UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from ________________ to ________________
Commission file number 000-28279
BROWSESAFE.COM, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 35-2090110
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
7202 East 87th Street, Indianapolis, Indiana 46256
(Address of principal executive offices)
(317) 915-9301
(Issuer's telephone number)
3353 W. 9th Street, Indianapolis, Indiana 46202
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Outstanding as of May 5, 2000: 18,675,346 shares of common stock,
$0.001 par value per share.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X]
<PAGE>2
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. Financial Statements.
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
(Unaudited)
March 31, 2000 December 31,1999
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,880,551 $ 6,475
Prepaid consulting expense 2,184,844 177,344
Prepaid expenses and other 64,960 54,950
---------- -------
Total Current Assets 4,130,355 238,769
---------- -------
OFFICE AND COMPUTER EQUIPMENT, net of accumulated
depreciation of $20,623 at March 31, 2000 and $11,395
at December 31, 1999 100,828 93,281
---------- ------
OTHER ASSETS
Web design costs, net of accumulated amortization
of $63,037 at March 31, 2000 and $50,430 at
December 31, 1999 37,823 50,430
Product development costs 78,950 78,950
Deposits 36,622 24,034
---------- -------
Total Other Assets 153,395 153,414
---------- -------
TOTAL ASSETS $ 4,384,578 $ 485,464
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank line of credit $ 198,944
Accounts payable $ 169,425 348,442
Accrued payroll and related expenses 120,917 127,875
Payable to related party 105,847
Accrued stock issuance 337,500
Current maturities of long-term debt 35,617 34,314
Note payable - 176,389
---------- --------
Total Current Liabilities 325,959 1,329,311
LONG-TERM DEBT 19,902 29,310
CONTINGENCIES - -
---------- ---------
Total Liabilities 345,861 1,358,621
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value;
25,000,000 shares authorized, 18,575,346
shares issued and outstanding at
March 31, 2000 (7,249,571 shares earned
but not issued) and 19,075,346 shares issued,
17,575,346 outstanding at December 31, 1999 25,825 17,575
Additional paid-in capital 7,055,649 793,899
Warrants outstanding 1,478,594 71,094
Deficit accumulated during development stage (4,521,351) (1,755,725)
----------- ----------
Total Stockholders' Equity (Deficit) 4,038,717 (873,157)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,384,578 $ 485,464
=========== =========
</TABLE>
Unaudited Interim Financial Statements
<PAGE>3
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
Period from
February 10, 1998
(Inception)
Three Months Ended March 31, to
2000 1999 March 31, 2000
<S> <C> <C> <C>
REVENUES $ - $ - $ -
MARKETING, GENERAL AND ADMINISTRATIVE
Product development and Internet expenses 633 1,105 120,044
Marketing and advertising 6,117 4,957 309,924
Payroll expenses 170,261 90,475 668,343
Legal and professional 2,494,423 3,820 2,724,024
Hardware lease expense 12,147 2,199 89,030
Contract termination 200,000
Depreciation and amortization 21,836 14,117 83,662
Interest expense 9,836 3,295 103,075
Other general and administrative expenses 50,373 15,797 223,249
---------- ------- ---------
Total General and Administrative 2,765,626 135,765 4,521,351
---------- ------- ---------
Net Loss before Income Taxes (2,765,626) (135,765) (4,521,351)
INCOME TAXES - - -
---------- ------- ---------
NET LOSS $ (2,765,626) $ (135,765) $ (4,521,351)
=========== ========== ===========
NET LOSS PER COMMON SHARE $ (0.1396) $ (0.0121) $ (0.3344)
=========== ========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 19,810,520 11,200,000 13,519,554
=========== ========== ===========
</TABLE>
Unaudited Interim Financial Statements
<PAGE>4
BROWSESAFE.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (UNAUDITED) Period from February 10,
1998 (date of inception) to March 31, 2000
<TABLE>
Additional
Members' Common Paid-in Warrants Accumulated
Deficit Stock Capital Outstanding Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Capital contributions from members of BrowseSafe LLC
at inception on February 10, 1998 $ 190,000 $ 190,000
Net loss (541,420) (541,420)
Reclassification of members' deficit to reflect
contribution of BrowseSafe LLC assets and liabilities
to BrowseSafe.com, Inc. in exchange for 11,200,000
shares of BrowseSafe.com, Inc. common stock 351,420 $ 11,200 $ 178,800 $ (541,420) $ -
------------ ---------- ----------- ------------- ---------
BALANCE AT DECEMBER 31, 1998 - 11,200 178,800 (541,420) (351,420)
Issuance of 2,738,000 shares of common stock 2,738 24,645 27,383
Issuance of 2,100,000 shares of common stock in
connection with Motioncast transaction 2,100 372,720 374,820
500,000 shares issued and held in escrow as
collateral for liability -
