<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
/ / 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 ________
iCHARGEIT, INC.
(exact name of small business issuer as specified in its charter)
DELAWARE 33-0880427
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2184 WEST 190TH STREET
TORRANCE, CALIFORNIA 90504
(Address of principal executive offices)
(310) 782-1122
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 No X
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 2000
---- -----------------------------
Common Stock, $.001 par value 11,306,260
Transitional Small Business Disclosure Format (check one) Yes No X
---- ---
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iCHARGEIT, INC.
INDEX TO FORM 10-QSB
<TABLE>
<S><C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements..................................... 3
Condensed Consolidated Balance Sheet..................... 3
Condensed Consolidated Statement of Operations........... 4
Condensed Consolidated Statement of Cash Flows........... 5
Notes to Financial Statements............................ 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Rules of Operation............... 12
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K......................... 17
SIGNATURES ......................................................... 18
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
iCHARGEIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash .......................................................................... $ 256,000
Securities at market value..................................................... 39,000
Accounts receivable............................................................ 213,000
Inventory...................................................................... 305,000
Prepaid expenses and other assets.............................................. 71,000
-------------
Total current assets......................................................... 884,000
-------------
Equipment, net................................................................... 94,000
Restricted cash.................................................................. 46,000
Customer list and other intangibles, net of accumulated amortization............. 126,000
Goodwill, net.................................................................... 5,192,000
Other assets..................................................................... 13,000
-------------
TOTAL ASSETS........................................................................ $ 6,355,000
=============
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable and accrued expenses ......................................... $430,000
Loans and other current liabilities............................................ 79,000
Current portion of long term debt.............................................. 3,000
Loans payable officer/stockholder.............................................. 258,000
-------------
Total current liabilities.................................................... 770,000
Loan Payable, less current portion............................................... 11,000
-------------
TOTAL LIABILITIES 781,000
-------------
Stockholders equity:
Common stock................................................................... 11,000
Additional paid in capital..................................................... 16,155,000
Accumulated deficit............................................................ (10,609,000)
Unrealized gain in marketable securities....................................... 19,000
Subscriptions receivable....................................................... (2,000)
-------------
TOTAL STOCKHOLDERS EQUITY........................................................... 5,574,000
-------------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY............................................. $ 6,355,000
=============
</TABLE>
See Notes To Financial Statements
3
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iCHARGEIT, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCEPTION JANUARY 6, 1999 NINE MONTHS ENDED
MARCH 31, 2000 THROUGH MARCH 31, 1999 MARCH 31, 2000
-------------- ---------------------- --------------
<S> <C> <C> <C>
Net Sales................................. $2,248,000 -- $4,224,000
Cost of Goods Sold........................ 1,945,000 -- 3,729,000
----------- ------------ -----------
Gross Profit.............................. 303,000 -- 495,000
----------- ------------ -----------
Services and other revenue................ 4,000 27,000 19,000
----------- ------------ -----------
307,000 27,000 514,000
----------- ------------ -----------
Expenses:
Internet charge and cost of
service revenue........................ 12,000 49,000 43,000
General and administrative (excluding
equity compensatory charges) .......... 595,000 17,000 1,265,000
Equity compensatory charges............... -- 4,966,000 2,929,000
Amortization of goodwill.................. 137,000 -- 273,000
Total expense............................. 744,000 5,032,000 4,510,000
----------- ------------ -----------
Net loss.................................. ($437,000) ($5,005,000) ($3,996,000)
=========== ============= ===========
Net loss per share
Basic and diluted...................... $(0.04) $(0.69) $(0.40)
Weighted average shares outstanding
Basic and diluted...................... 11,306,000 7,278,000 10,049,000
</TABLE>
See Notes to Financial Statements
4
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ICHARGEIT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 6, 1999
ENDED (INCEPTION) THROUGH
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss............................................... $ (3,996,000) $(5,005,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 325,000 --
Compensation paid with stock to
consultants and employees............ 2,929,000 4,966,000
Receipt of marketable securities in
payment of fees...................... (5,000) --
Changes in:
Accounts receivable........................... 45,000 --
Inventory..................................... (64,000) --
Other assets.................................. (33,000) --
Accounts payable and accrued expenses (148,000) --
------------ ------------
Net cash used in Operating Activities.................. (947,000) (39,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment......... (30,000) --
Cash acquired in Acquisition Activities....... 63,000 --
------------ ------------
Net cash provided by Investing Activities.............. 33,000 --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans Paid.................................... (5,000) --
Loans to officer/shareholder.................. (6,000) 17,000
Collection of Subscription receivable......... 25,000 --
Net proceeds from sale of
Common Stock 806,000 53,000
Net cash provided by Financing Activities.............. 820,000 70,000
Increase (Decrease) in Cash..................................... (94,000) 31,000
Cash at beginning of period..................................... 350,000 --
Cash at end of period........................................... $ 256,000 $ 31,000
============ ============
</TABLE>
5
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NON-CASH INVESTING ACTIVITIES
On October 5, 1999 the Company acquired 100% of Bay Micro Computers,
Inc. for 4,000,000 shares of Common Stock (See note B).
