UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934 for the
quarterly period ended September 30, 1999
[ ]Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the
transition period from ___ to ___
COMMISSION FILE NUMBER 1-15161
3Dshopping.com
(Exact name of registrant as specified in its charter)
California 95-4594029
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
308 Washington Boulevard
Marina del Rey, California 90292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 301-6733
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 [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 31, 1999
Common Stock, no par value 4,785,746 Shares
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
3Dshopping.com
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues, net $ 35,666 $ 15,591
----------- -----------
Costs and expenses:
Sales and marketing 272,101 57,839
Production and development 60,508 35,095
General and administrative 1,042,127 119,951
----------- -----------
Total costs and expenses 1,374,736 212,885
----------- -----------
Loss from operations (1,339,070) (197,294)
Interest expense (108,999) (4,458)
Interest income 75,693 -
----------- -----------
Net loss $(1,372,376) $ (201,752)
=========== ===========
Net loss per share $ (0.31) $ (0.05)
=========== ===========
Weighted average number of
shares used in computing
net loss per share 4,367,836 4,024,482
=========== ===========
See notes to financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,962,752 $ 116,918
Accounts receivable, net of allowances 24,124 113,669
Related party receivable 225,000 25,000
Other receivables 69,586 12,323
Prepaid expenses 232,051 16,143
------------ ------------
Total current assets 9,513,513 284,053
Property and equipment, net of accumulated
depreciation of $123,807 and $124,687 261,800 144,004
Goodwill, net 166,483 702,998
Deposits 535 183,131
------------ ------------
Total assets $ 9,942,331 $ 1,314,186
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 508,362 $ 840,658
Notes payable - 625,000
Note payable - related parties - 70,723
Obligation under line of credit - 54,000
Customer deposits 5,000 53,846
Current maturities of capitalized lease obligations 16,825 13,079
------------ ------------
Total current liabilities 530,187 1,657,306
Noncurrent portion of capital lease obligations 5,511 12,318
Commitments and contingencies - -
Shareholders' equity (deficit):
Preferred Stock, no par value: 5,000,000 shares
authorized: no shares issued and outstanding.
Common stock, no par value: 10,000,000 shares
authorized; issued and outstanding: 4,785,746 and
3,685,746, respectively 18,198,362 7,063,915
Stock subscription receivable (2,500) (2,500)
Accumulated deficit (8,789,229) (7,416,853)
------------ ------------
Total shareholders' equity (deficit) 9,406,633 (355,438)
------------ ------------
Total liabilities and shareholders' equity $ 9,942,331 $ 1,314,186
============ ============
See notes to financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
(UNAUDITED)
Common Stock Stock
----------------------- Subscription Accumulated
Shares Amount Receivable Deficit Total
--------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Quarter Ended
September 30, 1999
Balance, beginning of period 3,685,746 $ 7,063,915 $ (2,500) $ (7,416,853) $ (355,438)
Sales of Common Stock 1,100,000 13,200,000 13,200,000
Underwriting costs (1,266,352) (1,266,352)
Purchase of Warrants (400,000) (400,000)
Write-off of Prepaid
Offering Costs (788,180) (788,180)
Amortization of Warrants
as interest on debt 100,774 100,774
Employee stock options
granted (Note 3) 288,205 288,205
Net loss for quarter (1,372,376) (1,372,376)
--------- ----------- ------------ ------------ -----------
Balance, end of period 4,785,746 $18,198,362 $ (2,500) $ (8,789,229) $ 9,406,633
========= =========== ============ ============ ===========
See notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
STATEMENTS OF CASH FLOW
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,372,376) $ (201,752)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 40,768 10,301
Amortization of value of warrants issued for financing 100,774 -
Options issued for services and compensation 288,205 -
Changes in assets and liabilities:
Accounts receivable, net of allowance 89,545 (7,288)
Related party receivable (200,000) -
Other receivables 57,263 (2,260)
Prepaid expenses (215,908) 1,267
Prepaid offering costs (85,182) -
Accounts payable and other liabilities (512,955) (35,368)
Customer deposits (48,846) (2,300)
------------ ------------
Net cash used in operating activities (1,858,712) (237,400)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (86,186) (12,052)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 13,200,000 107,400
Underwriting costs (1,266,352) -
Proceeds from issuance of debt 100,000 -
Payment of loans from stock proceeds (849,723) -
Repurchase of warrants (400,000) -
Payment of capitalized lease obligations 6,807 -
------------ ------------
Net cash provided by financing activities 10,790,732 107,400
------------ ------------
Net increase (decrease) in cash and cash equivalents 8,845,834 (142,052)
Cash and cash equivalents at beginning of fiscal year 116,918 144,564
------------ ------------
Cash and cash equivalents at end of period $ 8,962,752 $ 2,512
============ ============
Cash paid during period for:
Interest 8,224 4,458
Income taxes - -
See notes to financial statements.