1,000,000 shares issued and held in escrow pursuant -
to consulting agreement
Issuance of warrants to purchase 350,000 shares of
common stock for services $ 71,094 71,094
Interest expense attributable to the beneficial
conversion feature of debentures 66,667 66,667
Conversion of debentures to 1,537,000 shares of common stock 1,537 151,067 152,604
Net loss - - - - (1,214,305) (1,214,305)
---------- -------- -------- -------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $ - $ 17,575 $ 793,899 $ 71,094 $(1,755,725) $ (873,157)
Issuance of 128,571 shares of common stock 129 44,871 45,000
Issuance of 6,036,000 shares of common stock and
warrants to purchase 550,000 shares of common stock 6,036 2,556,996 256,968 2,820,000
Issuance of 975,000 shares of common stock and warrants
to purchase 300,000 shares of common stock for services 975 3,521,525 935,000 4,457,500
Issuance of 500,000 shares of common stock for
repayment of contract termination liability 500 199,500 200,000
Issuance of 250,000 shares of common stock upon
exercise of warrants 250 205,531 (50,781) 155,000
Issuance of 360,000 shares of common stock and
warrants to purchase 570,000 shares of common
stock related to Swartz financing transaction 360 (266,673) 266,313 -
Net Loss - - - - (2,765,626) (2,765,626)
---------- -------- -------- -------- ----------- -----------
BALANCE AT MARCH 31, 2000 (UNAUDITED) $ - $25,825 $7,055,649 $1,478,594 $(4,521,351) $4,038,717
========== ======== ========== ========== =========== ===========
</TABLE>
Unaudited Interim Financial Statements
<PAGE>5
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Period from
February 10,
1998
(Inception)
to
Three Months Ended March 31, March 31,
2000 1999 2000
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(2,765,626) $(135,765) $ (4,521,351)
Adjustments to reconcile net loss to
net cash (used) by operating activities:
Depreciation and amortization 21,836 14,117 83,660
Noncash consulting services 2,312,500 2,343,750
Noncash settlement 200,000
Interest expense attributable to beneficial
conversion feature of debentures 66,667
(Increase) decrease in certain current assets:
Inventories 6,889
Prepaid expenses and other (10,010) (86) (64,960)
Increase (decrease) in certain current
liabilities:
Accounts payable (179,017) (21,004) 169,425
Payable to related party (105,847) 5,224
Accrued payroll and related expenses (6,958) 42,714 120,917
---------- -------- ---------
Net Cash (Used) by Operating
Activities (733,122) (87,911) (1,601,892)
---------- -------- -----------
INVESTING ACTIVITIES
Cash purchases of office and computer equipment (16,776) (47,306)
Increase in deposits (12,588) (36,622)
Cash paid for web design costs - - (100,860)
Cash paid for product development costs - (1,125) (78,950)
------- ------- ---------
Net Cash (Used) by Investing
Activities (29,364) (1,125) (263,738)
-------- ------- ---------
FINANCING ACTIVITIES
Proceeds from notes payable 27,000 194,389
Repayments of notes payable (176,389) (194,389)
Repayments of capital lease (8,105) (18,626)
Borrowings on line of credit 65,434 198,944
Payments on line of credit (198,944) (198,944)
Proceeds from debentures 152,604
Proceeds from issuance of common stock 3,020,000 3,422,203
Contributed capital - - 190,000
--------- ------- ----------
Net Cash Provided by Financing
Activities 2,636,562 92,434 3,746,181
---------- ------- ----------
NET INCREASE IN CASH 1,874,076 3,398 1,880,551
CASH
Beginning of Period 6,475 418 -
---------- ------- ----------
End of Period $1,880,551 $3,816 $ 1,880,551
========== ======= ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 11,421 $ 1,297 $ 30,607
Noncash investing and financing activities:
Assets acquired through capital lease 74,145
Conversion of debentures to common stock 152,604
Stock and warrants issued for consulting
services 2,070,000 2,184,844
Issuance of stock accrued 337,500
</TABLE>
Unaudited Interim Financial Statements
<PAGE>6
BROWSESAFE.COM, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of BrowseSafe.com, Inc. (the "Company") the
accompanying unaudited consolidated financial statements contain all adjustments
(consisting of only normal, recurring adjustments) necessary to present fairly
the financial position of BrowseSafe.com, Inc. and its wholly-owned subsidiary,
BrowseSafe Technology, Inc., as of March 31, 2000, and the results of their
operations and their cash flows for the three-month periods ended March 31, 2000
and 1999, and for the period from February 10, 1998 (date of inception) to March
31, 2000. The results of operations for any interim period are not necessarily
indicative of the results for the year. These interim consolidated financial
statements should be read in conjunction with BrowseSafe.com, Inc.'s annual
consolidated financial statements and related notes in BrowseSafe.com Inc.'s
Annual Report on Form 10-KSB for the year ended December 31, 1999.
