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 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 _________
COMMISSION FILE NUMBER 001-15241
YELLOWBUBBLE.COM, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
NEVADA 33-0786959
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
104-106 The Chambers, Chelsea Harbour, London, England SW10 OXF
(Address of Principal Executive Offices)
011-44-20-7871-0000
Issuer's Telephone Number. Including Area Code
Check whether the issuer (1), has filed all reports required to be filed by
Section 13 or 15(d) of The Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of November 15, 2000 the registrant
had 14,075,437 shares of Common Stock outstanding.
<PAGE>
YELLOW BUBBLE.COM, INC. AND SUBSIDIARIES
(A Development Stage Company)
FORM 10-QSB - SEPTEMBER 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2000 (unaudited) and December 31, 1999 (audited)... 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2000 and
cumulative from September 2, 1999 (unaudited) ................. 2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and cumulative
from September 2, 1999 (unaudited)............................. 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .............. 4-7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ......... 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 10
Item 2. Changes in Securities and Use of Proceeds ......................... 10
Item 3 Defaults Upon Senior Securities ................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ............... 10
Item 5. Other Information ................................................. 10
Item 6. Exhibits and Reports on Form 8-K .................................. 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
YELLOWBUBBLE.COM, INC. AND SUBSIDIARIES
(A Developmental Stage Company)
FORM 10-QSB - SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 509,106 $ 18
VAT recoverable 85,411
Prepaid expenses 436,767 1,901
----------- -----------
Total current assets 1,031,284 1,919
Property and equipment, net 214,407 -
Website development costs, net 1,424,073
Customer list, net 79,140
Goodwill, net 83,457 -
----------- -----------
$ 2,832,361 $ 1,919
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payables and accrued expenses $ 832,688 $ 243,918
Accrued wages 27,520 -
Current maturities of capitalized lease obligations 22,987 -
----------- -----------
Total current liabilities 883,195 243,918
----------- -----------
Capitalized lease obligations, net of currrent maturities 45,973 -
----------- -----------
Total liabilities 929,168 243,918
----------- -----------
Shareholders' equity (deficit)
Common stock, $.001 par value; 50,000,000 shares authorized;
13,925,437 and 8,163,000 shares issued and outstanding 13,925 8,163
Additional paid-in capital 4,999,071 -
Accumulated deficit ($3,076,937 accumulated during the
development stage) (3,109,803) (250,162)
----------- -----------
Total shareholders' equity (deficit) 1,903,193 (241,999)
----------- -----------
$ 2,832,361 $ 1,919
=========== ===========
</TABLE>
See notes to the accompanying condensed
consolidated financial statements.
<PAGE>
YELLOWBUBBLE.COM, INC. AND SUBSIDIARIES
(A Developmental Stage Company)
FORM 10-QSB - SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months Cumulative from
ended September 30, ended September 30, September 2,
2000 2000 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenue
Revenue $ 80,575 $ 80,575 $ 80,575
Interest income $ 171 $ 6,817 $ 6,835
------------------- ------------------- -------------------
80,746 87,393 87,410
------------------- ------------------- -------------------
Costs and expenses
Business development 342,747 1,029,420 1,092,087
General and administrative 708,451 1,479,769 1,577,969
Legal and professional fees 173,537 387,166 468,318
Transfer taxes - 25,973 25,973
------------------- ------------------- -------------------
1,224,735 2,922,328 3,164,347
------------------- ------------------- -------------------
Net loss $ (1,143,989) $ (2,834,936) $ (3,076,937)
=================== =================== ===================
Basic and diluted net loss per share $ (0.08) $ (0.23)
=================== ===================
Weighted average number of common shares outstanding 13,675,623 12,306,319
=================== ===================
</TABLE>
See notes to the accompanying condensed
consolidated financial statements.