SEE NOTES TO FINANCIAL STATEMENTS
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED)
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
Para-Link, Inc. ("Para-Link" or the "Company"), an inactive company,
was incorporated in the state of Texas on January 22, 1997.
On March 10, 1999, Para-Link acquired 100% of the outstanding capital
stock of iChargeit, Inc. iChargeit, Inc. ("iChargeit") was incorporated on
January 6, 1999 in the State of Nevada to launch an internet-based shopping mall
to market goods and services to internet users, as well as to allow customers to
play online video and racing games at a virtual arcade. iChargeit's web site
began operations on March 1, 1999. The acquisition was consummated through an
exchange of shares that resulted in the stockholders of iChargeit receiving
control of Para-Link. The transaction has been treated as a recapitalization. In
connection therewith, the Company's historic capital accounts were retroactively
adjusted to reflect the equivalent number of shares issued by Para-Link in the
transaction, while iChargeit's historical accumulated deficit was carried
forward. The statement of operations reflects the activities of iChargeit from
the commencement of its operations on January 6, 1999. On March 17, 1999, the
Company changed its name to iChargeit, Inc. On November 5, 1999 the Company was
reincorporated in Delaware.
The Company was in the development stage prior to the period ended
September 30, 1999. As a result of the acquisition in the quarter ended December
31, 1999 of Bay Micro Computers, Inc., a California corporation ("Bay Micro"),
iChargeit is no longer in the development stage (see note B). Bay Micro is a
wholesaler and assembler of computers and related hardware components.
The information contained herein with respect to the nine month period
ended March 31, 2000 has not been audited but was prepared in conformity with
generally accepted accounting principles for interim financial information.
Accordingly, the condensed financial statements do not include information and
footnotes required by generally accepted accounting principles for annual
presentation of financial statements. Included are the normal recurring
adjustments, which in the opinion of management are necessary for a fair
presentation of the financial information at March 31, 2000, for the nine month
period ended March 31, 2000, and since inception. The results are not
necessarily indicative of results to be expected for the year.
The financial statements include the accounts of the Company and the
Company's wholly-owned subsidiary, Bay Micro. All material intercompany
transactions and account balances have been eliminated in consolidation.
NOTE B - ACQUISITION
Effective on October 5, 1999, the Company acquired 100% of the common
stock of Bay Micro in exchange for 4,000,000 shares of common stock at an
aggregate fair value of $5,480,000. The transaction has been accounted for as a
purchase in accordance with accounting standards. The accompanying consolidated
financial statements include revenue and expenses of Bay Micro from October 5,
1999.
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The cost of the assets and liabilities assumed preliminarily were
allocated as follows:
<TABLE>
<S> <C>
Cash $ 63,000
Accounts receivable 246,000
Inventory 242,000
Internet Domain Name and Web-site 169,000
Other assets 54,000
Equipment 73,000
Accounts payable and accrued expenses (471,000)
Loans payable (361,000)
Goodwill 5,465,000
----------
Consideration $5,480,000
==========
</TABLE>
The related goodwill is being amortized over its estimated useful life
of ten years. At March 31, 2000, the accumulated amortization was $273,000. If
the acquisition had occurred on July 1, 1999, the loss and loss per share (basic
and diluted) would be $4,137,000 and $0.36, respectively, for the nine months
ended March 31, 2000.
NOTE C - SIGNIFICANT ACCOUNTING POLICIES
[1] 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.
[2] INVENTORIES:
Inventories consist primarily of the goods the Company has purchased
for resale. Inventory is stated at the lower of average cost or market.
