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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-
For the quarterly period ended June 30, 2000
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OR
/__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ____________________
Commission File No. 0-25507
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iPARTY CORP.
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(Exact name of registrant as specified in its charter)
Delaware 13-4012236
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
130 West 30th Street, 10th Floor, New York, New York 10001
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 609-4300
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(Former name or former address, if changed since last report.)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
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Transitional small business disclosure format
Yes No X
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iPARTY CORP.
Quarterly Report on Form 10-QSB
Table of Contents
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 6
PART II OTHER INFORMATION
Item 6. Exhibits 11
SIGNATURES
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iPARTY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
June 30, December 31,
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2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,542,816 $ 18,673,304
Marketable securities 1,644,313 973,877
Cash, restricted - 51,012
Accounts receivable - 99,476
Prepaid expenses and other current assets 378,517 428,645
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Total current assets 12,565,646 20,226,314
Property and equipment, net 939,355 860,457
Intangible Assets 5,092,222 6,119,734
Other assets 56,594 50,245
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Total assets $ 18,653,817 $ 27,256,750
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,576,469 $ 1,749,806
Accrued severance 75,013 213,987
Accrued expenses 877,008 238,889
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Total current liabilities 3,528,490 2,202,682
Other Liabilities:
Deferred Payables 33,287 -
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Total Liabilities 3,561,777 2,202,682
Commitments and contingencies
Stockholders' Equity:
Preferred stock - $.001 par value; 10,000,000 shares authorized; Series A
preferred stock - 1,000,000 authorized;
1,000,000 shares issued and outstanding 1,000 1,000
Series B preferred stock - 1,150,000 authorized;
1,044,952 shares issued and outstanding 1,045 1,045
Series C preferred stock - 100,000 authorized;
100,000 shares issued and outstanding 100 100
Series D preferred stock - 250,000 authorized;
250,000 shares issued and outstanding 250 250
Common stock - $.001 par value; 50,000,000 shares authorized;
11,136,107 and 11,005,691 shares issued and outstanding 11,136 11,006
Additional paid in capital 59,251,257 58,616,431
Accumulated deficit (44,172,748) (33,575,764)
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Total stockholders' equity 15,092,040 25,054,068
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Total liabilities and stockholders' equity $ 18,653,817 $ 27,256,750
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Consolidated Balance Sheet.
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iPARTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues $ 259,852 $ - $ 406,685 $ -
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Operating costs:
Cost of products sold 375,363 - 492,720 -
Amortization of partner warrant 377,744 - 755,488 -
Marketing and sales 2,563,555 - 4,979,563 -
Product/technology development 1,664,788 - 3,562,532 -
General and administrative 549,544 987,988 1,078,543 1,543,214
Loss from abandonment of assets - - - 273,288
Non-cash compensation expense 88,777 95,269 634,956 229,403
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Operating loss (5,359,919) (1,083,257) (11,097,117) (2,045,905)
Interest income 226,679 733 500,133 1,547
Interest expense 7 (240,989) - (240,989)
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Net loss before income taxes (5,133,240) (1,323,513) (10,596,984) (2,285,347)
Provision for income taxes - - - -
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Net loss $ (5,133,240) $ (1,323,513) $(10,596,984) $ (2,285,347)
============ ============ ============ ============
Loss per share:
Basic and diluted $ (0.46) $ (0.12) $ (0.95) $ (0.21)
============ ============ ============ ============
Weighted Average Shares Outstanding:
Basic and diluted 11,136,107 11,005,691 11,103,436 11,005,691
============ ============ ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Consolidated Statements.