The consolidated financial statements include the accounts of BrowseSafe.com,
Inc. and its wholly-owned subsidiary, BrowseSafe Technology, Inc., as well as
the accounts of the Company's predecessor, BrowseSafe LLC, which was formed on
February 10, 1998. All intercompany balances and transactions have been
eliminated from the consolidated financial statements.
NOTE 2 - REORGANIZATION AND SHARE EXCHANGE
In July 1998, BrowseSafe Technology, Inc., the current operating subsidiary of
BrowseSafe.com, Inc., was incorporated as a Nevada corporation as part of a plan
to enter into an Asset and Liability Contribution Agreement and thereafter to
effect a share exchange with Motioncast Television Corporation of America
("Motioncast").
In early 1999, BrowseSafe, LLC and BrowseSafe Technology agreed to enter into a
two-step transaction with a group of related companies (collectively the
"Funding Group") and Motioncast , which was controlled by the Funding Group. The
two-step transaction contemplated that BrowseSafe, LLC and the Funding Group
would, among other things, contribute certain monies, assets and liabilities to
BrowseSafe Technology in exchange for its common shares, and thereafter,
BrowseSafe, LLC and the Funding Group would exchange their BrowseSafe Technology
shares for common shares of Motioncast. As a result, BrowseSafe Technology would
become a wholly-owned operating subsidiary of Motioncast. At the time of these
transactions, Motioncast was a Nevada corporation whose stock was listed on the
OTC Bulletin Board. Motioncast had no operations or other subsidiaries.
In May 1999, BrowseSafe, LLC, BrowseSafe Technology and the Funding Group
entered into an Asset and Liability Contribution Agreement to complete the first
step of the transaction. Under this Agreement, BrowseSafe, LLC contributed all
of its assets and liabilities, including intellectual property, to BrowseSafe
Technology in exchange for 11,200,000 common shares. Also under this Agreement,
BrowseSafe Technology agreed to issue 2,738,000 of its common shares to the
Funding Group, provided the Funding Group contributed certain monies to
BrowseSafe Technology and to Motioncast in connection with the two step
transaction. Further, the Funding Group agreed to cause additional funds of
between $1,500,000 and $5,000,000 to be raised on behalf of Motioncast no later
than November 30, 1999. Prior to this transaction, BrowseSafe Technology had not
commenced operations and had no assets or liabilities. For accounting purposes,
BrowseSafe LLC was treated as the acquiror. All transferred assets and
liabilities were recorded at their historical cost.
<PAGE>7
Effective as of June 24, 1999, BrowseSafe, LLC and the Funding Group entered
into a Share Exchange Agreement with Motioncast to complete the second step of
the transaction. At this time, the Company believed that the Funding Group had
not satisfied all of its obligations under the Asset and Liability Contribution
Agreement, but the Company anticipated that the Funding Group would fulfill its
obligations. The Share Exchange Agreement also required the Funding Group to
contribute additional funds to Motioncast. The Share Exchange Agreement provided
that all of the outstanding common shares of BrowseSafe Technology would be
exchanged for an equal number of common shares of Motioncast. As a result of the
share exchange, BrowseSafe Technology became a wholly owned subsidiary of
Motioncast. Motioncast changed its name to BrowseSafe.com, Inc. and changed its
trading symbol from MCTV to PGPG.
Because the Company believed the Funding Group failed to comply with is
contribution obligations under the Asset and Liability Contribution Agreement
and the Share Exchange Agreement, it issued the 2,738,000 common shares into
escrow but did not deliver them to the Funding Group. In a letter dated November
19, 1999, the Company advised all members of the Funding Group that the Company
believed they were in breach of the agreements and asked them to remedy the
breaches. The Company is currently in litigation with the Funding Group over
these transactions. (see Note 5).
For financial statement purposes, BrowseSafe Technology, Inc. is considered as
the acquiring company, and the share exchange was treated as a "reverse
acquisition". Pursuant to this accounting treatment, BrowseSafe Technology, Inc.
is deemed to have issued stock for the acquisition of Motioncast. Prior to this
transaction, Motioncast had 2,100,000 common shares outstanding and tangible net
assets (cash) of $374,820. The accompanying consolidated statement of
stockholders' equity reflects this transaction as if BrowseSafe Technology, Inc.
issued 2,100,000 common shares to Motioncast.
NOTE 3 - MANAGEMENT'S PLANS AND ISSUES AFFECTING LIQUIDITY
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a limited operating
history and had sustained losses since inception. The Company had negative cash
flow from operations of approximately $733,000 for the three-month period ended
March 31, 2000. As a result, the Company had to rely principally on private
equity funding to continue its activities.