[3] VALUATION OF SECURITIES:
Marketable securities are classified as available-for-sale and are
recorded at their market value. Unrealized gains and losses are recorded as
other comprehensive income.
[4] REVENUE RECOGNITION:
Revenue is recognized when merchandise is shipped to a customer.
Provision is made for an estimate of product returns. Management believes that a
reasonable estimate for returns can be made considering the 30 day return
period, historical experience and volume of sales transactions. Currently, such
estimate approximates 2% of the prior 30 day sales. Such estimate of sales
returns approximates actual. In addition, the Company earns fees for services
provided in building virtual stores on its web-site for vendors to sell
products. Such revenue is recognized when the services are completed or services
are performed. Sometimes, the Company earns these fees in the form of
securities. These equity securities are valued at market on the date they are
earned.
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Revenue includes shipping and handling fees on customer purchases. The
costs of shipping are classified in selling, general and administrative
expenses.
[5] FINANCIAL INSTRUMENTS:
The carrying amounts for the Company's cash, accounts receivable and
accrued expenses approximate fair value.
[6] PER SHARE DATA:
Basic and diluted loss per share is based on the weighted average
number of outstanding shares of common stock and excludes the effect of stock
options and warrants.
[7] STOCK-BASED COMPENSATION:
The Company has elected to follow the intrinsic value method set forth
in Accounting Principles Board Opinion 25. "Accounting for Stock Issued to
Employees" in accounting for its stock option incentive plan. As such,
compensation expense would be recorded on the date of grant if the current
market price of the underlying stock exceeded the exercise price of the option.
[8] CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentration of credit risk consist of cash and securities. The Company
primarily holds its cash in one bank insured by the Federal Deposit Insurance
Corporation ("FDIC"). At March 31, 2000, the Company maintained cash balances of
$156,000 in excess of the FDIC limit.
[9] EQUIPMENT:
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
lives of the asset, generally five to seven years.
[10] INCOME TAXES:
The Company accounts for income taxes using the liability method.
Deferred income taxes are measured by applying enacted statutory rates to net
operating loss carry forwards and to the differences between the financial
reporting and tax bases of assets and liabilities. Deferred tax assets are
reduced, if necessary, by a valuation allowance for any tax benefits, which are
not expected to be realized.
[11] INTERNET DOMAIN NAME AND WEB SITE:
Each of Internet Domain Name and web site is being amortized over its
useful life of three years. At March 31, 2000 accumulated depreciation was
$63,000.
NOTE D - SEGMENT INFORMATION
The Company and Bay Micro have two reportable segments. The Company
operates an Internet based shopping web site and Bay Micro is a wholesaler and
assembler of computers and related hardware components. Information with respect
to reportable segments are as follows:
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<TABLE>
<CAPTION>
INTERNET BAY
OPERATIONS MICRO TOTAL
---------- ----- -----
<S> <C> <C> <C>
Revenues from external customers $1,195,000 $3,029,000 $4,224,000
Service and other Revenue 19,000 19,000 19,000
Depreciation and amortization -- 325,000 325,000
Significant non-cash items: Equity compensatory 2,929,000 -- 2,929,000
charges
Segment loss (3,485,000) (511,000) (3,996,000)
Segment Assets 354,000 6,001,000 6,355,000
Expenditures for long-lived assets -- 30,000 30,000
</TABLE>
During the period January 6, 1999 through March 31, 2000, the Company
operated in only one segment, Internet Operations.
NOTE E - STOCKHOLDERS' EQUITY
[1] STOCK SPLIT:
On January 5, 1999 the Board of Directors authorized a one for five
reverse common stock split effective February 7, 1999 for all stockholders on
record as of the close of business on February 1, 1999. All the share and per
share amounts in the accompanying financial statements have been restated to
give effect to the reverse stock split.
[2] WARRANTS:
At March 31, 2000, outstanding warrants to acquire shares of the
Company's common stock are as follows:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Warrants Price Date
------------------------------------------------------------------------------
<S> <C> <C>
16,000 $5.00 August, 2000
122,525 $2.50 August, 2000
230,771 $2.25 September, 2002
</TABLE>
As of March 31, 2000, 369,296 warrants are outstanding with a weighted
average price of $2.45 and a weighted average contractual life remaining of
20.62 months.
