UNITED STATES
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 September 30, 2000
------------------------
OR
[] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 0-26569
SALEOUTLET.COM, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-03992
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
132 West 21st Street, New York, NY 10011
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (212) 691-0288
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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. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of September 30, 2000
------------------ ------------------------------------
Common Stock 9,369,271 shares
Par Value $0.001
1
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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BASIS OF REPRESENTATION
General
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows and stockholders' (deficit) equity
in conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended September 30, 2000, are not necessarily indicative of the results
that can be expected for the year ending December 31, 2000.
Page
Unaudited Balance Sheet as of September 30, 2000 3
Unaudited Statements of Operations for the three and nine months
ended September 30, 2000 and 1999 4
Unaudited Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 5
Notes to Unaudited Financial Statements 6 - 10
2
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SALEOUTLET.COM
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
----------------- ------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 107,992 $ 338,143
Accounts receivable 97,221 48,727
Due from affiliate 0 12,495
Prepaid expenses 168,500 222,917
----------------- ------------------
TOTAL CURRENT ASSETS 373,713 622,282
PROPERTY, PLANT, AND EQUIPMENT 69,507 67,462
----------------- ------------------
$ 443,220 $ 689,744
================= ==================
LIABILITIES AND (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 206,172 $ 181,313
Convertible promissory notes, net of discount (face amount of $320,000) 250,233 0
Capital leases - current 3,255 8,322
----------------- ------------------
TOTAL CURRENT LIABILITIES 459,660 189,635
----------------- ------------------
LONG-TERM LIABILITIES
Capital leases 6,973 7,442
----------------- ------------------
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, $.001 par value
Authorized 50,000,000 shares
9,369,271 shares issued and 495,685 issuable
(8,934,271 and 108,016 in 1999) 9,865 9,042
Additional paid-in capital 3,718,006 2,047,259
Unamortized stock compensation (105,000) 0
Deficit accumulated during development stage (3,646,284) (1,563,634)
----------------- ------------------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (23,413) 492,667
----------------- ------------------
$ 443,220 $ 689,774
================= ==================
</TABLE>
See Selected Notes to Unaudited Financial Statements.
3
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SALEOUTLET.COM
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
9/1/95
Three months ended Nine months ended (Date of
September 30, September 30, inception) to
2000 1999 2000 1999 9/30/00
-------------- ------------- ------------- -------------- -------------
INCOME
<S> <C> <C> <C> <C> <C>
Revenue $ 137,170 $ 81,199 $ 404,038 $ 96,199 $ 564,357
-------------- ------------- ------------- -------------- -------------
TOTAL INCOME 137,170 81,199 404,038 96,199 564,357
-------------- ------------- ------------- -------------- -------------
EXPENSES
Cost of services 22,401 61,363 72,093 71,627 140,749
Sales, marketing and public relations 366,806 276,635 1,163,177 558,756 1,726,665
Research and development 0 0 0 65,000 65,000
General and administrative 277,111 (28,258) 767,311 187,290 1,653,813
Interest expense 336,421 155,000 488,849 155,000 646,184
-------------- ------------- ------------- -------------- -------------
1,002,739 464,740 2,491,430 1,037,673 4,232,411
-------------- ------------- ------------- -------------- -------------
TOTAL OPERATING LOSS (865,569) (383,541) (2,087,392) (941,474) (3,668,054)
OTHER INCOME
Interest 126 7,382 4,742 11,483 21,770
-------------- ------------- ------------- -------------- -------------
Net loss before income taxes (865,443) (376,159) (2,082,650) (929,991) (3,646,284)
-------------- ------------- ------------- -------------- -------------
Income tax expense 0 0 0 0 0
-------------- ------------- ------------- -------------- -------------
NET LOSS $ (865,443) $ (376,159) $ (2,082,650) $ (929,991) $ (3,646,284)
============== ============= ============= ============== =============
Loss per weighted average share $ (.09) $ (.04) $ (.22) $ (.14)
============== ============= ============= ==============
Weighted average number of shares
outstanding 9,514,618 9,006,287 9,296,080 6,701,199
============== ============= ============= ==============
</TABLE>
See Selected Notes to Unaudited Financial Statements.
