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FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[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
Commission file number 0-26151
Fashionmall.com, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 06-1544139
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
575 Madison Avenue New York, NY 10022
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(Address of principal executive offices) (Zip code)
(212) 891-6064
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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 (check one)
Yes No X
--- ---
The number of shares of common stock, $.01 par value, outstanding as of August
10, 2000 was 7,500,000.
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fashionmall.com, Inc.
Form 10-QSB
Index
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited) and
December 31, 1999...............................................................3
Consolidated Statements of Operations (unaudited) for the three months
ended June 30, 2000 and 1999 and for the six months ended June 30, 2000
and 1999........................................................................4
Consolidated Statements of Cash Flows (unaudited) for the three months
ended June 30, 2000 and 1999 and for the six months ended June 30, 2000
and 1999........................................................................5
Notes to Unaudited Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..........................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................................14
Item 2. Changes in Securities and Use of Proceeds .....................................14
Item 3. Defaults Upon Senior Securities ...............................................14
Item 4. Submission of Matters to a Vote of Securities Holders .........................14
Item 5. Other Information .............................................................14
Item 6. Exhibits and Reports on Form 8-K ..............................................14
Signatures.....................................................................15
Financial Data Schedule .......................................................16
</TABLE>
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fashionmall.com, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
------
CURRENT ASSETS
Cash and cash equivalents $ 27,109,000 $ 34,114,000
Marketable securities 10,613,000 7,452,000
Accounts receivable, net of an allowance of $234,000
and $232,000, respectively 1,154,000 797,000
Inventories, net of a reserve of $100,000 and $100,000, respectively 116,000 191,000
Prepaid expenses and other current assets 365,000 434,000
------------ ------------
Total current assets 39,357,000 42,988,000
------------ ------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation of $62,000
and $36,000, respectively 265,000 223,000
CAPITALIZED SOFTWARE COSTS- net of accumulated amortization of $125,000
and $52,000, respectively 270,000 310,000
OTHER ASSETS 858,000 20,000
------------ ------------
Total assets $ 40,750,000 $ 43,541,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,609,000 $ 2,784,000
Accrued expenses 775,000 295,000
Customer deposits 52,000 14,000
Deferred revenue 25,000 25,000
------------ ------------
Total liabilities 3,461,000 3,118,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value; 3,000,000 shares
authorized; 824,084 shares issued and outstanding 8,000 8,000
Common stock - $.01 par value; 35,000,000 shares authorized;
7,500,000 shares issued and outstanding 75,000 75,000
Additional paid-in capital 51,944,000 49,396,000
Unrealized gain on marketable securities available for sale, net of tax (3,000) 46,000
Accumulated deficit (14,735,000) (9,102,000)
------------ ------------
Total stockholders' equity 37,289,000 40,423,000
------------ ------------
Total liabilities and stockholders' equity $ 40,750,000 $ 43,541,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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fashionmall.com, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SITE REVENUES $ 1,233,000 $ 950,000 $ 2,551,000 $ 1,720,000
COSTS AND EXPENSES:
Site development, merchandise and content 148,000 242,000 354,000 344,000
Advertising and marketing 642,000 363,000 3,391,000 675,000
Selling expense 317,000 57,000 564,000 129,000
General and administrative 1,221,000 3,174,000 2,596,000 3,513,000
----------- ----------- ----------- -----------
Total costs and expenses 2,328,000 3,836,000 6,905,000 4,661,000
----------- ----------- ----------- -----------
Loss from operations (1,095,000) (2,886,000) (4,354,000) (2,941,000)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income 635,000 52,000 1,049,000 67,000
Interest expense and other financing costs -- (730,000) -- (737,000)
----------- ----------- ----------- -----------
Total other income (expense) 635,000 (678,000) 1,049,000 (670,000)
----------- ----------- ----------- -----------
Net loss $ (460,000) $(3,564,000) $(3,305,000) $(3,611,000)
=========== =========== =========== ===========
NET LOSS DATA:
Net loss available to common shareholders $(1,623,000) $(4,339,000) $(5,631,000) $(4,386,000)
=========== =========== =========== ===========