On March 14, 2000, the Company entered into an Investment Agreement with Swartz
Private Equity, LLC for sale of up to $30 million of common stock upon the
exercise of certain put rights (the "Put Rights"). The Put Rights become
available upon the effectiveness of a registration statement to be filed with
the Securities and Exchange Commission to register the stock that will be sold
under the Agreement, which expires after three years. Management intends to use
these proceeds to fund its operations.
<PAGE>8
NOTE 4 - ROYALTY AGREEMENT
The Company's PlanetGood product was developed with a third party, and the
Company purchased software and technology from the third party. The purchase
agreement requires the Company to remit 2.5% of gross revenues received from
Internet service providers ("ISP's"). Royalty payments continue for a two-year
period commencing when the Company has 15,000 active ISP customers. As of March
31, 2000, the Company had not incurred any royalty expenses relating to this
contract.
NOTE 5 - LEGAL PROCEEDINGS
On or about April 14, 2000, the Funding Group (see Note 2) filed a lawsuit
against the Company, our President and Chief Executive Officer and our Chief
Financial Officer in the Federal District Court for the State of Nevada
alleging, among other things, that the investor group is entitled to general
damages in a sum in excess of $10,000,000, punitive damages in a sum in excess
of $10,000,000 and title to 2,738,000 shares of common stock of the Company. The
lawsuit also alleges certain inaccuracies in the Company's SEC filings. The
Company is vigorously defending the lawsuit.
NOTE 6 - CONSULTING CONTRACT TERMINATION
On October 11, 1999, the Company agreed to pay a former consultant $200,000 to
settle a dispute. To secure the payment of this amount, the Company issued and
placed in escrow 500,000 shares of its common stock. Because the $200,000
payment was not remitted within 120 days, the stock was delivered to the
consultant in February 2000.
NOTE 7 - SENIOR SUBORDINATED CONVERTIBLE DEBENTURE
In December 1999, the Company issued a senior subordinated convertible debenture
(the "Debenture") to a single investor. The Debenture had a maximum funding
amount of $750,000 and accrued interest at 8% maturing on December 10, 2001. An
initial funding of $100,000 was required, and made, in connection with the
closing of the Debenture. However, future funding was discretionary. The
Debenture was convertible (at the holder's option) into shares of the Company's
common stock at a conversion price equal to 75% of the lowest closing bid price
for the three days preceding the notice of conversion. Interest on the Debenture
was to be paid by issuing common stock of the Company based on 75% of the
closing bid price for the three days preceding the monthly interest due date.
All fundings outstanding were required to be converted to stock of the Company
prior to January 19, 2000. As of December 30, 1999, the investor had funded
$200,000 of the Debenture and had converted all of this amount into 1,537,346
common shares under the terms of the Debenture (including 3,734 shares issued
for accrued interest of $476). The Debenture was cancelled shortly before the
Company became a reporting company on January 22, 2000. The Company recorded as
interest expense the amount arising from the beneficial conversion feature
contained in the Debenture. As of December 31, 1999, the discount was
approximately $67,000. In connection with the Debenture, the Company placed
1,000,000 common shares in escrow. The escrowed shares were returned to the
Company and were cancelled in March 2000.
<PAGE>9
NOTE 8 - INVESTMENT AGREEMENT
On March 14, 2000, the Company entered into an Investment Agreement with Swartz
Private Equity, LLC to raise up to $30 million during a three-year period
through a series of private sales of its common shares to Swartz, who, in turn,
intends to sell those shares in the public market or in privately negotiated
transactions. The dollar amount of each sale is limited by the common shares
trading volume, and certain other factors. Also, the Company may not sell more
than $2,000,000 to Swartz at any one time, and a minimum amount of time must
occur between sales.
The Company will also pay a consultant a 4% fee for this transaction. The
consultant will receive 360,000 shares of the Company's common stock and up to
$30,000 in cash. The cash will be paid as the Put Rights are exercisable. The
Company will record as a reduction of the equity proceeds, the cash paid and the
value of the stock based on the quoted market value.
NOTE 9 - OTHER
In February, 2000, the Company entered into an agreement with California Applied
Research, Inc., which is now known as GenesisTank.com, Inc. ("GenesisTank")
under which GenesisTank agreed to buy 6,000,000 shares of the Company's common
stock. The purchase price of the stock was $.50 per share payable $500,000 upon
execution of the agreement, $1,000,000 on or before February 29, 2000, and
$1,500,000 on or before March 31, 2000. All amounts have been paid to the
Company.
In addition, the Company issued a five-year warrant to an individual for his
services in arranging this financing. The warrant provides for the purchase of
up to 550,000 shares of the Company's common stock at the lower of $.50 per
share or the lowest reset price (the terms of the warrant provide that the
purchase price will be reset every six months). The Company has recorded
$256,968 as a reduction of the related equity financing, based on the value of
the warrants using the Black-Scholes model.
