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 November 30, 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 November 30, 2000
----- --------------------
Common stock
$ 0.001 par value 14,427,148
<PAGE> 1
ELGRANDE.COM, INC.
FORM 10QSB
For the period ended November 30, 2000
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM I - Unaudited Consolidated Financial Statements
Accountant's Review Report 3
Consolidated Balance Sheets as of November 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Operations for the Three Months
Ended November 30, 2000 and 1999 (Unaudited) 6
Consolidated Statement Of Stockholders' Equity (Deficit) 7
Consolidated Statements of Cash Flows for the Three Months
Ended November 30, 2000 and 1999 (Unaudited) 9
Notes to Consolidated Financial Statements 11
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
PART II. OTHER INFORMATION 20
Signatures 20
<PAGE>2
ELGRANDE.COM, INC.
FORM 10QSB
For the period ended November 30, 2000
PART 1 - Financial Information
ELGRANDE.COM INC.
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
WILLIAMS & WEBSTER PS
CERTIFIED PUBLIC ACCOUNTANTS
BANK OF AMERICA FINANCIAL CENTER
W 601 RIVERSIDE, SUITE 1940
SPOKANE, WA 99201
(509) 838-5111
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 November 30, 2000 and the related consolidated statements of
operations and comprehensive, stockholders' equity (deficit) and cash flows for
the six months ended November 30, 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 its
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 this issue are also addressed 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, WA
January 11, 2000
<PAGE>3
ELGRANDE.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
November 30, May 31,
2000 2000
(Unaudited)
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 13,240 $ 32,385
Employee expense advances 77,719 86,204
GST tax refundable 6,019 4,549
Prepaid expenses 627 -
-------------- --------------
TOTAL CURRENT ASSETS 97,605 123,138
-------------- --------------
PROPERTY AND EQUIPMENT
Computer hardware 97,972 97,972
Furniture and fixtures 63,257 62,667
Database and software 545,645 545,645
Less accum. depreciation and amortization (255,676) (189,215)
-------------- --------------
TOTAL PROPERTY AND EQUIPMENT 451,198 517,069
-------------- --------------
OTHER ASSETS
Deposits 28,778 29,622
Investments 60,000 60,000
-------------- --------------
TOTAL OTHER ASSETS 88,778 89,622
-------------- --------------
TOTAL ASSETS $ 637,581 $ 729,829
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>4
ELGRANDE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
November 30, May 31,
2000 2000
(Unaudited)
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 637,689 $ 630,020
Accrued liabilities 38,455 31,224
Convertible notes payable, current portion 48,315 161,920
Current portion of capital lease 5,433 7,977
-------------- --------------
TOTAL CURRENT LIABILITIES 729,892 831,141
-------------- --------------
LONG-TERM DEBT
Capital lease, net of current portion 7,986 11,448
Note payable related party - 30,000
-------------- --------------
TOTAL LONG-TERM LIABILITIES 7,986 41,448
-------------- --------------
TOTAL LIABILITIES 737,878 872,589
-------------- --------------
COMMITMENTS AND CONTINGENCIES - -
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 200,000,000 shares authorized,
$.001 par value; 14,427,148 and 12,295,479
shares issued and outstanding, respectively 14,427 12,295
Stock options and warrants 856,899 354,950
Additional paid-in capital 4,796,957 3,857,300
Accumulated deficit (5,773,781) (4,347,483)
Accumulated other comprehensive income (loss) 5,201 (19,822)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (100,297) (142,760)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 637,581 $ 729,829
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>5
ELGRANDE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
For the Three Months Ended For the Six Months Ended
November 30, November 30,
------------------------------ ------------------------------
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES $ 15,888 $ 253 $ 78,751 $ 253
COST OF REVENUES 22,954 - 142,127 -
-------------- -------------- -------------- --------------
GROSS PROFIT (LOSS) (7,066) 253 (63,376) 253
-------------- -------------- -------------- --------------
OPERATING EXPENSES 1,022,491 1,303,078 1,361,104 2,154,493
-------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (1,029,557) (1,302,825) (1,424,480) (2,154,240)
OTHER INCOME AND (EXPENSES)
Interest 63 - 63 -
Interest expense (735) - (1,881) -
-------------- -------------- -------------- --------------
(672) - (1,818) -
-------------- -------------- -------------- --------------
NET LOSS (1,030,229) (1,302,825) (1,426,298) (2,154,240)
OTHER COMPREHENSIVE INCOME
Foreign currency
translation gain
(loss) (13,746) (20,302) 25,023 4,042
-------------- -------------- -------------- --------------
COMPREHENSIVE LOSS $ (1,043,975) $ (1,323,127) $ (1,401,275) $ (2,150,198)
============== ============== ============== ==============
BASIC AND DILUTED
NET LOSS PER
COMMON SHARE $ (0.08) $ (0.12) $ (0.10) $ (0.20)
============== ============== ============== ==============
WEIGHTED AVERAGE
NUMBER OF COMMON
STOCK SHARES
OUTSTANDING,
BASIC AND DILUTED 13,670,012 10,919,155 13,670,012 10,919,155
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>6
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
Accum- Total
Common Stock Stock ulated Stock-
----------------------- Additional Options & Accum- Other holders
Number Paid-in Warrants ulated Compre- Equity
Of Shares Amount Capital Amount 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)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>7