<PAGE>
YELLOWBUBBLE.COM, INC. AND SUBSIDIARIES
(A Developmental Stage Company)
FORM 10-QSB - SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Cumulative from
ended September 30, September 2,
2000 1999
------------------- -------------------
<S> <C> <C>
INCREASE (DECEASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $ (2,834,936) $ (3,076,937)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 140,742 140,742
Changes in operating assets and liabilities
VAT recoverable (85,411) (85,411)
Prepaid expenses (392,418) (394,319)
Accounts payable and accrued expenses 350,508 594,426
Accrued wages - 0
Due to Directors 6,732 6,732
----------------- -----------------
Net cash used in operating activities (2,814,783) (2,814,767)
----------------- -----------------
Cash flows from investing activities
Purchase of property and equipment (54,034) (54,034)
Website development costs paid (813,270) (813,270)
Cash acquired in Zareeba acquisition 40,126 40,126
----------------- -----------------
Net cash used in investing activities (827,179) (827,179)
----------------- -----------------
Cash flows from financing activities
Proceeds from sale of common stock 4,151,050 4,151,052
----------------- -----------------
Net increase in cash and cash equivalents 509,088 509,106
Cash and cash equivalents, beginning of period 18 -
----------------- -----------------
Cash and cash equivalents, end of period $ 509,106 $ 509,106
================= =================
</TABLE>
See notes to the accompanying condensed
consolidated financial statements.
<PAGE>
YELLOWBUBBLE.COM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 The Company
Organization
Yellowbubble.com, Inc. (the "Company") was incorporated under the laws of
Nevada on February 5, 1998 under the name Mall of Fame, Inc. On September
15, 1998, the Company changed its name to Famous Internet Mall, Inc. and on
December 31, 1999 to Yellowbubble.com, Inc.
Reverse acquisition
On March 2, 2000, in accordance with the terms of a Share Exchange
Agreement dated February 16, 2000 (the "Agreement"), the Company
consummated a share exchange with the shareholders of Yellowbubble.com
Holdings Limited ("Holdings"), a British Corporation, whereby the
shareholders of Holdings exchanged all of their shares in Holdings for
8,163,000 newly issued voting common shares of the Company's common stock,
par value $0.001. In addition, in accordance with the Agreement, the
Company purchased from existing shareholders 7,400,000 shares of the
Company's common stock and returned those shares to treasury. The issuance
represented approximately 61.5% of the post-merger issued and outstanding
common stock of the Company. For accounting purposes, this transaction has
been treated as an acquisition of the Company by Holdings and as a
re-capitalization of Holdings. The acquisition of the Company by Holdings
has been recorded based on the fair value of the Company's net liabilities
of approximately $20,000. The Company, prior to acquisition, was an
inactive shell company. The historical financial statements prior to March
2, 2000 are those of Holdings and its wholly-owned subsidiary,
Yellowbubble.com Limited ("Yellowbubble"), a British corporation. Since
this transaction is in substance a recapitalization of Holdings and not a
business combination, pro forma information is not presented. All costs
associated with this transaction have been expensed.
Under the Agreement, the Company was required to raise additional capital
and on March 2, 2000, the Company entered into a subscription agreement
with an investor ("Purchaser"). The Purchaser agreed to purchase a total of
342,000 shares of the Company's common stock at $14.625 per share as
follows:
On the Closing Date, the Company issued to Purchaser 102,600 shares of
common stock raising a total of $1,500,525 (the "Closing Financing").
The proceeds of this private placement were deposited into escrow for
the benefit of a creditor of Yellowbubble in repayment of a $473,000
bridge loan pending completion of the Share Exchange. These funds have
since been released from escrow to such creditor. The balance was
released to the Company and was used for working capital purposes.
