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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
ELGRANDE.COM INC.
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(Name of small business issuer in its Charter)
Nevada 88-0409024
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1040 Hamilton Street, Suite 308, Vancouver, B.C., Canada V6B2R9
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 604-689-0808
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer had revenues of $ 232,717 for the fiscal year ended May 31, 2000.
As of August 25, 2000, the aggregate market value of the Common Stock held by
non-affiliates (based upon the last reported price on the bid-ask average on the
OTC Bulletin Board) on August 25, 2000) was approximately $4,882,010. As of
August 25, 2000, there were 12,295,479 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD LOOKING STATEMENTS
This document includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements are based on the Company's current expectations as to
future events. In the light of the uncertainties in the potential markets for
the Company's planned products, the forward-looking events and circumstances
discussed in this document might not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL INTRODUCTION
Elgrande.com Inc. ("Elgrande", the "Company", "we" or "us") is an e-commerce
company that gives both retail and business consumers direct access to
manufacturers and distributors through its proprietary ShopEngine software
solution. The Company was founded in April of 1998 and, through the Company's
website Elgrande.com, began selling books, music, and videos on line from its
principal supplier/partner, Baker and Taylor Inc, on June 2, 1999.
The enabling software for the Elgrande business model is called ShopEngine .
ShopEngine is a set of e-commerce applications together with an associated
database of aggregated products that together enable browsing, purchase, and
fulfillment of orders, and support of products in both B2B and B2C commerce.
ShopEngine allows participating suppliers to administer their product databases
and pricing structure in real time via automated pull technologies and manual
interface entry through the Internet. The ShopEngine database can include any
number of suppliers of all types of merchandise in any product and/or service
category.
We believe that ShopEngine is attractive to suppliers because it:
- provides a low cost e-commerce point of presence;
- is not product dependant;
- is not geographically or linguistically limited;
- enables a e-commerce revenue stream that does not impact existing supply
channels and associated revenue streams;
- creates a direct relationship with the end user;
- protects and enhances land-based retail outlets' sales; and
- expands the customer data base.
Development of the ShopEngine application began during the summer of 1998 and
is ongoing. Currently version 2 of the ShopEngine is operational on the
Elgrande web site. Development is underway on ShopEngine version 3. Elgrande
contemplates Beta testing of version 3 sometime early in 2001.
As a direct consequence of the ShopEngine technology, Elgrande expects to
derive revenues from several independent but related sources:
TRANSACTION FEES
A fee structure based on a percentage of the transaction value combined with a
commitment volume of transactions would form the principal initial revenue
stream for Elgrande throughout the Phase 1 implementation process. A per item
fee and/or revenue sharing option would be offered to each of our ShopEngine
affiliate e-commerce sites depending on the nature of the outlet - small
business web site, shopping portal, ISP partner, etc.
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SPONSORSHIP FEES AND BANNER ADVERTISING
Elgrande is actively seeking contracts with major corporate sponsors who will
typically sign longer term agreements for exclusive rights to advertise their
products and/or services on sections of the site with specific content, and
subsequently, specific demographic appeal. The Company will also market banner
ad inventories to corporate clients who may wish to contract for shorter terms.
LICENSING FEES
Elgrande plans to license components of the ShopEngine to Internet Service
Providers (ISP) who may wish to offer a low cost e-commerce mechanism to their
client sites as part of their move towards becoming Application Service
Providers (ASPs) and E-commerce Service Providers (ESPs).
DEMOGRAPHIC DATA SALES
Elgrande plans to market its accumulated demographic data available for purchase
by marketing organizations and others who may wish to extrapolate behavioral
patterns from the purchasing habits of its customers and visitors. This will be
on an "opt in" basis and could provide additional revenue opportunities in
subscription based email marketing.
SUPPLIER INCENTIVES
In certain industries (home video and music, for example), manufacturers and
suppliers will make available to retailers who have higher volumes of sales,
funds to offset and encourage advertising of their (suppliers') products more
prominently. Typically, these incentives will encompass 2 - 3% of gross sales of
that supplier's product sales on the site.
ADDITIONAL POTENTIAL AREAS FOR REVENUE
1. custom work on a contract basis for the integration of the ShopEngine
2. Call Center Management Outsourcing on behalf of the suppliers and
retailers of the ShopEngine
3. fulfillment and logistics support for suppliers of the catalogue
4. Cross promotion and bundling of products from multiple suppliers.
TECHNOLOGY VISION
Elgrande is developing a dynamic online database of consumer (B2C) and business
(B2B) product and inventory information. This database would ultimately be world
wide and comprise thousands of suppliers across a wide range of product
categories. The database is offered as a syndicated catalogue to ISPs, existing
e-commerce sites, and sites that desire an e-commerce revenue stream with very
little startup cost. E-commerce consumers could place orders through a
ShopEngine Affiliate's web site, or through one of the widely distributed
ShopEngine interfaces, and the order would be fulfilled directly from the
product supplier, manufacturer or through their primary fulfillment network.
ShopEngine would be updated continuously by suppliers through a secure Internet
connection that ensures protection of sensitive information, as well as ensuring
up to date product availability status and accurate product order tracking.
ShopEngine would be distributed widely to Web Presence Providers (WPP's),
Suppliers, and web site operators who wish to incorporate a low-cost,
revenue-generating e-commerce component that is relatively maintenance free and
profitable from day one. With the use of Application Service Provider
architecture (ASP) every time an existing web site is added to the ShopEngine
network, their entire installed base of customers become potential buyers for
all of the products listed in the ShopEngine.
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Offering a single access point for product suppliers to offer their inventory to
thousands of e-commerce outlets in multiple languages, and a low cost instant
e-commerce component to web site developers, ShopEngine is an economical option
for all those who wish to partake in the exciting e-commerce market without huge
investments in time, capital and manpower.
SHOPENGINE
The three principal ShopEngine Solution Components are:
1. SHOPENGINE PROCUREMENT AND VENDOR FRAMEWORK
The ShopEngine Framework is a complete and flexible platform upon which
corporate clients with consumer and business merchandise can participate and
manage their e-commerce sales and distribution channels. The methodologies and
business rules that comprise the Framework ensure ease of account management for
business partners and smooth flow-through in all aspects of the supply chain.
The Fulfillment Engine component and Customer Relationship Management components
provide an e-commerce framework that guarantees higher than normal customer
satisfaction while preventing channel conflicts between suppliers.
Aimed at small to mid-size manufacturers and first-tier suppliers, this system
would drive revenue to the Company in the form of integration fees and ongoing
per-transaction fees.
2. SHOPENGINE SUPPLIER PLATFORM
Suppliers are manufacturers and distributors with an established retail network
for whom ShopEngine will create a sourcing and shipping environment for a low
initial fee, but from whom a fee shall be extracted for each sale of the
suppliers' products. ShopEngine would make the suppliers' products, which will
typically be name brand manufacturers' consumer oriented products, available to
a retail audience through its ShopEngine Affiliate Site Network.
Typically, suppliers encounter a high cost of entry when moving into e-commerce.