</TABLE>
4
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 1998 AND 1999
-----------------------------------------------------------
Note 1 UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements were prepared on the same basis as
the audited financial statements and reflect all adjustments (consisting solely
of normal recurring items) which are, in the opinion of management, necessary to
present a fair statement of results of operations for the interim periods ended
September 30, 1999 and 1998 and the financial position of 3Dshopping.com as of
September 30, 1999.
References to "Company" are to 3Dshopping.com, formerly Pi Graphix, Inc.. These
statements should be read in conjunction with the financial statements and the
related footnotes to these statements contained in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Company commenced operations effective August 1, 1996. The Company was
formed to design and develop innovative marketing and display applications for
the Internet using 3D modeling software and interactive databases. The Company
has developed and is beginning to implement and market to retailers and
manufacturers a Web-based marketing, merchandising and e-commerce system that
incorporates sophisticated graphics and other audio-visual features.
Commencing with the acquisition of Design Bas, Incorporated ("DBLA") on April 1,
1999, the Company also designs and produces mail order catalogs, brochures and
similar printed media for department stores and apparel retailers. DBLA also
fulfills the digital photographic requirements of Web site development.
LOSS PER SHARE OF COMMON STOCK
The loss per share of common stock is based on the weighted average numbers of
shares of common stock outstanding during each period, in conformity with
Statement of Financial Accounting Standards ("SFAS") No. 128 issued by the
Financial Accounting Standards Board (and in 1998) nominal issuances of
potential common shares as required by the Securities and Exchange Commission.
Loss per common share assuming dilution has not been presented as the effect
would be anti-dilutive.
Note 3 STOCK-BASED COMPENSATION
The Company has adopted SFAS 123 for stock-based compensation plans. This
statement encourages companies to adopt a fair value approach to valuing stock
options that would require compensation cost to be recognized based on the fair
value of stock options granted.
5
<PAGE>
This statement also establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from non-employees in
exchange for equity instruments. The fair values of option grants were estimated
on the dates of grant using the Black-Scholes option pricing model.
During the three months ended September 30, 1999 and 1998 the Company granted
options to employees and recognized compensation expense of $288,205 and $0
respectively, as the options granted.
Note 4 RELATED PARTY TRANSACTIONS
Advances by shareholders to the Company were $0 at September 30, 1999. In
August, 1999, the Company loaned $225,000 to an executive officer under a
secured promissory note. The promissory note, bears interest at 10% per annum,
is secured by a deed of trust on a residential property, and is repayable upon
the earlier of the sale of a principal residence or six months.
Note 5 COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company executed a lease agreement on July 22, 1999 for property located at
308 Washington Boulevard, Marina del Rey, California in order to consolidate its
sales and technology development offices and its studio production facilities.
Occupancy commenced in September, 1999. The term of the leases is five years and
terminates in August, 2005. Monthly rent expense is $48,853 from lease
commencement to January 31, 2002; $53,481 from February 1, 2002 to July 31,
2004, and $55,024 from August 1, 2004 to August 18, 2005. There is an option to
extend the lease for an additional sixty months. A portion of the leased
facility's operating and common area expenses are shared by the Company with
other tenants.
