FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the nine month period ended: February 29, 2000
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-253335
ELGRANDE.COM, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0409024
(State of incorporation) (IRS Employer ID No.)
1040 Hamilton Street, Suite 308
Vancouver, B.C., CANADA V6B 2R9
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(604) 689 0808
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of April 20, 2000, the Registrant had 12,295,489 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one); Yes No X
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN THE GENERAL INSTRUCTIONS AND IS
THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
INDEX
Part I Financial Information
- ------------------------------
Item 1 Financial Statements
Independent Accountant's Review Report
Balance Sheets as of May 31, 1999 and February 29, 2000
Statement of Operations (for the three months and nine months ended
February 28, 1999 and February 29, 2000)
Statement of Cash Flows (for the three months and nine months ended
February 28, 1999 and February 29, 2000)
Item 2 Management Discussion and Analysis
Part II Other Information
- --------------------------
Item 1 Legal Proceedings: None
Item 2 Changes in Securities
Item 3 Default upon Senior Securities: None
Item 4 Submission of Matters to a Vote of Security Holders: None
Item 5 Exhibits and Reports on Form 8-K
<PAGE>
ELGRANDE.COM INC.
Consolidated Financial Statements
February 29, 2000
May 31, 1999
WILLIAMS & WEBSTER PS
Certified Public Accountants
Bank of American Financial Center
W 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
<PAGE>
ELGRANDE.COM INC.
TABLE OF CONTENTS
INDEPENDENT ACCOUNTANT'S REVIEW REPORT F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations and Comprehensive Loss F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
NOTES TO FINANCIAL STATEMENTS F-6
<PAGE>
Elgrande.com, Inc.
1040 Hamilton Street, Suite 308
Vancouver, B.C.
Canada V6B 2R9
Independent Accountant's Review Report
--------------------------------------
We have reviewed the accompanying consolidated balance sheet of Elgrande.com,
Inc. as of February 29, 2000 and the related consolidated statements of
operations, stockholders' equity and cash flows for the nine months ended
February 29, 2000, and for the period from September 21, 1999 (inception) to
February 29, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for the year ended May 31, 1999 were audited by us and
we expressed an unqualified opinion on them in our report dated July 26, 1999,
but we have not performed any auditing procedures since that date.
As discussed in Note 2, the Company's 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.
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, WA
April 18, 2000
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
CONSOLIDATED BALANCE SHEETS
February 29,
A S S E T S 2000 May 31,
(unaudited) 1999
-------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 127,641 $371,266
Employee expense advances 101,360 18,920
GST tax refundable 44,067 9,657
Prepaid expenses - 51,401
-------------- -----------
TOTAL CURRENT ASSETS 273,068 451,244
PROPERTY AND EQUIPMENT
Computer hardware 97,972 82,292
Furniture and fixtures 52,751 53,497
Database and software 545,645 408,370
Less accumulated depreciation and amortization (113,703) (19,522)
-------------- -----------
TOTAL PROPERTY AND EQUIPMENT 582,665 524,637
-------------- -----------
OTHER ASSETS
Deposits 28,366 43,460
Investments 60,000 -
-------------- -----------
TOTAL OTHER ASSETS 88,366 43,460
-------------- -----------
TOTAL ASSETS $ 944,099 $1,019,341
============== ===========
L I A B I L I T I E S & S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable $ 686,247 $ 29,976
Accounts payable, related party - 25,000
Accrued liabilities 49,527 8,450
Accrued interest - 5,811
Stock over-subscription payable - 112,000
Current portion of long-term debt 7,791 7,257
Loans payable 30,000 -
-------------- -----------
TOTAL CURRENT LIABILITIES 773,565 188,494
-------------- -----------
LONG-TERM DEBT
Lease, net of current portion 11,634 17,516
Note payable, net of current portion - 39,543
-------------- -----------
TOTAL LONG-TERM LIABILITIES 11,634 57,059
-------------- -----------
TOTAL LIABILITIES 785,199 245,553
COMMITMENTS AND CONTINGENCIES - -
-------------- -----------
STOCKHOLDERS' EQUITY
Common stock, 200,000,000 shares authorized,
$.001 par value; 12,157,479 and 11,118,800 shares
outstanding, respectively 12,157 11,119
Stock options and warrants 2,209,200 -
Additional paid-in capital 3,724,536 1,952,671
Accumulated deficit (5,792,756) (1,208,160)
Accumulated other comprehensive income 5,763 18,158
-------------- -----------
TOTAL STOCKHOLDERS' EQUITY 158,900 773,788
-------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 944,099 $1,019,341