High cost-of-entry is often a barrier to participation and may effectively
eliminate suppliers with product lines that would otherwise provide a lucrative
revenue stream through e-commerce transactions. The ShopEngine Supplier
framework is formatted in a "Low cost for entry" configuration to minimize the
cost-of-entry barrier and entice supplier participation.
The framework enables the suppliers' existing supply chain to be managed over
the Internet through the ShopEngine proprietary systems. Essentially, a
"light" version of the system would be provided, allowing the supplier to sample
for free the capabilities and features. The objective is to eventually convert
the supplier into a full paying client by working closely to develop an
enterprise-wide dependency.
3. AFFILIATES
The ShopEngine Affiliate Program is specifically designed to provide an
e-commerce environment to content oriented destination web sites who would
benefit from an expanded product offering that is customizable according to the
format of each site.
The ShopEngine Affiliate sites access a user interface that is customized by
the affiliate and is password protected. The affiliates could select product
information from within the available inventory in the ShopEngine databases,
assign these to be featured alongside content that is relevant to the product,
and check accesses, sales and account balances for their customers.
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Customers who select the item to be added to a shopping cart are taken to the
shopping cart environment on the servers of the ShopEngine for a brief
confirmation message. A click of the mouse takes them back to the affiliate
site where they may continue to peruse the information available there and also
continue to add items to the shopping basket. At the conclusion of the
visitor's session, a reminder notifies the user of the contents of the shopping
basket, presents the option to save for later, checkout now, or return to the
affiliate site. The payment processing occurs through ShopEngine servers.
This way, the Affiliate site does not lose their shopper to another web site, as
is the case, for example, in the Amazon Affiliate Program.
POTENTIAL MARKETS
The ShopEngine system is designed with the flexibility to address multiple
languages, currencies and regional distribution points. This architecture
provides a platform for expansion that addresses the borderless nature of the
Internet. With a focus on both North America and the Pacific Rim, Elgrande is
establishing relationships with Distribution, Fulfillment and Regional WPP's to
accelerate the deployment of the ShopEngine.
Both internal and external market research indicate that the growth of demand
for e-commerce is outstripping the ability of smaller regional and focused topic
sites to fulfill on this demand. With the continued demand for these sites to
deliver positive cash flow Elgrande is positioned to capitalize on this
opportunity.
North America is experiencing an exponential growth in online sales that
provides a relatively untapped marketplace for a syndicated catalog service like
the ShopEngine .
Japan is also experiencing rapid e-commerce growth, is grossly under serviced
relative to the demand and represents an even larger opportunity for the
ShopEngine . Discussions are in progress to establish a key alliance and,
through this alliance, secure access to the Japanese market with a focus on
bringing both international and domestic products to this market through a very
rapid deployment process.
IMPLEMENTATION STRATEGY
Our original business plan was based solely on "disintermediation", i.e.
providing a web site that would permit direct manufacturer to customer
transactions, by use of our ShopEngine technology. We now intend also to
commence offering our ShopEngine model to smaller and mid-sized businesses and
to host their e-commerce operations.
The evolving reality of the Internet combined with many corporations' cautious
approach to the new e-commerce channel has made it difficult for the original
Elgrande.com business model to be implemented. The rate of growth and available
revenue that has been generated to date has been deemed unacceptable by the
Company's management. Careful ongoing analysis has compelled the development of
additional avenues for business and revenue growth.
In order to shorten the ShopEngine development cycle and gain an on-line
presence, Elgrande created a retail e-commerce web site - elgrande.com. This
site is an analogue of a typical site that will use the ShopEngine platform and
is being used as a testing ground for the continuing ShopEngine development. At
this business to consumer (B2C) web site consumers can purchase books, videos,
music CD's and arrange hotel room reservations at discounted rates. Baker &
Taylor, a leading book, video and music distributor in the United States,
supplies all of the books, videos and music that we sell. Hotel room
reservations are made through Hotel Reservations Network, a majority-owned
subsidiary of USA Networks Inc.
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The following table shows gross revenues from sales of books, CDs and videos on
our web site in each month of our last fiscal year.
June'99 July Aug. Sept. Oct. Nov. Dec.
-------- -------- -------- -------- -------- -------- --------
Sales 906 752 810 1,639 2,310 4,044 3,671
Jan.'00 Feb. Mar. Apr. May
-------- -------- -------- -------- --------
Sales 16,825 29,154 48,792 59,213 64,601
Through the development of ShopEngine we plan to continue to introduce product
categories that are suitable for distribution on the Internet, and where sales
opportunities are identified. Our strategy entails the establishment of product
categories by developing partnerships with major known consumer brands as well
as with less known, up-and-coming manufacturers. This would ensure the broadest
possible selection within each of the product categories.
Our contemplated pricing structure is wholesale price, as provided by the
supplier, plus the cost of processing the transaction, plus a flat rate fee on
each item purchased.
In further development the Company will identify three different tiers of
corporate clients for whom the ShopEngine architecture would provide an
attractive option to e-commerce web site infrastructure that is superior in most
aspects compared to more expensive alternatives.
The cash-flow shortages that many developing e-commerce based companies have
experienced have caused many publicly funded corporations to re-evaluate their
e-commerce strategies. This has created opportunity for Elgrande.com. Further
ShopEngine development has been specifically focused to incorporate multiple
sources of both customers and products, which means its centrally managed
architecture can provide reduced costs of participation for both the Company and
its corporate clients.
Version 3 of the ShopEngine includes the ASP model. Version 3 will allow us to
target the niche area of online e-commerce wherein we will offer small to
mid-sized vendors a web presence using our online facilities and systems. In the
business-to-consumer (B2C) environment this means the sale of individual goods
to consumers who come to the client's public (Internet) web site (similar to the
transactions presently carried out through the Elgrande.com web site).
Fulfillment of goods to the customer and accurate remittance of funds from the
customer to the client through acceptable payment methods will all be core
features of ShopEngine .
In the supply chain environment typical of most distribution and re-sale
organizations, the movement of various products to fulfillment locations and
storage facilities requires tracking and associated inventory management. In
most cases the client would pay a fee and would get access to a full suite of
tools to address integration with their accounting, transactional, inventory and
fulfillment processes. In addition they would gain access to a set of tools
allowing them, in real time, to populate the catalog, set price and discount
levels, and distribution requirements.
Website operators would be able to access supplier information, access to a
catalog of products, define the products to be presented on their site, and
easily integrate catalog display, shopping cart, customer profiling components
and transaction clearing into their web site.
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FINANCIAL PICTURE
Elgrande, through the Company's Elgrande.com retail web site, generated gross
revenue of $232,717 through the sale of books, CD's and discount travel. Seventy
four (74%) percent of this revenue was realized in the final quarter as activity
on the company's Elgrande.com site ramped up. The corresponding cost of sales
was $324,810 for a net loss on retail operations of $92,093 in our fiscal year
ended May 31, 2000. The Company expected a loss on sales as a consequence of a
deliberate decision to offer merchandise at a deeper discount than our
e-commerce competitors. This was done in order to develop market share,
establish a customer base and provide the company with an operational in-house
test site for development of the ShopEngine version 3. Effective August 15,
2000 we have adjusted the price structure of all products available through our
Elgrande.com site to reflect our cost of goods plus a small markup.
