management
Elgrande has developed a Customer Satisfaction module that will
eventually be staffed twenty-four hours a day, seven days a week with
live Customer Support representatives. These individuals will be well
versed in all aspects of retail shopping on the Elgrande site and can
assist in navigation throughout the site, and answer questions as
required.
8. Demographic Data Mining and Management
All above mentioned functions and the data that they generate will be
indexed and cross-referenced from one large database that will
eventually be dynamically replicated to improve transaction speed and
availability. The interface will enable Elgrande to provide
value-added services to those of its partners who Elgrande deems
necessary to the continuing success of the site.
Marketing
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The marketing strategy of Elgrande.com is predicted on the principals of
"permission marketing", relationship marketing and "one on one" marketing to
increase client companies or consumer traffic to its web site. Elgrande.com
strives to build buyer loyalty, encourage repeat visits and purchases, and
generate incremental product and service revenue opportunities.
To achieve brand recognition, and continued site visitation, Elgrande.com
intends to utilize conventional advertising, including print media, radio and
television. To this end, Elgrande.com has contracted with Perich & Co of Ann
Arbor Michigan to create an intensive and balanced campaign to achieve its
goals.
The recruitment of companies who provide products to sell through the site is
accomplished through direct marketing led by a team of professional marketers
who will contact companies by phone and email. Normal terms offered these
companies includes disk space and the administrative tools to maintain and
update secure inventory data for each company free of charge.
As the Elgrande.com policy is to provide competitive wholesale price to its
client companies, only manufacturers or those entities that otherwise "create"
products will be eligible for participation. Only distribution organizations
that are the sole representative of its product will be eligible for
participation. In this manner, Elgrande.com intends to provide a very economical
method of direct marketing to manufacturers of goods and publishers of
intellectual merchandise.
<PAGE>
Implementation and Deployment
- -----------------------------
The first phase of Elgrande.com's rollout occurred June 2, 1999 when orders were
accepted for the sale of books and music and videos through their principle
supplier/partner, Baker & Taylor Inc. This is being done on a test basis to test
the systems and is being done without the benefit of advertising. Phase 2 of the
Elgrande.com rollout is slated for the spring of 2000. This will include the
introduction of the accumulated product base of the independent publishers that
have signed on as well as the product categories of Toys/Games and Software.
A database with contact information for 112,000 companies worldwide has been
purchased from R.R. Bowker Ltd, the company that purchases "Books to Print".
This database holds most of the world's publishers of software, video, games and
literature. This database is the foundation from which the marketing effort
works, and will be instrumental in creating Elgrande's product base.
Technology
- -----------
McDonald, Harris and Associates of Vancouver administers development of the site
software and a quality assurance check system of the Company's technical systems
and personnel is conducted frequently by an independent third party to ensure
compliance with data specifications and software code integrity. Oracle Inc will
provide additional technology consulting services throughout year 2000.
The Company presently serves files for its web site from a total of six servers
hosted by Pacific Online, Inc. of Vancouver BC. They maintain an OC-3 connection
to the main hub of Internet access in Vancouver. There are two database servers,
two payment servers, and two web servers. The topology is fault tolerant with
all servers featuring hot-swappable RAID level 6 discs and power supplies. The
database servers are running Oracle 8 software. The payment servers are "Wintel"
boxes, and the web servers run UNIX.
The Company maintains continuous performance testing to ensure availability of
all components of the site, and six members of the Elgrande staff are on
twenty-four hour, seven days per week stand-by status to respond to failures of
any point in the technology.
The Company has implemented a broad array of services and systems such as site
management and searches, customer interaction, and transaction processing and
fulfillment by using a combination of its own proprietary technologies and
commercially available licensed technologies.
The Company uses different applications for:
- Accepting and validating customer orders;
- Organizing, placing and managing orders with suppliers (Clients);
- Coordinating shipping arrangements with various transport companies;
- Content and personnel management;
<PAGE>
- Assuring fulfillment of all transactions.
The Company's transaction-processing system will handle millions of items,
numerous different availability statuses, gift-wrapping requests and multiple
shipment methods, and allow the customer to choose whether to receive single or
several shipments based on availability. These applications also manage the
process of accepting, authorizing and charging customer credit cards. In
addition, the Company's systems allow it to maintain ongoing automated email
communications with customers and Clients throughout the ordering process at a
negligible incremental cost. These systems will entirely automate many routine
communications, facilitate management of customer email inquiries and allow
customers to, on a self-service basis:
- Check order status;
- Change their email address or password;
- Check subscriptions to personal notification services.
The Elgrande.com system also incorporates a variety of search and database
tools.
The Company's Shop Engine(TM) system will be fully integrated with its financial
management applications, and will automatically process and track accounts
payable and receivable, thereby enabling the generation of comprehensive
performance reports for the purpose of evaluation and ongoing analysis of system
efficiency.
The Company will expend capital funds on a continuing basis for upgrading its
entire information system infrastructure to ensure viability and complete
financial control of its operations.
Year 2000 Readiness
- -------------------
In January, 1999, the Company completed an initial evaluation of the year 2000
readiness of the information technology systems used in its operations ("IT
Systems") and non-IT Systems, such as building security, voice mail and other
systems. As a result of this survey, it was determined that all of the existing
systems within the Elgrande technical and information infrastructure, were, in
fact, Year 2,000 compliant. In addition, as a result of the preliminary
evaluation, all production server operating systems in use by the Company at
that time which were not deemed year 2000 compliant have been upgraded to year
2000 compliant systems.
The Company is currently undergoing a more comprehensive analysis of the year
2000 readiness of its IT and non-IT systems. This additional analysis covers the
following phases:
1. Identification of Elgrande-owned and third-party IT Systems and non-IT
Systems;
2. Obtaining representations and other assurances from third-party
vendors and licensors of their products' year 2000 readiness;
3. Assessment of any repair or replacement requirements;
4. Repair or replacement;
5. Testing; Implementation; and
6. Creation of contingency plans in the event of year 2000 failures.
The Company believes it is year 2000 compliant.