============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
February 29, 2000 February 28, 1999 February 29, 2000 February 28, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
R E V E N U E S
Sales $ 60,110 $ - $ 60,110 $ -
Cost of Sales 61,873 - 61,873 -
----------------- ----------------- ----------------- -----------------
(1,763) - (1,763) -
E X P E N S E S
Consulting fees 83,279 56,712 2,363,442 288,462
Marketing and public relations 74,797 50,693 717,762 89,102
Legal and professional fees 36,466 16,084 165,084 33,459
Office and administration 110,227 8,614 730,331 155,137
Software and internet services 39,725 4,420 306,376 17,390
Depreciation and amortization 39,408 - 94,181 5,145
Public and investor relations - - 204,197 -
----------------- ----------------- ----------------- -----------------
TOTAL OPERATING EXPENSES 383,902 136,523 4,581,373 588,695
----------------- ----------------- ----------------- -----------------
NET LOSS FROM OPERATIONS (385,665) (136,523) (4,583,136) (588,695)
OTHER INCOME AND (EXPENSES)
Interest expense - - (1,460) (567)
----------------- ----------------- ----------------- -----------------
NET LOSS (385,665) (136,523) (4,584,596) (589,262)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss) (12,395) - (12,395) (515)
----------------- ----------------- ----------------- -----------------
COMPREHENSIVE LOSS $ (398,060) $ (136,523) (4,596,991) $ (589,777)
=============== ================= ================= =================
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.03) $ (0.02) ($.41) (0.07)
=============== ================= ================= =================
BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 11,148,088 8,586,725 11,148,088 8,586,725
=============== ================= ================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Accumu-
lated
Stock Options Other Total
Common Stock and Warrants Additional Subscrip- Compre- Stock-
Number Number Paid-in tions Accumulated hensive holders'
of Shares Amount of Shares Amount Capital Receivable Deficit Income Equity
---------- ------- ---------- --------- ---------- ---------- ------------ -------- -----------
<S> <C> <C> <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
Loss for period ending,
May 31, 1998 - - - - - - - - -
---------- ------- ---------- --------- ---------- ---------- ------------ -------- -----------
Balance May 31, 1998 9,000,000 9,000 - - 45,000 - - - 54,000
Issuance of common stock
for services at $.06 per
share 850,000 850 - - 49,150 - - - 50,000
Issuance of common stock
for cash and subscription
at $1.00 per share
less expense of
$9,010 943,800 944 - - 933,846 (538,050) - - 396,740
Subscriptions received - - - - - 538,050 - - 538,050
Issuance of common stock
for services 25,000 25 - - 24,975 - - - 25,000
Issuance of common stock
for cash at $3.00
per share 300,000 300 - - 899,700 - - - 900,000
Foreign currency translation
gain 18,158 18,158
Loss for year ended, May 31,
1999 - - - - - - (1,208,160) - (1,208,160)
---------- ------- ---------- --------- ---------- ---------- ------------ -------- -----------
Balance
May 31, 1999 11,118,800 11,119 - - 1,952,671 - (1,208,160) 18,158 773,788
Issuance of common stock at
an average of $1.68 per
share and issuance of
warrants at an average
of $.16 per warrant 200,000 200 5,445,000 2,209,200 335,300 - - - 2,544,700
Issuance of common stock
for cash at an average of
$0.97 per share 468,333 468 - - 454,580 - - - 455,048
Issuance of common stock
for cash at $5.00
per share 153,000 153 - - 764,847 - - - 765,000
Issuance of common stock for
conversion of debt at 168,628 168 - - 156,609 - - - 156,777
$0.93 per share
Issuance of common stock
for services at an
average of $1.25 48,718 49 - - 60,529 - - - 60,578
per share
Loss for quarter ending
February 29, 2000 - - - - - - (4,584,596) - (4,584,596)
Foreign currency translation
gain (loss) - - - - - - - (12,395) (12,395)
---------- ------- ---------- --------- ---------- ---------- ------------ -------- -----------
Balance, February 29, 2000 12,157,479 $12,157 5,445,000 2,209,200 $3,724,536 $ - $(5,792,756) $ 5,763 $ 158,900
========== ======= ========== ========= ========== ========== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Nine Months
Ended Ended
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,584,596) $ (589,262)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 94,181 4,279
Services paid by issuance of common stock 35,577 75,000
Options issued for consulting and compensations 2,044,700 -
Changes in:
Other Receivables (34,410) (255)
Prepaids 51,401 (16,320)
Accrued liabilities 40,547 -
Accounts payable 656,271 (176,465)
Employee advance receivable (82,440) -
------------ ------------
Net cash provided (used) in operating activities (1,778,769) (703,023)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits returned 15,094
Purchase of property and equipment (152,209) (146,284)