The lease required the Company to provide the lessor an unconditional
irrevocable letter of credit in amounts that decline from $441,671 to $310,067
during the initial lease term. Subject to various terms and conditions, upon a
material default by the lessee, the lessor may draw on the letter of credit to
satisfy the lease terms.
Note 6 COMMON STOCK
During the first quarter ended September 30, 1998 there were no shares of common
stock issued. On July 23, 1999 the Company's public offering on the American
Stock Exchange closed in which the Company sold 1,100,000 units, consisting of
one share of common stock and one warrant for the purchase of one share of
common stock at a purchase price of $18 per share at any time until they expire
on July 20, 2004. The following is a summary of those proceeds:
Sales of Units $13,200,000
Underwriting discount (990,000)
Underwriting expenses (264,000)
Due diligence (12,352)
-----------
Net Proceeds $11,933,648
===========
6
<PAGE>
Note 7 LOSS PER SHARE
The loss per common share is determined by dividing the net loss for each period
by the weighted average number of common shares outstanding during each period.
<TABLE>
<CAPTION>
Three Months ended September 30,
1999 1998
----------- ----------
<S> <C> <C>
Common Stock Outstanding
Beginning of
Period (1) 3,685,746 3,191,400
Issued during
the period (1) 1,100,000 -
End of the
Period (1) 4,785,746 3,191,400
Weighted average
number of shares 4,367,836 4,024,482
Diluted average
Number of shares 4,756,263 4,057,091
</TABLE>
The Securities and Exchange Commission requires nominal issuances of potential
common shares issued within one year prior to an Initial Public Offering filing
to be included in earnings per share calculations as if outstanding for all
periods presented. These calculations include all such shares. Loss per common
share assuming dilution has not been presented as the result would have been
anti-dilutive.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition for the three months ended September 30,
1999 and 1998. The following discussion should be read in conjunction with the
financial statements and related notes appearing elsewhere in this report.
Overview
Since its founding in August, 1996 through the fiscal year ended June 30,
1999, the Company has devoted substantially all its resources to designing,
implementing and introducing its proprietary technology and process (the
"3Dshopping System") for the marketing and display of products on the Internet.
While still developing its technology, the Company received incidental
revenues from programming services and test projects beginning in April 1998.
Notwithstanding these revenues, the Company operated at a loss from inception to
date and continues to operate at a loss as expenditures for marketing, product
development and general and administrative costs exceed revenues. The Company
presently expects operating losses to continue and to increase over at least the
next twelve months as a result of increased expenditures for marketing,
development and production. Such increases will include non-cash costs arising
from compensation expense ascribed to stock options granted to employees and
independent contractors for services.
The Company believes its past operating results are not indicative of
future performance for the following reasons, among others:
o On July 23, 1999, the Company completed a public offering of 1,100,000
units, each consisting of one share of common stock and one warrant to
purchase one share of common stock at a purchase price of $18.00 per
share. As a result of the offering, the Company received net proceeds
of $11,933,648, after deducting underwriting discounts and offering
expenses. The net proceeds and their use to fund anticipated growth
will materially change expense levels in all major categories as a
result of intentional changes and increases in marketing activities,
production and operating infrastructure;
o The Company only recently emerged from the development stage. As a
result of increased marketing and development expenditures, the
Company anticipates substantial increases in the number and size of
customer orders and revenues from operations in the future; and
o The acquisition of DBLA as of April 1, 1999 has enhanced and
diversified the scope of services to include catalog production.
8
<PAGE>
Although the Company expects substantial growth in both revenues and
expenses, it also anticipates that expenses will increase more rapidly than
revenues. In addition, while committed to a plan of substantial increases in
expenses over the short term, the Company cannot guarantee that revenues will
increase correspondingly in the future. Like many companies attempting to build
an Internet-based business, the Company plans to establish market share by
making expenditures for marketing, product refinement, service fulfillment,
research, and the development of infrastructure. Consequently, the Company
expects that expenses will continue to exceed estimated revenues for at least
the next twelve months and that operating losses will result.