In January 2000, the Company entered into a consulting agreement whereby the
consultant will receive a fee for financing secured by the consultant. The fee
is 4% of the transaction, payable 3% in shares of the Company's common stock
(based on a market price of $2.50) and 1% in cash. In connection with the
GenesisTank financing, the Company agreed to issue 36,000 shares to this
consultant and remitted $30,000. The Company estimated the value of the stock to
be approximately $160,000.
On March 10, 2000, the Company entered into an amended and restated consulting
agreement for business advisory services with an individual in exchange for
50,000 shares of the Company's common stock. The consultant was fully vested in
the stock as of the date of the contract. At March 31, 2000, $225,000 is
included in legal and professional fees representing the value of the stock
based on the quoted market price on the date the stock was earned.
On March 10, 2000, the Company also agreed to a contract with an organization
and its principal owner to provide financing, advisory and consulting services.
The Company agreed to issue up to 450,000 shares of its common stock if the
quoted market price met certain levels at March 31, 2000. The performance
measurements pursuant to this contract were achieved. At March 31, 2000,
$2,025,000 is included in legal and professional fees, representing the value of
the stock based on the quoted market price on the date the stock was earned.
<PAGE>10
On March 23, 2000, the Company entered into a contract with consultant for
advisory services. The contract requires a monthly fee of $10,000, issuing the
consultant 275,000 shares of the Company's common stock and a warrant to
purchase 300,000 shares of the Company's common stock at prices ranging from $5
to $15 per share. The consultant is fully vested in the stock. The Company has
valued the stock at $1,135,000 based on its quoted market price on the contract
date and has valued the warrants at $935,000 using the Black-Scholes method. The
amounts will be expensed over the term of the agreement. At March 31, 2000,
$2,070,000 is included in prepaid consulting fees.
Item 2. Management's Discussion and Analysis or Plan of Operation
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB includes "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 and the Private Securities Litigation Reform Act
of 1995, and we desire to take advantage of the "safe harbor" provisions
thereof. Therefore, we are including this statement for the express purpose of
availing ourselves of the protections of such safe harbor with respect to all of
such forward-looking statements. The forward-looking statements in this Report
reflect our current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including specifically the absence of significant revenues, a
history of losses, no assurance that we can review sites accurately and on a
timely basis due to the explosive growth of the Internet, significant
competition, the uncertainty of protecting our intellectual property,
uncertainty as to indemnification risks, possible adverse effects of those other
risks and uncertainties discussed herein, that could cause actual results to
differ materially from historical results or those anticipated. In this Report,
the words "anticipates," "believes," "expects," "intends," "future" and similar
expressions identify certain of the forward-looking statements. Readers are
cautioned not to place undue reliance on the forward-looking statements
contained herein, which speak only as of the date hereof. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that may arise after the date hereof. All subsequent written
and oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by this section.
BrowseSafe.com, Inc. (the "Company" or "we") is a development stage
company, has yet to generate any revenues and is seeking additional capital
through an investment capital company and other sources.
We incurred a net loss of $4,521,351 from February 10, 1998 (date of
inception) through March 31, 2000 due to expenses related to the formation and
operation of the Company, continuing costs of raising capital, normal expenses
of operating over an extended period of time, funds applied to research and
development, product development and development of our Web site.
<PAGE>11
Comparison of March 31 fiscal quarters
Total expenses increased from $135,765 for the three months ended March
31, 1999 to $2,765,626 for the same period in 2000. The increase in expenses
relates to increased payroll, financing activities and professional fees in
2000, including $2,312,500 of noncash consulting services exchanged for stock
and warrants. We expect general and administrative expenses to increase in the
future as we complete development of our products, prepare for market launch and
begin to support our products. We will also begin to incur additional sales and
marketing expenses.
Research and development costs increased from $0 for the three months
ended March 31, 1999 to $42,777 for the three months ended March 31, 2000. The
increase is primarily related to the increase in the number of site reviewers
and programmers we utilize. We expect R&D spending to continue to increase as we
review new sites, make modifications to our product and develop new products.
Interest expense of $9,836 for the three months ended March 31, 2000
increased over interest expense of $3,295 for the three months ended March 31,
1999. This increase was caused by a capital lease entered into in late 1999 and
increased activity on bank debt, which was repaid in February 2000.
For the three month period ended March 31, 2000, we had a loss of
$2,765,626 as compared to a loss of $135,765 for same period in 1999. This
increase was a result of higher general and administrative expenses (including
an increase in payroll and payroll related costs), interest expense and non-cash
consulting expenses of $2,312,500.
As of March 31, 2000, we had obtained equity and debt financing of
approximately $4,158,000 since our inception, and we had invested approximately
$121,000 in equipment (including equipment subject to a capitalized lease of
$74,000). We have also invested approximately $101,000 in capitalized Web site
development costs and approximately $79,000 in capitalized product development
costs.