As a consequence of ongoing ShopEngine software development and supplier
marketing plus operation of the Elgrande.com site, as at May 31, 2000, the
Company's liabilities exceeded its assets by $142,760. As a result, there is a
significant risk that without continued access to adequate development funds,
the company may be forced to cease our business operations due to insufficient
cash flow or to actions that could be taken by one or more of our creditors. As
of August 24, 2000, none of our creditors has initiated legal action.
Elgrande has continually been required to raise funds for our ongoing
development and on-line operations, which have not been and are not now
profitable. There can be no assurance that such financing will continue to be
available in amounts or on terms acceptable to the Company, if at all.
RISK FACTORS
In evaluating the Company, the following risk factors should be carefully
considered.
1. Limited Operating History; Operating Losses
The Company was founded in April 1998 and began operating its elgrande.com web
site on June 2, 1999. Accordingly, we have had limited operating history on
which to base an evaluation of our business and prospects. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as online commerce. Such
risks for us include, but are not limited to, an evolving and unpredictable
business model and the management of growth. To address these risks, we must,
among other things, maintain and increase our customer base, implement and
successfully execute our business and marketing strategy, continue to develop
and upgrade our technology and transaction-processing systems, improve our web
site, provide superior customer service and order fulfillment, respond to
competitive developments, and attract, retain and motivate qualified personnel.
There can be no assurance that we will be successful in addressing such risks,
and the failure to do so could have a material adverse effect on our business,
prospects, financial condition and results of operations.
2. Unpredictability of Future Revenues
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we are unable to accurately forecast our revenues.
Our current and future expense levels are based largely on our investment plans
and estimates of future revenues and are to a large extent fixed. Sales and
operating results generally depend on the volume of, timing of and ability to
fulfill orders received, and competitive conditions, which are difficult to
forecast. We may be unable to adjust spending in a timely manner to compensate
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for any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues in relation to our planned expenditures would have an immediate adverse
effect on our business, prospects, financial condition and results of
operations. Further, as a strategic response to changes in the competitive
environment, we may from time to time make certain pricing, service or marketing
decisions that could have a material adverse effect on our business and
financial condition and results of operations.
3. Seasonality
We expect that we will experience seasonality in our business, reflecting a
combination of seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Internet usage and the rate of Internet growth may be
expected to decline during the summer. Further, sales in the traditional retail
book industry are significantly higher in the fourth calendar quarter of each
year than in the preceding three-quarters.
4. Capacity Constraints
A key element of our strategy is to generate a high volume of traffic on, and
use of, our web site. Accordingly, the satisfactory performance, reliability and
availability of our web site, transaction-processing systems and network
infrastructure are critical to our reputation and its ability to attract and
retain customers and maintain adequate customer service levels. Our revenues
depend on the number of visitors who shop on our web site and the volume of
orders it fulfills. Any system interruptions that result in the unavailability
of our web site or reduced order fulfillment performance would reduce the volume
of goods sold and the attractiveness of our product and service offerings. Any
substantial increase in the volume of traffic on our web site or the number of
orders placed by customers will require us to expand and upgrade further our
technology, transaction-processing systems and network infrastructure. There can
be no assurance that we will be able to accurately project the rate or timing of
increases, if any, in the use of our web site or timely expand and upgrade our
systems and infrastructure to accommodate such increases.
5. Reliance on Internally Developed Systems & System Development Risks
We use an internally developed system for our web site, search engine and
substantially all aspects of transaction processing, including order management,
cash and credit card processing, purchasing, inventory management and shipping.
We intend 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.
Our inability to:
- add additional software and hardware;
- further develop and upgrade our existing technology and transaction
processing systems;
- improve our network infrastructure to accommodate increased traffic on our
web site; and
- realize increased sales volume through our transaction-processing systems;
may cause:
- unanticipated system disruptions;
- slower response times;
- degradation in levels of customer service;
- impaired quality of service and speed of order fulfillment; and
- delays in reporting accurate financial information.
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In addition, although we have systems in place and we constantly work to prevent
unauthorized access to Company data, it is impossible to completely eliminate
this risk. There can be no assurance that we will be able, in a timely manner,
to effectively upgrade and/or expand our transaction-processing system or to
smoothly integrate any newly developed or purchased modules that management may
decide are necessary, with our existing systems. Any inability to do so would
have a material adverse effect on our business, prospects, financial condition
and results of operations.
6. System Failure
Our success, in particular our ability to successfully receive and fulfill
orders and provide high-quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Substantially all of our computer and communications hardware
is located at a single leased facility in Vancouver, British Columbia. Our
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events.
We do not presently have redundant systems or a formal disaster recovery plan
and do not carry sufficient business interruption insurance to compensate us for
losses that may occur. Despite the implementation of network security measures
by us, our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays,
loss of data or the inability to accept and fulfill customer orders. The
occurrence of any of the foregoing risks could have a material adverse effect on
our business, prospects, financial condition and results of operations.
7. Dependence on Continued Growth of Online Commerce
Our future revenues and any future profits are substantially dependent upon the
widespread acceptance and use of the Internet and other online services as an
effective medium of business to business and business to consumer commerce.
Rapid growth surrounding the Internet, the web and online services is a recent
phenomenon. There can be no assurance that acceptance and use will continue to
develop or that a sufficiently broad base of consumers will continue to use the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty and there exist few proven services and
products. We rely on consumers who have historically used traditional means of
commerce to purchase merchandise. For us to be successful, these consumers must
accept and utilize novel ways of conducting business and exchanging information.
In addition, the Internet and other online services may not be accepted as a
viable commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. Yet the
Internet and other online services continue to experience significant growth in
the number of users and their frequency of use. Also with an increase in their
bandwidth requirements, there can be no assurance that the infrastructure for
the Internet and online services will be able to support the demands placed upon
them. In addition, the Internet or other online services could lose their
viability due to delays in the development or adoption of new standards and
protocols required for handling of increased levels of Internet activity.
Another factor to consider is increased governmental regulation.
Changes in or insufficient availability of telecommunications services to
support the Internet or other online services also could result in slower
response times and adversely affect usage of the Internet and other online
services generally and us in particular. Our business, prospects, financial
condition and results of operations would be materially adversely affected if:
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- use of the Internet and other online services does not continue to grow or
grows more slowly than expected;
- infrastructure for the Internet and other online services does not
effectively support growth that may occur;
- if the Internet and other online services do not become a viable commercial
marketplace.
8. Rapid Technological Change
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality 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;
- frequent new product and service introductions embodying new technologies;
- the emergence of new industry standards and practices.
These could render our existing web site and proprietary technology and systems
obsolete.
Our success will depend, in part, on our 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, and respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of our web site and other proprietary technology entails significant
technical and business risks. There can be no assurance that we will
successfully use new technologies effectively or adapt our web site, proprietary
technology and transaction-processing systems to customer requirements or new
emerging industry standards.
If we are unable to adapt in a timely manner to technical, legal, financial to
changing market conditions or customer requirements, our business, prospects,
financial condition and results of operations would be materially adversely
affected.
