(THIS SPACE LEFT INTENTIONALLY BLANK)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended August 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
Commission file number 000-25335
ELGRANDE.COM, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0409024
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Suite 308, 1040 Hamilton Street, Vancouver, B.C.
V6B2R9 Canada
(Address of principal executive offices)
(604) 689-0808
(Issuer's telephone number)
The number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Class August 31, 2000
--------------------- -----------------
Common stock,
$ 0.001 par value 13,099,479
<PAGE> 1
ELGRANDE.COM, INC.
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM I - Unaudited Consolidated Financial Statements
Accountant's Review Report 4
Consolidated Balance Sheets 5-6
Consolidated Statements of Operations 7
Consolidated Statement of Stockholders'
Equity (Deficit) 8-9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements 11
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
PART II. OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K 21
Signatures 21
<PAGE> 2
ELGRANDE.COM INC.
CONSOLIDATED FINANCIAL STATEMENTS
=================================
AUGUST 31, 2000
WILLIAMS & WEBSTER PS
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 ACCOUNTANT'S REVIEW REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Comprehensive Loss 3
Consolidated Statement of Stockholders' Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6
<PAGE> 3
Board of Directors
Elgrande.com, Inc.
Vancouver, B.C. Canada
ACCOUNTANT'S REVIEW REPORT
--------------------------
We have reviewed the accompanying consolidated balance sheet of Elgrande.com,
Inc. as of August 31, 2000 and the related consolidated statements of
operations, stockholders' equity and cash flows for the three months ended
February 29, 2000, and for the period from September 21, 1999 (inception) to
August 31, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for the year ended May 31, 2000 were audited by us and
we expressed an unqualified opinion on them in our report dated June 30, 2000,
but we have not performed any auditing procedures since that date.
As discussed in Note 2, the Company's realization of a major portion of the
assets is dependent upon the Company's ability to meet its future financing
requirements, and the success of future operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, WA
October 13, 2000
Accountants page 1
<PAGE> 4
ELGRANDE.COM INC.
CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2000 2000
(Unaudited)
-------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 30,073 $ 32,385
Employee expense advances 79,328 86,204
GST tax refundable 4,239 4,549
Prepaid expenses 1,594 -
-------------- --------------
TOTAL CURRENT ASSETS 115,234 123,138
-------------- --------------
PROPERTY AND EQUIPMENT
Computer hardware 97,972 97,972
Furniture and fixtures 62,667 62,667
Database and software 545,645 545,645
Less accumulated depreciation
and amortization (231,380) (189,215)
-------------- --------------
TOTAL PROPERTY AND EQUIPMENT 474,904 517,069
-------------- --------------
OTHER ASSETS
Deposits 29,730 29,622
Investments 60,000 60,000
-------------- --------------
TOTAL OTHER ASSETS 89,730 89,622
-------------- --------------
TOTAL ASSETS $ 679,868 $ 729,829
============== ==============
Accountants page 2
<PAGE> 5
ELGRANDE.COM INC.
CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2000 2000
(Unaudited)
-------------- --------------
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 673,377 $ 630,020
Accrued liabilities 34,282 31,224
Note payable, current portion 163,204 161,920
Current portion of long-term debt 7,977 7,977
-------------- --------------
TOTAL CURRENT LIABILITIES 878,840 831,141
LONG-TERM DEBT
Capital lease, net of current portion 7,614 11,448
Note payable related party 30,000 30,000
-------------- --------------
TOTAL LONG-TERM LIABILITIES 37,614 41,448
-------------- --------------
TOTAL LIABILITIES 916,454 872,589
-------------- --------------
COMMITMENTS AND CONTINGENCIES - -
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 200,000,000 shares
authorized, $.001 par value;
13,099,479 and 12,295,479 shares
issued and outstanding, respectively 13,099 12,295
Stock options and warrants 415,230 354,950
Additional paid-in capital 4,231,996 3,857,300
Accumulated deficit (4,896,036) (4,347,483)
Accumulated other comprehensive
income (loss) (875) (19,822)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (236,586) (142,760)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 679,868 $ 729,829
============== ==============
See accountants' review report and accompanying notes.