Additional Capital Requirements
Our short and long term capital requirements will depend upon many
factors, including the ability to continue to obtain adequate funding, the rate
of market acceptance of our products, the level of resources required to expand
our marketing and sales organization and other factors, some of which may be
beyond our control. A slower than expected rate of acceptance of our products
and services or lower than expected revenues generated from the sale of our
products and services and other costs associated with upgrading our equipment
would materially adversely affect our liquidity.
On March 14, 2000, we entered into an Investment Agreement with Swartz
Private Equity, LLC to raise up to $30 million through a series of private sales
of common shares to Swartz, who, in turn, intends to sell those shares in the
public market or in privately negotiated transactions. The dollar amount of each
sale is limited by our common share trading volume, and certain other factors.
Also, we may not sell more than $2,000,000 to Swartz at any one time, and a
minimum amount of time must occur between sales. The Investment Agreement
provides that the rights to purchase the securities will not become available
until we have filed a registration statement with the Securities and Exchange
Commission and the registration statement has become effective.
<PAGE>12
We believe our current cash reserves (which came from the GenesisTank
financing) will be sufficient to fund operations at current and expected levels
through August 2000. We believe that we possibly may be able to obtain
additional short term financing from a current shareholder if additional funds
are needed prior to our ability to obtain funds under the Investment Agreement
with Swartz. However, we have no written commitment for additional financing
with this shareholder (or any other third party), and there is no assurance that
we can obtain additional financing in amounts and on terms that are satisfactory
to us.
Based on our history of operating expenditures and our current plans,
we anticipate our cash requirements for the next 12 months will need to come
primarily from the proceeds of the Investment Agreement with Swartz. As
previously mentioned, our ability to obtain funds under the Investment Agreement
is subject to certain conditions, including the volume of trading in our common
shares.
We anticipate that our future cash requirements may be partially
fulfilled by sales of our products and services and/or debt or equity financing.
However, we only began actively marketing our products and services in early May
of 2000 and, to date, have received very limited revenues from such marketing
efforts. There can be no assurance that any future funds will be generated from
operations or from other potential sources.
The Independent Auditors' Report dated March 10, 2000, and prepared by
Katz Sapper & Miller, LLP, contains an explanatory paragraph regarding our
ability to continue as a going concern. If the proceeds from the GenesisTank
financing are not sufficient to fund our working capital needs through the date
that cash proceeds become available under the Swartz Investment Agreement, there
is substantial doubt about our ability to continue as a going concern.
Over the next 12 months, we expect to add more full time employees to
support technology, sales and service and marketing. We also plan to hire
mangers in several key areas of the organization. In addition, a substantial
number of part-time employees will be hired to support the Web content review
process.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In early 1999, BrowseSafe, LLC and BrowseSafe Technology, Inc., the
current operating subsidiary of BrowseSafe.com, Inc., agreed to enter into a
two-step transaction with a group of related companies (collectively, the
"Funding Group") and Motioncast Television Corporation of America
("Motioncast"). The two-step transaction contemplated that BrowseSafe, LLC and
the Funding Group would, among other things, contribute certain monies, assets
and liabilities to BrowseSafe Technology in exchange for its common shares, and
thereafter, BrowseSafe, LLC and the Funding Group would exchange their
BrowseSafe Technology shares for common shares of Motioncast. As a result,
BrowseSafe Technology would become a wholly-owned operating subsidiary of
Motioncast. At the time of these transactions, Motioncast was a Nevada
corporation whose stock was listed on the OTC Bulletin Board, but Motioncast had
no operations or other subsidiaries.
<PAGE>13
The primary business reasons for this transaction were: (i) to raise
additional funds for the operation of the business; and (ii) to contribute all
assets to an entity that could then be merged into or combined with a
corporation whose stock was listed on the OTC Bulletin Board. The Funding Group
was comprised of the following entities: Minati Financial, Inc., Torquay
Holdings, Ltd., Vista Financial Corp., El Coyote Capital Corp., Jupiter
Financial Services, Inc., Kyline Investment Corp., Chariot Group, Ltd.,
Sid-Barney, Inc., Sterling Overseas Investments SA, Albury Capital Corp.,
Eivissa Capital corp., Hemisphere & Associates, Ltd.,
Barisal Capital Corporation and Fergus Capital Corporation.