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
<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 - - - 542,769 - - 542,769
Stock issued for debt at
$1.00 per share 67,000 67 66,933 - - - 67,000
Issuance of common
stock for cash
at an average of
$0.50 per share 240,000 240 117,760 - - - 118,000
Options exercised
at an average of
$0.62 per share 227,000 227 140,200 (74,680) - - 65,747
Stock issued for
services at $0.45
per share 600,000 600 167,400 - - - 168,000
Stock issued for debt
at an average of
$0.54 per share 260,669 261 139,601 - - - 139,862
Options issued as
compensation - - - 33,860 - - 33,860
Loss for six months
ended November 30, 2000 - - - - (1,426,298) - (1,426,298)
Foreign currency
translation gain (loss) - - - - - 25,023 25,023
----------- ---------- ----------- ---------- ----------- ---------- ----------
Balance,
November 30, 2000
(unaudited) 14,427,148 $ 14,427 $4,796,957 856,899 $(5,773,781) $ 5,201 $(100,297)
=========== ========== =========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>8
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
Six Months Six Months
Ended Ended
November 30, November 30,
2000 1999
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,426,298) $ (2,154,240)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock issued for accounts payable 137 -
Depreciation and amortization 68,560 54,773
Services paid by issuance of common stock 168,000 25,000
Options issued for professional services 542,769 -
Options issued for compensation 33,860 -
Increase in:
Employee advance receivable 8,485 (38,513)
Other assets (2,097) (30,114)
Accured liabilities 7,231 55,555
Overdrafts payable - 40,805
Accounts payable 7,669 774,239
Decrease in:
Accounts payable, related party - (25,000)
Deposits 844 13,969
-------------- --------------
Net cash used in operating activities (590,840) (1,283,526)
-------------- --------------
Cash flows from investing activities:
Payments on leased equipment (6,006) (12,728)
Purchase of property and equipment - (130,109)
Investment - (30,000)
-------------- --------------
Net cash used in investing activities (6,006) (172,837)
-------------- --------------
Cash flows from financing activities:
Proceeds from loans 110,564 20,743
Issuance of stock 467,137 1,064,354
-------------- --------------
Net cash provided by financing activities 577,701 1,085,097
Net increase (decrease) in cash (19,145) (371,266)
Cash, beginning of period 32,385 371,266
-------------- --------------
Cash, end of period $ 13,240 $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>9
ELGRANDE.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
Six Months Six Months
Ended Ended
November 30, November 30,
2000 1999
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ - $ 628
============== ==============
Income taxes $ - $ -
============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing lease for equipment $ - $ 47,000
Stock issued for notes payable, related party $ 44,897 $ 44,825
Services paid by issuance of stock $ 168,000 $ 25,000
Oversubscriptions payable converted to debt $ - $ 112,000
Options issued for professional fees $ 542,769 $ -
Options issued for compensation $ 33,860 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>10
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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.
The Elgrande.com site is a stand-alone e-commerce site, and its future purpose
will be as a prototype 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 $1,426,897 and $2,154,240 for the six months ended November 30, 2000
and 1999, respectively. As of November 30, 2000, the Company's liabilities
exceeded its assets by $100,297. 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.
<PAGE>11
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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 November 30, 2000, the Company had
1,220,000 options outstanding and convertible debt of $48,315 that would have
been equal to 96,630 shares of common stock, which are considered to be
antidilutive.
At May 31, 2000, the Company also had an additional $30,000 in convertible debt
been and the conversion features of which had not been determined. During the
subsequent six months ended November 30, 2000, 44,942 shares of common stock
were issued for this debt for a value of $44,897.
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 November 30, 2000, the Company had accumulated net operating losses of
approximately $5,700,000. 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.
<PAGE>12
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Interim Financial Statements
------------------------------
The interim financial statements for the period ended November 30, 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.
Foreign Currency Translation Gains/Losses
--------------------------------------------
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.
Advertising Costs
------------------
Advertising costs are charged to operations when they occur.
Revenue and Cost Recognition
-------------------------------
Revenues and costs are recognized at the time of sale of products.
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:
<PAGE>13
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
November 30, 2000 November 30, 1999
----------------- -------------------
Computers $ 97,972 $ 96,762
Furniture and fixtures 63,257 79,742
Database and software 545,645 545,645
----------------- -------------------
706,284 722,149
Less accum depreciation
and amortization (255,676) (74,226)
----------------- -------------------
$ 451,198 $ 647,923
================= ===================
Depreciation and amortization expense for the six months ended November 30, 2000
and 1999 were $68,560 and $54,773, respectively.