On the Closing Date, Purchaser deposited into escrow an additional
$1,500,525 in payment of the purchase of 102,600 shares of common
stock. These funds were to be released to the Company provided that
Yellowbubble reached certain milestones (the "First Milestone") set
forth in the Agreement on or before September 30, 2000 by the
Milestone Date. These milestones related primarily to the registration
of new members, implementation of Yellowbubble's marketing plan, the
recruitment of additional personnel and the engagement of professional
consultants. In accordance with the Agreement, these funds were
released to the Company on May 24, 2000.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 The Company (continued)
Reverse acquisition (continued)
Additionally, Purchaser originally agreed to pay a further $2,000,700 for
the issuance of 136,800 shares of common stock by the Milestone Date if
Yellowbubble reached certain additional milestones relating primarily to
the registration of additional new members, the implementation of
Yellowbubble's business plan and the commissioning of a consumer research
program. Since the Company was approximately one week late in meeting the
milestone required for the completion of the third phase (which milestone
related to the registration of additional members), Purchaser has not
completed the purchase of shares under the third phase. In August, 2000 the
Company and Purchaser reached an agreement as to a new schedule for the
issuance of shares to Purchaser and the payment by Purchaser. Pursuant to
this agreement, the Company will issue to Purchaser 500,000 shares of
Common Stock at $4.00 per share. Payments will be made (and the appropriate
number of shares will be issued) as follows:
August 23, 2000 $650,000
September 1, 2000 $500,000
October 1, 2000 $350,000
November 1, 2000 $250,000
December 1, 2000 $250,000
Zareeba Acquisition
On July 26, 2000, the Company consummated a share exchange with the
shareholders (the "Shareholders") of Zareeba Limited, a company
incorporated under the laws of England ("Zareeba"). Under the terms of the
Agreement dated July 26, 2000 (the "Agreement"), the Shareholders
transferred to the Company all of their shares of Zareeba in consideration
for the issuance of 169,737 shares of Common Stock of the Company (the
"Shares"), valued at $848,684, or $5.00 per Share, and the assumption of
liabilities in the amount of (pound)99,991, or approximately $151,316. This
transaction has been accounted for as a purchase business combination in
accordance with Accounting Principles Board ("APB") Opinion No. 16,
Business Combinations.
The purchase price allocation is as follows:
Fair value of net liabilities assumed $ (14,666)
Customer base 86,335
In-place technology 690,680
Goodwill 86,335
------------
$ 848,684
============
Tangible assets of Zareeba acquired principally include cash, accounts
receivable, property and equipment and other assets. Liabilities of Zareeba
assumed principally include accounts payables and accrued expenses. The
value of the customer base was estimated based upon the current cost to
acquire approximately 130,000 customers and will be amortized to operations
over an estimated life of two years. The value of the in-place technology
was determined by estimating the projected net cash flows related to the
product, determined based upon Yellowbubble.com, Inc.'s estimates of the
future revenue to be earned from the products. The cash flows were then
discounted back to their net present value. The in-place technology will be
amortized to
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Zareeba Acquisition (continued)
operations over an estimated life of three years. The excess of purchase
price over tangible and identifiable intangible assets acquired and
liabilities assumed will be recorded as goodwill and amortized to
operations over an estimated life of five years.
Pursuant to a Registration Rights Agreement between the Company and the
Shareholders, the Company also granted to the Shareholders the right to
include their Shares in any registration statement (other than in
connection with a merger or other reorganization or pursuant to Form S-8)
it may file within two years from the closing date of the Share Exchange.
Zareeba is an internet startup company that provides on-line discount
shopping to its members through its bargain shopping channel. In addition,
it allows members to advertise goods and services for free on its auction
channel. Zareeba attempts to attract members by paying users for
downloading and displaying advertisement bars on their browsers and for
referring new members. Zareeba currently has in excess of 131,000 members.
Business
The Company is engaged in developing new forms of on-line shopping for the
consumer by creating a Membership Organization. Currently, the principal
markets for its services are expected to be located in the United Kingdom
and Germany. The Company has not yet generated any revenue from operations
and is considered to be in the development stage.
2 Significant accounting policies
Interim financial information
The condensed consolidated balance sheet as of September 30, 2000, and the
condensed consolidated statements of operations and cash flows for the
three and nine months ended September 30, 2000 and cumulative from
September 2, 1999, have been prepared by the Company without audit. These
interim financial statements include all adjustments, consisting only of
normal recurring accruals, which management considers necessary for a fair
presentation of the financial statements for the above periods. The results
of operations for the three and nine months ended September 30, 2000, are
not necessarily indicative of results that may be expected for any other
interim periods or for the full year.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 1999. The accounting policies used in
preparing the condensed consolidated financial statements are consistent
with those described in the December 31, 1999 consolidated financial
statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2 Significant accounting policies (continued)
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Yellowbubble.com Holdings Limited,
Yellowbubble.com Limited and Zareeba Limited. All significant intercompany
transactions and balances have been eliminated in consolidation.