Investments (60,000) -
------------ ------------
Net cash used in investing activities (197,115) (146,284)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 30,000 -
Payments on capital lease (5,348) -
Over-subscriptions payable - (90,000)
Net proceeds from borrowing - 17,275
Issuance of stock and warrants 1,720,001 1,038,790
------------ ------------
1,744,653 966,065
------------ ------------
Net increase in cash (231,231) 116,758
Foreign currency translation gain (12,395) 18,158
Cash, beginning of period 371,266 236,350
------------ ------------
Cash, end of period $ 127,641 $ 371,266
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ - $ -
Income taxes $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing lease for equipment $ - $ 26,274
Services paid by issuance of stock $ 35,557 $ 75,000
Lease agreement paid with stock $ 44,825 $ -
Oversubscriptions satisfied with stock $ 112,000 $ -
Accounts payable, related party
converted to common stock $ 25,000 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Elgrande.com Inc., formerly Intellicom Internet Corp (hereinafter "the
Company"), was incorporated in April 1998 under the laws of the State of Nevada
primarily for the purpose of developing and marketing internet applications,
specifically for books, software, audio and video media, and computer games. The
name change to Elgrande.com Inc. was effective on September 19, 1998. The
Company maintains an office in Vancouver, British Columbia, Canada.
Elgrande.com Inc. formed a wholly owned subsidiary, Yaletown Marketing Corp, to
provide management and administrative services for the Company. Yaletown
marketing was incorporated February 23, 1999 in Victoria, British Columbia,
Canada.
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.
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 $385,665 and $4,584,596 for the three months and nine months ended
February 29, 2000, respectively. The Company 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.
F-6
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
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.
Basic and Diluted
- -----------------
The Company has adopted Statement of Financial Accounting Standards Statement
(SFAS) No. 128, Earnings Per Share. Basic earnings per share is computed using
the weighted average number of common shares outstanding. Diluted net loss per
share is the same as basic net loss per share as the inclusion of common stock
equivalents would be antidilutive.
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 February 29, 2000, the Company had net operating accumulated loss of
approximately $5,750,000. 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
- ---------
Like other companies, Elgrande.com Inc., could be adversely affected if the
computer systems the Company, its suppliers or customers use 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 and elevators, etc. At this time, the
Company does not have any evidence of problems associated with the year 2000
issue.
F-7
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
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:
February 29, May 31,
2000 1999
------------ ------------
Computers $ 97,972 $ 82,292
Furniture and fixtures 52,751 53,497
Database and software 545,645 408,370
------------ ------------
Total Assets 723,359 544,159
Less accum depreciation
and amortization (113,703) (19,522)
------------ ------------
Net Assets $ 582,665 $ 524,637
============ ============
Depreciation and amortization expense for the nine months ended February 29,
2000 and the year ended May 31, 1999 were $94,181 and $16,015, respectively.
NOTE 4 - INTANGIBLE ASSETS
During 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. 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, as of February 29, 2000 and the year ended May 31,
1999, amounts of $545,645 and $408,370, respectively, which is the contractual
cost of data base software purchased from an independent software supplier. No
portion of this software 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.
F-8
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
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 liability. 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.
The Company valued these services at $25,000 and accordingly has recorded an
accrual for this amount. During the nine months ended February 29, 2000 the
stock was issued.
During the nine months ended February 29, 2000, common stock shares were issued
for cash, services and debt conversion. The following common stock shares were
issued: 621,333 shares were issued for $.97 to $5.00 per share; 200,000 shares
were issued with 1,000,000 warrants attached with the stock valued at $1.68 per
share and the warrants at an average value of $.16 per warrant; 168,628 shares
for $.93 per share; and 48,718 shares for services for $1.00 to $1.50 per share.