Employees
- ---------
<PAGE>
At May 31, 1999, the Company employed 26 people, including consultants and
independent contractors. None of the employees are represented by a labor union,
and the Company considers its employee relations to be very good. Competition
for qualified personnel in the Company's industry is intense, especially in
technical areas and software. The Company believes that its future success will
depend in part on its continued ability to attract, hire, and retain qualified
personnel.
Other Factors That May Affect Future Results (Risks)
- ----------------------------------------------------
The following risk factors and other information included in this Annual Report
should be carefully considered when evaluating the Company. The risks and
uncertainties described in the following paragraphs are some of the concerns
faced by the Company but these are not the only risks to be faced. Any of the
following risks could materially and adversely affect the financial condition,
our business, and the future of the Company.
Elgrande.com has a very limited operating history. The Company was incorporated
in April 1998, and has spent the past 12 months assembling personnel, creation
of the database, and assisting in raising capital necessary to implement the
business plan.
The Company's prospects should be judged in light of the risks, expenses, and
difficulties frequently encountered by entry level online commerce companies.
The business model is evolving and unpredictable, and subject to intense
competition. The Company must manage its growth and be able to respond quickly
to rapid changes in customer demands and industry standards. There is no
assurance that the company can address these challenges and risk and succeed.
At May 31, 1999, the Company had an accumulated deficit of $1,208,160 and
further losses are expected. To succeed, the Company must invest heavily in
marketing and promotion in order to achieve brand identification. Although the
Company expects its revenues to grow significantly, the Company will continue to
incur substantial operating losses for the foreseeable future.
Unpredictability of future revenues; potential fluctuations in quarterly
operating results; seasonality.
On June 2, 1999, the Company began testing its Elgrande.com web site. Full
operation of its web site is not expected until the fall of 1999. Accordingly,
the Company has a limited operating history on which to base an evaluation of
its business and prospects. These prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, especially new and evolving markets such as
e-commerce. Such risks include, but are not limited to an evolving and
unpredictable business model and the management of growth. In order to address
these issues, the Company must generate and maintain its customer base,
implement and successfully execute its business and marketing strategy, continue
to develop and upgrade its technology and transaction-processing systems, and
improve its web site. It must also provide superior customer service and order
fulfillment, respond to competitive developments, and attract, retain and
motivate qualified personnel. There can be no assurance that the Company will be
successful in dealing with these risks, and failure to do so could have a
material adverse effect on the Company's business, and results of operations.
<PAGE>
The Company believes that its success will depend largely on its ability to
raise additional capital, solidify its database and its related systems,
establish its brand position, and provide outstanding value and a superior
shopping experience to the customer. Thus, the Company intends to invest heavily
in brand development, marketing and promotion, site development and technology
and operating infrastructure development.
The Company expects to experience significant fluctuations in its quarterly
operating results due to a variety of factors, most of which are outside the
Company's control. Some of these factors are:
- Ability to retain existing customers, attract new customers, and
maintain customer satisfaction;
- Ability to manage transaction and fulfillment operations;
- Announcement or introduction new sites, services and products by the
Company and its competitors, price competition or higher wholesale
prices in the industry;
- Because of the limited operating history, unpredictability of future
revenues, and the emerging nature of the markets, it is difficult to
accurately forecast its revenues. Revenue depends on timing and
ability to fulfill orders received, which is difficult to forecast.
The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall;
- The level of use of the internet and online services and increasing
consumer acceptance of the internet and other online services for the
purchase of consumer products such as those offered by the Company;
- The level of traffic on the Company's website;
- Technical difficulties, system downtime or internet outages;
- Government regulations;
- Ability of Company to upgrade and develop its systems and
infrastructure and attract new personnel in a timely and effective
manner;
- General economic conditions and economic conditions specific to the
internet, and online commerce;
- Seasonal fluctuations are expected in its business, reflecting a
combination of fluctuations in Internet usage and traditional retail
patterns. Internet usage and the rate of Internet growth may be
expected to decline in the summer. As well, retail book sales are
significantly higher in the fourth calendar quarter of each year.
Reliance on Internally Developed Systems & System Development Risks.
- --------------------------------------------------------------------
The Company uses an internally developed system for its web site, search engine
and substantially all aspects of transaction processing, including order
management, cash and credit card processing, purchasing, inventory management
and shipping. The Company intends to upgrade and expand its
transaction-processing systems and to integrate newly developed and/or purchased
modules with its existing systems in order to improve its accounting, control
and reporting methods and support increased transaction volume.
The Company's inability to:
- Add additional software and hardware;
- Develop and upgrade further its existing technology and transaction
processing systems;
- Network infrastructure to accommodate increased traffic on its web
site;
- Increased sales volume through its transaction-processing systems;
<PAGE>
May cause:
- Unanticipated system disruptions;
- Slower response times;
- Degradation in levels of customer service;
- Impaired quality and speed of order fulfillment;
- Delays in reporting accurate financial information.
In addition, although the Company works to prevent unauthorized access to
Company data, it is impossible to completely eliminate this risk. There can be
no assurance that the Company will be able in a timely manner to effectively
upgrade and expand its transaction-processing system or to integrate smoothly
any newly developed or purchased modules with its existing systems. Any
inability to do so would have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
System Failure.
- ---------------
Substantially all of the Company's computer and communications hardware is
located at a single leased facility in Vancouver, British Columbia. The
Company's ability to successfully receive and fulfill orders and provide high
quality customer service largely depends on the efficient and uninterrupted
operation of its computer and communications hardware systems. The Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events.
The Company does not presently have redundant systems or a formal disaster
recovery plan and does not carry sufficient business interruption insurance to
compensate it for losses that may occur. Its servers are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions, delays, loss
of data or the inability to accept and fulfill customer orders. The Company has
implemented security measures but the above concerns still exist.
Rapid Technological Changes.
- ----------------------------
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionally and features of the Elgrande.com online service.
The Internet and the online commerce industry are characterized by:
- Rapid technological change;
- Changes in user and customer requirements and preferences;
- The emergence of new industry standards and practices.
These could render the Company's existing web site and propriety technology and
systems obsolete.
The Company's success will depend, in part, on its ability to license leading
technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied
needs of its prospective customers. They must also respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis. The development of web site and other proprietary technology
entails significant technical and business risks. There can be no assurance that
the Company will
<PAGE>
successfully use new technologies effectively or adapt its web site proprietary
technology and transaction-processing systems to customer requirements or new
emerging industry standards.