4
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SALEOUTLET.COM
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9/1/95
Nine months ended (Date of
September 30, inception) to
2000 1999 9/30/00
------------- ------------- ------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (2,082,650) $ (929,991) $ (3,646,284)
Adjustments to reconcile net (loss) to cash used
by operating activities:
Depreciation and amortization 38,381 258 43,397
Amortization of discount on debt 475,132 0 630,132
Option based fees 0 0 19,375
Stock based compensation and fees 811,671 528,333 1,622,546
Changes in assets and liabilities:
Accounts receivable (48,494) (75,456) (97,221)
Due from affiliate 12,495 0 0
Prepaid expenses 54,417 0 (168,500)
Officer advances 0 (185) 0
Accounts payable and accrued expenses 24,859 56,273 206,172
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NET CASH USED IN OPERATING ACTIVITIES (714,189) (420,768) (1,390,383)
INVESTING ACTIVITIES
Purchase of equipment (40,426) (5,190) (65,683)
------------- ------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (40,426) (5,190) (65,683)
FINANCING ACTIVITIES
Proceeds on issuance of convertible debt (with warrants in 2000) 470,000 155,000 625,000
Payment of capital lease (5,536) 0 (8,868)
Sale of common stock 60,000 864,428 947,926
------------- ------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 524,464 1,019,428 1,564,058
------------- ------------- ------------------
(DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (230,151) 593,470 107,992
Cash and cash equivalents at beginning of year 338,143 0 0
------------- ------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 107,992 $ 593,470 $ 107,992
============= ============= ==================
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 1,101 $ 0 $ 3,436
Cash paid for income taxes 1,870 0 4,713
</TABLE>
Effective September 30, 1999, the Company issued 103,333 shares of its
restricted common stock to retire $155,000 of convertible promissory notes and
155,000 shares for interest associated with the notes. During 2000, the Company
issued 375,000 shares of its restricted common stock for services and prepaid
expenses valued at $719,600 and 387,669 shares to retire $150,000 of convertible
promissory notes and related accrued interest.
See Selected Notes to Unaudited Financial Statements.
5
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SALEOUTLET.COM
(A Development Stage Company)
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2000
NOTE A - THE COMPANY
Saleoutlet.Com, Inc. ("Saleoutlet" or the "Company") was incorporated in
September 1995 in the state of Nevada. The Company changed its name from Austin
Underground, Inc. to Saleoutlet in February 1999. The Company had no operations
from inception through March 1999. The Company has commenced its principal
operations but there has been no significant revenue through September, 2000 and
therefore is still considered a development stage company.
In March 1999, the Company was reorganized. New management was established and
opened its virtual doors on the Web in May 1999. Saleoutlet offers its clients
their own "sale site" for a fee.
The Company is subject to those general risks associated with development stage
companies, as well as special risks unique to emerging E-commerce companies
which, along with a new strategic focus to create new markets for their products
and services. As shown in the accompanying financial statements, the Company has
incurred a substantial net loss and the Company has generated minimal revenues
related to the Company's planned operations. Further, the Company's business
concept and business model are unproven and, accordingly, the Company's
viability is uncertain. In order to finance its continued development the
Company is presently attempting to raise additional financing through additional
private placements. However, there is no assurance that the Company will be
successful in that effort, nor that it will ever attain profitable operations
and operating cash flow. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to obtain additional financing and
ultimately to attain profitability. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern for a
reasonable period of time.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] Cash and equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. From time to time, the Company's
cash balances with any single financial institution exceed Federal
Deposit Insurance Corporation ("FDIC") and Securities Investor
Protection Corporation ("SIPC") limits. At September 30, 2000 cash
equivalents amounted to approximately $78,000 and consist of one
investment in a money market fund.
[2] Fixed assets, net:
Fixed assets are stated at cost less accumulated depreciation and
amortization. Fixed assets are depreciated on a straight-line basis
over the estimated useful lives of the assets.
6
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SALEOUTLET.COM
(A Development Stage Company)
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
September 30, 2000
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (continued)
[3] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from these estimates.
[4] Stock-based compensation:
The Company has elected to follow the intrinsic value method set forth
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" in accounting for its stock option incentive plan
applicable to employees. As such, deferred compensation expense is
recorded on the date of grant of employee options if the current market
price of the underlying stock exceeds the exercise price of the option,
and such deferral is amortized and charged to operations over the
vesting period of the options. Options or stock awards issued to
nonemployees are valued using the fair value method and expensed over
the period services are provided, in accordance with the applicable
provisions of Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation."
[5] Impairment of long-lived assets:
The Company evaluates the recoverability of its intangibles and other
long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of these assets exceeds the
estimated future undiscounted cash flows attributable to these assets.
The Company assesses potential impairment to its long-lived assets when
there is evidence that events or changes in circumstances have made
recovery of the asset's carrying value unlikely. Should an impairment
exist, the impairment loss would be measured based on the excess of the
carrying value of the asset over the asset's fair value or discounted
estimates of future cash flows.