The catalog business that the Company obtained through its acquisition of
DBLA is more traditional than the core Internet business. It had been fully
operational for several years before its acquisition on April 1, 1999 and it
recorded substantially larger annual revenues than the Company's current Web
services business. If the Company's business development plans are successful,
it is expected that revenues from Web site services will increase more rapidly
than catalog sales in the future. However, since catalog clients may be good
prospects for Web site services, the Company may also provide both services to a
single client.
Results of Operations
First Quarter 1999 as compared to first quarter 1998
Revenues for 1999 were $35,666 as compared to $15,591 for 1998. The
increase of $20,075 resulted largely from the inclusion of the catalog revenues
in 1999.
Expenses for the quarter ended September 30, 1999 were $1,374,736 as
compared to $212,885 for 1998, an increase of $1,161,851. The increase primarily
reflects the costs associated with additional staff for sales, production and
administration, marketing program costs for newly developed sales programs and
participation in trade shows, and improvements in Internet service systems and
capabilities. Also, increasing costs for the current quarter were the first-time
inclusion of the operating costs of DBLA and the relocation costs associated
with the consolidation of the Company's studio, production and sales offices in
September 1999. The 1999 first quarter also included compensation expense of
$288,205 for the non-cash values ascribed to option grants to employees and
consultants under the Black-Scholes option-pricing model recommended by the FASB
in its SFAS 123.
The net loss for 1999 was $1,372,376, or $0.31 per share of common stock.
The weighted average number of shares used in computing net loss per share was
4,367,836 for 1999 as compared to 4,024,482 for 1998. The increase of 343,354
was principally a result of the sale of common stock in July 1999.
Liquidity and Capital Resources
From inception through June 30, 1999 the Company funded its operations
primarily through the sale of common stock and, to a lesser extent, by issuing
notes and other borrowings. The Company also issued stock and options in
exchange for services during that period. As a result of the proceeds from the
unit offering on July 23, 1999, all liabilities for borrowed money as of June
30, 1999 were paid off and the Company's working capital deficit was eliminated.
As of September 30, 1999 the Company had cash and cash equivalents of
approximately $8,963,000 and working capital of approximately $8,983,000.
9
<PAGE>
The Company's liquidity and capital needs relate primarily to working
capital and other general corporate requirements. Since inception, the Company
has not received any significant cash flow from operations or investing
activities. Based on current plans, the Company believes the proceeds from the
unit offering in July will provide sufficient capital resources to fund
operations for at least the next two years. Expectations about long-term
liquidity may prove inaccurate if plans change. As the Company increases sales,
the Company expects cash flow from operations to increase.
Year 2000 Compliance
The Plan. The Company's Year 2000 Compliance Plan relies on third-party
vendor representations as to their products' Year 2000 compliance. The
manufacturers of the principal software and hardware products on which the
3Dshopping System is based have provided the Company with statements of Year
2000 Compliance. The Company has not modified any of the source code for these
products.
The Company has assumed that basic utilities such as electric and telephone
service will continue to be available for the Company's operations on and after
January 1, 2000. If this assumption proves incorrect, the Company's operations
would be materially adversely affected for the duration of the utility
interruption. Based on communications to date, the Company does not believe
material Year 2000 deficiencies by any of the Company's suppliers exist.
Costs. The Company believes that costs incurred in responding to other
parties' Year 2000 computer system deficiencies, together with the cost of any
required system modifications, will not have a material impact on results of
operations or financial condition. The Company has improved its Year 2000
readiness in the ordinary course of business and as part of ongoing improvement
efforts. The Company has also devoted management and technical resources to
address year 2000 matters and expects to continue to do so. To date, however, no
specific material expenditures have been made solely as a result of the Year
2000 issue and the Company does not expect any specific material future costs
associated with Year 2000 readiness.
The Company's Most Reasonably Likely Worst Case Scenarios. Although the
Company will continue to devote resources if and as required to address Year
2000 issues, these efforts may not be effective in eliminating risks associated
with Year 2000 deficiencies. Moreover, the Web-based display system could
contain undetected Year 2000 problems or third-party products could contain such
problems. In addition, management's assessment of third-party suppliers and
vendors might not be accurate, including whether all inquiries were made to the
appropriate vendors. Year 2000 problems could result in system failures, data
corruption, the generation of erroneous information and other significant
disruptions of business activities. Beyond risks related to product and vendor
non-compliance, it is possible that disruptions to the Internet itself will
occur due to the widespread failure of the Internet's hardware and software
infrastructure. Changes in buying and shopping patterns caused by other parties'
efforts to address Year 2000 problems could also disrupt the Company's business.