If the Company is unable to adapt in a timely manner to technical, legal, and
financial to changing market conditions or customer requirements, its business,
prospects, financial condition and results of operations would be materially
adversely affected.
Online Commerce Security Risks.
- -------------------------------
The Company relies on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary to effect
secure transmission of confidential information, such as customer credit card
numbers. Secure transmission of confidential information over public networks is
a significant barrier to online commerce and communications.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
reputation, business, prospects, financial condition and results of operations.
The Company may be required to expend significant capital and other resources to
protect against such security breaches or to alleviate problems caused by such
breaches. There can be no assurance that the Company's security measures will
prevent security breaches or that failure to prevent such security breaches will
not have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Risks Associated with Entry into New Business Areas.
- ----------------------------------------------------
The Company may choose to expand its operations by developing new web sites,
promoting new or complementary products or sales formats, expanding the breadth
and depth of products and services offered or expanding its market presence
through relationships with third parties. In addition, the Company may pursue
the acquisition of new or complementary businesses, products or technologies,
although it has no present understandings, commitments or agreements with
respect to any material acquisitions or investments.
There can be no assurance that the Company would be able to expand its efforts
and operations in a cost-effective or timely manner or that any such efforts
would increase overall market acceptance. Furthermore, any new business or web
site launched by the Company that was not favorably received by consumers could
damage the Company's reputation or the Elgrande.com brand.
Expansion of the Company's operations in this manner would also require
significant additional expenses and development, operations and editorial
resources and would strain the Company's management, financial and operational
resources. The lack of market acceptance of such efforts or the Company's
inability to generate satisfactory revenues from such expanded services or
products to offset their cost could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Key & Additional Personnel.
- ----------------------------
<PAGE>
The Company does not have long-term employment agreements with any of its key
personnel and maintains no "key man" life insurance policies. The Company's
future success also depends on its ability to identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial, editorial,
merchandising, marketing and customer service personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will he
able to successfully attract, assimilate or retain sufficiently qualified
personnel. The failure to retain and attract the necessary technical,
managerial, editorial, merchandising, marketing and customer service personnel
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Competition.
- ------------
The online commerce market is new, rapidly evolving and intensely competitive,
with competition that will intensify in the future. Barriers to entry are
minimal, and current and new competitors can launch new sites at a relatively
low cost. In addition, the retail intellectual merchandise industry is intensely
competitive.
The Company currently competes with a variety of other companies. These
competitors include carious online booksellers and vendors of other
information-based products such as CDs and Videotapes, Software, etc including
Amazon.com and a number of indirect competitors that specialize in online
commerce or derive a substantial portion of their revenues from online commerce.
Companies such as American Online, Inc. (AOL), Yahoo, and Microsoft Corp, may
offer products, and retail vendors of books, music and videotapes, including
large specialty booksellers, with significant brand awareness, sales volume and
customer bases, such Barnes & Noble.
As well, Barnes & Noble, Borders Group, Inc. and Amazon, have all announced
intentions to devote substantial resources to online commerce in the near
future.
The Company believes that the principal competitive factors in its market are
brand recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of editorial
and other site content and reliability and speed of fulfillment. Many of the
Company's potential competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than the Company.
Some of the Company's competitors may be able to secure merchandise from vendors
on more favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss of
market share and a diminished brand franchise.
There is no assurance that the Company will be able to compete successfully
against current and future competitors, and competitive pressures faced by the
Company may have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. Further, as a strategic response
to changes in the competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions or acquisitions that could
have a material adverse effect on its business, prospects, financial condition
and results of operations. New technologies and the expansion of existing
technologies may increase the competitive pressures on the Company. As well,
companies that control access to transactions
<PAGE>
through network access or web browsers could promote the Company's competitors
or charge the Company a substantial fee for inclusion.
Trademarks and Proprietary Rights.
- ----------------------------------
The Company has applied for trademarked "Shop Engine(TM)", "Elgrande.com(TM)"
and will actively protect and police the use of its service marks, trademarks,
trade dress, trade secrets and similar intellectual property as critical to its
success. It also relies on trademark and copyright law, trade secret protection
and confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights.
The Company will pursue the registration of its trademarks and service marks in
the U.S. and internationally. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which the
Company's products and services are made available online. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate or that third parties will not infringe or misappropriate the
Company's copyrights, trademarks, trade dress and similar proprietary rights. As
well, there is no assurance that other parties will not assert infringement
claims against the Company.
Risk of Year 2000 non-compliance.
- ---------------------------------
While the Company is satisfied with its review of its "IT Systems" and its
non-IT Systems, such as building security, voice mail, etc, it cannot guarantee
that the systems of suppliers or other companies on which Elgrande.com relies
will be Year 2000 compliant. Their failure to convert their systems could
disrupt our systems. In addition to this, the computer systems used by our
customers to access our online stores may not be Year 2000 compliant. This would
delay customer purchases on the Elgrande site. The Company cannot guarantee that
its system will be Year 2000 compliant or that the Year 2000 problem will not
adversely affect its business.
Government Regulation and Legal Uncertainties.
- ----------------------------------------------
The Company is not currently subject to direct regulation by any domestic or
foreign government agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet and
other online services, it is possible that a number of laws and regulations may
be adopted with respect to such issues as user privacy, pricing, content,
copyrights, distribution, quality of products and services.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet or
other online services. This could in turn decrease the demand for the Company's
products and services and increase the Company's cost of doing business, or
otherwise have an adverse effect on the Company's business, prospects, financial
condition and results of operations. Issues such as property ownership, sales
tax, libel and personal privacy is uncertain and may take years to resolve. New
legislation, regulation and application of laws from jurisdictions whose laws do
not currently apply to the Company's business could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
<PAGE>
Item 2. Property
Elgrande.com has leased office space in the Yaletown area of Vancouver BC since
commencing operations in September 1998. The Yaletown area is the emerging
technical area in Vancouver, where talent of the type required by the Company is
generally present. The offices occupy approximately 5,000 square feet at a cost
per month of $5,700U.S. The offices have been equipped with a Local Area Network
and sufficient computer workstations and other peripheral equipment to
accommodate operations. T-1 access to the Internet is provided by MetroNet
Communications. The Company does not own any real estate as at May 31, 1999.