[3] TREASURY STOCK:
On June 17, 1999, a principal stockholder agreed to put in escrow for
the benefit of the Company 157,686 shares of the Company's common stock. The
Company recorded the 157,686
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shares of common stock as treasury stock at its fair market value on the day it
was placed in escrow. Through March 31, 2000 the Company yielded proceeds of
$153,000 from the sale of 157,686 shares of common stock which was treated as a
capital contribution.
[4] PRIVATE PLACEMENT:
In November and December 1999 the Company raised an aggregate of
$750,000, of which it received $653,000 after fees. The Company sold 230,771
units consisting of five shares of common stock and one warrant to purchase one
additional share of the Company's common stock for an exercise price of $2.250
per share expiring September 1, 2002.
NOTE F - STOCK OPTION PLAN
On August 17, 1999 the Board of Directors adopted a stock option plan
(the "1999 Plan") subject to stockholder approval which was received on November
5, 1999. The 1999 Plan reserved for issuance 4,000,000 shares of common stock,
pursuant to which employees, consultants, independent contractors, officers and
directors are eligible to receive incentive and/or nonqualified stock options.
Incentive stock options granted under the 1999 Plan are exercisable for a period
of up to 10 years from the date granted at an exercise price which is not less
than the fair value on the date of the grant, except that the exercise price of
options granted to a stockholder owing more than 10 percent of the outstanding
capital stock may not be less than 110 percent of the fair value of the common
stock at the date of grant. Options issued under the 1999 Plan vest as
determined by the plan administrator.
As of November 12, 1999, the Company had granted 3,715,000 options to
employees and consultants. At March 31, 2000, the Company had 3,715,000 options
outstanding at an exercise price of $1.00. At March 31, 2000, the Company had
2,272,500 options vested at $1.00 per share through November 12, 2009.
The Company applies ABS 25 in accounting for the employee stock options
awards, which requires the recognition of compensation expense for the
difference between the fair value of the underlying common stock and the
exercise price of the option at the grant date.
Pro forma information regarding net loss and loss per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
weighted average fair value of options granted during the nine months ended
March 31, 2000 is estimated to be $.98. The fair value of these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions for the nine months ended March 31,
2000: risk free interest rates of 5.88% dividend yield of 0%; votality of 206%
and expected life for options granted of 5 years.
Had management elected to recognize compensation cost based on the fair
value of the options at the date of grant as prescribed by SFAS No. 123 net loss
for the six months ended March 31, 2000 would have been approximately
$4,244,000, or $.40 per share.
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NOTE G - COMMITMENTS
[1] LEASES:
The Company has lease agreements for its office facilities and storage
facilities through November 2002. Future minimum rental commitments are as
follows:
<TABLE>
<CAPTION>
Year Ending
June 30 Amount
------- ------
<S> <C>
2000 $ 41,000
2001 $ 83,000
2002 $ 83,000
2003 $ 28,000
--------
$235,000
========
</TABLE>
[2] EMPLOYMENT AGREEMENTS:
On March 11, 1999, the Company entered into a two year employment
agreement with its chief executive officer. The agreement provides for a base
salary of $70,000 per annum and bonuses.
On June 1, 1999, the Company entered into a two year employment
agreement with its chief operations officer which was subsequently amended to
one year. The amendment provides for a 1.2% commission on all revenues which
occur due to a strategic alliance generated by the chief operations officer.
On May 1, 1999, the Company entered into a six month employment
agreement with its chief financial officer for a salary of $25,000. This
agreement was renewed for an additional six months.
[3] INTERNET OPERATIONS:
Many of the Company's operations are dependent on third party
providers for Website hosting, content, maintenance, goods and
services. The Company has entered into various agreements with those
third party providers.
NOTE H - RELATED PARTY TRANSACTION
On February 19, 1999, the Company entered into an agreement with an
entity controlled by the chief operations officer of the Company. Pursuant to
this agreement the Company is to receive warehousing and fulfillment services
for its customers. In exchange for these services, the Company issued 20,000
shares of common stock which were nonforfeitable and valued at $70,000 and
charged to operations immediately.
During the nine months ended March 31, 2000, this agreement was
terminated as these services are being provided by Bay Micro.
NOTE I - LOANS PAYABLE-OFFICER/STOCKHOLDER
Loans payable to an officer/stockholder are non-interest bearing and
have no fixed date of repayment. The officer/stockholder has agreed not to
demand repayment until July 1, 2000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO. THIS
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DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED OR EXPRESSED IN SUCH STATEMENTS.