Accountants page 2
<PAGE> 6
ELGRANDE.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three Months Ended
----------------------------------
August 31, August 31,
2000 1999
(Unaudited) (Unaudited)
--------------- ---------------
R E V E N U E S $ 62,863 $ -
COST OF REVENUES 119,173 -
--------------- ---------------
GROSS PROFIT (LOSS) (56,310) -
--------------- ---------------
E X P E N S E S
Consulting fees 136,301 138,543
Marketing and public relations - 210,374
Legal and professional fees 236,016 36,465
Salaries 38,730 -
Office and administration 12,068 281,685
Rent 13,822 -
Communication 4,322 -
Software and internet services 1,221 154,969
Depreciation and amortization 42,156 29,379
Database construction and maintenance 6,461 -
--------------- ---------------
TOTAL OPERATING EXPENSES 491,097 851,415
--------------- ---------------
LOSS FROM OPERATIONS (547,407) (851,415)
OTHER INCOME AND (EXPENSES)
Interest expense (1,146) -
--------------- ---------------
(1,146) -
LOSS BEFORE INCOME TAXES (548,553) (851,415)
INCOME TAXES - -
--------------- ---------------
NET LOSS (548,553) (851,415)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain (loss) 18,947 24,344
--------------- ---------------
COMPREHENSIVE LOSS $ (529,606) $ (827,071)
=============== ===============
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.05) $ (0.07)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
SHARES OUTSTANDING, BASIC AND DILUTED 11,645,330 11,645,330
=============== ===============
See accountants' review report and accompanying notes.
Accountants page 3
<PAGE> 7
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
Accum- Total
Common Stock ulated Stock-
----------------------- Additional Stock Accum- Other holders
Number Paid-in Options & ulated Compre- Equity
Of Shares Amount Capital Warrants Deficit hensive (Deficit)
----------- ---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 $0.165 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
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 per share 138,000 138 92,445 - - - 92,583
Stock rescinded upon
termination (30,000) (30) 30 - - - -
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)
See accountants' review report and accompanying notes.
Accountants page 4
<PAGE> 8
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
</TABLE>
<TABLE>
Accum- Total
Common Stock ulated Stock-
----------------------- Additional Stock Accum- Other holders
Number Paid-in Options & ulated Compre- Equity
Of Shares Amount Capital Warrants Deficit hensive (Deficit)
----------- ---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash at an average
of $0.50 per share 187,000 187 93,313 - - - 93,500
Common stock options
exercised for cash and
services at $0.39
per share 550,000 550 214,450 - - - 215,000
Options issued for
consulting fees - - - 60,280 - - 60,280
Stock issued for debt at
$1.00 per share 67,000 67 66,933 - - - 67,000
Loss for three months
ended August 31, 2000 - - - - (548,553) - (548,553)
Foreign currency
translation gain (loss) - - - - - 18,947 18,947
----------- ---------- ----------- ---------- ----------- ---------- ----------
Balance, August 31,
2000 (unaudited) 13,099,479 $ 13,099 $4,231,996 $415,230 $(4,896,036) $ (875) $(236,586)
=========== ========== =========== ========== =========== ========== ===========
</TABLE>
See accountants' review report and accompanying notes.
Accountants page 4
<PAGE> 9
ELGRANDE.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
----------------------------------
August 31, August 31,
2000 1999
(Unaudited) (Unaudited)
--------------- ---------------
Cash flows from operating activities:
Net loss $ (548,553) $ (851,415)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 42,165 29,379
Non-cash expenses 4,308 -
Services paid by issuance of
common stock 214,450 -
Options issued for compensation 60,280 -
Increase in:
Employee advance receivable - (17,834)
Other assets 1,284 (23,309)
Accrued liabilities 3,058 814
Accounts payable 43,357 703,440
Decrease in:
Accrued interest - (529)
Deposits (108) -
--------------- ---------------
Net cash used in operating activities (179,759) (159,454)
--------------- ---------------
Cash flows from investing activities:
Payments on leased equipment (3,834) -
Purchase of property and equipment - (176,156)
Investment - (60,000)
--------------- ---------------
Net cash used in investing activities (3,834) (236,156)
--------------- ---------------
Cash flows from financing activities:
Proceeds from loans 68,284 -
Issuance of stock 94,050 -
--------------- ---------------
Net cash provided by financing activities 162,334 -
Net increase (decrease) in cash (21,259) (395,610)
Foreign currency translation gain (loss) 18,947 24,344
Cash, beginning of period 32,385 371,266
--------------- ---------------
Cash, end of period $ 30,073 $ -
=============== ================
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ 577 $ 1,829
=============== ================
Income taxes $ - $ -
=============== ================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Services paid by issuance of stock $ 214,450 $ -
Non-cash expenses $ 4,308 $ -
Options issued for professional fees $ 60,280 $ -
See accountants' review report and accompanying notes.