9. Key and Additional Personnel
Although we have consulting agreements with certain of our key personnel, we
maintain no "key person" life insurance policies, and our future success also
depends on our 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 we will be 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 our
business, prospects, financial condition and results of operations.
10. Online Commerce Security Risks
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. We rely 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. 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 us to protect customer transaction data. If
any such compromise of our security were to occur, it could have a material
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adverse effect on our reputation, business, prospects, financial condition and
results of operations. A party who is able to circumvent our security measures
could misappropriate proprietary information or cause interruptions in our
operations. We may be required to expend significant capital and other resources
to protect against such security breaches or to alleviate problems caused by
such breaches. Concerns over the security of the Internet and other online
transactions and the privacy of users may also inhibit the growth of the
Internet and other online services generally, and the web in particular,
especially as a means of conducting commercial transactions. To the extent that
our activities or those of third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. There can be no assurance that our security
measures will prevent security breaches or that failure to prevent such security
breaches will not have a material adverse effect on our business, prospects,
financial condition and results of operations.
INTELLECTUAL PROPERTY
We have obtained the trademark for ShopEngine in Japan and the European Union.
In the United States, the examiner, as a result of what appears to be informal
opposition, required an amended description and then refused the application.
We have since filed an appeal to the decision.
COMPETITION
The online commerce market, particularly over the Internet, is new, rapidly
evolving and intensely competitive, which competition we expect to 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.
We currently are competing and will potentially compete with a variety of
companies engaged in e-commerce activities. Currently, our competitors include:
various on-line booksellers and vendors of other information-based products such
as CDs and videotapes, for example Amazon.com; a number of indirect competitors
that specialize in online commerce or derive a substantial portion of their
revenues from online commerce, for example America Online, Inc. and Yahoo;
Microsoft Corporation, through which other bookstores may offer products; and
retail vendors of books, music and videotapes, including large specialty
booksellers, with significant brand awareness, sales volume and customer bases,
for example Barnes & Noble, Inc. and Borders Group, Inc.
We believe that the principal competitive factors in our 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 our
potential competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than us.
In addition, online retailers may be acquired by, receive investments from or
enter into other commercial relationships with larger, well-established and
well-financed companies as use of the Internet and other online services
increases. Certain of our 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 us. Increased competition may result in reduced operating
margins, loss of market share and a diminished brand franchise.
<PAGE>
There can be no assurance that we will be able to compete successfully against
current and future competitors, and competitive pressures faced by us have a
material adverse effect on our business, prospects, financial condition and
results of operations. Further, as a strategic response to changes in the
competitive environment, we may from time to time make certain pricing, service
or marketing decisions or acquisitions that could have a material adverse effect
on our business, prospects, financial condition and results of operations. New
technologies and the expansion of existing technologies may increase the
competitive pressures on us. For example, client-agent applications that select
specific titles from a variety of web sites may channel customers to online
booksellers that compete with us. In addition, companies that control access to
transactions through network access or web browsers could promote our
competitors or charge us a substantial fee for inclusion.
In our planned marketing program for the sale of the ShopEngine system to
online businesses, we would face substantial competition from numerous firms
offering enterprise software solutions, including firms that are much better
capitalized and already have an established customer base. Examples of such
competitors would include Oracle Corporation, whose systems are scalable and
more robust (and substantially more expensive) than the ShopEngine system.
INTERNATIONAL
As part of our exploration of expansion possibilities, we have entered into
discussions with a large Japanese conglomerate to research the feasibility of a
partnership that would facilitate the establishment of ShopEngine subsidiary in
Japan. ShopEngine (Japan) would be implemented as a principal shopping
environment on several online properties associated with the potential Japanese
partner. The partnership would focus on a revenue sharing model where both
companies realize revenue for each item purchased through the ShopEngine .
Certain proprietary payment solution software of the potential Japanese partner
would also be incorporated and available to us for use as a part of our
ShopEngine system.
RESEARCH AND DEVELOPMENT EXPENDITURES
We have spent $378,505 during the past year on research and development.
EMPLOYEES
We currently have four employees and three consultants, consisting of two
engineers and one office administrator. We plan to hire additional employees,
particularly database engineers, to assist in the development of our products.
ITEM 2. PROPERTIES
Our executive headquarters is located at 1040 Hamilton Street, Suite 308,
Vancouver, B.C. We have entered into two leases for our premises of
approximately 3,282 square feet, which have terms commencing on September 1,
1998 and February 1, 2000 and expiring on August 31, 2001 and January 31, 2001
respectively. The lease provides for a base rent of US$2,772 per month.
Pursuant to the lease, we are also responsible for additional rents for building
operating costs. We believe that the premises are adequately insured.
ITEM 3. LEGAL PROCEEDINGS
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Our Common Stock has traded on the OTC Bulletin Board since October 5, 1999. Our
trading symbol is "EGND". Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions. The following sets forth the range of high
and low bid information for the quarterly periods indicated as reported by the
National Quotation Bureau:
HIGH LOW
-------- --------
1999: 2nd Quarter
3rd Quarter
4th Quarter 7.00 0.5625
2000: 1st Quarter 5.00 0.94
2nd Quarter 2.31 0.51
3rd Quarter 0.75 0.45
(Through August 11)
HOLDERS
As of August 11, 2000, the number of holders of record of shares of common
stock, excluding the number of beneficial owners whose securities are held in
street name, was approximately 137.
DIVIDEND POLICY
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future because we intend to retain our earnings to finance the
expansion of our business. Thereafter, declaration of dividends will be
determined by the Board of Directors in light of conditions then existing,
including without limitation our financial condition, capital requirements and
business condition.
RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information with respect to all securities of the
Company sold in its fiscal year ended May 31, 2000, without registration of the
securities under the Securities Act of 1933. The information includes the names
of purchasers, date of issue, number of shares issued or shares into which
warrants are convertible, the exercise price and expiration date of warrants,
and the consideration received by the Company for the issuance of the shares or
warrants.
<PAGE>
<TABLE>
Purchase No. of
Or Shares
Exercise Purchased
Price or
Date of Type of (USD Purchasable Expiration
Name Issue Security Per Sh.) On Exercise Date (Wts.)
---------------------- -------- -------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Millano 8/99 Common 5.00 153,000
Investments,Ltd. Stock
Anker Bank 11/99 Common 1.00 300,000
Stock
11/99 Warrants 2.50 300,000 December, 2004
5.00 300,000
Stan Sagal 1/00 Common 0.60 33,333
Stock
Michael 2/00 Common 2.50 30,000
Holloran Stock
2/00 Warrants 5.00 30,000 February, 2003
7.50 30,000
G. Stanley 2/00 Common 2.50 20,000
Jackson Stock
2/00 Warrants 5.00 20,000 February, 2003
7.50 20,000
Miguel 2/00 Common 2.50 50,000
Guardia Stock
2/00 Warrants 5.00 50,000 February, 2001
7.50 50,000
Anker Bank 2/00 Common 2.50 100,000
Stock
2/00 Warrants 5.00 100,000 February, 2002
7.50 100,000
Colebrooke 3/00 Warrants 1.875 75,000 March, 2005
Capital, Inc.