Additionally, the Company anticipates that it will require more additional
office space within the next 12 months. There can be no assurance that there
will be suitable additional space on commercially reasonable terms.
Item 3. Legal Proceedings
There are no legal proceedings outstanding at May 31, 1999 nor is the Company
aware of any contemplated legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of stockholders in the period ending May
31, 1999 .
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Market Information
- ------------------
An application has been made for listing the Company's common stock on the
National Association of Securities Dealers, Inc., OTC Electronic Bulletin Board
under the symbol "EGND". As of August 31, 1999 the common stock has not yet been
approved for trading though the Company believes it has supplied the
broker-dealer making the application with all information requested by NASD
Regulation. The last price at which the Company sold its common stock was $3.00
per share in April, 1999.
Holders
- --------
As of August 31, 1999, there were approximately 215 stockholders of record of
the common stock. At August 31, 1999 there were 11,118,800 common shares
outstanding and the restricted stock amounted to 4,875,000 common shares.
Dividends
- ---------
The Company has never declared or paid cash dividends on its common stock. The
Company intends to roll all future earnings into the financing of future growth
and accordingly, does not anticipate paying cash dividends in the foreseeable
future. There are no restrictions on the Company regarding the payment of
dividends.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
- ---------------------------
Elgrande.com Inc's annual report as reflected on Form 10-KSB includes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. This Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as
forward looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact made in this
Annual Report on Form 10-KSB are forward looking. Forward-looking statements
reflect management's current expectations and are inherently uncertain. The
Company's actual results may differ significantly from management's
expectations.
Results of Operations
- ----------------------
There was no revenue recorded regarding the sale of books, music and other
products intended to be sold by the Company, as the site was not available for
testing until June 2, 1999. When the site is fully online, it will generate
revenues from transaction fees, banner advertising, licensing fees, sponsorship
fees and supplier incentives. The Company will not carry inventory and
accordingly, will not have conventional cost of sales.
Expenses
- --------
Consulting fees include fees paid to independent contractors who assist the
company is its development and fees paid to Macdonald Harris and Associates, who
are under contract to create a commercial web site and associated database to
facilitate Elgrande.com Inc's electronic commerce activities located at the
domain name elgrande.com. This contract is in effect until March 2000, and is
paid monthly.
Marketing fees include funds expended for brand development, market research,
and payroll expenses. The Company expects to significantly and aggressively
increase its branding development, including print, radio and television
advertising.
Consulting fees consist of funds paid to numerous people re startup of the
Company, personnel utilized prior to establishment of a payroll system, and
experts engaged from media, marketing, and financial consulting entities to
assist in the startup of Elgrande.com Inc.
Legal and Professional fees represents funds extended for legal and accounting
assistance.
General and administrative expenses include rent, office, telecommunications,
payroll, and numerous incidental items.
Production costs include in-house software development, and web-page development
costs incurred by Elgrande.com staff.
The expenses for the year include depreciation and amortization expenses of
$16,000.
Liquidity and Capital Resources
- --------------------------------
<PAGE>
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 approximately $2,000,000. These funds were used mainly to develop the
database site, and purchase computer equipment and software and finance the
administrative startup costs incurred to date. The Company has $371,266 on hand
at May 31, 1999 and expects to continue to raise funds by private placement.
As the Company has not yet established a revenue stream, it must finance its
operation by way of either a private placement/and or public placement
financing. The Company has raised approximately $2,000,000 to date and expects
to continue to obtain necessary operating funds in this manner.
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 any problems
in the financing of this growth.
The inventory database developed to date is in excess of 2,500,000 products,
being books, music, video and software titles.
The working capital position of the Company at May 31, 1999 was $262,750.
Included in current liabilities was the sum of $112,000. This obligation has
conversion features attached to it whereby the debtor has the option to December
31, 1999 to convert this debt to common shares of Elgrande.com Inc at $1.00 per
share. Indications are that this will occur and the working capital would
accordingly be adjusted upward to $374,750.
At the present time, the principal source of funds for Elgrande.com Inc is
through the sale of common stock by private placement. The Company expects to
continue in this fashion throughout the next fiscal year.
Item 7. Financial Statements and Supplementary Data
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Consolidated Financial Statements
May 31, 1999
November 30, 1998
WILLIAMS & WEBSTER PS
Certified Public Accountants
Seafirst Financial Center
W 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Comprehensive Loss 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6
<PAGE>
Board of Directors
Elgrande.com Inc.
1040 Hamilton Street
Vancouver, British Columbia
Canada V6B 2R9
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of Elgrande.com
Inc. (a development stage company) as of May 31, 1999 and November 30, 1998 and
the related consolidated statements of operations and comprehensive loss, cash
flows, and stockholders' equity for the years then ended and for the period from
April 8, 1998 (inception) through May 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Elgrande.com Inc. as of May 31,
1999, and November 30, 1998, and the results of its operations and its cash
flows for the period from April 8, 1998 (inception) to May 31, 1999, in
conformity with generally accepted accounting principles.
As discussed in Note 2, the Company has been in the development stage since its
inception on April 8, 1998, has no revenues, and has accumulated substantial
losses. Realization of a major portion of the assets is dependent upon the
Company's ability to meet its future financing requirements, and the success of
future operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding those
matters are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 26, 1999
1.