Accountants page 5
<PAGE> 10
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
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
while the Elgrande.com site is a stand-alone e-commerce site, its future purpose
will be as a proto-type demonstration site for the ShopEngine suite of software
applications. The Elgrande.com site will be used to demonstrate ShopEngine
software updates and as a marketing tool to showcase the capabilities of
ShopEngine to prospective shop supplies and shop operations. 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. References herein to the Company include the
Company and its subsidiary, unless the context otherwise requires.
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 $548,553 and $851,415 for the three months ended August 31, 2000 and
1999, respectively. As of August 31, 2000, the Company's liabilities exceeded
its assets by $236,586. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. The Company is currently
putting technology in place which will, if successful, mitigate these factors.
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.
Accountants' page 6
<PAGE> 11
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 August 31, 2000, the Company had
1,220,000 options outstanding which are considered to be antidilutive. As of
August 31, 2000, the Company had 1,220,000 options outstanding and convertible
debt of $163,204 that would have been equal to 326,408 shares of common stock,
which are considered to be antidilutive.
At August 31, 2000, the Company also had an additional $30,000 in convertible
debt which has not been negotiated and the conversion feature has not been
determined.
Cash and Cash Equivalents
----------------------------
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Provision for Taxes
---------------------
At August 31, 2000, the Company had accumulated net operating losses of
approximately $4,800,000. 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.
<PAGE> 12
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Any costs associated with year 2000 expensed as incurred.
Interim Financial Statements
------------------------------
The interim financial statements for the period ended August 31, 2000, included
herein have not been audited, at the request of the Company. They do reflect
all adjustments, which are, in the opinion of management, necessary to present
fairly the results of operations for the period. All such adjustments are
normal recurring adjustments. The results of operations for the period
presented is not necessarily indicative of the results to be expected for the
full fiscal year.
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:
August 31, August 31,
2000 1999
------------- --------------
Computers $ 97,972 $ 96,074
Furniture and fixtures 62,667 78,595
Database and software 545,645 545,645
------------- --------------
706,284 720,314
Less accum depreciation
and amortization (231,380) (48,901)
------------- --------------
$ 474,904 $ 671,413
============= ==============
Depreciation and amortization expense for the three months ended August 31, 2000
and 1999 were $42,165 and $29,379, respectively.
<PAGE> 13
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 4 - INTANGIBLE ASSETS
The Company has capitalized, for the three months ended August 31, 2000 and
1999, amounts of $545,645, 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 $0.001
per share to the board of directors for $4,000. The succeeding share issuance
was for 5,000,000 common shares at $0.01 per share for $50,000. Under
Regulation D, Rule 504, 943,800 shares of common stock were issued at $1.00 per
share for cash and subscriptions. A May 1, 1999 issuance was for 300,000 units,
each consisting of one share of common stock and three common stock purchase
warrants (Class A, Class B and Class C) at $3.00 per unit under Regulation D,
Rule 501. Each Class A warrant entitles the holder to acquire an additional
share of common stock for $7.50 per share at any time prior to May 31, 2006.
Each Class B warrant entitles the holder to acquire an additional share of
common stock for $15.00 per share at any time prior to May 31, 2006 and each
Class C warrant entitles the holder to acquire an additional share of common
stock for $25.00 per share at any time prior to May 31, 2006. The warrants have
no assigned value according to the Black-Scholes Option Price Calculation. As
of August 31, 2000, none of the warrants have been exercised.
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, 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 $1.28 per share and the warrants at an average value of $.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
<PAGE> 14
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 5 - COMMON STOCK AND WARRANTS (CONTINUED)
$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 0.3, 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. During the three months ended August 31, 2000, the
Company issued for cash 187,000 shares of common stock at $0.50 per share. In
the same three month period, 67,000 common stock shares were issued in exchange
for debt at $1.00 per share and 550,000 common stock options were exercised for
cash of $550 and services valued at $214,450.