Basic and diluted earnings per share $ (0.22) $ (0.87) $ (0.75) $ (0.88)
=========== =========== =========== ===========
Basic and diluted weighted average common shares outstanding
7,500,000 5,000,000 7,500,000 5,000,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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fashionmall.com, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities
Net loss $ (460,000) $ (3,564,000) $ (3,305,000) $ (3,611,000)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Bad debt 16,000 86,000 1,000 117,000
Depreciation and amortization 47,000 10,000 97,000 20,000
Unrealized gain on marketable securities (7,000) -- (49,000) --
Non-cash interest expense and other financing -- 668,000 -- 668,000
costs --
Non-cash compensation expense 111,000 2,736,000 222,000 2,810,000
Changes in operating assets and liabilities:
Accounts receivable (68,000) (66,000) (358,000) (265,000)
Inventory (1,000) -- 75,000 --
Prepaid expenses and other assets (986,000) (239,000) (769,000) (613,000)
Deferred financing costs -- 397,000 -- 397,000
Accounts payable (881,000) 288,000 (176,000) 752,000
Accrued expenses 465,000 -- 479,000 --
Customer deposits 36,000 -- 38,000 17,000
Deferred revenue -- -- -- (4,000)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities (1,728,000) 316,000 (3,745,000) 288,000
------------ ------------ ------------ ------------
Investing Activities
Marketable securities (8,518,000) -- (3,161,000) --
Purchase of property and equipment (54,000) (20,000) (66,000) (23,000)
Software development costs (26,000) -- (33,000) --
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (8,598,000) (20,000) (3,260,000) (23,000)
------------ ------------ ------------ ------------
Financing Activities
Repayment of loans -- (1,379,000) -- (431,000)
Initial public offering proceeds -- 34,775,000 -- 34,775,000
Capital contributions -- 7,417,000 -- 8,293,000
------------ ------------ ------------ ------------
Net cash provided by financing activities -- 40,813,000 -- 42,637,000
------------ ------------ ------------ ------------
Increase in cash and cash equivalents (10,326,000) 41,109,000 (7,005,000) 42,902,000
Cash and cash equivalents - beginning of period 37,435,000 1,875,000 34,114,000 82,000
------------ ------------ ------------ ------------
Cash and cash equivalents- end of period $ 27,109,000 $ 42,984,000 $ 27,109,000 $ 42,984,000
============ ============ ============ ============
Supplemental Cash Flow Information Cash paid during the period for:
Taxes and interest $ -- $ 15,000 $ 269,000 $ 15,000
Non-cash operating, investing and financing activities:
Fair value of warrants issued in connection with loan to
related party -- -- -- 56,000
Incremental difference between issue price and fair value
of capital contribution -- -- -- 576,000
Fair value of warrants issued in connection with
convertible preferred stock -- 2,377,000 -- 2,377,000
Revenue generated from barter contracts 120,000 377,000 251,000 725,000
Advertising and consulting expenses incurred related to
barter contracts 120,000 355,000 272,000 627,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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fashionmall.com, Inc.
Notes to Unaudited Consolidated Financial Statements
June 30, 2000
1. Description of Business
The Company engages in the business of marketing, promoting,
advertising and selling fashion apparel and related accessories or products to
the public on the Internet, via the fashionmall.com web site. The Company
combines an online shopping mall with fashion content to provide a centralized
site for manufacturers, retailers, magazines and catalogs to advertise, display
and sell their product lines.
Our web site, www.fashionmall.com, is a vertical portal for the
category of "fashion". fashionmall.com defines fashion to include apparel,
accessories, footwear, beauty products, eyewear, jewelry, watches, home
furnishings and related lifestyle products and accessories. We have combined the
concept of an online shopping mall with fashion content to provide a centralized
site for manufacturers, retailers, catalogs, e-commerce sites and magazines to
advertise, display and sell their product lines on the web.
The accompanying unaudited consolidated financial statements of the
Company have been prepared pursuant to the rules of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
as of and for the year ended December 31, 1999 included in the Company's Form
10-KSB. In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for fair presentation of the results for the periods
presented.
The results of operations presented for the three and six months ended
June 30, 2000 and 1999, are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and subsidiaries, all significant intercompany balances and
transactions have been eliminated.
2. Revenue Recognition
The Company's primary source of revenue is from tenant fees.
Manufacturers, retailers, magazines and others pay fees to the Company to lease
space on the fashionmall.com web site. Revenues are recognized as services are
rendered. The Company recognizes revenue earned from tenant fees in accordance
with its customer contracts that specify either a fixed fee or a fee based on
performance.