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
ASSETS 1999 1998
------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 371,266 $ 236,350
Employee expense advances 18,920 -
GST tax refundable 9,657 -
Prepaid expenses 51,401 -
------------- -----------
TOTAL CURRENT ASSETS 451,244 236,350
PROPERTY AND EQUIPMENT
Computer hardware 82,292 38,407
Furniture and fixtures 53,497 20,878
Database and software 408,370 296,408
Less accumulated depreciation and amortization (19,522) (2,160)
------------- -----------
TOTAL PROPERTY AND EQUIPMENT 524,637 353,533
------------- -----------
OTHER ASSETS
Deposits 43,460 3,600
Organizational costs, net of amortization - 100,715
------------- -----------
------------- -----------
TOTAL OTHER ASSETS 43,460 104,315
------------- -----------
TOTAL ASSETS $ 1,019,341 $ 694,198
============= ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,976 $ 234,189
Accounts payable, related party 25,000 -
Accrued liabilities 8,450 -
Accrued interest 5,811 529
Stock over-subscription payable 112,000 90,000
Current portion of long-term debt 7,257 -
------------- -----------
------------- -----------
TOTAL CURRENT LIABILITIES 188,494 324,718
------------- -----------
LONG-TERM DEBT
Lease, net of current portion 17,516 -
Note payable, net of current portion 39,543 39,543
------------- -----------
------------- -----------
TOTAL LONG-TERM LIABILITIES 57,059 39,543
------------- -----------
TOTAL LIABILITIES 245,553 364,261
------------- -----------
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 10,794
Additional paid-in capital 1,952,671 1,027,996
Subscriptions receivable - (538,050)
Deficit accumulated during development stage (1,208,160) (170,803)
Accumulated other comprehensive income 18,158 -
------------- -----------
-------------
TOTAL STOCKHOLDERS' EQUITY 773,788 329,937
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,019,341 $ 694,198
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2.
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Year Year April 8, 1998
Ended Ended (Inception)
May 31, November 30, Through
1999 1998 May 31, 1999
---------------- -------------- ----------------
<S> <C> <C> <C>
R E V E N U E S $ - $ - $ -
---------------- -------------- ----------------
E X P E N S E S
Consulting fees 457,498 - 457,498
Marketing and public relations 156,717 18,217 174,934
Legal and professional fees 117,090 107,028 224,118
Travel and entertainment 104,479 5,224 109,703
Salaries 59,375 - 59,375
Office and administration 40,104 6,208 46,312
Rent 27,799 9,965 37,764
Communication 27,386 2,669 30,055
Software and internet services 23,781 11,568 35,349
Depreciation and amortization 16,015 7,445 23,460
Production and programming - 1,950 1,950
----------------
---------------- -------------- ----------------
TOTAL OPERATING EXPENSES 1,030,244 170,274 1,200,518
---------------- -------------- ----------------
NET LOSS FROM OPERATIONS (1,030,244) (170,274) (1,200,518)
OTHER INCOME AND (EXPENSES)
Interest expense (7,113) (529) (7,642)
---------------- -------------- ----------------
NET LOSS (1,037,357) (170,803) (1,208,160)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain 18,158 - 18,158
---------------- -------------- ----------------
COMPREHENSIVE LOSS $ (1,019,199) $ (170,803) $ (1,190,002)
================ ============== ================
NET LOSS PER COMMON SHARE $ (0.0955) $ (0.0181) $ (0.1203)
================ ============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 10,865,550 9,436,725 10,045,900
================ ============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3.
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
----------------------- Accumulated
Additional Other Total
Number Paid-in Subscribtions Accumulated Comprehensive Stockholders'
of Shares Amount Capital Receivable Deficit Income Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<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 period ending,
November 30, 1998 - - - - (170,803) - (170,803)
------------- --------- ----------- ---------- ----------- -------- -----------
Balance
November 30, 1998 10,793,800 10,794 1,027,996 (538,050) (170,803) - 329,937
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 year ending
May 31, 1999 - - - - (1,037,357) - (1,037,357)
Foreign translation gain - - - - - 18,158 18,158
============= ========= =========== ========== =========== ======== ===========
Balance, May 31, 1999 $ 11,118,800 $ 11,119 $ 1,952,671 $ - $(1,208,160) $ 18,158 $ 773,788
============= ========= =========== ========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4.
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Year April 2, 1998
Ended Ended (Inception)
May 31, November 30, Through
1999 1998 May 31, 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,037,357) $ (170,803) $ (1,208,160)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 16,015 7,445 23,460
Services paid by issuance of common stock 25,000 50,000 75,000
Increase in:
Employee advance receivable (18,920) - (18,920)
Other assets (19,123) - (19,123)
Accounts payable, related party 25,000 59,989 84,989
Accured liabilities 8,450 - 8,450
Accrued interest 4,753 529 5,282
Decrease in:
Accounts payable (179,440) - (179,440)
--------------
-------------- ------------ --------------
Net cash provided (used) in operating activities (1,175,622) (52,840) (1,228,462)
-------------- ------------ --------------
Cash flows from investing activities:
Purchase of property and equipment (167,670) (141,950) (309,620)
Deposit on leased property - (3,600) (3,600)
Payment on organizational costs - (106,000) (106,000)
-------------- ------------ --------------
Net cash used in investing activities (167,670) (251,550) (419,220)
Cash flows from financing activities:
Over-subscriptions payable 22,000 90,000 112,000
Issuance of stock 1,438,050 450,740 1,888,790
-------------- ------------ --------------
1,460,050 540,740 2,000,790
Net increase in cash 116,758 236,350 353,108
Foreign gain translation 18,158 18,158
Cash, beginning of period 236,350 - -
-------------- ------------ --------------
Cash, end of period $ 371,266 $ 236,350 $ 371,266
============== ============ ==============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ 1,829 $ - $ 1,829
============== ============ ==============
============== ============ ==============
Income taxes $ - $ - $ -
============== ============ ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing lease for equipment $ 26,274 $ - $ 26,274
Note issued for purchase of property and equipment $ - $ 39,543 $ 39,543
Purchase commitment for database $ - $ 174,200 $ 174,200
Services paid by issuance of stock $ 25,000 $ 50,000 $ 75,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
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, which
provides 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 May 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
which 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 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 $1,037,357 and $170,803 for the periods ended May 31, 1999 and November
30, 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.
6.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 May 31, 1999, the Company had net operating accumulated loss of approximately
$1,208,000. 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.
7.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 to seven years. The following
is a summary of property, equipment and accumulated depreciation and
amortization:
May 31, 1999 November 30, 1998
------------ -----------------
Computers $ 82,292 $38,407
Furniture and fixtures 53,497 20,878
Database 408,370 296,408
--------- ---------
Total assets $554,159 $355,693
Less accumulated depreciation
And amortization (19,522) (2,160)
--------- ---------
$524,637 $353,533
========= =========
Depreciation and amortization expense for the year ended May 31, 1999 was
$16,015.