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iPARTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,596,984) $ (2,285,347)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,498,952 216,347
Loss resulting from abandonment of assets - 273,288
Amortization of discount on issuance of convertible notes 216,571
Non-cash compensation expense 634,956 229,403
Decrease (increase) in:
Accounts receivable 99,476 -
Inventory - (108,466)
Prepaid expenses and other current assets 50,128 (70,400)
Other assets (6,349) (28,881)
Increase (decrease) in:
Accounts payable 826,663 41,537
Accrued severance (138,974) -
Accrued expenses 458,526 -
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Net cash used in operating activities (7,173,606) (1,515,948)
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Cash flows from investing activities:
Purchase of property and equipment (337,458) (230,368)
Advances to officer - 28,861
Equipment and software development - (394,786)
Purchase of marketable securities (670,436) -
Increase in restricted cash 51,012 -
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Net cash used in investing activities (956,882) (596,293)
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Cash flows from financing activities:
Proceeds from note payable - 1,500,000
Proceeds from sale of stock, net of offering costs - 750,000
Cost of sale of stock - (50,000)
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Net cash provided by investing activities 0 2,200,000
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Net increase (decrease) in cash and cash equivalents (8,130,488) 87,759
Cash and cash equivalents, beginning of period 18,673,304 346,751
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Cash and cash equivalents, end of period $ 10,542,816 $ 434,510
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Cash paid for:
Income taxes $ 28,997 $ -
Disclosure of non-cash transactions:
Assets purchased under capital leases $ 212,880 $ -
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these Consolidated Statements.
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iPARTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. THE COMPANY
iParty LLC, which was created on December 11, 1997 to launch an Internet-based
merchant of party goods and services, commenced operations in January 1998. On
March 12, 1998, iParty Corp. was organized as a wholly owned subsidiary of
iParty LLC and the net assets and operations of iParty LLC were transferred to
iParty Corp. On April 9, 1998, StarGreetings, Inc. ("Star") was incorporated as
a wholly owned subsidiary of iParty Corp. to develop and operate a personalized
celebrity greeting service.
Effective July 2, 1998, iParty Corp. ("iParty" or the "Company") merged into WSI
Acquisition Corp. ("WSI"), an inactive company. The merger was consummated
through an exchange of shares that resulted in iParty LLC receiving 6,000,000
common shares or 54.5% of the outstanding shares of WSI. In connection with the
merger and as a condition thereof, WSI sold, in two private placements, an
aggregate of 4,585,000 shares of common stock of which 3,624,043 shares were
sold for $.01 per share and 960,957 shares, together with warrants to purchase
1,000,000 shares of Series A preferred stock, were sold for $1.00 per share or
aggregate proceeds of $997,197 before related expenses. The merger has been
treated as a re-capitalization for accounting purposes and iParty's historic
capital accounts were retroactively adjusted to reflect the 6,000,000 shares
issued by WSI in the transaction. In addition, as WSI had no assets before the
merger and the private placements, the 420,421 outstanding common shares of WSI
have been recorded at par value with a corresponding charge to additional
paid-in capital. The statement of operations reflects the operations of iParty
from the commencement of its operations from March 12, 1998 and also reflects
the operations of iParty LLC, the predecessor company, from January 1998 through
March 12, 1998. In connection with the merger, WSI changed its name to iParty
Corp.
The Company's efforts are devoted to developing the Internet resources to
provide consumers a comprehensive web site where they can seek party planning
advice and information and locate and contract for party goods and services.
2. UNAUDITED INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of June 30, 2000 have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC") for interim financial reporting. These
consolidated statements are unaudited and, in the opinion of management, include
all adjustments (consisting of normal recurring adjustments and accruals)
necessary to present fairly the consolidated balance sheets, consolidated
operating results, and consolidated cash flows for the periods presented in
accordance with generally accepted accounting principles. The consolidated
balance sheet at December 31,1999 has been derived from the audited consolidated
financial statements at that date. Operating results for the three months ended
June 30, 2000 may not be indicative of the results for the year ending December
31, 2000. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the rules and regulations of the
SEC. These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements, and accompanying notes, included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999. Certain prior period amounts have been reclassified to conform to the
current period presentation.