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Barter Arrangements
In January 2000, the Emerging issues Task Force (the "EITF") reached a
consensus on EITF Issue 99-17, "Accounting for Advertising Barter Transactions."
The EITF agreed that advertising barter transactions entered into after January
20, 2000 should be accounted for at fair value on a one-for-one basis with
revenue from similar advertising sold in a cash transaction that occurred in the
preceding six months with comparable terms, such as length of program, cost and
type of advertisement. A cash transaction may be used only once as the basis for
providing fair value evidence for a barter transaction. The Company adopted EITF
99-17 on January 1, 2000.
The Company's barter revenue for the three months and six months ended
June 30, 2000 was $120,000 and $251,000. On a pro forma basis, the Company's
barter revenue for the three months and six months ended June 30, 1999 was
$377,000 and $725,000 based on the requirements of EITF 99-17.
3. Inventories
Inventories, which consist of purchased apparel and accessories, are
stated at the lower of cost (first-in, first-out) or market value. At June 30,
2000 the Company's inventory valuation allowance was $100,000.
4. Net Loss per Share
A reconciliation between the numerator and denominator of basic and
diluted net loss per share is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
(unaudited) (unaudited)
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (460,000) $(3,564,000) $(3,305,000) $(3,611,000)
Accretion of beneficial conversion feature of convertible
preferred stock (1,163,000) (775,000) (2,326,000) (775,000)
----------- ----------- ----------- -----------
Net loss available to common shareholders
$(1,623,000) $(4,339,000) $(5,631,000) $(4,386,000)
=========== =========== =========== ===========
SUPPLEMENTAL PRO FORMA PER SHARE INFORMATION
Pro-forma weighted-average shares 7,500,000 5,000,000 7,500,000 5,000,000
Pro-forma earnings per common share $ (0.22) $ (0.87) $ (0.75) $ (0.88)
</TABLE>
As a result of the Company's reorganization from a limited liability
company to a C corporation, the pro forma per share data has been computed using
the weighted average number of common shares outstanding during the period
assuming the Company was a C corporation since inception. Accordingly, the
Company computes net loss per share in accordance with SFAS No. 128, "Earnings
per Share." Basic and diluted loss per share requires that all equity
instruments issued at normal prices prior to the effective date of an initial
public offering be included in the calculation of basic and diluted loss per
share as if they were outstanding for all periods presented whether or not the
impact is dilutive. Basic net loss per share is computed by dividing the net
loss attributable to common stockholders for the period by the weighted
7
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average number of common shares outstanding during each period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common shares and common share equivalents outstanding during
each period. Common share equivalents, composed of common shares issuable upon
the exercise of stock options and warrants and upon conversion of mandatory
redeemable preferred stock, are included in the net loss per share to the extent
such shares are dilutive. The effect of the exercise of certain warrants and
options issued during 2000 are not included, as their effect on diluted earnings
per share would be anti-dilutive.
5. Comprehensive Income
During 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires companies to report all changes in equity during a
period except those resulting from investments by owners and distributions to
owners, for the period in which they are recognized. Comprehensive income is the
total of net income and all other non-owner changes in equity (or other
comprehensive income) such as unrealized gains/losses on securities classified
as available-for-sale, foreign currency translation adjustments and minimum
pension liability adjustments. Comprehensive income and other comprehensive
income must be reported on the face of annual financial statements. The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
(unaudited) (unaudited)
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $ (460,000) $(3,564,000) $(3,305,000) $(3,611,000)
Unrealized gains on investments in
Marketable securities available-for-sale (45,000) -- (3,000) --
----------- ----------- ----------- -----------
Comprehensive net loss $ (505,000) $(3,564,000) $(3,308,000) $(3,611,000)
=========== =========== =========== ===========
</TABLE>
6. Commitments and Contingencies
The Company is not a party to any material legal proceedings, but in
its normal course of business, may be subject to certain litigation. In the
opinion of the Company's management, settlements of litigation will not have a
material adverse effect on the Company's results of operations, financial
position or cash flows.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and related notes thereto.
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the Company's current
business strategy and the Company's plans for future development and operations,
are based upon current expectations. These statements are forward-looking in
nature and involve a number of risks and uncertainties. Generally, the words
"anticipates," "believes," "estimates," "expects" and similar expressions as
they relate to the Company and its management are intended to identify
forward-looking statements. Actual results may differ materially. Among the
factors that could cause actual results to differ materially are those set forth
under the caption "Cautionary Statements Regarding Forward-Looking Statements."