GENERAL
We develop Internet resources to provide internet users with a
comprehensive web site where they can obtain goods and services. We are in the
process of implementing our business model and entering into contracts with
merchants who can provide the goods and services to be sold through our web
site. We launched our web site www.iChargeit.com, on March 1, 1999. As a result
of the completion of our acquisition on October 5, 1999 of Bay Micro Computers,
Inc., a California corporation dba PC Shopping Planet, our primary web sites are
www.iChargeit.com and www.Shoppingplanet.com.
We expect our future revenues to be derived from several sources
including: (i) retail sales of goods to consumers; (ii) commissions or royalties
paid by strategic partners for orders received through us; (iii) advertising on
our web sites, and (iv) fees for electronic commerce services and fees paid by
store vendors featured on our web site. We also expect growth in revenues in
future periods as a result of our acquisition of Bay Micro Computers, Inc., and
specifically revenues generated by Bay Micro's Internet web site at
www.shoppingplanet.com.
We plan to complete construction of the B2B Shopping Planet web site
during the second quarter of 2000. We also are developing a Linux based server
that we will offer for sale on our ShoppingPlanet.com web site. In addition, we
are developing software for our web site that will add additional features and
make it easier for our customers to navigate our web sites. These features
include:
- An affiliate tracking system, which will enable us to keep better
track of purchases made by our customers on other web sites and
ensure proper credit of shared revenues;
- A system that will help customers build their own PC; and
- The ability to offer private branding of web sites, which will
allow other companies to offer all of our products under their
brand name.
Because we have a limited operating history, we believe that
year-to-year comparisons prior to fiscal 2000, and quarterly comparisons prior
to the second quarter of fiscal 2000, do not provide a meaningful analysis of
our operating results. Accordingly, we provide below a discussion and analysis
of our results of operations for the nine months ended March 31, 2000 and the
three months ended March 31, 2000.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2000
SALES REVENUES
Revenues from sales of merchandise for the nine months ended March 31,
2000 was $4,224,000. Revenues were from the wholesale sale of computers and
related hardware components and computer software.
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SERVICE REVENUES
Our service revenues are comprised of advertising revenues and fees
paid for a presence in our Internet Cyber-Mall. We recognize revenue when
merchandise is shipped or services are performed. Service revenues for the nine
months ended March 31, 2000 were $19,000. We intend to raise additional funds in
the future to increase our advertising. We intend to increase our advertising by
conducting direct mail campaigns targeted to consumer households, placing
advertisements in newspapers, and eventually through radio and television
campaigns. We expect advertising to drive additional traffic to our web sites,
thereby increasing our revenues through increased sales of our products. We
intend to cross-promote the various iChargeit Internet sites with the Shopping
Planet brand name, further allowing us to broaden our customer base.
COST OF REVENUES
Cost of revenues consists of the cost of computer components assembled,
computer related products, computer software, the merchandise costs of any
products sold online. Cost of revenues is affected by our ability to source
merchandise cost-effectively, to attract significant traffic to our web sites,
and to achieve a favorable balance between visitors and visitors who purchase
merchandise from us. Our gross profit margin for the nine months ended March 31,
2000 was $514,000, or approximately 12.1% of sales revenues.
GENERAL AND ADMINISTRATIVE
Our general and administrative expense for the nine months ended March
31, 2000 were $1,265,000, excluding the non-cash compensatory expense of
$2,929,000 and amortization of goodwill expense of $273,000 related to the
acquisition of Bay Micro. General and administrative expense consists of payroll
expenses, sales and marketing expenses including advertising and promotional
expenditures, technology and development expenses including expenses related to
the development of our web sites and its related software, and legal and
accounting expenses.
NON-CASH COMPENSATORY EXPENSES
Our non-cash compensatory expenses for the nine months ended March 31,
2000 were $2,929,000. These non-cash compensatory expenses consisted of charges
relating to the issuance of 815,000 shares of common stock to certain of our
officers in connection with their employment agreements, which are being
amortized over the vesting period, and 6,000 shares issued in connection with
the original merger transaction.
NET LOSS
We had a net loss of $3,996,000 for nine months ended March 31, 2000.