NOTE 4 - INTANGIBLE ASSETS
During the year ended November 30, 1998, Elgrande.com Inc. incurred organization
costs of $106,000. These organization costs were being amortized over the useful
life of sixty months beginning September 1, 1998. During the period ending
November 30, 1998, $5,285 was recorded as amortization of organization costs. In
accordance with SOP 98-5 (effective for fiscal years beginning after December
15, 1998), the Company has written off its organization costs, in the year
ending May 31, 1999, thereby incurring a charge of $106,000.
The Company has capitalized $408,370, which 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. 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.
8.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
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 November 30, 1998, $538,050 in stock subscriptions were receivable and
subsequently $491,305 of this was received by January 11, 1999. The balance of
$46,745 was collected by April 1999.
At May 31, 1999 the Company's third stock offering was over-subscribed by
$112,000 and at November 30, 1998 the Company's second stock offering was
over-subscribed by $90,000. These amounts were recorded on the Company's balance
sheets as a current liabilities. The overage of $90,000 was repaid to
subscribers in December 1998. The overage of $112,000 has subsequently been
converted to a loan. See Note 11.
At May 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.
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 will begin 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.
9.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
NOTE 6--STOCK OPTIONS (CONTINUED)
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 and therefore, no compensation costs
have been recognized pursuant to Financial Accounting Standard No.123.
Following is a summary of the stock options during 1998 and 1999.
Weighted
Average
# of Exercise
Shares Price
Outstanding at 4-8-98 (inception) - $ -
Granted 850,000 $0.06
Exercised - -
Forfeited - -
Outstanding at 11-30-98 850,000 $0.06
================= ==================
Options exercisable at 11-30-98 - -
================= ==================
Weighted average fair value of
options granted during 1998
$0.06
=================
Outstanding at 12-01-98 850,000 $0.06
Granted 1,000,000 1.00
Exercised - -
Forfeited - -
Outstanding at 5-31-99 1,850,000 $0.57
================= ===================
Options exercisable at 5-31-99 1,170,000 $0.86
================= ===================
Weighted average fair value of
options granted during 1999
$1.00
=================
10.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
NOTE 7 - RELATED PARTIES
Certain consultants which 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 that is
owned by the step-father of one of the directors of Elgrande.com, Inc.
During the year 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 $73,219
Year Ending May 31, 2001 28,170
Year Ending May 31, 2002 7,042
---------
$102,091
The Company is the lessee of 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 May 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
11.
<PAGE>
ELGRANDE.COM INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
For the Years Ending May 31, 1999 and
November 30, 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Database Development
- --------------------
The Company's purchase commitment for services to develop a database at November
30, 1998 totaled $247,000, of which $72,800 was paid in 1998 and the balance of
$174,200 was paid by March 1999. As of November 30, 1998, the Company considered
the majority of these services payable and accrued the balance owed of $174,200
as part of accounts payable.
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 $18,158 for the year ended
May 31, 1999. The Company had recorded this transactions 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. At May
31, 1999 the cash balance at one institution exceeded this insured amount by
$190,234.
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 and interest accrued from September 15, 1998 to November 30,
1998 was $529.
12.
<PAGE>
Item 8. Changes and Disagreements with Accountants on Accounting and Financial
Statement Disclosure: None
<PAGE>
Part III
Item 9. Directors and Executive Officers of the Registrant
Name Age Position Year Began
- --------------------------------------------------------------------------------
Randal Palach 48 President and CEO
and Director 1999
James R. West 35 Chief Information Officer 1998
and Chairman of the
Board of Directors
Robert G. Dinning C.A. 60 Chief Financial Officer 1998
Michael T. Page 31 Chief Operating Officer
and Director 1998
Mariusz Girt 29 Chief Technology Officer
and Director 1998
Carlton M. Parfitt B.Sc. 32 V-P Marketing and Director 1998
Dennis Brovarone 43 Director, General Counsel 1999
RANDAL PALACH. Mr. Palach was appointed President and CEO April 5, 1999. During
1998 to April 1999 Mr. Palach was President of Astral Communications Inc., North
York, Ontario, a national distribution company servicing 4,000 clients in the
entertainment industry. He was responsible for the profitability and operating
performance of the recognized leader in this industry. Major accounts included
Blockbuster and Sears; major studios included Disney, Universal, 20th Century
Fox, Universal, Paramount and Columbia Tri-Star and major labels included Sony,
Polygram, MCA, EMI, BMG, and Warner. From 1993 to 1998, Mr. Palach was President
of ITW Canada and President of Signode North American Distribution. He was
responsible for the supply chain management of consumer and industrial packaging
related products sold globally. He also implemented a major restructuring of the
North American distribution network, and led several acquisitions. Locations
- -Toronto, Ontario; Chicago, Ill; and Charlotte, N.C.
JAMES R. WEST. Mr. West is a founder of the Company and is the Chief Information
Officer. He was appointed Chairman of the Board of Directors in April 1999. From
June 1996 to September 98, Mr. West was President of Intellicom Canada
Communications, Inc., Vancouver, British Columbia specializing in the
translation of marketing, public and investor relations documents into
graphically enhanced world wide web pages for corporate clients. From January
1993 to June 1996, Mr. West was the owner/operator of Jim West Design, a sole
proprietorship specializing in corporate logo-graphic design and copywriting.
ROBERT G. DINNING C.A. Mr. Dinning is a Chartered Accountant, and member in good
standing of the Alberta and Canadian Institute of Chartered Accountants. Mr.
Dinning has operated his own Business and Management Consulting business since
1977, in the forestry, mining, and software/high tech industries. Mr. Dinning
has been active as a Director and Officer in various public companies over the
past 25 years. Prior to commencing his consulting business, Mr. Dinning was CFO
and Secretary of Western Communications Ltd., a large publicly traded broadcast
and sports Entertainment Company.