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements speak only as of the date made.
Overview
Our web site, www.fashionmall.com, is a vertical portal for the
category of "fashion". fashionmall.com defines fashion to include apparel,
accessories, footwear, beauty products, eyewear, jewelry, watches, home
furnishings and related lifestyle products and accessories. We have combined the
concept of an online shopping mall with fashion content to provide a centralized
site for manufacturers, retailers, catalogs, e-commerce sites and magazines to
advertise, display and sell their product lines on the web.
We intend to continue to develop strategic alliances and advertising
and marketing efforts, to build further brand awareness for the fashionmall.com
brand as well as increase traffic to our website. The Company believes that
these efforts will further enhance the existing tenant base and, in turn, create
more consumer traffic and additional tenant revenues.
Results of Operations
Quarter ended June 30, 2000 vs. Quarter ended June 30, 1999
Site Revenues. Total revenues increased by $283,000, or 30%, to
$1,233,000 in the second quarter of 2000 as compared to $950,000 in the second
quarter of 1999. Barter revenue decreased by $257,000, or 68%, to $120,000 in
the second quarter of 2000 as compared to $377,000 in the second quarter of
1999. Barter revenue represented 10% and 40% of total revenues for the quarters
ended June 30, 2000 and 1999, respectively. The revenue increase was due to
increased industry acceptance of the fashionmall.com model resulting in
additional new clients and sponsors and increased rates for space on
fashionmall.com based on traffic growth.
Costs and Expenses. Total expenses of the business decreased by
$1,508,000 or 39% to $2,328,000 for the quarter ended June 30, 2000 from
$3,836,000 for the quarter ended June 30, 1999. During the quarter ended June
30, 2000, the Company incurred non-cash compensation charges in connection with
the Chazen options of approximately $111,000 and will continue to incur these
charges each of the next four (4) quarters. The decrease was due to expenses
associated with the initial public offering which took place in the prior year
partially offset by increased expenditures for technical staff, advertising,
equipment and infrastructure development to support the growth of our business.
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Site Development, Merchandise and Content Expenses. Site development,
merchandise and content expenses decreased by $94,000 or 39% to $148,000 for the
quarter ended June 30, 2000 from $242,000 for the quarter ended June 30, 1999.
The decrease was primarily due to decreased purchasing of merchandise for
Outletmall.com.
Advertising and Marketing Expenses. Advertising and marketing expenses
increased by $279,000 or 77% to $642,000 for the quarter ended June 30, 2000
from $363,000 for the quarter ended June 30, 1999. The increase was primarily
due to increased print, outdoor and other advertising on behalf of the
fashionmall.com brand as well as online banner advertising programs.
Selling Expenses. Selling expenses increased by $260,000 or 456% to
$317,000 for the quarter ended June 30, 2000 from $57,000 for the quarter ended
June 30, 1999. The selling expense increase was primarily due to increasing our
sales force. These expenses are expected to continue to increase as we pursue
our growth strategy and hire additional sales personnel.
General and Administrative Expenses. General and administrative
expenses decreased by $1,953,000 or 62% to $1,221,000 for the quarter ended June
30, 2000, from $3,174,000 for the quarter ended June 30, 1999. During the
quarter ended June 30, 2000, we incurred non-cash compensation charges in
connection with the Chazen options of approximately $111,000 and will continue
to incur these charges each of the next four (4) quarters. The remaining
decrease was primarily due to the impact of the initial public offering expenses
incurred in the second quarter of the prior year partially offset by increases
in advertising and staff.
Other Income and Expense. Interest and dividend income (expense)
increased by $1,313,000 or 194% to $635,000 for the quarter ended June 30, 2000
from $(678,000) for the quarter ended June 30, 1999. During the quarter ended
June 30, 2000, such amounts were earned primarily from our cash balances and
short-term investments. The increase in funds can be attributed to having more
funds on hand to invest. We raised approximately $35,000,000, net of related
expenses, in connection with the IPO, approximately $7,400,000 as a result of
the Taubman investment and approximately $1,000,000, net of the promissory note
repayment, as a result of the FM/CCP investment.