</TABLE>
All shares and warrants shown in the above table were issued in a private
offering under the Securities Act of 1933, as amended, pursuant to Rule 506 of
Regulation D promulgated thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
There are revenues of $232,717 for the year ended May 31, 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 year end May, 2000 compared to the same period in
1999 is as follows:
<PAGE>
2000 1999
----------- ------------
Consulting 525,847 457,498
Marketing and public relations 947,747 156,717
Software and internet fees 346,932 23,781
Administration and other 1,038,944 376,233
Depreciation and amortization 184,121 16,015
----------- ------------
3,043,591 1,030,244
----------- ------------
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 May 31, 2000. For the 3 month period ended May 31, 2000,
payments to this company was $0 versus $0 for the same period in 1999.
Software costs include database development costs incurred of $781,880 to May
31, 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 $385,328 and general office
expenses of $653,616 to May 31, 2000, compared to $59,375 and $316,858
respectively for the year ended May 31, 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 pursuing several private placements. 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 May 31, 2000, the Company had 12,295,479 shares outstanding and had
raised approximately $3,865,660. These funds were used mainly to develop the
database site, and purchase computer equipment and software. The Company had a
cash balance of $32,385 as at May 31, 2000. In the quarter ended May 31, 2000,
the company issued 138,000 shares in exchange for debt and services valued at
$88,000.
ITEM 7. FINANCIAL STATEMENTS
Financial statements of the Company meeting the requirements of Regulation S-B
are filed on the succeeding pages as listed below:
<PAGE>
ELGRANDE.COM INC.
Consolidated Financial Statements
May 31, 2000
WILLIAMS & WEBSTER P.S.
Certified Public Accountants
Bank of America Financial Center
W 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
ELGRANDE.COM INC.
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. as of May 31, 2000 and 1999 and the related consolidated statements of
operations and comprehensive loss, cash flows, and stockholders' equity for the
years then ended. 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,
2000, and 1999 and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As discussed in Note 2, the Company 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.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
August 25, 2000
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
May 31, May 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 32,385 $ 371,266
Employee expense advances 86,204 18,920
GST tax refundable 4,549 9,657
Prepaid expenses - 51,401
------------- -------------
TOTAL CURRENT ASSETS 123,138 451,244
------------- -------------
PROPERTY AND EQUIPMENT
Computer hardware 97,972 82,292
Furniture and fixtures 62,667 53,497
Database and software 545,645 408,370
Less accumulated depreciation and amortization (189,215) (19,522)
------------- -------------
TOTAL PROPERTY AND EQUIPMENT 517,069 524,637
------------- -------------
OTHER ASSETS
Deposits 29,622 43,460
Investments 60,000 -
------------- -------------
TOTAL OTHER ASSETS 89,622 43,460
------------- -------------
TOTAL ASSETS $ 729,829 $ 1,019,341
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
May 31, May 31,
2000 1999
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 630,020 $ 29,976
Accounts payable, related party - 25,000
Accrued liabilities 31,224 8,450
Accrued interest - 5,811
Note payable, current portion 161,920 -
Stock over-subscription payable - 112,000
Current portion of long-term debt 7,977 7,257
------------- -------------
TOTAL CURRENT LIABILITIES 831,141 188,494
------------- -------------
LONG-TERM DEBT
Capital lease, net of current portion 11,448 17,516
Note payable related party 30,000 39,543
------------- -------------
TOTAL LONG-TERM LIABILITIES 41,448 57,059
------------- -------------
TOTAL LIABILITIES 872,589 245,553
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 200,000,000 shares authorized,
$.001 par value; 12,295,479 and 11,118,800
shares issued and outstanding, respectively 12,295 11,119
Stock options and warrants 354,950 -
Additional paid-in capital 3,857,300 1,952,671
Accumulated deficit (4,347,483) (1,208,160)
Accumulated other comprehensive income (loss) (19,822) 18,158
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (142,760) 773,788
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 729,829 $ 1,019,341
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
Year Ended Year Ended
May 31, May 31,
2000 1999
------------- -------------
<S> <C> <C>
REVENUES $ 232,717 $ -
COST OF REVENUES 324,810 -
------------- -------------
GROSS PROFIT (LOSS) (92,093) -
------------- -------------
EXPENSES
Consulting fees 525,847 457,498
Marketing and public relations 947,747 156,717
Legal and professional fees 269,496 117,090
Travel and entertainment 135,891 104,479
Salaries 385,328 59,375
Office and administration 154,095 40,104
Rent 52,338 27,799
Communication 41,796 27,386
Software and internet services 18,869 23,781
Depreciation and amortization 184,121 16,015
Database construction and maintenance 328,063 -
------------- -------------
TOTAL OPERATING EXPENSES 3,043,591 1,030,244
------------- -------------
LOSS FROM OPERATIONS (3,135,684) (1,030,244)
OTHER INCOME AND (EXPENSES)
Interest income 1,438 -
Interest expense (5,077) (7,113)
------------- -------------
(3,639) (7,113)
NET LOSS (3,139,323 (1,037,357)
------------- -------------
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain (loss) (37,980) 18,158
------------- -------------
COMPREHENSIVE LOSS $ (3,177,303) $ (1,019,199)
============= =============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.27) $ (0.10)
============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 11,645,330 10,865,550
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(begin 8pt type)
<TABLE>
Stock Options & Warrants Accum- Total
Common Stock ------------------------ ulated Stock
---------------------- Additional Subscrip- Accum- Other holders
Number Paid-in tions ulated Compre- Equity
Of Shares Amount Capital Amount Receivable Deficit hensive (Deficit)
---------- ---------- ----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
May 31, 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 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 currency
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
Issuance of
common stock
at an average
of $1.28 per
share and
issuance of
warrants at
an average
of $.165
per warrant 500,000 500 635,000 164,500 - - - 800,000
Options issued
for consulting
fees and
compensation - - - 101,200 - - - 101,200
Issuance of
warrants for
professional
fees - - - 89,250 - - - 89,250
Issuance of
common stock
for cash at
an average of
$0.92 per
share 168,333 168 154,832 - - - - 155,000
Issuance of
common stock
for cash at
$5.00 per
share 153,000 153 764,847 - - - - 765,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (continued)
<TABLE>
Stock Options & Warrants Accum- Total
Common Stock ------------------------ ulated Stock
---------------------- Additional Subscrip- Accum- Other holders
Number Paid-in tions ulated Compre- Equity
Of Shares Amount Capital Amount Receivable Deficit hensive (Deficit)
---------- ---------- ----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
for conversion of
debt at $0.93
per share 168,628 168 156,656 - - - - 156,824
Issuance of
common stock
for services
at an average
of $1.25 per
share 48,718 49 60,849 - - - - 60,898
Issuance of
common stock
for cash at
$1.00 per
share 25,000 25 24,975 - - - - 25,000
Issuance of
common stock
for conversion
of debt at
$3.00 per share 5,000 5 14,995 - - - - 15,000
Issuance of
common stock
in exchange
for debt
at $0.67 138,000 138 92,445 - - - - 92,583
Stock rescinded
Upon
termination (30,000) (30) 30 - - - - (30,000)
Loss for year
ending May
31, 2000 - - - - - (3,139,323) - (3,139,323)
Foreign currency
Translation
gain (loss) - - - - - - (37,980) (37,980)
---------- ---------- ----------- ---------- ------------ ---------- ---------- ----------
Balance,
May 31, 2000 12,295,479 $ 12,295 $ 3,857,300 $ 354,950 $ - $(4,347,483) $ (19,822) $(142,760)
