<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or 15 (D) of the Securities and
Exchange Act of 1934
For the Period Ended May 31, 2000
Or
[ ] Transition Report Pursuant to Section 13 or 15(D) of the Securities and
Exchange Act of 1934 for the transition period from_______ to________ .
Commission file number:
DENMANS.COM, INC.
(Name of Small Business Issuer in its Charter)
Colorado E.I.N. 91-2015608
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Indentification No.)
incorporation or organization)
Suite 1620 - 1140 West Pender Street V6E 4G1
Vancouver, British Columbia
---------------------------------------- ------------
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code (604) 684-7804
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class to be so registered:
COMMON STOCK
_____________________
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 X No
----- -----
As at May 31, 2000, there were 11,000,000 shares of the company's common stock
($.001 par value) outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
----- -----
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENMANS.COM, INC.
(FORMERLY IDS INTERNET DISTRIBUTION SYSTEMS INC.)
CONSOLIDATED BALANCE SHEETS
(IN UNITED STATES DOLLARS)
<CAPTION>
As at
MAY 31, FEBRUARY 29,
2000 2000
$ $
-----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 197,658 433,850
Accounts receivable [NOTE 3] 60,908 28,098
Prepaid expenses and deposits [NOTE 4] 178,744 137,175
-----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 437,310 599,123
-----------------------------------------------------------------------------------------------
Capital assets (net) [NOTE 5] 236,857 210,411
-----------------------------------------------------------------------------------------------
674,167 809,534
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accrued liabilities 214,640 144,764
Interest payable [NOTE 6] 107,173 55,392
Payroll taxes payable ---- 61,373
Short term note payable [NOTE 6] 500,000 ----
Deferred revenue 1,114 15,725
-----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 822,927 277,254
-----------------------------------------------------------------------------------------------
Notes payable [NOTE 6] 2,000,000 2,000,000
-----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,822,927 2,277,254
-----------------------------------------------------------------------------------------------
Commitments [NOTE 7]
SHAREHOLDERS' DEFICIENCY
Share capital
Authorized
100,000,000 common shares, par value $0.001
50,000,000 preferred shares, par value $0.001
Issued
11,000,000 common shares 11,000 11,000
Deficit (2,159,760) (1,478,720)
-----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIENCY (2,148,760) (1,467,720)
-----------------------------------------------------------------------------------------------
674,167 809,534
===============================================================================================
SEE ACCOMPANYING NOTES
</TABLE>
<PAGE>
DENMANS.COM, INC.
(FORMERLY IDS INTERNET DISTRIBUTION SYSTEMS INC.)
CONSOLIDATED STATEMENT OF
LOSS AND COMPREHENSIVE LOSS
(IN UNITED STATES DOLLARS)
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
2000 1999
$ $
--------------------------------------------------------------------------------
SALES 55,465 ----
Interest income 2,215 ----
--------------------------------------------------------------------------------
57,680
Cost of sales 44,625 ----
--------------------------------------------------------------------------------
Gross profit 13,055 ----
--------------------------------------------------------------------------------
EXPENSES
arketing and media 94,191 ----
Salaries and benefits 256,902 15,061
General and administrative 178,401 12,538
Interest on notes payable [NOTE 6] 51,781 ----
Depreciation and amortization 34,395 672
Accounting and legal 15,674 7,352
Incorporation costs ---- 412
Foreign exchange (gain) loss (2,679) 1,333
Website operations 65,430 ----
--------------------------------------------------------------------------------
694,095 37,368
--------------------------------------------------------------------------------
Loss and comprehensive loss for the period 681,040 37,368
LOSS PER COMMON SHARE 0.06 0.0
================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR THE PERIOD 11,000,000 11,000,000
================================================================================
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
DENMANS.COM, INC.
(FORMERLY IDS INTERNET DISTRIBUTION SYSTEMS INC.)
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' DEFICIENCY
(IN UNITED STATES DOLLARS)
<CAPTION>
COMMON STOCK
------------
SHARES AMOUNT DEFICIT
# $ $
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, FEBRUARY 29, 2000 11,000,000 11,000 (1,478,720)
Loss for the period -- -- (681,040)
------------------------------------------------------------------------------------------
BALANCE, MAY 31, 2000 11,000,000 11,000 (2,159,760)
==========================================================================================
SEE ACCOMPANYING NOTES
</TABLE>
<PAGE>
<TABLE>
DENMANS.COM, INC.