NOTE 6--STOCK OPTIONS
On February 29, 2000, the Board of Directors authorized the exercise of options
to the Company's former President to acquire 135,000 common stock shares for
$1.00 per share.
On June 11, 1999, the Board of Directors approved the Elgrande.com, Inc., 1999
Stock Option Plan. This plan allows the Company to distribute up to 5,000,000
shares of common stock shares to officers, directors, employees and consultants
through the authorization of the
F-9
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
NOTE 6--STOCK OPTIONS (Continued)
Company's Board of Directors. The Board of Directors also granted options to
acquire 4,445,000 common stock shares at $3.00 per share before June 11, 2004.
The Company's executive officers and directors were granted 4,150,000 of these
options.
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 to
estimate fair value: the risk-free interest rate is 5%, volatility is .5%, and
the expected life of the options is five years. Accordingly, $34,500 was
recorded as compensation and $2,010,200 was recorded as consulting fees.
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 November 30, 1998, the Company issued 850,000 common stock shares
for the services of consultants.
The Company valued these services at $50,000. The shares issued include
negotiation rights and began to vest in April, 1999 with 20% of shares vesting
every six months until the consultants are fully vested in their shares. See
Note 7.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes Option Price Calculation. The following assumptions were made in
estimating fair value: risk-free interest rate is 5% and expected life is 5
years. During the year ending May 31, 1999, the Company issued 1,000,000 common
stock options that may be exercised at any time before March 15, 2004 at $1.00
per share. The strike price of these options exceeds the options' minimum value
calculated using the Black-Scholes model therefore, no compensation costs have
been recognized pursuant to Financial Accounting Standard No.123.
The following is a summary of stock option activity:
Weighted
Number Average
of Exercise
Shares Price
--------------- ------------
Outstanding at 4-8-98 (inception) 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
===============
F-10
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
NOTE 6--STOCK OPTIONS (Continued)
Weighted
Number Average
of Exercise
Shares Price
--------------- ------------
Outstanding at 5-31-99 1,850,000 $ .57
Granted 4,445,000 3.00
Exercised (135,000) 1.00
Forfeited - -
--------------- ------------
Outstanding at 2-29-00 6,160,000 $ 2.26
=============== ============
Options Exercisable at 2-29-00 5,650,000 $ 2.52
=============== ============
Weighted average fair value of
options granted during 2000 $3.00
===============
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
partially 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. During the nine months ending February 29, 2000,
the Company paid its officers and directors $79,381 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 $4,488 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 $5,407 refundable security deposit.
Future minimum rental commitments under the operating lease are as follows:
Year Ending May 31, 2000 (three months) $ 13,464
Year Ending May 31, 2001 53,856
Year Ending May 31, 2002 13,464
-------
$ 80,784
F-11
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company leases telephone equipment under a capital lease expiring June 23,
2002. The asset and liability under the capital lease is recorded at the lower
of the present value of the minimum lease payments or the fair value of the
asset. Depreciation of the asset under capital lease is included in depreciation
expense at May 31, 1999 and February 29, 2000
Future minimum lease commitments under capital lease are as follows:
Year Ending May 31, 2000 (three months) $ 1,814
Year Ending May 31, 2001 7,977
Year Ending May 31, 2002 8,969
Year Ending May 31, 2003 665
----------
$ 19,425
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.
NOTE 9 - TRANSLATION OF FOREIGN CURRENCY
The Company has adopted Financial Accounting Standard No. 52. Monetary assets
and liabilities denominated in foreign currencies are translated into United
States dollars at rates of exchange in effect at the balance sheet date. Gains
or losses are included in income for the year, except gains or losses relating
to long-term debt which are deferred and amortized over the remaining term of
the debt. Non-monetary assets and liabilities and items recorded in income
arising from transactions denominated in foreign currencies are translated at
rates of exchange in effect at the date of the transaction.
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. At February 2000, the cash balance at one institution exceeded this
insured amount by $2,923.
F-12
<PAGE>
ELGRANDE.COM INC.
Notes to the Consolidated Financial Statements
February 29, 2000 and May 31, 1999
NOTE 11 - NOTES PAYABLE
Short-term
- ----------
The Company's short-term loan payable of $112,000 is unsecured,
noninterest-bearing, 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. This note was converted to common stock in November 1999.
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. This note including accrued interest was converted to common
stock in November 1999.