Furthermore, it has been widely reported that a significant amount of litigation
surrounding business interruptions may arise out of Year 2000 issues.
The Contingency Plan. The Company's contingency plan is currently under
development for its own systems. It does not have a plan to address a complete
and sustained failure of the Internet since the likelihood of such a failure is
deemed remote.
10
<PAGE>
Forward-Looking Statements
Information in "Management's Discussion and Analysis" and elsewhere in this
Form 10-Q about the Company's goals, plans and expectations regarding Year 2000
compliance and future business operations constitutes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Factors that could adversely affect
these forward-looking statements include, customer demand for services and the
Company's ability to execute its plans successfully, unidentified Year 2000
issues in existing programs or underestimating the resources necessary to make
any required modifications or conversions, its ability to modify and/or convert
the necessary systems and applications timely, the effect of the Year 2000
readiness of suppliers the Company relies upon, and the continued availability
of resources internally and externally to implement the Year 2000 modifications.
Any forward-looking statements should be considered in light of these factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
We do not have any financial instruments that are subject to market risk.
11
<PAGE>
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
On July 20, 1999, the Company's Registration Statement on Form S-1 (File
No. 333-74795) registering the offer and sale of 1,000,000 units, each
consisting of one share of common stock and one warrant to purchase one share of
common stock, and the underlying common stock and warrants was declared
effective by the Securities and Exchange Commission. The Company commenced the
offering of units under that Registration Statement, and under an additional
Registration Statement on Form S-1 (File No. 333-83295) filed under Rule 462(b)
to register an additional 100,000 units and underlying securities, on July 21,
1999. The managing underwriter for the offering was Paulson Investment Company,
Inc. All 1,100,000 units offered were sold in the offering for an aggregate
price of $13,200,000. Total expenditures from the date the offer commenced to
September 30, 1999 are $1,356,442. No payments were made to directors, officers
or owners of 10% or more of 3Dshopping.com's outstanding common stock except for
an advance by a shareholder who was repaid on July 26, 1999 in the amount of
$20,622. Payments to underwriters, printers, accountants and legal counsel were
made directly to those parties. After deducting these expenses, and the
write-off of prepaid offering costs, the net offering proceeds were $11,145,468.
As of September 30, 1999, the Company had used $2,182,716 of the net proceeds
for repayment of notes and loans of $849,723, repurchase of warrants of
$400,000, acquisition of property and equipment of $86,186 and working capital
of $846,807. The remainder of the net proceeds has been invested in short-term,
investment grade, interest-bearing securities. Except as described above, none
of these payments were made to directors, officers or owners of 10% or more of
3Dshopping.com's outstanding common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
3Dshopping.com did not file any reports on Form 8-K during the period
covered by this report.
12
<PAGE>
Signature
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.
3DSHOPPING.COM
Dated: November 15, 1999 By ROBERT J. VITAMANTE
--------------------------------------
Robert J. Vitamante
President, Chief Operating Officer and
Acting Chief Financial Officer
(Principal financial officer)
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,962,752
<SECURITIES> 0
<RECEIVABLES> 26,335
<ALLOWANCES> 2,211
<INVENTORY> 0
<CURRENT-ASSETS> 9,513,513
<PP&E> 385,607
<DEPRECIATION> 123,807
<TOTAL-ASSETS> 9,942,331
<CURRENT-LIABILITIES> 530,187
<BONDS> 0
0
0
<COMMON> 18,198,362
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,942,331
<SALES> 35,666
<TOTAL-REVENUES> 35,666
<CGS> 0
<TOTAL-COSTS> 1,374,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108,999
<INCOME-PRETAX> (1,372,376)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,372,376)
<EPS-BASIC> (0.31)
<EPS-DILUTED> 0
</TABLE>