<PAGE>
MICHAEL PAGE: Mr. Page is a founder of the Company and was its President until
April 1999 when he assumed the position of Chief Operating Officer. From March,
1997 to March, 1998 Mr. Page served as president of Strategic Financial Corp.,
Langley, British Columbia, public relations firm. From October 1995 to August
1996, Mr. Page was a public relations consultant with Axion Communications,
Vancouver, British Columbia. From April 1992 to September 1995, Mr. Page was the
President and chief editor of Hammer Publishing Corp., Surrey, British Columbia
where he developed and oversaw the marketing of an annual tourist publication as
well as a quarterly in-flight magazine for Central Mountain Air.
MARIUSZ GIRT: Mr. Girt joined the Company in October 1998 as project manager for
the Company's computer systems and was appointed a Director June 10th 1999. Mr.
Girt is responsible for all technical aspects of the Elgrande.com Inc
infrastructure. From March 1998 to October 1998 Mr. Girt was a software testing
engineer with Microsoft Corporation, Redmond, Washington where he planned
network scenarios simulating real time environments for new product testing.
From June 1997 to February 1998 Mr. Girt was the manager of network and computer
systems for Strategic Financial Corporation, Langley, British Columbia. Mr. Girt
was an Information Technology Consultant with Microbell Network Solutions of
Vancouver, British Columbia from September 1995 to May 1997 with responsibility
for its network and computer systems. Mr. Girt attended the British Columbia
Institute of Technology and completed its computer science program specializing
in Network Security, TCP/IP, Routing, and Network Topologies related to Local
and Wide Area Networks.
CARLTON J. PARFITT: Mr. Parfitt is a founder of the Company. Mr. Parfitt is
responsible for the development and implementation of the Company's marketing
plan. From July 1997 to May 1998, Mr. Parfitt was a Vice President of Marketing
and Sales for New Vision Entertainment, Tokyo, Japan, a television and
multimedia content Distribution Company. From June 1995 to June 1997, Mr.
Parfitt was a Special Assistant to the President of Mori & Associates, Tokyo,
Japan, an international business consultant. From January 1993 to January 1995,
Mr. Parfitt was the president of the Food for All Foundation, a non-profit
organization. From January 1992 to December 1992, Mr. Parfitt was a Research
Scientist engaged in software development for CTF Systems, Inc., Port Coquitlam,
British Columbia. Mr. Parfitt graduated from Simon Fraser University, Vancouver,
British Columbia in 1991 with a degree in Physics.
DENNIS BROVARONE. Mr. Brovarone acts as legal counsel for the Company and is a
member of the Board of Directors. Mr. Brovarone Mr. Brovarone, 43, has been
practicing corporate and securities law since 1986 and as a sole practitioner
since 1990. He serves as a Director of Innovative Medical Services, a publicly
held corporation located in San Diego, California since April 1996. Since
December 1997 he has served as the President and Chairman of Board of Directors
of Ethika Corporation, a publicly held corporation located in Westminster,
Colorado. Since June 1999, Mr. Brovarone also serves as a Director of Holter
Technologies Holdings, AG, a publicly held corporation headquartered in
Calabasas, California and Dusseldorf, Germany. Prior to 1990, Mr. Brovarone
served as in-house counsel to R.B. Marich, Inc.; a Denver, Colorado based
brokerage firm.
<PAGE>
Family Relationships: Elise West, the mother of James West, Kendall Page, the
sister of Michael Page, Sonja Parfitt and Anthony Parfitt, the mother and
brother of Carlton Parfitt are employed by the Company in its marketing
department. In September 1998, Elise West, Kendall Page and Sonja Parfitt were
each issued 50,000 shares of the Company's common stock and Anthony
Parfitt was issued 37,500 shares as compensation for their services. These
shares begin vesting at 20% as of April 1, 1999 and an additional 20% every six
months thereafter so long as services are continued with the Company.
Involvement in Certain Legal Proceedings: There are no legal proceedings to
report.
Compliance with Section 16 Reporting:
The above named Executive Officers and Directors failed to timely file Forms 3
Initial Statement of Ownership and Form 5 Annual Statement of Ownership. None of
the above named Executive Officers have entered into transactions requiring the
filing of a Form 4 Changes in Ownership. All holdings of common stock and
options to acquire common stock are accurately reported herein.
Item 10. Executive Compensation
(a) Summary Compensation Table:
Name & Position(1) Year Salary Paid
- ---------------------------------------------------------
Randal Palach 1999 $16,625
President and CEO
James West 1999 $35,900
Chairman & CIO
Robert Dinning 1999 $17,600
Michael Page 1999 $35,900
President, COO
Carlton Parfitt 1999 $26,800
(1) No Executive Officer is paid a total annual salary, including
bonuses in excess of $100,000.
(b) Option/SAR Grants in Last Fiscal Year (Individual Grants)
# Shares
Name Date Granted Date Expires under Option Ex. Price
R. Palach 05/15/1999 05/11/2004 200,000 $1.00
R. Palach 06/11/1999 06/11/2004 800,000 $3.00
J. West 06/11/1999 06/11/2004 1,000,000 $3.00
M. Page 06/11/1999 06/11/2004 1,000,000 $3.00
<PAGE>
C. Parfitt 06/11/1999 06/11/2004 1,000,000 $3.00
M. Girt 06/11/1999 06/11/2004 200,000 $3.00
D. Brovarone 06/11/1999 06/11/2004 150,000 $3.00
The Company has two Stock Option Plans. The 1998 Directors and Officers Stock
Option Plan" was adopted on September 23, 1998 and the 1999 Stock Option Plan
was adopted on June 11, 1999. The purpose of the Plans is to advance the
business and development of the Company and its shareholders by affording to the
employees, directors and officers of the Company the opportunity to acquire a
proprietary interest in the Company by the grant of Options to such persons
under the Plan's terms. The 1998 Plan reserved 1,000,000 shares for grant or
issuance upon the exercise of options granted under the plan. The 1999 Plan
reserved 5,000,000 shares for grant or issuance upon the exercise of options
granted under the plan.
(c) Aggregated Option/SAR Exercises in Last Fiscal Year and FY-end Option/SAR
Values : None
(d) Long-term Incentive Plans -- Awards in Last Fiscal Year: None
The Company has not otherwise awarded any stock options, stock appreciation
rights or other form of derivative security or common stock or cash bonuses to
its executive officers and directors.