F-13
<PAGE>
Item 2 - Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN
THE FORM 10-QSB
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements.
OVERVIEW
Elgrande.com Inc. (the "Company") was incorporated in April 1998 to create a
group of technologies that will collectively be known as the Shop Engine(TM).
The "Shop Engine" is a group of software programs that, when made available to
consumers through a network like the world wide web, enables retail consumers to
purchase products directly from distributors and manufacturers without the
necessity for a retail storefront. Elgrande.com Inc. is a Nevada corporation,
and through a wholly owned subsidiary, Yaletown Marketing Corp, maintains its
development and administrative operations and web site development in Vancouver,
B.C.
RESULTS OF OPERATIONS
There are revenues of $60,100 February 29, 2000, representing sale of
merchandise, versus zero revenues as at May 31, 1999. The Company activated its
web site for test purposes in June 1999 and is fully operational as of January
1, 2000.
A summary of expenses for the quarter ending February, 2000 compared to the same
period in 1999 is as follows:
2000 1999
-----------------------------
Consulting 83,279 56,712
Marketing and public relations 74,797 50,693
Software and internet fees 39,725 4,420
Administration and other 146,693 25,490
Depreciation and amortization 39,408 0
-----------------------------
383,902 137,315
Marketing charges include payments to an unaffiliated company hired to handle
all advertising, design and implementation of marketing program. These payments
amount to $643,159 to February 29, 2000. For the 3 month period ended February
29, 2000, payments to this company was $0 versus $0 for the same period in 1999.
<PAGE>
Software costs include database development costs incurred of $836,257 to
February 29, 2000. Elgrande began operating under its own developed database in
January 2000, thereby eliminating ongoing expenses incurred through Macdonald
Harris & Associates accruing in the approximate amount of $10,000 per month.
While the company continues to develop this database site, it is currently
identifying and sourcing technology partners to assist in the growth of its
database technology.
Administration costs include payroll costs of $296,690 and general office
expenses of $374,961 to February 29, 2000, compared to $8,614 for the three
month period ended February 29, 1999, which had a fiscal year beginning November
30, 1998.
The Company budgeted its cash requirements in order to develop the web based
contact management system, and the central database that holds product data. To
date, costs have been within the established budget. The site was activated on
June 2, 1999 for test purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has insufficient cash to finance its operations, but is
actively securing additional financing to meet its growth plans. The investor
for $2,000,000 of the private placement financing for $2,500,000 announced in
February 2000 has defaulted on its subscription agreement. The Company only
received investment of $500,000 from the four other investors. The Company
cannot rely upon the completion of this private placement. An estimated $3
million is believed necessary to fully execute the Company's plan of operations.
To date, the Company has financed its development stage by the sale of common
stock. At February 29, 2000, the Company had 12,295,489 shares outstanding and
had raised approximately $3,901,193. These funds were used mainly to develop the
database site, and purchase computer equipment and software. The Company had a
cash balance of $127,641 as at February 29, 2000. In the quarter ended February
29, 2000, the company issued 392,051 shares for cash and subscriptions for a
total of $690,577.
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings: There are no proceedings to report.
Item 2. - Changes in Securities:
In the quarter ended February 29, 2000, the following transactions involving
common stock issuance took place:
o In January, 2000, $52,291.53 CAD of a Company's debt of $104,583.06 paid by
way of issuance of 23,718 restricted shares of common stock.
o A private placement of 100,000 shares of restricted common stock in the
amount of $250,000 at $2.50 per share was made single accredited investor
in February, 2000.
o In January, 2000, 33,334 shares of restricted common stock for $20,000 was
raised by a private placement to a single accredited investor at $0.60 per
share.
o In February, 2000, 200,000 shares of restricted common stock for $500,000
was raised from four accredited investors at $2.50 per share.
The Company relied upon the exemption from the registration requirements of the
Securities Act of 1933 provided by section 4(2) being a transaction by an issuer
not involving a public offering for these conversions.
Item 3. - Default Upon Senior Securities: There are no defaults to report.
Item 4. - Submission of Matters to a Vote of Security Holders: None.
Item 5. - Other Information: None
Item 6. - Exhibits and Reports on Form 8-K: none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EL GRANDE.COM, INC.
Dated: April 20, 2000
/s/ JAMES WEST
- -------------------------------------------------
James West, President, Chief Executive Officer
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