Start-up and organization costs
The Company accounts for start-up costs in accordance with Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP
98-5"), issued by the American Institute of Certified Public Accountants.
SOP 98-5 requires the cost of start-up activities, including organization
costs, to be expensed as incurred.
Website development costs
Costs incurred in the development of the core software for the Company's
website infrastructure are capitalized in accordance with Statement of
Position 98-1 "Accounting for the Costs of Software Developed or Obtained
for Internal Use" and are amortized over the expected useful life of the
developed software ranging from 1 - 3 years. Costs incurred in the
development of content for the Company's website and maintenance are
expensed as incurred.
Estimates
In preparing condensed consolidated financial statements, in conformity
with generally accepted accounting principles, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements, as well as the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
YellowBubble.com, Inc. (the "Company") is in the development stage and was
organized in February 1998.
On March 2, 2000, the Company completed a share exchange with the
shareholders of YellowBubble.com Holdings Limited ("Holdings"), a company
incorporated under the laws of England. Under the terms of the Share Exchange
Agreement, the Holdings shareholders transferred to the Company all of their
shares in consideration for the issuance to them of 8,163,000 shares of Common
Stock, representing in the aggregate approximately 61.5% of the then issued and
outstanding shares of Common Stock. In connection with this transaction,
effective February 2000, the Company changed its name to YellowBubble.com., Inc.
For accounting purposes, this transaction has been treated as an
acquisition of the Company by Holdings and as a re-capitalization of Holdings.
Therefore, the historical financial statements prior to March 2, 2000 are those
of Holdings and its wholly-owned subsidiary, Yellowbubble.com Limited
("Yellowbubble"), a company incorporated under the laws of England.
Holdings, through its wholly owned subsidiary, Yellowbubble, is engaged in
developing new forms of on-line shopping for the consumer by creating a
membership organization. Its initial principal markets are expected to be
located in Great Britain and Germany. By combining with Holdings, the Company
intends to take advantage of the electronic advertising opportunities presented
by the Internet and the proliferation of technology enabling individuals and
businesses to access the world wide web. The Company's strategy will be to
enable consumers who access the Company's web site to share in advertising
revenues and to pay lower prices for their merchandise and services as a result
of collective and direct buying.
Results of Operations
As a result of the reverse acquisition discussed above, for accounting
purposes, the Company is deemed to have commenced operations on September 2,
1999. Therefore no fair comparison can be made between the three-month period
ended September 30, 2000 (the "Third Quarter") and the corresponding quarter
during the previous fiscal year. In addition, no comparison can be made between
the nine-month period ended September 30, 2000 (the "Nine Month Period") and the
corresponding period during the previous fiscal year. Revenues in the Third
Quarter and the Nine Month Period were approximately $80,746 (including $171 in
interest income) and $87,393 (including $6,817 in interest income),
respectively. Expenses for the Third Quarter and the Nine Month Period were
approximately $1,224,735 and $2,922,328, respectively, resulting in a net loss
for the Third Quarter of approximately $1,143,989 and for the Nine Month Period
of approximately $2,834,936. Expenses for the Third Quarter consisted primarily
of $708,451 in general and administrative expenses which includes salaries, and
approximately $342,747 in business development costs. For the Nine Month Period
expenses consisted primarily of $1,479,769 in general and administrative
expenses which includes salaries, and approximately $1,029,420 in business
development costs consisting primarily of consulting fees and marketing
expenses. In addition, during the Third Quarter and the Nine Month Period, the
Company spent approximately $173,537 and $387,166, respectively, in legal and
professional fees in connection with corporate acquisitions (including the share
exchange completed in March 2000) and fees associated with being a publicly
traded company.