========== ========== =========== ========== ============ =========== ========== ==========
</TABLE>
(end 8pt type)
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
Year Ended Year Ended
May 31, May 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,139,323) $ (1,037,357)
Adjustments to reconcile net loss
to net cash used by operating activities:
Stock issued for database expenses 95,583 -
Stock issued for accounts payable 40,000 -
Depreciation and amortization 184,121 16,015
Services paid by issuance of common stock 60,578 25,000
Options issued for compensation 101,200 -
Increase in:
Employee advance receivable (67,284) (18,920)
Other assets 56,509 (19,123)
Accrued liabilities 22,774 8,450
Accounts payable 570,044 (179,440)
Decrease in:
Accrued interest (577) 4,753
Accounts payable, related party (25,000) 25,000
Deposits 13,838 -
------------- -------------
Net cash used in operating activities (2,001,287) (1,175,622)
------------- -------------
Cash flows from investing activities:
Payments on leased equipment (5,996) -
Purchase of property and equipment (176,553) (167,670)
Investment (30,000) -
------------- -------------
Net cash used in investing activities (211,901) (167,670)
------------- -------------
Cash flows from financing activities:
Proceeds from loans 191,920 -
Over-subscriptions payable - 22,000
Issuance of stock 1,721,015 1,438,050
------------- -------------
Net cash provided by financing activities 1,912,935 1,460,050
Net increase (decrease) in cash (300,901) 116,758
Foreign currency translation gain (loss) (37,980) 18,158
Cash, beginning of period 371,266 236,350
------------- -------------
Cash, end of period $ 32,385 $ 371,266
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
<TABLE>
Year Ended Year Ended
May 31, May 31,
2000 1999
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ 577 $ 1,829
============= =============
Income taxes $ - $ -
============= =============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing lease for equipment $ - $ 26,274
Stock issued for accounts payable $ 40,000 $ -
Purchase commitment for database
paid in common stock $ 92,583 $ -
Services paid by issuance of stock $ 60,578 $ 25,000
Lease agreement satisfied with stock $ 44,777 $ -
Oversubscriptions payable converted
to debt $ 112,000 $ -
</TABLE>
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Elgrande.com Inc., formerly Intellicom Internet Corp (hereinafter "the
Company"), was incorporated in April 1998 under the laws of the State of Nevada
primarily for the purpose of developing and marketing internet applications,
specifically for books, software, audio and video media, and computer games.
The name change to Elgrande.com Inc. was effective on September 19, 1998. The
Company maintains an office in Vancouver, British Columbia, Canada.
Elgrande.com Inc. formed a wholly owned subsidiary, Yaletown Marketing Corp, to
provide management and administrative services for the Company. Yaletown
Marketing was incorporated February 23, 1999 in Victoria, British Columbia,
Canada.
The Company's year-end is May 31.
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 net
losses of $3,177,303 and $1,019,199 for the years ended May 31, 2000 and 1999,
respectively. As of May 31, 2000 the Company's liabilities exceeded its assets
by $142,760. The Company is currently putting technology in place which will,
if successful, mitigate these factors. These circumstances 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.
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.
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
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. As of May 31, 2000, the Company had
1,220,000 options outstanding which are considered to 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 May 31, 2000, the Company had accumulated net operating losses of
approximately $4,300,000. 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.
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 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:
May 31, May 31,
2000 1999
------------- --------------
Computers $ 97,972 $ 82,292
Furniture and fixtures 62,667 53,497
Database and software 545,645 408,370
------------- --------------
706,284 544,159
Less accum depreciation and amortization 189,215 19,522
------------- --------------
$ 517,069 $ 524,637
============= ==============
Depreciation and amortization expense for the years ended May 31, 2000 and 1999
were $184,121 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 May 31, 2000 and the year ended May 31, 1999,
amounts of $545,645 and $408,370, respectively, which are 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.
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 succeeding 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
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 5 - COMMON STOCK AND WARRANTS (continued)
$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 was 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 year ended May 31, 2000, the stock was
issued.
During the year ended May 31, 2000, common stock shares were issued for cash,
services and debt conversion. The following common stock shares were issued:
646,333 shares were issued for $.97 to $5.00 per share in cash totaling
$1,221,015; 500,000 shares were issued with 1,000,000 warrants attached, with
the stock valued at an average of $1.28 per share and the warrants at an average
value of $0.16 per warrant; 168,128 shares for debt in the total amount of
$156,777; 48,718 shares for services for $1.00 to $1.50 per share; 5,000 shares
for accounts payable for $3.00 per share; 138,000 shares for database expenses
of $88,000; and 25,000 options were exercised for $1.00 per share. Upon
termination, an employee rescinded 30,000 shares previously treated as
additional compensation.
In March 2000, the Company issued 75,000 warrants for professional services.
Each warrant is exercisable for 5 years with a price of $1.87. The fair value
of each warrant granted is estimated on the grant date using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating
fair value: the risk-free interest rate is 5%, volatility is .3%, and the
expected life of the warrants is five years. The fair market value of these
warrants of $89,250 was recorded as professional fees pursuant to Financial
Accounting Standard No. 123.
NOTE 6-STOCK OPTIONS
During the year ended May 31, 2000, the board of directors authorized the
exercise 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 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 4,225,000 of these options. Subsequent to year-end, the Company's
executive officers and directors voluntarily returned all 4,225,000 of these
options retroactively to the date of grant.
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 6-STOCK OPTIONS (continued)
The fair value of each option granted was 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 of the
option's expense was initially recorded in the Company's interim financial
statements as compensation and the remaining options' expense of $2,010,200 was
recorded as consulting fees. In accordance with Financial Accounting Standard
No. 123 paragraph 115, this expense was deemed to be an estimate, subject to
adjustment by decreasing the expense in the period of forfeiture. Pursuant to
the return of the aforementioned options, management decreased compensation and
consulting expenses by the originally recorded $2,044,700.
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 Ex.
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
===========
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 6-STOCK OPTIONS (continued)
Weighted
Number Average
of Ex.
Shares Price
----------- --------------
Outstanding at 5-31-99 1,850,000 $ 0.57
Granted 220,000 3.00
Exercised (135,000) 1.00
Forfeited - -
-
Outstanding at 5-31-00 1,935,000 $ 0.82
=========== ==============
Options Exercisable at 5-31-00 1,595,000 $ 0.99
=========== ==============
Weighted average fair value of options
granted during 2000 $ 0.82
===========
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.
During the year ending May 31, 1999, the Company paid its officers and directors
$249,000 in consulting fees. During the year ending May 31, 2000, the Company
paid its officers and directors $284,790 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. During the year ended May 31,
2000 this deposit was applied to rent.