In May 1999, BrowseSafe, LLC, BrowseSafe Technology and the Funding Group
entered into an Asset and Liability Contribution Agreement to complete the first
step of the transaction. Under this Agreement, BrowseSafe, LLC contributed all
of its assets and liabilities, including the intellectual property which we
currently use, to BrowseSafe Technology in exchange for 11,200,000 common
shares. Also under this Agreement, BrowseSafe Technology agreed to issue
2,738,000 of its common shares to the Funding Group, provided the Funding Group
contributed certain monies to BrowseSafe Technology and to Motioncast in
connection with the two-step transaction. Further, the Funding Group agreed to
cause additional funds of between $1,500,000 and $5,000,000 to be raised on
behalf of Motioncast no later than November 30, 1999.
Effective as of June 24, 1999, BrowseSafe, LLC and the Funding Group
entered into a Share Exchange Agreement with Motioncast to complete the second
step of the transaction. At this time, we believed that the Funding Group had
not satisfied all of its obligations under the Asset and Liability Contribution
Agreement, but we believed they were going to do so. The Share Exchange
Agreement also required the Funding Group to contribute additional funds to
Motioncast. The Share Exchange Agreement provided that all of the outstanding
common shares of BrowseSafe Technology would be exchanged for an equal number of
common shares of Motioncast. As a result, BrowseSafe Technology became a
wholly-owned subsidiary of Motioncast.
The Funding Group agreed, among other things, to cause between $1,500,000
to $5,000,000 to be raised by Motioncast in connection with the transaction. We
believe the Funding Group failed to comply with its obligations by, among other
things, failing to raise any of the additional funds. Because we believed the
Funding Group failed to comply with its contribution obligations under the Asset
and Liability Contribution Agreement and the Share Exchange Agreement, we issued
the 2,738,000 common shares into escrow but did not deliver them to the Funding
Group. In a letter dated November 19, 1999, we advised all members of the
Funding Group that we believed they were in breach of the agreements and asked
them to remedy the breaches.
We received two letters dated March 1, 2000, from an attorney stating that
he represented the Funding Group and demanding that we deliver the 2,738,000
shares. The letters also alleged that our Form 10-SB filed with the SEC
contained false and misleading disclosures relating to the Funding Group. We
disputed the Funding Group's claim to the 2,738,000 shares, and we believe that
our disclosures relating to the Funding Group are accurate.
<PAGE>14
Keith Balderson, one of our former directors, is a shareholder of one of
the companies comprising the Funding Group. As a result of this dispute, we
suggested to Mr. Balderson that he resign as a director. Mr. Balderson submitted
his resignation effective March 2, 2000.
On April 14, 2000, the Funding Group filed a lawsuit against us, our
President and CEO Mark W. Smith, and our Chief Financial Officer, Gregory P.
Urbanski, (Cause No. CV-N-00-0197-DWH-RAM in the United States District Court
for the District of Nevada) alleging, among other things, that it is entitled
to: (i) general damages in a sum in excess of $10,000,000, (ii) punitive damages
in a sum in excess of $10,000,000 and (iii) title to the 2,738,000 common
shares. The complaint also alleges certain inaccuracies in our SEC filings. We
are vigorously defending the lawsuit. Our failure to prevail in this litigation
could result in damages that we cannot pay, which could force us to cease
operations and/or may result in as many as 2,738,000 common shares becoming
issued and outstanding, which would further dilute the other shareholders'
interests. If our SEC filings are determined to be inaccurate, we could be
subject to additional monetary damages, additional lawsuits, and enforcement
actions by the SEC.
On May 5, 2000, pursuant to the terms of the Asset and Liability
Contribution Agreement, we notified the Funding Group that we intend to cancel
the 2,738,000 shares on June 5, 2000.
Item 2. Change in Securities.
(c) Sales of Unregistered Securities.
During the quarter ended March 31, 2000, the Company made the following
sales of securities in reliance upon exemptions from registration under the
Securities Act of 1933 (the "Securities Act"). All sales were made in reliance
upon the exemption provided by Section 4(2) of the Securities Act.
Ken Lockhart
In February, 2000, the Company sold 128,571 common shares at the then
prevailing market price of $.35 per share to a single accredited investor.
GenesisTank.com
On February 10, 2000, the Company entered into an agreement with
California Applied Research, Inc. (which is now known as GenesisTank.com)
("GenesisTank") under which GenesisTank purchased 6,000,000 common shares of the
Company. The purchase price of the shares was $.50 per share payable $500,000
upon execution of the agreement, $1,000,000 on or before February 29, 2000 and
$1,500,000 on or before March 31, 2000. The purchase price was received by the
Company.
<PAGE>15
In addition, the Company issued a five-year warrant to purchase 550,000
common shares to Michael Mercier for his services in arranging the GenesisTank
financing. The warrant provides for the purchase of the Company's common shares
at the lower of $.50 per share or the lowest reset price (the terms of the
warrant provide that the purchase price will be reset every six months). The
Company has valued the warrant at approximately $250,000 using the Black-Scholes
model as of the contract date. The Company will record the $250,000 as a
reduction of the related equity proceeds.