(e) Compensation of Directors
1. Standard Arrangements: The members of the Company's Board of Directors
are reimbursed for actual expenses incurred in attending Board
meetings.
2. Other Arrangements: There are no other arrangements.
(f) Employment Contracts And Termination of Employment, And Change-in-control
Arrangements
The Chairman, and Chief Information Officer, James West is subject to an amended
two year consulting contract at a salary of $79,800US per annum. The Company's
Chief Operations Officer, Michael Page is subject to an amended two year
consulting contract at a salary of $79,800US per annum. The consulting contract
became effective in September 1998. The Company's Chief Financial Officer,
Robert Dinning, is subject to an amended two year consulting contract at a
salary of $71,800 per annum. Secretary / Treasurer, Carlton Parfitt is also
subject to an two year consulting contract at a salary of $53,265US per annum.
The consulting contract became effective in September 1998. The Company's
President and Chief Executive Officer, Randall Palach is subject to a six month
consulting contract beginning April 1, 1999 at a salary of $8,218.75US per
month. The Chief Technology Officer, Maruisz Girt is subject to an amended
consulting contract at a salary of $59,800 US per annum. Dennis Brovarone, the
Company's General Counsel beginning April 1, 1999 receives a $4,000 US per month
retainer terminable by the Company on thirty days notice.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners holding five percent
or greater of the 11,118,800 shares of common stock outstanding as of
August 31, 1999.
Title of Name and Address(1) Amount and Nature % of
Class of Beneficial Owner of Beneficial Owner (2) Class
- -------------------------------------------------------------------------------
Common James West 1,000,000 Direct 9.0%
Ste. 308- 1040 Hamilton St.
Vancouver, B. C. V6B 2R9
Michael Page 1,000,000 Direct 9.0%
Ste. 308- 1040 Hamilton St.
Vancouver, B. C. V6B 2R9
Josephine Cross 1,000,000 Direct 9.0%
Current address
Carlton Parfitt 1,000,000 Direct 9.0%
Ste. 308- 1040 Hamilton St.
Vancouver, B. C. V6B 2R9
(1) Does not include shares issuable upon exercise of Options. Please See
Executive Compensation Item (b) Option/SAR Grants in Last Fiscal Year
(Individual Grants) above.
(b) Security Ownership of Management
Title of Name and Address(1) Amount and Nature % of
Class of Beneficial Owner of Beneficial Owner (2) Class
- -------------------------------------------------------------------------------
Common Michael Page 1,000,000 Direct 9.0%
Carlton Parfitt 1,000,000 Direct 9.0%
James West 1,000,000 Direct 9.0%
Dennis Brovarone 25,000 Direct 0.2%
Randall Palach 25,000 Direct 0.2%
Robert G. Dinning 250,000 Indirect 2.2%
Mariusz Girt 250,000 Indirect 2.2%
<PAGE>
All officers and directors
as a Group (7 persons) 3,550,000 31.9%
(1) The address for management is that of the Registrant: Suite 308, 1040
Hamilton Street, Vancouver, B.C., Canada V6B 2R9
(2) Does not include shares issuable upon exercise of Options. Please See
Executive Compensation Item (b) Option/SAR Grants in Last Fiscal Year
(Individual Grants) above. Indirect Beneficial ownership is in the form of
wholly owned personal holding companies.
(c) Changes in Control:
There are no arrangements, which may result in a change in control of the
issuer.
Item 12. Certain Relationships and Related Transactions
The Company's By-Laws include a provision regarding Related Party Transactions
which requires that each participant to such transaction identify all direct and
indirect interests to be derived as a result of the Company's entering into the
related transaction. A majority of the disinterested members of the board of
directors must approve any Related Party Transaction. Elise West, the mother of
James West, Kendall Page, the sister of Michael Page, Sonja Parfitt and Anthony
Parfitt, the mother and brother of Carlton Parfitt are employed by the Company
in its marketing department. In September 1998, Elise West, Kendall Page and
Sonja Parfitt were each issued 50,000 shares of the Company's common stock and
Anthony Parfitt was issued 37,500 shares as compensation for their services.
These shares began vesting at the rate of 20% of the shares as of April 1, 1999
and an additional 20% every six months thereafter so long as services are
continued with the Company.
Part IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. Exhibits
(3) (i) Articles of Incorporation (Incorporated by reference from
Form 10-SB Registration SEC File # 0-25335 filed February 2, 1999
(3) (ii) By-Laws of Corporation (Incorporated by reference from Form
10-SB Registration SEC File # 0-25335 filed February 2, 1999
(11) Statement Re: Computation of Per Share Earnings
(13) Subsidiaries of the Registrant
(27) Financial Data Schedule
B. Reports on Form 8-K: None
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Elgrande.com Inc.
(Registrant)
By:
/s/ RANDAL PALACH
- ------------------
Randal Palach, President, Chief Executive Officer, Director
August 30, 1999
/s/ ROBERT DINNING
- ------------------
Robert Dinning, Chief Financial Officer
August 30, 1999
/s/ JAMES WEST
- ----------------
James West, Chairman of the Board of Directors
August 30, 1999
/s/ MICHAEL PAGE
- -----------------
Michael Page, Director
August 30, 1999
/s/ CARLTON PARFITT
- --------------------
Carlton Parfitt, Secretary-Treasurer, Director
August 30, 1999
/s/ DENNIS BROVARONE
- ---------------------
Dennis Brovarone, Director
August 30, 1999
/s/ MARIUSZ GIRT
- ------------------
Mariusz Girt
August 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at May 31, 1999 (Audited) and the
Consolidated Statement of Income for the 6 months ended May 31, 1999 (Audited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 371,266
<SECURITIES> 0
<RECEIVABLES> 18,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 451,244
<PP&E> 544,159
<DEPRECIATION> (19,522)
<TOTAL-ASSETS> 1,019,341
<CURRENT-LIABILITIES> 188,494
<BONDS> 0
0
0
<COMMON> 11,119
<OTHER-SE> (762,669)
<TOTAL-LIABILITY-AND-EQUITY> 1,019,341
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,030,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,113
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (18,158)
<CHANGES> 0
<NET-INCOME> 1,019,199
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