[6] Revenue recognition:
The Company recognizes revenue (commission income) when a client sells
a product through the Company's website. Site and change fees are
recognized as the service is rendered. Rental of E-mail database
information will be recognized when such information is provided to the
client. Web site creation income will be recognized when they are fully
operational. Catalog design and marketing will be recognized upon its
completion. Advertising revenue, which consists of advertising space on
the Company web-site, is recorded during the period in which the
advertising services are provided.
7
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SALEOUTLET.COM
(A Development Stage Company)
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
September 30, 2000
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (continued)
[7] Advertising:
Advertising expense is comprised of print and internet related
marketing expenses. Advertising expenses are charged to operations
during the period incurred, except for expenses related to the
development of major commercial or media campaigns which are charged to
operations during the period in which the advertising campaign is first
presented by the media. Advertising expense was $305,307 for the nine
months ended September 30, 2000. Included in prepaid expenses at
September 30, 2000 were $6,750 related to prepaid advertising and
marketing resulting from the issuance of stock in connection with
agreements.
[8] Net loss per share:
Basic and diluted net loss per share was computed by dividing the net
loss for the period by the weighted average number of common shares
outstanding during the period plus shares issuable.
[9] Comprehensive income:
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. Comprehensive loss for
the period consists of the net loss.
[10] Segment information:
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 requires
public companies to report financial and descriptive information about
their reportable operating segments. The Company identifies its
operating segments based on how management internally evaluates
separate financial information, business activities and management
responsibility. The Company believes that its operations, as they are
presently developing, constitute a single, reportable segment.
[11] Financial instruments:
The carrying amounts of the Company's financial instruments approximate
fair value due to their short term nature or their underlying terms.
[12] Website development costs:
The Company capitalized the direct costs for outside consultants to
create the program code for its website.
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SALEOUTLET.COM
(A Development Stage Company)
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
September 30, 2000
NOTE C - CONVERTIBLE DEBT AND WARRANTS
Effective April 15, 2000, the Company issued $350,000 of 8% convertible
notes. The Company also issued 350,000 warrants to the note holders to
purchase 350,000 shares of the Company's common stock at $1.00 per
share anytime prior to April 15, 2002. The notes and accrued interest
are due October 15, 2000. The notes were convertible into shares of the
Company's common stock at the option of the Company, at the same price
as shares to be sold in a future private placement of Company common
stock. On September 18, 2000, the Company agreed to fix the conversion
price at $.40 per share. The discount on the debt associated with the
warrants is being amortized over the six month life of the notes.
During the quarter ended September 30, 2000, the Company retired
$150,000 of the 8% notes. The holders of the notes will receive 387,669
shares of the Company's common stock to retire the debt and accrued
interest. The debt was converted at $.40 per share. The beneficial
conversion feature of $111,649 was charged to interest expense during
the quarter ended September 30, 2000.
Under the Black-Scholes valuation method, the value of the warrants
exceeded the face amount of the convertible notes issued, and
therefore, the notes have been discounted to zero at the date of
issuance.
For the period ended September 30, 2000, the amortization of discount
was $333,333.
The fair value of the warrants has been estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions: no dividend yield, volatility of 588%, a risk-free
interest rate of 6.4% and an expected life of two years from date of
grant.
During September, 2000, the Company issued $120,000 of 10% convertible
notes. The notes and accrued interest are due twelve months from the
date of the note. The notes are convertible into the Company's common
stock at $.40 per share during the period beginning thirty days after
the date of the note and ending one day prior to the maturity date of
the note. The beneficial conversion feature of $83,250 is being
amortized over thirty days. $30,150 of the beneficial conversion
feature was charged to expense during the quarter ended September 30,
2000. Subsequent to September 30, 2000, $100,000 of the notes are in
the process of being converted into common stock.
NOTE D - GRANTS AND AWARDS
On July 14, 2000, the Company granted a total of 200,000 options to
purchase the Company's common stock at $.10 per share to employees.
These options are exercisable after December 31, 2000 with an
expiration date of July 14, 2010.