Six months ended June 30, 2000 vs. Six months ended June 30, 1999
Site Revenues. Total revenues increased by $831,000 or 48% to
$2,551,000 for the six months ended June 30, 2000 as compared to $1,720,000 for
the six months ended June 30, 1999. Barter revenue decreased by $474,000 or 65 %
to $251,000 for the six months ended June 30, 2000 from $725,000 for the six
months ended June 30, 1999. Barter revenue represented 10% and 42% of total
revenues for the six months ended June 30, 2000 and June 30, 1999, respectively.
The revenue increase was due to increased industry acceptance of the
fashionmall.com model resulting in additional new clients and increased rates
for space on fashionmall.com based on traffic growth.
Costs and Expenses. Total expenses of the business increased by
$2,244,000 or 48% to $6,905,000 for the six months ended June 30, 2000 from
$4,661,000 for the six months ended June 30, 1999. During the six months ended
June 30, 2000, the Company incurred non-cash compensation charges in connection
with the Chazen options of approximately $222,000 and will continue to incur
these charges each of the next four (4) quarters. The increase was due to
increased expenditures for technical staff and advertising partially offset by
the expenditures related to the initial public offering in the prior year.
10
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Site Development, Merchandise and Content Expenses. Site development,
merchandise and content expenses increased by $10,000 or 3% to $354,000 for the
six months ended June 30, 2000 from $344,000 for the six months ended June 30,
1999. The increase was primarily due to the purchasing of merchandise for
Outletmall.com.
Advertising and Marketing Expenses. Advertising and marketing expenses
increased by $2,716,000 or 402% to $3,391,000 for the six months ended June 30,
2000 from $675,000 for the six months ended June 30, 1999. The increase was
primarily due to increased print, outdoor and other advertising on behalf of the
fashionmall.com brand as well as online banner advertising programs.
Selling Expenses. Selling expenses increased by $435,000 or 337% to
$564,000 for the six months ended June 30, 2000 from $129,000 for the six months
ended June 30, 1999. The selling expense increase was primarily due to
increasing our sales force. These expenses are expected to continue to increase
as we pursue our growth strategy and hire additional sales personnel.
General and Administrative Expenses. General and administrative
expenses decreased by $917,000 or 26% to $2,596,000 for the six months ended
June 30, 2000, from $3,513,000 for the six months ended June 30, 1999. During
the six months ended June 30, 2000, we incurred non-cash compensation charges in
connection with the Chazen options of approximately $222,000 and will continue
to incur these charges each of the next four (4) quarters. The remaining
decrease was primarily due to the initial public offering expenses incurred in
the prior year offset, in part, by increased consulting and payroll expenses
associated with the management team and additional support staff required by our
growth. We expect these expenses to increase as additional personnel are hired.
Other Income and Expense. Interest and dividend income (expense)
increased by $1,719,000 or 257% to $1,049,000 for the six months ended June 30,
2000 from $(670,000) for the six months ended June 30, 1999. During the six
months ended June 30, 2000, such amounts were earned primarily from our cash
balances and short-term investments. The increase in funds can be attributed to
having more funds on hand to invest. We raised approximately $35,000,000, net of
related expenses, in connection with the IPO, approximately $7,400,000 as a
result of the Taubman investment and approximately $1,000,000, net of the
promissory note repayment, as a result of the FM/CCP investment.
Year 2000 Issue
We are not aware of any year 2000 problems affecting us. The cost for
us to address this issue was immaterial. Our contingency plan remains available
to us should we need to implement any part. We will continue to monitor our
systems and relationships for any potential Year 2000 problems that we have not
yet uncovered.
Liquidity and Capital Resources
From inception, we have financed substantially all of our operations
from private investments and the proceeds from our IPO. A lesser portion has
been financed with cash generated from operations.
As of June 30, 2000, we had cash and cash equivalents and marketable
securities on hand of $37,722,000. Of this amount, the cash and cash equivalents
portion was $27,109,000 and the marketable securities portion was $10,613,000.
As of December 31, 1999, cash, cash equivalents and marketable securities were
$41,566,000. Of this amount, the cash and cash equivalents portion was
$34,114,000 and
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the marketable securities portion was $7,452,000. The decrease in funds can be
attributed to increased expenditures for technical staff, advertising, equipment
and infrastructure development to support the growth of our business. We expect
that our current cash position without taking revenues into account, based upon
our present business model, will be sufficient to meet our cash requirements for
at least the next two years.