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Safe Harbor Statement
Certain statements in this Form 10-QSB, including information set forth
under Item 2 "Management's Discussion and Analysis" constitute or may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act"). iParty Corp. (the "Company") desires
to avail itself of certain "safe harbor" provisions of the Act and is therefore
including this special note to enable the Company to do so. Forward-looking
statements included in this Form 10-QSB or hereafter included in other publicly
available documents filed with the Securities and Exchange Commission, reports
to the Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties, and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ from the future results,
performance (financial or operating) achievements expressed or implied by such
forward-looking statement. Such factors include, but are not limited to: (i) the
Company's insignificant historical revenues; (ii) the Company's reliance of
third-party suppliers; (iii) the Company's ability to expand its website; (iv)
the Company's ability to manage growth; (v) the Company's ability to develop its
brand; (vi) competition; (vii) the Company's ability to adapt evolving
technologies; and (viii) governmental regulation of the Internet Such future
results are based upon management's best estimates based upon current conditions
and the most recent results of operations
Item 2. Management's Discussion and Analysis
Overview
We intend to become the premier brand in the on-line party industry and
the leading resource on the Internet for consumers seeking party goods, party
services, party planning advice and information. Our web site was launched in
February 1999. On October 12, 1999, we launched the new iParty.com site, a
destination for party goods and party planning. From Pokemon costumes to
birthday party packs to fog machines, an online party magazine to party safety
tips, iParty.com presents consumers with what we believe to be a sophisticated,
yet fun and easy-to-navigate online party resource. Offering convenience and an
extensive assortment of merchandise, we believe iParty.com is refocusing the
party goods industry back to the needs of the consumer. At the click of a mouse,
party givers can enjoy one-stop shopping and easy-to-find pricing while
purchasing all their party needs for birthday bashes, Super Bowl parties,
Halloween festivals and more.
We expect that our initial revenues will be derived from retail sales
to consumers of party related goods. We anticipate that future revenues may be
derived from (i) commissions or royalties paid by strategic partners for orders
received through us; and (ii) advertising on our web site's pages, particularly
the content features such as the Party Planner and PartyTalk.
Results of Operations
Three months ended June 30, 1999 compared to three months ended June 30, 2000
Revenue for the three months ended June 30, 2000, includes the selling
price of party goods sold by us, net of returns and discounts, as well as
outbound shipping and handling charges. Revenue for the three months ended June
30, 2000, was approximately $260,000. There were no revenues for the three
months ended June 30, 1999. Revenue is recognized at the time products are
shipped to customers.
Cost of products sold consists of the cost of merchandise sold to
customers and outbound shipping and handling costs charged to us by our
fulfillment partner, Taymark. For the three months ended June 30, 2000, the cost
of products sold was approximately $375,000. Taymark began fulfilling orders
placed on our web site on October 1, 1999.
Amortization of fulfillment partner warrant expense consists of the
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amortization of the estimated fair value of the warrant issued to Taymark to
provide inventory and fulfillment services to deliver merchandise ordered on the
site, or directly through a toll-free telephone number, directly to consumers.
On July 8, 1999, we entered into a product fulfillment agreement with Taymark.
The initial term of the agreement runs through December 31, 2002. The agreement
contains certain restrictions on competition by the direct marketer. As
additional consideration for such restrictions and services, we issued a warrant
to purchase 3,000,000 shares of common stock at an exercise price of $3.75. The
warrant expires on October 1, 2002. The estimated fair value of the warrant on
the date of issue was approximately $5.3 million as determined using the
Black-Scholes option pricing model. The value of the warrant is included in
intangible assets on the accompanying Balance Sheet as of June 30, 2000 and is
being amortized over the initial term of the fulfillment agreement. For the
three months ended June 30, 2000, amortization of fulfillment partner warrant
expense was approximately $378,000 resulting from the amortization of this
warrant.