The fair value of the options has been estimated at $1.04 per share on
the date of the grant using the Black- Sholes option pricing model with
the following assumptions: no dividend yield, volatility of 208%, a
risk- free interest rate of 6.28% and an expected life of three years
from date of grant. Had compensation cost to the employees for the
Company's stock option plan been determined based upon the fair value
of the options at the grant date for awards under the plan consistent
with the methodology prescribed under SFAS
9
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SALEOUTLET.COM
(A Development Stage Company)
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS (continued)
September 30, 2000
NOTE D - GRANTS AND AWARDS (continued)
No. 123, the Company's net loss and net loss per share would have been
as follows:
Net loss - as reported $ (2,082,650)
Pro forma (2,090,650)
Net loss per share - as reported $ (.22)
Pro forma (.22)
10
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Results of Operations
Three Months Ended September 30, 2000
The Company commenced its business of selling clients' merchandise on
its website during the second quarter of 1999. During the three month period
ended September 30, 2000, the Registrant had website revenues of $137,170
compared to $81,199 of revenues in the same period in 1999 when the Registrant
was just beginning operations. The Registrant's general and administrative
expenses were $277,111 for the three months ended September 30, 2000 compared to
$(28,258) for the same period in 1999. These expenses are attributable primarily
to officer and employee salaries, rent and overhead related expenses. Sales,
marketing and public relations expenses were $366,806 for the three months ended
September 30, 2000 compared to $276,635 for the same period in 1999. These
expenses are mainly attributable to advertising, printing, consulting and public
relations. Management anticipates that it will experience increased revenues in
the remainder of 2000 through its website. It is also expected that revenues
from initial site fees, maintenance fees and website design and creation will
increase as the Registrant adds new clients to its vendor base. As of the date
of this Report, the Registrant has approximately 150 clients which list
merchandise for sale on the Registrant's website. It is anticipated that this
number will not materially increase by the end of the year.
Nine Months Ended September 30, 2000
During the nine month period ended September 30, 2000, the Registrant
had website revenues of $404,038 compared to $96,199 of revenues in the same
period in 1999 when the Registrant was just beginning operations. The
Registrant's general and administrative expenses were $767,311 for the nine
months ended September 30, 2000 compared to $187,290 for the same period in
1999. These expenses are attributable primarily to officer and employee
salaries, rent, and overhead related expenses which were minimal in the first
six months of the comparable period in 1999. Sales, marketing and public
relations expenses were $1,163,177 for the nine months ended September 30, 2000
compared to $558,756 for the same period in 1999. The Company was able to pay
about $774,000 of these expenses with its common stock.
From time to time the Registrant may evaluate potential acquisitions
involving complementary businesses, content, products or technologies. The
Registrant has no present agreements or understanding with respect to any such
acquisition. The Registrant's future capital requirements will depend on many
factors, including the entrance into strategic alliances, increases in
advertising, marketing and promotions, growth of the Registrant's customer base,
economic conditions and other factors including the results of future
operations.
The Registrant currently has five (5) full time employees.
Liquidity and Capital Resources
During the nine month period ended September 30, 2000, the Registrant
raised approximately $60,000 through the sale of its common stock and $470,000
through the sale of 8% ($350,000) and 10% ($120,000) convertible promissory
notes. It also issued 375,000 shares of its restricted common stock for services
and prepaid expenses valued at $719,600.
11
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During the quarter ended September 30, 2000, the Company retired
$150,000 of the 8% notes. The holders of the notes will receive 387,669 shares
of the Company's common stock to retire the debt and accrued interest. The debt
was converted at $.40 per share. The remainder of the 8% notes ($200,000) were
due October 15, 2000. The Company is negotiating with the holders to convert
their debt at $.40 per share.
Management anticipates that the Company will require additional capital
to fund its working capital requirements for the remainder of 2000. Management
continues its negotiations with a private company to provide website design,
consulting and development to such company which is expected to generate
revenue, together with cash flow from revenues, sufficient capital to finance
the Registrant's working capital requirements through the end of 2000. No
assurances can be given that an agreement to provide such services will be
reached. In such event, it is anticipated that required funding will likely come
from the sale of the Registrant's debt and/or equity securities, the successful
sale of which, if any, cannot be assured. The Registrant is also in discussions
with two companies who can provide financing and other resources, including
major customer databases, to significantly expand its business. In the event
that the Registrant consummates a transaction with either company, as to which
no assurances can be given, it expects that it would issue a substantial amount
of its common stock in connection therewith.
Impact of Inflation
Although the Registrant has not attempted to calculate the effect of
inflation, management does not believe inflation has had or will have a material
effect on its results of operations.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward- looking statements made by the Registrant in its
disclosures to the public. There is certain information contained herein, in the
Registrant's press releases and in oral statements made by authorized officers
of the Registrant which are forward-looking statements, as defined by such Act.
When used herein, in the Registrant's press releases and in such oral
statements, the words "estimate", "project", "anticipate", "expect", "intend",
"believe", "plans", and similar expressions are intended to identify
forward-looking statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements.
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------------------------------------------------------
(a) The following exhibits are included in this filing:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
12
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SALEOUTLET.COM, INC.
Dated : November 20, 2000 By: /s/ Michael Aronowitz
---------------------
Michael Aronowitz, President
13