Future minimum rental commitments under the operating lease are as follows:
Year Ending May 31, 2001 $53,856
Year Ending May 31, 2002 13,464
-------
$67,320
=======
The Company leases telephone equipment under a capital lease expiring June 23,
2002. The asset and liability under the capital lease are 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 the
Company's recorded depreciation expense at May 31, 2000 and 1999.
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
Future minimum lease commitments under capital lease are as follows:
Year Ending May 31, 2001 $ 7,977
Year Ending May 31, 2002 8,969
Year Ending May 31, 2003 2,479
--------
$ 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.
Disputed Accounts
------------------
The Company is currently in dispute with MacDonald Harris & Associates Ltd.
("MHA") regarding consulting and computer services for the Company's database.
Management believes that there are no outstanding amounts due to MHA as all
accounts payable from the Company to MHA were paid in full and the Company has
transferred 138,000 shares of common stock which was due to MHA. However, MHA
claims that additional amounts may be due, including common stock in the
Company, which the Company disputes. Management believes that MHA's claims are
without merit and have made no provisions in the financial statements concerning
any of these matters. Further, management is taking steps to recover capital
equipment purchased on behalf of the Company by MHA.
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, 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 Canadian Depository Insurance up to $60,000 in Canadian
funds. At May 31, 1999, the cash balance at one institution exceeded this
insured amount by $230,234. At May 31, 2000, no accounts exceeded this limit.
<PAGE>
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 11 - NOTES PAYABLE
Short-term
----------
The Company's short-term loan payable of $112,000 is unsecured,
non-interest-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.
Private investors have loaned the Company $161,920, which is convertible to
common stock. In lieu of cash repayment of the loan, the investors will receive
common stock at a discounted rate of 20% of the closing price of the stock on
July 31, 2000. Subsequent to year-end, 67,000 shares of common stock were
issued at $1.00 per share to satisfy a portion of this loan.
A related party, the father of the co-founder of Elgrande.com, Inc., has loaned
the Company $30,000 which is expected to be satisfied with stock before the
year-end May 31, 2001.
NOTE 12 - INVESTMENT IN INDIGO CITY PARTNERSHIP
In June 1999, the Company entered into an electronic media agreement with
Hydrogen Media, Inc. ("HMI"), where both parties agreed to build an e-commerce
web site. Under the partnership, which is referred to as the Indigo City
Partnership, the Company will provide all content for the web site and HMI will
provide all programming. Both the Company and HMI will have a 50% ownership in
the web site and related intellectual property rights.
The Company is obligated to pay a total of $60,000 to HMI for its services under
the contract. At the financial statement date, the Company had paid $30,000 in
cash and recorded the remaining $30,000 as an account payable. This payable
obligation is due in two installments of $15,000, based upon a specified web
site construction timeline of completion of beta testing and launch of the web
site.
This agreement is effective through June 2000, but may be extended upon written
agreement of the parties.
NOTE 13 - SUBSEQUENT EVENTS
In August 2000, the Company received $70,000 from 177,000 common stock
subscriptions.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our Officers and Directors are as follows:
NAME AGE TITLE YEAR BEGAN
---- --- ----- -----------
Michael F. Holloran* 52 President and CEO 2000
Mariusz Girt* 30 Chief Technology Officer 1998
Carlton M. Parfitt* 33 Treasurer and Secretary 1998
Randal Palach* 49 Director 1999
* Indicates Directors
MICHAEL F. HOLLORAN
Michael Holloran accepted the position of President & CEO of Elgrande and was
elected a director effective August of this year following the removal of James
West as Chairman of the Board, President and CEO on August 4, 2000, and the
Resignation of Mr. West as director on August 8, 2000. He brings to Elgrande
a wealth of senior management experience spanning 28 years, including 22
years with the Beak International Group and long-term involvement spearheading
strategic corporate expansion into key international markets, primarily within
Southeast Asia. He has served as a technical advisor to the Asian Development
Bank, the governments of Indonesia, Malaysia and the Philippines. He holds
outside Directorships, Advisory Board and committee memberships at several
prominent North American institutions. He has a Masters of Chemical
Engineering degree from McMaster University, a Bachelor of Science Honors)
degree in Applied Mathematics and Chemistry from the University of Waterloo
and a Management Studies diploma from Sheridan College.
MARIUSZ GIRT, CHIEF TECHNOLOGY OFFICER
Mr. Girt joined the Company in October 1998 as project manager for our computer
systems and was appointed a Director in June, 1999. Mr. Girt is responsible for
all technical aspects of our computing 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.
<PAGE>
CARLTON J. PARFITT, TREASURER AND SECRETARY
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. Mr. Parfitt graduated from Simon Fraser University, Vancouver,
British Columbia in 1991 with a degree in Physics.
RANDAL PALACH, DIRECTOR
Mr. Palach acted as our President and CEO from April 5, 1999, to November 11,
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 of related products sold globally. He also
implemented a major restructuring of the North American distribution network,
and led several acquisitions.
FAMILY RELATIONSHIPS
In the fiscal year ended May 31, 2000, Elise West, the mother of James West,
Kendall Page, the sister of Michael Page, a former director and officer of the
Company, Sonja Parfitt and Anthony Parfitt, the mother and brother of Carlton
Parfitt were employed by the Company in its marketing department. Elise West,
the mother of James West, Kendall Page, the sister of Michael Page, the former
Chief Operating Officer and a Director of the Company, Sonja Parfitt and Anthony
Parfitt, the mother and brother of Carlton Parfitt were employed by the Company
in its marketing department from September 1, 1998. Anthony Parfitt's
employment ended in November, 1999. 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.
As at August 11, 2000, 15,000 shares had so vested for each of Anthony Parfitt
and Sonja Parfitt, and 30,000 shares had so vested for each of Elise West and
Kendall Page.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
We believe that during the fiscal year ended May 31, 2000, Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
beneficial owners were satisfied.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation Table
----------------------------
Long-Term Compensation
Annual Compensation Awards Payouts
------------------------------------------- ---------------------- ------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Restricted Securities
and Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Comp. Awards(1) Options/ Payouts Comp.
Position ($) ($) ($) ($) SARs(#) ($) ($)
-------------- ---- ------ ----- ------ ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James 1999 35,900 -
West, 2000 63,891
Chairman,
President
& CEO(2)
Michael 1999 35,900 -
Page 2000 59,845
COO(3)
Mariusz 1999
Girt 2000 60,194 -
CTO
Carlton 1999 26,800 -
Parfitt 2000 30,727
Treasurer
& Secretary
Randal 1999 16,625 -
Palach(4) 2000 45,769
</TABLE>
(1) Fiscal years ended May 31, 1999 and 2000.
(2) Mr. West was removed as President, CEO and Chairman of the Board on
August 4, 2000; Mr. West resigned as a director on August 8, 2000.
(3) Mr. Page resigned as Chief Operating Officer and as a director on July 26,
2000.