NOTE 6-STOCK OPTIONS
During the year ended May 31, 2000, the board of directors authorized the
exercise of options 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 the grant.
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 0.5, 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.
<PAGE> 15
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 6-STOCK OPTIONS (CONTINUED)
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%, volatility is 0.5, 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.
During the three months ended August 31, 2000, the board of directors authorized
137,000 options in exchange for consulting services. The Company valued these
services at $60,280. The options issued have an exercise price of $0.001 and
will vest in six equal installments at the end of each six-month period during
the term of the agreement. 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%, volatility is .3, and expected life is 3 years.
The following is a summary of stock option activity:
Weighted
Number Average
of Exercise
Shares Price
---------- --------
Outstanding at 4-8-98 (inception) 850,000 $ $0.06
Granted 1,000,000 1.00
Exercised - -
Forfeited - -
---------- --------
Outstanding at 5-31-99 1,850,000 $ 0.57
========== ========
Options exercisable at 5-31-99 1,170,000 $ 0.86
========== ========
Weighted average fair value of
options granted during 1999 $ 1.00
========
<PAGE> 16
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 6-STOCK OPTIONS (CONTINUED)
Weighted
Number Average
of Exercise
Shares Price
---------- --------
Outstanding at 5-31-99 1,850,000 $ .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
========
Weighted
Number Average
of Exercise
Shares Price
---------- --------
Outstanding at 5-31-00 1,595,000 $ 0.82
Granted 687,000 0.40
Exercised (550,000) 0.40
Forfeited - -
---------- --------
Outstanding at 8-31-00 1,732,000 $ 0.79
========== ========
Options Exercisable at 8-31-00 1,595,000 $ 0.86
Weighted Average fair value of
options granted during 2001 $ 0.40
========
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 in 1999, 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, 2000, the Company paid its officers and directors
$284,790 in consulting fees. During the three months ended August 31, 2000 the
Company paid its officers and director $76,022 in consulting fees.
<PAGE> 17
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
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.
Future minimum lease commitments under the capital lease are as follows:
Year Ending May 31, 2001 $4,143
Year Ending May 31, 2002 8,969
Year Ending May 31, 2003 2,479
---------
$15,591
=========
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.
<PAGE> 18
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
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 August 31, 2000, no accounts exceeded this limit.
NOTE 11 - NOTES PAYABLE
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 $230,204, which is convertible to
common stock at $0.50 per share. 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. At August 31,2000, 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.
<PAGE> 19
ELGRANDE.COM, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
-----------------------
There are revenues of $62,863 for the three months ended August 31, 2000,
representing sale of merchandise, versus zero revenues as at August 31, 1999.
The Company activated its web site for test purposes in June 1999 and is fully
operational as of January 1, 2000.
Comparison of the Three Months Ended August 31, 2000 and 1999
-----------------------------------------------------------------------
A summary of expenses for the quarter ended August 2000 compared to the same
period in 1999 is as follows:
2000 1999
------------ ------------
Consulting 136,301 138,543
Marketing and public relations 0 210,374
Software and internet fees 7,682 154,969
Administration and other 304,958 318,150
Depreciation and amortization 42,156 29,379
------------ ------------
491,097 851,415
============ ============
Software costs include database development costs incurred of $6,461 to August
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 $38,730 and general office
expenses of $266,228 to August 31, 2000, compared to $111,499 and $206,651
respectively for the year ended August 31, 1999.
The Company budgeted its cash requirements in order to develop the web based
contact management system, and the central database that holds product data. To
date, costs have been within the established budget. The site was activated on
June 2, 1999 for test purposes.
Liquidity and Capital Resources
----------------------------------
To date, the Company has financed its development stage by the sale of common
stock. 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.
<PAGE> 20
ELGRANDE.COM, INC.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
EX-27 - Financial Data Schedule, attached.
(b) Reports on Form 8-K relating to the quarter ended August 31, 2000.
The Company did not file any reports on Form 8-K during the quarter
ended August 31, 2000.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ELGRANDE.COM, INC.
By: /s/ Michael F. Holloran
-------------------------------------
Michael F. Holloran
President and Chief Executive Officer
Dated: October 16, 2000
21