Marketing and sales expenses consist primarily of advertising, public
relations and promotional expenditures, and all related payroll and related
expenses for personnel engaged in marketing and selling activities. Marketing
and sales expenses for the three months ended June 30, 2000, were approximately
$2,564,000. Included in this expense was approximately $135,000 resulting from
the amortization of the Margaritaville warrant. We intend to pursue a marketing
campaign and will incur significant incremental costs in the future.
Product and technology development expenses consist principally of
payroll and related expenses for product development, editorial, systems and
operations personnel and consultants, and systems infrastructure. Operating and
development expenses for the three months ended June 30, 2000, were
approximately $1,665,000. We believe that continued investment in product
development is critical to attaining its strategic objectives. In addition to
ongoing investments in our web site and infrastructure, we intend to increase
investments in product and services.
General and administrative ("G&A") expenses consist of payroll and
related expenses for executive, finance and administrative personnel,
professional fees and other general corporate expenses. G&A expenses for the
three months ended June 30, 1999 and 2000 were approximately $988,000 and
$550,000, respectively. We expect G&A costs to continue to increase commensurate
with our expansion plans.
We incurred approximately $95,000 and $89,000 for the three months
ended June 30, 1999 and 2000, respectively, in non-cash compensation expenses.
The non-cash compensation expenses resulted from stock options granted to
consultants, stock options granted to celebrities who provided services to
StarGreetings and the compensation expense associated with the cash-less
exercise of stock options.
Interest income on cash and cash equivalents for the three months ended
June 30, 1999 and 2000, was approximately $1,000 and $227,000, respectively. The
increase in income was due to higher cash and investment balances resulting from
our financing activities, principally the private placement of Series B, C and D
Preferred Stock completed in 1999.
Interest expense for the three months ended June 30, 1999 and 2000, was
approximately $241,000 and $0, respectively. The interest expense in 1999 was
related to convertible notes payable that were converted to preferred stock in
September 1999.
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Six months ended June 30, 1999 compared to six months ended June 30, 2000
Revenue for the six months ended June 30, 2000, includes the selling
price of party goods sold by us, net of returns and discounts, as well as
outbound shipping and handling charges. Revenue for the six months ended June
30, 2000, was approximately $407,000. There were no revenues for the six months
ended June 30, 1999. Revenue is recognized at the time products are shipped to
customers.
Cost of products sold consists of the cost of merchandise sold to
customers and outbound shipping and handling costs charged to us by our
fulfillment partner, Taymark. For the six months ended June 30, 2000, the cost
of products sold was approximately $493,000. Taymark began fulfilling orders
placed on our web site on October 1, 1999.
Amortization of fulfillment partner warrant expense consists of the
amortization of the estimated fair value of the warrant issued to Taymark to
provide inventory and fulfillment services to deliver merchandise ordered on the
site, or directly through a toll-free telephone number, directly to consumers.
On July 8, 1999, we entered into a product fulfillment agreement with Taymark.
The initial term of the agreement runs through December 31, 2002. The agreement
contains certain restrictions on competition by the direct marketer. As
additional consideration for such restrictions and services, we issued a warrant
to purchase 3,000,000 shares of common stock at an exercise price of $3.75. The
warrant expires on October 1, 2002. The estimated fair value of the warrant on
the date of issue was approximately $5.3 million as determined using the
Black-Scholes option pricing model. The value of the warrant is included in
intangible assets on the accompanying Balance Sheet as of June 30, 2000 and is
being amortized over the initial term of the fulfillment agreement. For the six
months ended June 30, 2000, amortization of fulfillment partner warrant expense
was approximately $755,000 resulting from the amortization of this warrant.
Marketing and sales expenses consist primarily of advertising, public
relations and promotional expenditures, and all related payroll and related
expenses for personnel engaged in marketing and selling activities. Marketing
and sales expenses for the six months ended June 30, 2000, were approximately
$5,000,000. Included in this expense was approximately $270,000 resulting from
the amortization of the Margaritaville warrant. We intend to pursue a marketing
campaign and will incur significant incremental costs in the future.