(4) Mr. Palach resigned as President, Chief Executive Officer on November 11,
1999.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
Individual Grants
-------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of
Securities Total
Under- Options/
Lying SAR's
Options/ Granted to Exercise
SAR's Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date
------------- ------------ ----------- --------- ----------------
<S> <C> <C> <C> <C>
R. Palach 800,000 $3.00 June 11, 2004
J. West 1,000,000 $3.00 June 11, 2004
M. Page 1,000,000 $3.00 June 11, 2004
C. Parfitt 1,000,000 $3.00 June 11, 2004
M. Girt 750,000 $3.00 June 11, 2004
D. Brovarone 150,000 $3.00 June 11, 2004
</TABLE>
All of the options in the above table were rescinded by the Board of Directors,
with the consent of the option holders, retroactive to the date of grant.
We have 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 our
employees, directors and officers 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.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
No officer or Director exercised any options in the fiscal year ended May 31,
2000, and at the end of such year, all options held by officers & directors were
cancelled by the Board of Directors retroactive to the date of grant (see
"OPTION/SAR GRANTS IN LAST FISCAL YEAR").
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
We have not otherwise awarded any stock options, stock appreciation rights or
other form of derivative security or common stock or cash bonuses to
our executive officers and directors.
COMPENSATION OF DIRECTORS
The members of our Board of Directors are reimbursed for actual expenses
incurred in attending Board meetings.
EMPLOYMENT CONTRACTS
Our former CEO, James West, was compensated, up to the date of his removal,
under a consulting contract at a rate of US$79,944. The Company's Chief
Operations Officer, Michael Page, who resigned as a director and officer of the
<PAGE>
Company on July 26, 2000, is party to an amended two-year consulting contract
terminating on August 31, 2000, at a salary of US$79,944 per annum. The
consulting contract became effective in September 1998. Secretary and Treasurer
Carlton Parfitt is also party to a two-year consulting contract at a salary of
US$59,958 per annum. The consulting contract became effective in September
1998. Our former President and Chief Executive Officer, Randal Palach was party
to a six-month consulting contract beginning April 1, 1999, at a salary of
US$8,328 per month. The Chief Technology Officer, Mariusz Girt is party to an
amended consulting contract at a salary of US$59,958 per annum. Dennis
Brovarone, our former General Counsel beginning April 1, 1999, through May 31,
2000, received a US$4,000 per month retainer from April 1999, to November, 2000
and US$3,000 per month from December, 2000 to May, 2000.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 11, 2000, information concerning
the beneficial ownership of the our Common Stock by (i) each person who is known
by us to own beneficially more than 5% of our Common Stock, (ii) each of our
directors and officers, and (iii) all of our directors and executive officers as
a group.
Title of Name and Address Amount and Nature % of
Class of Beneficial Owner of Beneficial Ownership (1) Class
--------------------------------------------------------------------------------
Common James West 1,000,000 Direct 8.1%
Stock Ste. 308- 1040 Hamilton St.
Vancouver, B. C. V6B 2R9
Michael Page 1,000,000 Direct 8.1%
C/o 308-1040 Hamilton
Vancouver, B. C. V6B 2R9
Josephine Cross 1,000,000 Direct 8.1%
C/o 308-1040 Hamilton
Vancouver, B. C. V6B 2R9
Carlton Parfitt 1,000,000 Direct 8.1%
Ste. 308- 1040 Hamilton St.
Vancouver, B. C. V6B 2R9
Randal Palach 25,000 Direct 0.2%
C/o 308-1040 Hamilton
Vancouver, B. C. V6B 2R9
Mariusz Girt 250,000 Indirect 2.0%
Ste. 308- 1040 Hamilton St.
Vancouver, B.C. V6B 2R9
Dennis Brovarone 25,000 Direct 0.2%
11249 W 103rd Drive
Westminster, CO 80021 USA
All officers and directors
as a Group (7 persons) 4,300,000 shares 35.0%
(1) Beneficial ownership shown as indirect for Mariusz Girt is in the form of a
wholly-owned personal holding company. Josephine Cross is the mother of
Michael Page.
<PAGE>
CHANGES IN CONTROL
There are no arrangements that may result in a change in control of the
Registrant.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our 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. In the fiscal year ended
May 31, 2000, Elise West, the mother of James West, Kendall Page, the sister of
Michael Page, a former director and officer of the Company, Sonja Parfitt and
Anthony Parfitt, the mother and brother of Carlton Parfitt were 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 were rendered to the Company. As at August 11, 2000, 15,000 shares had
so vested for each of Anthony Parfitt and Sonja Parfitt, and 30,000 shares has
so vested for each of Kendall Page and Elise West.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following Exhibits are filed by attachment to this Annual Report on
Form 10-KSB:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
Ex 10.8 Consulting Agreement between Company and Wolnosc International
(Mariusz Girt)
Ex 10.9 Lease Agreement of Company's offices dated January 31, 2000
Ex 10.10 Capital Lease Agreement with National Leasing System
Ex 21 List of Subsidiaries
Ex 23 Consent of Auditors
Ex 27 Financial Data Schedule
In addition to those Exhibits shown above, the Company incorporates the
following Exhibits by reference to the filings set forth below:
EXHIBIT
NUMBER DESCRIPTION FILED AS EXHIBIT
-------- ----------- ----------------
Ex 3.1 Articles of Incorporation 3.1 in Form 10-SB dated Feb 2, 1999
Ex 3.11 By-Laws 3.11 in Form 10-SB dated Feb 2, 1999
Ex 10.3 M. Page-Consulting Agreement 10.3 in Form 10-SB dated Feb 2, 1999
Ex 10.4 C. Parfitt-Consulting Agreement 10.4 in Form 10-SB dated Feb 2, 1999
Ex 10.6 Office lease dated Aug 27, 1998 10.6 in Amendment 1 to Form 10-SB
dated Apr 21, 1999
Ex 10.7 Office lease dated Dec 22, 1998 10.6 in Amendment 1 to Form 10-SB
dated Apr 21, 1999
Ex 99.1 1998 Directors' & Officers' 99.1 in Form S-8 dated Feb 29, 1999
Stock Option Plan
Ex 99.2 1999 Stock Option Plan 99.2 in Form S-8 dated Feb 29, 1999
<PAGE>
(B) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K in the fiscal year ended
May 31, 2000.
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf the undersigned, thereto duly
authorized.
Dated: August 29, 2000
Elgrande.com, Inc.
By: /s/ Michael F. Holloran
-----------------------------
Michael F. Holloran,
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on August 29, 2000.
SIGNATURE CAPACITY
--------- --------
/s/ Mariusz Girt
------------------------ Chief Technology
Mariusz Girt Officer and Director
/s/ Carlton J. Parfitt
------------------------ Treasurer,
Carlton J. Parfitt Secretary and Director
/s/ Randal Palach
------------------------ Director
Randal Palach
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
Ex 10.8 Consulting Agreement between Company and Wolnosc International
(Mariusz Girt)
Ex 10.9 Lease Agreement of Company's offices dated January 31, 2000
Ex 10.10 Capital Lease Agreement with National Leasing System
Ex 21 List of Subsidiaries
Ex 23 Consent of Auditors
Ex 27 Financial Data Schedule