NOTE 4 - INTANGIBLE ASSETS
The Company has capitalized, for the six months ended November 30, 2000 and
1999, $545,645, which is the contractual cost of data base software purchased
from an independent software supplier. No portion of this software was
internally developed and, accordingly, there are no internal costs associated
with this software which were charged to research and development. Consistent
with SOP 98-1, the costs of this software-which was purchased solely for
internal use and will not be marketed externally-have been capitalized.
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 November 30, 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 was subsequently
converted to a loan which was then satisfied with stock. See Note 11.
<PAGE>14
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
NOTE 5 - COMMON STOCK AND WARRANTS (Continued)
At May 31, 1999, 25,000 shares of common stock had been granted but not issued.
The Company valued the related 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 $0.97 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 $0.16
per warrant; 168,128 shares for debt in the total amount of $156,777; 48,718
shares for services at $1.00 to $1.50 per share; 5,000 shares for accounts
payable at $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 six months ended November 30, 2000, the Company issued for cash
427,000 shares of common stock at $0.50 per share and 600,000 shares of common
stock for services values at $169,000. In the same six month period, 327,669
common stock shares were issued in exchange for debt in the amount of $206,862
and 777,000 common stock options were exercised for cash of $66,297 and services
valued at $289,130.
NOTE 6-STOCK OPTIONS
During the year ended May 31, 2000, the Company's 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
options' expense was initially recorded in the Company's interim financial
statements as compensation and the remaining options' expense of $2,010,200 was
<PAGE>15
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
NOTE 6-STOCK OPTIONS (Continued)
recorded as consulting fees. In accordance with Financial Accounting Standard
No. 123 paragraph 115, the recorded expenses were 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 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 six months ended November 30, 2000, the board of directors authorized
2,472,556 options in exchange for consulting services and also authorized
110,000 options as employee compensation. The Company valued these services at
$651,309. The options issued have an average exercise price of $0.45. 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
NOTE 6-STOCK OPTIONS (CONTINUED)
in estimating fair value: risk free interest rate is 5% and 6%, volatility is
0.3, and expected life is 5 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
NOVEMBER 30, 2000
NOTE 6-STOCK OPTIONS (Continued)
Weighted
Number Average
of Exercise
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 $ 3.00
=============
Weighted
Number Average
of Exercise
Shares Price
---------------- -------------
Outstanding at 5-31-00 1,595,000 $ 0.82
Granted 2,582,556 0.45
Exercised (777,000) 0.45
Forfeited - -
---------------- -------------
Outstanding at 11-30-00 3,400,556 $ 0.63
================ =============
Options Exercisable at 11-30-00 3,400,556 $ 0.63
================ =============
Weighted Average fair value
of options granted during 2001 $ 0.45
=============
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 six months ended November 30, 2000, the
Company paid its officers and director $90,117 in consulting fees.
<PAGE>17
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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
=========
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 has 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 - 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 November 30, 2000, no accounts exceeded this limit.
<PAGE>18
ELGRANDE.COM INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
NOTE 10 - NOTES PAYABLE
Short-term
----------
The Company had a short-term loan payable of $112,000 which was unsecured,
noninterest-bearing, payable upon demand or, at the option of the noteholder,
convertible into common shares of restricted stock under Rule 144 at $1.00 per
share. This note was converted to common stock in November 1999.
The Company had a long-term note secured by furniture and computers for $47,000.
The terms of this agreement called for a balloon payment of all principal on
November 30, 2000. The loan did 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 $210,235, which is convertible to
common stock at $0.50 per share. In lieu of cash repayment of the loan, the
investors were entitled to receive common stock at a discounted rate of 20% of
the closing price of the stock on July 31, 2000. At November 30, 2000, 67,000
shares of common stock were issued at $1.00 per share and another 215,727 shares
of common stock were issued for $94,920 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 was satisfied with 44,942 shares of common stock
during the year ended November 30, 2000.
NOTE 11 - 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.
FORM 10QSB
For the period ended November 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
-----------------------
There are revenues of $15,888 for the three months ended November 30, 2000,
representing sale of merchandise, versus $253 as at November 30, 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 November 30, 2000 and 1999
-------------------------------------------------------------------------
A summary of expenses for the quarter ended November 2000 compared to the same
period in 1999 is as follows:
2000 1999
-------------- -------------
Consulting 484,789 131,421
Marketing and public relations - 636,790
Software and internet fees 4,135 111,682
Administration and other 507,163 397,791
Depreciation and amortization 26,404 25,394
-------------- -------------
1,022,491 1,303,078
============== =============
Software costs include database development costs incurred of $3,135 in the
quarter ended November 30, 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 $98,742 and general office
expenses of $848,186 for the six months ended November 30, 2000, compared to
$229,358 and $486,583 respectively for the same period ended November 30, 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.
FORM 10QSB
For the period ended November 30, 2000
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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: January 16, 2001