The loss was due in part to expenses incurred with the organization of our
Internet business, to professional expenses relating to our Delaware
reincorporation merger, to the preparation of our registration statement, to
non-cash compensatory charges of $2,929,000 relating to stock issued to three of
our officers, which issuance was later cancelled and the stock returned, and to
amortization of goodwill expense of $273,000. We expect to continue to increase
our revenue, as we are able to raise additional funds and make investments in
expanding our customer base and Internet operations.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
SALES REVENUES
Revenues from sales of merchandise for the three months ended March 31,
2000 were $2,248,000. Revenues from customers were from the wholesale sale of
computers and related hardware components and computer software.
SERVICE REVENUES
Our service revenues are comprised of advertising revenues and fees
paid for a presence in our Internet Cyber-Mall. We recognize revenue when
merchandise is shipped or services are performed. Service revenues for the three
months ended March 31, 2000 were $4,000. We anticipate service revenues will
increase in the future.
COST OF REVENUES
Cost of revenues consists of the cost of computer components assembled,
computer related products, computer software, the merchandise costs of any
products sold online. Cost of revenues is affected by our ability to source
merchandise cost effectively, to attract significant traffic to our web sites,
and to achieve a favorable balance between visitors and visitors who purchase
merchandise from us. Our gross profit margin for the three months ended March
31, 2000 was $307,000, or approximately 13.6% of sales revenues.
GENERAL AND ADMINISTRATIVE
Our general and administrative expense for the three months ended March
31, 2000 were $595,000, excluding the amortization of goodwill expense of
$273,000 relating to the Bay Micro acquisition. General and administrative
expense consists of payroll expenses, sales and marketing expenses including
advertising and promotional expenditures, technology and development expenses
including expenses related to the development of our web sites, related software
and legal and accounting expenses.
NET LOSS
We had a net loss of $437,000 for three months ended March 31, 2000.
The loss was due in part to expenses incurred with the organization of our
Internet business, to professional expenses, to the preparation of our
registration statement, and to amortization of goodwill expense of $137,000. We
expect to increase our revenue in the future as we are able to raise additional
funds and make investments in expanding our customer base and Internet
operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had $256,000 in cash. From our inception through
March 31, 2000, we financed our operations primarily through private sales of
our securities and deferred payment of salaries and other expenses due to
related parties. From January 1999 through June 1999, we issued 2,286,000 shares
of our common stock for services provided in the fiscal year ended June 30,
1999.
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From April through July 1999 we sold 301,750 shares of our common stock
to private investors. We realized net proceeds of $603,500 from these sales.
On June 17, 1999, a principal stockholder agreed to transfer 157,686
shares of our common stock into escrow for our benefit. In connection therewith,
we recorded the 157,686 shares of common stock as treasury stock at its fair
market value on the day it was placed in the escrow. From July through October
of 1999, we received approximately $153,000 from the sale of the shares held in
escrow, which will be treated as a capital contribution.
In November and December 1999 we raised an aggregate of $750,000, of
which we received $653,000 after fees. We sold 230,771 units consisting of five
shares of common stock and one warrant to purchase one additional share of our
common stock for an exercise price of $2.50 per share expiring September 1,
2002.
We anticipate that we will have negative cash flows for at least the
next twelve months. We are using net proceeds from our private placement
completed in December 1999, for working capital needs, including advertising,
brand development, and development of our e-commerce web site infrastructure.
Through March 31, 2000, we incurred legal and auditing expenses for preparations
relating to our becoming a reporting company pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These expenditures include
$214,000 in legal expenses and $100,000 for audit expenses. Other than normal,
recurring legal and audit expenses, we expect our expenses for legal and
auditing services to decrease substantially upon completion of the process of
our registering as a public reporting company, which we expect to be
substantially complete by the end of our fourth fiscal quarter ending June 30,
2000.
We intend to retain earnings, if any, for use in the operation and
expansion of our business. Consequently, we do not anticipate paying any cash
dividends on our common stock to our stockholders for the foreseeable future.
We believe that cash on hand and cash provided from operations will be
sufficient to support our working capital expenditure requirements at least
through September 30, 2000. However, we cannot assure you that future cash
requirements to fund operations will not require us to seek additional capital
sooner than March, 2000, or that such additional capital will be available when
required or on terms acceptable to us.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Financial Data Schedule
27.1 Financial Data schedule for the nine months
ending March 31, 2000.
(b) No reports have been filed on Form 8-K for the
quarter for which this report is filed.
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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.
iCHARGEIT, INC.
Date: July 21, 2000 /s/ Jesse Cohen
------------------------------------
Jesse Cohen, Chief Executive Officer
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