Product and technology development expenses consist principally of
payroll and related expenses for product development, editorial, systems and
operations personnel and consultants, and systems infrastructure. Operating and
development expenses for the six months ended June 30, 2000, were
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approximately $3,563,000. We believe that continued investment in product
development is critical to attaining its strategic objectives. In addition to
ongoing investments in our web site and infrastructure, we intend to increase
investments in product and services.
General and administrative ("G&A") expenses consist of payroll and
related expenses for executive, finance and administrative personnel,
professional fees and other general corporate expenses. G&A expenses for the six
months ended June 30, 1999 and 2000 were approximately $1,500,000 and
$1,079,000, respectively. We expect G&A costs to continue to increase
commensurate with our expansion plans.
We incurred approximately $230,000 and $635,000 for the six months
ended June 30, 1999 and 2000, respectively, in non-cash compensation expenses.
The non-cash compensation expenses resulted from stock options granted to
consultants, stock options granted to celebrities who provided services to
StarGreetings and the compensation expense associated with the cash-less
exercise of stock options.
Interest income on cash and cash equivalents for the six months ended
June 30, 1999 and 2000, was approximately $1,500 and $500,000, respectively. The
increase in income was due to higher cash and investment balances resulting from
our financing activities, principally the private placement of Series B, C and D
Preferred Stock completed in 1999.
Interest expense for the six months ended June 30, 1999 and 2000,
was approximately $240,000 and $0, respectively. The interest expense in 1999
was related to convertible notes payable that were converted to preferred stock
in September 1999.
Liquidity and Capital Resources
We used cash in operating activities for the six months ended June 30,
1999 and 2000 totaling $1,516,000 and $7,174,000, respectively. In addition, we
invested cash in property and equipment, including web site development
expenditures for the six months ended June 30, 1999 and 2000 totaling $625,000
and $337,000, respectively.
In 1999, we raised an aggregate of $28.5 million in equity financing.
In January and February of 1999, we received net proceeds of $650,000 from the
exercise of warrants for Series A convertible preferred stock. In August,
September and December of 1999, we sold an aggregate of $27.9 million of
convertible preferred stock and redeemable common stock purchase warrants in
private offerings. The financings included the conversion of our $2.0 million of
outstanding senior debt. Net proceeds to us from the financings were
approximately $26.3 million (including the conversion of the $2.0 million in
debt and interest thereon). We believe, based on currently proposed plans and
assumptions relating to its operations, that the net proceeds from the
financings and related interest income, together with anticipated revenues from
operations, will be sufficient to fund our operations and working capital
requirements for at least twelve months. In the event that our plans or
assumptions change or prove inaccurate (due to unanticipated expenses, increased
competition, unfavorable economic conditions, or other unforeseen circumstances)
we could be required to seek additional financing sooner than currently
expected. There can be no assurance that such additional funding will be
available to us, or if available, that the terms of such additional financing
will be acceptable to us.
Our Web Site
We are launching our web site in two stages, as follows:
First Stage. Currently, our web site contains the PartyMarket,
PartyTalk and an Invitation Channel. In this first stage, we offer party related
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products, costumes, music, and editorial content. On-site shopping is currently
limited to party goods, favors, gift wrap, cards and invitations. During this
stage an outside vendor, Taymark, is responsible for consumer fulfillment and
customer service.
Second Stage. By the end of the fourth quarter of 2000, we expect to
continue to introduce additional features to our web site, such as the Party
Planner, the Party Resource, Gift Registry, Party Web Page, Birthday Club, and
interactive party planning tools.
PART II OTHER INFORMATION
Item 6. Exhibits.
Exhibit 27.1 Financial Data Schedule
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SIGNATURES
In accordance with requirements of the Securities Exchange Act, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iPARTY CORP.
Dated: August 14, 2000 By: /s/ Sal Perisano
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Sal Perisano
Chief Executive Officer
August 14, 2000 By: /s/ Patrick Farrell
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Patrick Farrell
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