For the period from September 2, 1999 through September 30, 2000 ("Period
Since Inception") revenues were approximately $87,410 resulting in a cumulative
loss for the Period Since Inception of approximately $3,076,937. The Third
Quarter represented the first reporting period in which revenues were primarily
derived from operations. Nevertheless, the Company expects operating losses to
<PAGE>
continue for the foreseeable future as it intends to significantly increase its
operating expenses to implement its business plan.
Liquidity and Capital Resources
As of September 30, 2000 the Company's principal sources of liquidity
consisted of cash of $509,106, prepaid expenses of $436,767 and a sales tax
refund due to the Company of $85,411.
In connection with the share exchange completed in March 2000, the Company
entered into an agreement providing for a three phase private placement of its
Common Stock to an unaffiliated purchaser (the "Purchaser"). Under the terms of
the private placement, Purchaser was to have purchased 342,000 shares at $14.625
per share for a total consideration of approximately $5,000,000. The Company
completed the first two phases and received approximately $3,000,000. In August
the Company and Purchaser entered into an agreement as to a new schedule for the
issuance of shares to Purchaser and the payment by Purchaser. Pursuant to this
agreement, the Company agreed to issue to Purchaser 500,000 shares of Common
Stock at $4.00 per share of which to date 437,500 shares of Common Stock have
been issued in stages in consideration for payments totaling $1,750,000. On
December 1, 2000 an additional 62,500 shares of Common Stock are scheduled to be
issued in consideration for $250,000.
As of the date hereof, the Company believes that its current cash position,
the receipt of the additional $250,000 investment discussed above and the
increase in its revenues from operations as anticipated will enable the Company
to fund its operations for the next three months. The Company will be required
to raise additional equity or debt financing to implement its business plans
beyond this three-month period. Any equity financing would be expected to result
in dilution to the holders of the Company's Common Stock. Any debt financing
obtained by the Company would be likely to include restrictive covenants
limiting the Company's ability to obtain additional capital, whether through
additional debt or equity financings, as well as restrictive covenants limiting
the Company with respect to various operational and financial matters. Although
the Company has been in discussions with a number of prospective investors,
there can be no assurance that the Company will be able to find the necessary
sources of financing on terms acceptable to the Company, if at all. If the
Company is unable to find such additional financing, it may have to curtail its
operations.
Forward Looking Statements
This Form 10-QSB and other reports filed by the Company from time to time
with the Securities and Exchange Commission (collectively the "Filings") contain
or may contain forward looking statements and information that are based upon
beliefs of, and information currently available to, the Company's management as
well as estimates and assumptions made by the Company's management.
When used in the filings the words "anticipate", "believe", "estimate",
"expect", "future", "intend", "plan" and similar expressions as they relate to
the Company or the Company's management identify forward looking statements.
Such statements reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties and assumptions relating to the
Company's operations and results of operations and any businesses that may be
acquired by the Company. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
intended or planned.
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities and Use of Proceeds
1. On July 26, 2000, Registrant consummated the acquisition of Zareeba
Limited. In connection with that transaction, Registrant became obligated to
issue 169,737 shares of Common Stock to the former shareholders of Zareeba. Such
shares were issued on August 23, 2000. This issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
2. On August 7, 2000, Registrant issued 102,600 shares of Common Stock to
to Blue Capital AG. This issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended. This issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
3. Registrant issued shares of Common Stock to Dual Wave, Inc. as follows:
August 25, 2000 225,000 shares
November 1, 2000 212,500 shares
These issuances were exempt from registration pursuant to Regulation S
promulgated under the Securities Act of 1933, as amended.
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On October 11, 2000, Registrant filed an amendment to a Form 8-K
filed on August 9, 2000, containing the financial statements
required to be filed in connection with the acquisition of
Zareeba Limited.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934 the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized
YELLOWBUBBLE.COM, INC.
Date: November 20, 2000 By: /s/ David Frank Henderson Scroggie
----------------------------------
David Frank Henderson Scroggie
Chairman
