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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED: SEPTEMBER 30, 1999
COMMISSION FILE NUMBER: 0-27391
GOURMETMARKET.COM, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0347728
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
507 Howard Street, Suite 200, San Francisco, California 94105
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(Address, including zip code, of principal executive offices)
(415) 979-0990
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Sections 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
filings for the past 90 days. YES NO X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of December 28, 1999, the number of the Company's shares of par value $.001
common stock outstanding was 18,025,920.
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GOURMETMARKET.COM, INC
FORM 10-QSB
SEPTEMBER 30, 1999
INDEX
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets.................................................................3
Statements of Operation........................................................4
Statements of Cash Flow........................................................5
Notes to Financial Statements..................................................6
Item 2 - Management's Discussion and Analysis or Plan of Operation............7
PART II - OTHER INFORMATION...................................................11
SIGNATURES....................................................................12
2
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GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
BALANCE SHEET
ASSETS September 30,
1999
(unaudited)
-------------
Current assets:
Cash and cash equivalents $ 104,340
Accounts receivable 43,765
Inventory 38,253
------------
Total current assets 186,358
Property and equipment
less accumulated depreciation 52,337
License agreements, less accumulated amortization 488,108
Other assets 22,001
------------
$ 748,804
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 696,100
Accounts payable and accrued expenses 385,174
------------
Total current liabilities 1,081,274
------------
Long-term debt less current maturities 450,000
------------
Stockholders' equity (deficit):
Convertible preferred stock (Series A), par value $.001
authorized 10,000,000, issued 0 -
Common stock, $.001 par value; authorized
25,000,000 shares;18,025,920 shares
issued and outstanding 17,401
Additional paid-in capital 2,626,998
Retained deficit (3,374,747)
-----------
(730,348)
Less subscriptions receivable (52,122)
-----------
Total stockholders' equity (deficit) (782,470)
-----------
$ 748,804
===========
See accompanying notes
3
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GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 138,503 $ 6,295 $ 431,520 $ 9,082
Cost of sales 104,211 5,557 409,012 8,028
------------ -------------- ------------ ------------
Gross profit (loss) 34,292 738 22,508 1,054
------------ -------------- ------------ ------------
Selling, general and administrative expenses:
Payroll and payroll taxes 221,680 68,465 462,449 196,102
Stock and option based compensation 18,957 975,527
Occupancy & office expenses 13,734 10,120 39,982 26,703
Contract services and professional fees 212,823 33,164 748,067 120,375
Internet servicing expenses 56,354 10,999 129,058 32,753
General and administrative expenses 83,320 16,968 201,525 38,813
Advertising and promotion 72,725 2,781 233,500 26,647
Depreciation and amortization 2,068 40 4,532 264
------------ -------------- ------------ ------------
681,461 137,537 2,794,560 441,657
------------ -------------- ------------ ------------
Income (loss) from operations (647,169) (136,799) (2,772,052) (440,603)
------------ -------------- ------------ ------------
Other income (expenses):
Interest expense (11,504) (28,176)
Loan extension fee - - (40,000) -
------------ -------------- ------------ ------------
Total other income (expenses) (11,504) - (68,176) -
------------ -------------- ------------ ------------
Income (loss) before income taxes (658,673) (136,799) (2,840,228) (440,603)
Income tax expense (benefit) - - - -
------------ -------------- ------------ ------------
Net loss $ (658,673) $ (136,799) $ (2,840,228) $ (440,603)
============ ============= ============ ============
Net loss per common share:
Basic:
Net loss per common share (.04) (.02) (.18) (.02)
Diluted:
Net loss per common share (.04) (.02) (.18) (.02)
Weighted average shares outstanding
basic and diluted (restated) 17,457,300 7,421,220 15,790,806 7,421,220
============ ============= ============= =============
</TABLE>
See accompanying notes
4
<PAGE>
GOURMETMARKET.COM, INC.
(formerly GourmetMarket.com)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
(unaudited) (unaudited)
---------- ----------
<S> <C> <C<
Cash flows from operating activities:
Net loss $(2,840,228) $ (440,603)
----------- ------------
Adjustments to reconcile net income to net:
cash provided by (used for) operating activities
Depreciation and amortization 79,755 264
Non cash compensation 975,527
Changes in assets and liabilities:
Accounts receivable (42,543) 480
Inventory (38,253)
Accounts payable and accrued expenses 290,564 20,385
----------- ------------
Total adjustments 1,265,050 21,129
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Net cash used for operations (1,575,178) (419,474)
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Net cash used in investing activities:
Acquisition of license agreements and other assets (20,412)
Purchase of equipment (55,860) -
----------- ------------
Net cash used for investing activities (76,272) -
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Cash flows from (used in )financing activities
Proceeds from notes payable and advances 790,000 540,000
Payments of long term debt (39,717)
Proceeds from issuance of common stock 964,129 -
----------- ------------
Net cash provided by financing activities 1,714,412 540,000
----------- ------------
Net increase (decrease) in cash
and cash equivalents 62,962 120,526
Cash and cash equivalents, beginning of period 41,378 24,002
----------- ------------
Cash and cash equivalents, end of period $ 104,340 $ 144,528
=========== ============
Supplemental disclosure:
Acquisition of license agreements for stock $ 62,500 $ 123,500
=========== ============
Issuance of common stock for services $ 975,527 $ -
=========== ============
Acquisition of license agreements for debt $ 83,317 $ 300,000
=========== ============
</TABLE>
See accompanying notes
5
<PAGE>
GOURMETMARKET.COM, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of September 30, 1999, the statements of operation for the
nine months and three months ended September 30, 1999, and 1998, and the
statements of cash flows for the nine months and three months ended September
30, 1999, and 1998, have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1999, and for all periods presented,
have been made.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto as of
December 31, 1998.