In January 2000, the Company entered into a consulting agreement with
Victoria Lee whereby she was entitled to receive a fee (some of it payable in
common shares) for financing secured by her. In connection with the GenesisTank
financing, the Company issued 36,000 shares to Ms. Lee. The Company estimates
the value of the shares issued to her to be approximately $160,000.
Swartz Private Equity, LLC
On February 9, 2000, the Company issued a warrant to purchase 570,000
common shares to Swartz Private Equity, LLC in connection with an Investment
Agreement. The warrant becomes exercisable as follows:
o 150,000 upon completion of due diligence (completed);
o 150,000 on closing the transaction (completed);
o 150,000 within 6 months of the Investment Agreement (August
2000); and
o 120,000 six months after the effective date of a registration
statement
The warrants are exercisable at the lower of $.50 per share or the
lowest closing price during six-month periods coinciding with the closing date
of the Investment Agreement.
Additionally, in connection with the Swartz transaction, the Company
agreed to issue 360,000 common shares to Ms. Victoria Lee as compensation for
her services rendered in connection with that transaction. These 360,000 shares
will be issued to Ms. Lee after we increase our authorized shares.
Paladin Management Company, Ltd. and Len Shorkey
On March 10, 2000, the Company entered into a Consulting Agreement with
Paladin Management Company, Ltd., Don Gulliman and Len Shorkey to provide
financing, advisory and consulting services. Under this Agreement, the Company
is obligated to issue 450,000 common shares to Paladin Management Company, and
these shares will be issued after we increase our authorized shares. Also, under
this Agreement, the Company issued 50,000 common shares to Len Shorkey. The
Company has recorded this transaction based on the quoted market value of the
shares on the contract date which was $225,000.
<PAGE>16
Wall Street Marketing Group
On March 23, 2000, the Company entered into a Public Relations and
Consulting Agreement with Wall Street Marketing Group, Inc. ("Wall Street") for
advisory services. Under this agreement, the Company agreed to issue 200,000
shares to Wall Street and issued a warrant to purchase 300,000 shares
exercisable at prices ranging from $5 to $15 per share expiring March 23, 2005.
The Company valued the shares at its quoted market price on the contract date
($825,000) and valued the warrants, using the Black-Scholes method, at $935,000.
On the same date, the Company also entered into a Consulting Agreement
with Sherry Vega whereby the Company agreed to issue 75,000 common shares to her
for certain advisory services. The Company valued the stock at its quoted market
price on the contract date ($310,000).
Item 5. Other Information.
On April 17, 2000, J. Marshall Gage, a director and Vice President of
the Company, resigned from all of his positions with the Company. A copy of Mr.
Gage's letter of resignation is attached as Exhibit 99.1 to this Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule (March 31, 1999)
27.2 Financial Data Schedule (March 31, 2000)
99.1 Resignation of J. Marshall Gage dated April 17, 2000
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BROWSESAFE.COM, INC.
Date: May 12, 2000 By /s/Mark W. Smith
--------------------------------
Mark W. Smith,
Chief Executive Officer
Date: May 12, 2000 By /s/Gregory P. Urbanksi
-------------------------------
Gregory P. Urbanski,
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FILER'S
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 3,816
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,903
<PP&E> 21,653
<DEPRECIATION> (2,025)
<TOTAL-ASSETS> 114,368
<CURRENT-LIABILITIES> 601,551
<BONDS> 0
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<COMMON> 11,200
<OTHER-SE> (498,384)
<TOTAL-LIABILITY-AND-EQUITY> 114,368
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 132,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,295
<INCOME-PRETAX> (135,765)
<INCOME-TAX> 0
<INCOME-CONTINUING> (135,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,765)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FILER'S
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<CIK> 0001088464
<NAME> Browsesafe.com, Inc.
<MULTIPLIER> 1
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<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 1,880,551
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,130,355
<PP&E> 121,451
<DEPRECIATION> (20,623)
<TOTAL-ASSETS> 4,384,578
<CURRENT-LIABILITIES> 325,959
<BONDS> 0
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<COMMON> 25,825
<OTHER-SE> 4,012,892
<TOTAL-LIABILITY-AND-EQUITY> 4,384,578
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<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,755,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,836
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<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (2,765,626)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
Exhibit 99.1
April 17, 2000
Board of Directors
BrowseSafe.com, Inc.
7202 87th Street, Suite 109
Indianapolis, IN 46256
Dear Board Members:
As of this date April 17, 2000, please accept my resignation as a Director of
the Board and Vice President of BrowseSafe.com. I'm sorry to say I don't have
the time necessary to carry out my duties as a board member or Vice President of
the Company and therefore I have to step down at this time.
Thank you for your understanding.
Sincerely,
/s/ J. Marshall Gage, Director
J. Marshall Gage, Director
jmg/g