Net cash used in operating activities was $(3,745,000) for the six
months ended June 30, 2000 as compared to net cash provided by operating
activities of $288,000 for the six months ended June 30, 1999. Net cash used in
operating activities for the six months ended June 30, 2000 was primarily due to
increased consulting and payroll expenses associated with the management team
and additional support staff required by our growth as well as increased
expenditures for advertising, equipment and infrastructure development.
Net cash used in investing activities was $(3,260,000) for the six
months ended June 30, 2000 as compared to net cash used in investing activities
of $(23,000) for the six months ended June 30, 1999. Net cash used in investing
activities for the six months ended year ended June 30, 2000 was due to the
purchase of marketable securities and the purchase of software, property and
equipment. Net cash used in investing activities for the six months ended June
30, 1999 was due to payments for property and equipment.
Net cash provided by financing activities was $0 for the six months
ended June 30, 2000 as compared to net cash provided by financing activities of
$42,637,000 for the six months ended June 30, 1999. Net cash provided by
financing activities for the six months ended June 30, 1999 was primarily due to
the proceeds from the repayment of loans and capital contributions.
As part of the Taubman investment, we entered into an agreement with
TRG Net Investors LLC ("TRG Net"), an affiliate of Taubman Centers, Inc., a real
estate investment trust and a mall developer in the U.S., whereby TRG Net
purchased, for $7,417,000, a 9.9% membership interest in our predecessor LLC
(the "Series B Interest") and warrants (the "Warrants") to purchase an
additional 10% membership interest. Upon closing of the IPO, the Series B
Interest was contributed for 824,084 shares of convertible preferred stock (the
"Preferred Stock"), which in turn is convertible into an aggregate of 824,084
common shares and warrants that can be exercised to purchase 924,898 common
shares. The Preferred Stock is convertible into 824,084 shares of common stock
for one year beginning on May 26, 2000 at an effective conversion price of $9.00
per share and the exercise price of the warrants is $13.00 per share. Upon
closing of Taubman's investment (the "Taubman Investment"), we allocated
$2,377,000 of the $7,417,000 to represent the fair value of the Warrants. The
remaining portion of the net proceeds of $5,040,000 represents the beneficial
conversion feature of the Preferred Stock, to be allocated to additional paid-in
capital and accreted to the book value of the Preferred Stock. The accretion
period will be one year, which began on May 26, 1999. As of June 30, 2000,
$4,264,000 was accreted to the book value of the Preferred Stock. Over the
one-year accretion period, earnings per share will be negatively impacted by the
beneficial conversion feature amount of $5,040,000. In connection with this
transaction, Robert S. Taubman, the Chief Executive Officer and the President of
Taubman Centers, Inc., joined our Board of Directors.
12
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Certain Factors That May Affect Future Results
From time to time, information provided by us, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-QSB) may contain statements, which
are not historical facts, so-called "forward-looking statements". These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Our actual future results
may differ significantly from those stated in any forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties,
including, but not limited to, product demand, pricing, market acceptance,
litigation, intellectual property rights, risks in product and technology
development, product competition, limited number of customers, key personnel,
potential transactions and other risk factors detailed in this Quarterly Report
on Form 10-QSB and in our other Securities and Exchange Commission filings.
Market Risks
The Company did not have material changes in risk for the six months
ended June 30, 2000. Please refer to the Company's Form 10KSB and Prospectus for
a discussion on risk factors affecting the Company.
13
<PAGE>
Part 2. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities Holders
The company held its annual meeting of stockholders on June 30, 2000.
The following items were voted on:
1. Election of the Board of Directors
Name For Against
Benjamin Narisan 6,232,258 55,785
Jerome Chazen 6,232,258 55,785
Richard Marcus 6,232,258 55,785
Robert S. Taubman 6,232,258 55,785
2. Ratification of the appointment of Arthur Andersen LLP
For Against
6,187,745 63,851
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is included herein:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 2000.
14
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Fashionmall.com, Inc.
(Registrant)
By:
Signature Title Date
--------- ----- ----
Benjamin Narasin Chief Executive Officer, August 14, 2000
President and Chairman
of the Board of Directors
Barry Scheckner Acting Chief Financial August 14, 2000
Officer
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