NOTE 2: NET INCOME PER SHARE
Net income per share is computed by dividing net income by the average number of
common shares outstanding, increased by common stock equivalents determined
using the treasury stock method.
6
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GOURMETMARKET.COM, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Financial Statements appearing elsewhere in this Report. It includes an analysis
of the nine months and three months ended September 30, 1999, and 1998,
respectively.
Forward-Looking Statements
Except for the historical statements and discussions contained herein, some
statements contained in this report may constitute forward-looking statements.
These forward-looking statements rely on a number of assumptions concerning
future events and are subject to a number of risks and uncertainties and other
factors, many of which are outside the control of the Company, that could cause
actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking
statements, each of which speaks only as of the date hereof. Factors and
uncertainties that could affect the outcome of such forward-looking statements
include, among others, market and industry conditions, increased competition,
changes in governmental regulations, general economic conditions, pricing
pressures, and the Company's ability to continue its growth and expand
successfully into new markets and services. The Company disclaims any intention
or obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
The Company had nominal sales during the nine months ended September 30, 1998,
and sales of $431,520 during the nine months ended September 30, 1999, as a
result of the Company's increased marketing efforts, web site development, and
addition of products. The Company had a gross profit of $1,054 during the nine
months ended September 30, 1998, compared to a gross profit of $22,508 during
the nine months ended September 30, 1999. The Company had a loss from operations
of $440,603 during the nine months ended September 30, 1998, compared to a loss
of $2,772,052 for the comparable 1999 period. In the nine months ended September
30, 1998, the Company had significant organizational expenses as well as
expenses associated with the start up of the Company's GourmetMarket.Com web
site, including costs of acquisition of content and technology, and other
expenses of the start-up of the Company's web site. These expenses continued
during 1999 as selling, general and administrative expenses increased from
$441,657 for the nine months ended September 30, 1998, to $2,794,560 for the
nine months ended September 30, 1999.
7
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GOURMETMARKET.COM, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
Payroll and payroll taxes increased by $266,347 for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998, as the
Company increased its staff. Stock and option based compensation increased by
$975,527 for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 1998. This increase resulted primarily from the sale
of common stock in March 1999 at a price below the price of the Company's
January 1999 private placement, and compensation expense of $25,527 resulting
with the issuance of stock options at an exercise price lower than the fair
market value at the date of issuance. Contract services and professional fees
increased by $627,692 for the nine months ended September 30, 1999, compared to
the nine months ended September 30, 1998. This increase resulted primarily from
the employment of outside professionals and independent contractors to meet the
Company's development, technical, and financial demands on a timely basis.
Internet servicing expenses increased by $96,305 for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998, as the
Company's internet business expanded.
General and administrative expenses increased by $162,712 for nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998, as the
Company continued expanding its operations in 1999. Advertising and promotion
increased by $206,853 for the nine months ended September 30, 1999, compared to
the nine months ended September 30, 1998, as the Company increased its
promotional expenses to grow its business. The Company had no interest expense
during the nine months ended September 30, 1998, compared to interest expense of
$28,176 for the nine months ended September 30, 1999, as the Company borrowed to
meet its working capital requirements.
Three Months Ended September 30, 1999 and 1998
The Company's revenues increased from $6,295 for the three months ended
September 30, 1998, to $138,503 for the three months ended September 30, 1999,
as a result of the Company's increased marketing efforts, web site development,
and addition of products. Selling, general and administrative expenses increased
from $137,527 for the three months ended September 30, 1998, to $681,461 for the
three months ended September 30, 1999, as the Company added staff, increased
marketing, and entered into third party agreements with America Online, Excite,
@Home, and other business partners. The Company had a loss from operations of
$136,799 for the three months ended September 30, 1998, compared to a loss of
$647,169 for the comparable 1999 period, primarily as a consequence of the
substantial costs associated with its business expansion and other non-recurring
expenses.
Payroll and payroll taxes increased by $153,215 for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998. This
comparative difference is primarily the result of the Company's having no
substantial operations until the second half of 1998. Stock and option based
compensation increased by $18,957 for the three months ended September 30, 1999,
compared to the three months ended September 30, 1998, primarily from the
issuance of stock options at an exercise price lower than the fair market value
at the date of issuance. Contract services and professional fees increased by
$179,659 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998. This increase resulted primarily from
consulting fees incurred in connection with the Company's merger with
GourmetMarket and the need to employ outside professional and contractors to
meet the Company's development, technical, and financial demands on a timely
basis.
8
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GOURMETMARKET.COM, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
Internet servicing expenses increased by $45,355 for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998. This
increase resulted primarily from the Company's need to develop and expand its
web site infrastructure to meet anticipated growth. General and administrative
expenses increased by $66,352 for the three months ended September 30, 1999,
compared to the three months ended September 30, 1998, as a result of the
Company's continued growth in 1999. Advertising and promotion increased by
$69,944 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998, as the Company increased promotional spending
to promote its growth. Interest expense increased by $11,504 for the three
months ended September 30, 1999, compared to the three months ended September
30, 1998, as the Company paid interest on debt incurred to meet its working
capital requirements.
Liquidity and Capital Resources
The Company had total current assets of $42,600 at December 31, 1998, compared
to total current assets of $186,358 at September 30, 1999. Total assets
increased from $450,212 at December 31, 1998, to $748,804 at September 30, 1999,
primarily as a result of an increase in license agreements. During the same
period, the Company's total current liabilities increased form $369,083 to
$1,081,274 as the Company borrowed to pay operating expenses and significantly
increased accounts payable and accrued expenses. Net cash used for operations
increased from $419,474 for the nine months ended September 30, 1998, to
$1,561,678 for the nine months ended September 30, 1999, as the Company paid
costs associated with its substantial business expansion in 1999.
In September 1998 the Company acquired certain assets from one of the one of its
founders, Arome, Ltd., for stock and a $300,000 purchase money note. During the
nine months ended September 30, 1999, the Company borrowed $790,000 to meet
operating expenses. During the nine months ended September 30, 1999 the Company
realized $964,129 from the sale of common stock in a private placement, but did
not sell stock in the first nine months of 1998.
The Company has incurred significant net losses and negative cash flows from
operations since its inception as a result of the development of its
GourmetMarket business operations. The Company has funded these losses primarily
from the issuance of common stock to the Company's founders, loans by related
parties, and the private placement of the Company's securities to individuals.
At September 30, 1999, the Company had used substantially all of the proceeds of
the private placement completed in January 1999, and had net cash reserves of
$104,340 at September 30, 1999. The Company believes that its cash reserves at
September 30, 1999, together with income from operations, will be sufficient to
carry on its business through December 1999. The Company will be dependent in
the foreseeable future on raising capital on a debt or equity basis to meet its
operating expenses, as it will in all probability continue to incur operating
losses through calendar year 2000. The Company anticipates that it will be able
to continue to obtain working capital through the proceeds of equity or debt
financing on a private basis, and is also exploring the availability of equity
financing through a public offering.
9
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GOURMETMARKET.COM, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
Year 2000 Compliance
The Company's web system was designed to be year 2000 ("Y2K") compatible. The
system was tested for its ability to accept orders for dates beyond January 1,
2000, and verify credit cards with year 2000 dates. In certain areas, where Y2K
issues were discovered, it was considered a minor fix to fix the system. The
Company has not encountered any material Y2K problems after January 1, 2000.
Therefore the Company does not consider Y2K issues to present any risk
The Company may face some Y2K risk from the Company's usage of third-party
products. The Company's system is based on Microsoft Windows NT operating system
running on the Intel Pentium Pro Processor, an Oracle database, and a NetScape
WWW server. In addition, the Company is using external credit card processors,
CyberSource online credit card transaction processing, an external server
co-location hosting service (Exodus), and a third party accounting system for
the purpose of billing, invoicing and reporting. These third-party vendors claim
their products to be Y2K compatible, and the system, during testing and
commencing January 1, 2000, has not shown any reason to question this claim.
However, in the unlikely event that any of these vendor's products fail to be
Y2K compatible and the vendor does not offer any upgrade path to solve this
failure, the Company will be required to upgrade its system. This upgrade may
result in an expense of anywhere between $50,000 to $250,000. The Company
believes that as its testing and actual use starting January 1, 2000, did not
reveal any Y2K problems, it is unlikely that the Company's operations will be
disturbed significantly, and the Company should be able to replace any
incompatible component or fix any similar bug in a matter of days.
10
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GOURMETMARKET.COM, INC.
FORM 10-QSB
SEPTEMBER 30, 1999
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 Vote of Security Holders
None
Item 5 - Other information
None
Item 6 - Exhibits and reports on Form 8-K
None
b) There were no reports filed on Form 8-K during the quarter
ended September 30, 1999.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOURMETMARKET.COM, INC.
-----------------------
Registrant
Date: January 5, 2000 /s/ Chanan Steinhart
----------------- -----------------------
Chanan Steinhart, President
12