(FORMERLY IDS INTERNET DISTRIBUTION SYSTEMS INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
2000 1999
$ $
------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period (681,040) (37,368)
Adjustment to recover the net cash used in operations
Depreciation and amortization 34,395 672
Accrued interest on notes payable 51,781 ----
Changes in operating assets and liabilities
Increase in accounts receivable (32,810) (7,596)
Increase in prepaid expenses and deposits (41,569) (1,526)
Increase in accounts payable and accrued liabilities 58,392 8,694
Decrease in payroll taxes payable (61,373) ----
Increase in shareholder and employee loan receivable ---- (5,425)
Decrease in deferred revenue (14,611) ----
------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (686,835) (42,549)
------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (49,357) (19,102)
------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (49,357) (19,102)
------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable 500,000 480,000
Increase in shareholder loan payable ---- 50,000
Increase in note receivable ---- (430,000)
------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 500,000 100,000
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH DURING THE PERIOD (236,192) 38,349
Cash, beginning of period 433,850 29,282
------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD 197,658 67,631
======================================================================================================
SEE ACCOMPANYING NOTES
</TABLE>
<PAGE>
DENMANS.COM, INC.
(FORMERLY IDS INTERNET DISTRIBUTION SYSTEMS INC.)
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT MAY 31, 2000
1. NATURE OF BUSINESS
DENMANS.com, Inc. (the "Company") was incorporated on January 6, 1999 in the
State of Colorado as IDS Internet Distribution Systems Inc. On July 23, 1999 the
Company changed its name from IDS Internet Distribution Systems Inc. to
DENMANS.com, Inc.
The Company has established itself as an online retailer of jewelry and jewelry
related products. The Company's online store offers a broad selection of
products, informative content, easy-to-use navigation and search capabilities, a
high level of customer service, competitive pricing and personalized
merchandising and recommendations.
DENMANS.com, Inc. has two wholly owned subsidiaries; Denmans Jewelry (USA) Inc.
and Denmans Jewelry (Canada) Inc.
Denmans Jewelry (USA) Inc. was incorporated on March 8, 1999 as IDS Jewelry
U.S.A. Inc. On July 28, 1999, IDS Jewelry U.S.A. Inc. changed its name to
Denmans Jewelry (USA) Inc. It was incorporated in the State of Nevada and
functions as the operating company for the United States market.
Denmans Jewelry (Canada) Inc. was incorporated on March 25, 1999 as IDS Jewelry
Canada Inc. On August 1, 1999, IDS Jewelry Canada Inc. changed its name to
Denmans Jewelry (Canada) Inc. It was incorporated in the Province of British
Columbia and functions as the operating company for the Canadian market.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended May 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended February 28, 2001.
The balance sheet at February 29, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company's annual report on Form
10-KSB for the year ended February 29, 2000.
<PAGE>
3. ACCOUNTS RECEIVABLE
Accounts receivable comprise: MAY 31, FEBRUARY 29,
2000 2000
$ $
--------------------------------------------------------------------------------
Amounts due from the sale of goods 37,627 7,722
GST recoverable 13,598 10,864
Other 9,683 9,512
--------------------------------------------------------------------------------
60,908 28,098
================================================================================
4. PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits comprise: MAY 31, FEBRUARY 29,
2000 2000
$ $
--------------------------------------------------------------------------------
Deposits held by merchant banks 13,812 19,361
Deposits for leases for premises 12,634 12,634
Deposits held by suppliers 122,595 89,433
Other prepaid expenses 29,703 15,747
--------------------------------------------------------------------------------
178,744 137,175
================================================================================
The Company has obtained "just in time" supply accounts with several vendors in
the United States. Under the conditions of the supply agreements, the company is
required to provide the vendors with deposits on account. The deposits are
revolving and are non-interest bearing. Net balances on deposit will be held by
the vendors until the supply agreements are canceled.
The Company has obtained a merchant account with a bank in the United States for
credit card processing. Under the conditions of the merchant agreement, the
Company is required to provide the banks with a security deposit. The deposit is
revolving, non-interest bearing and the net balance on account will be held
until the merchant account is cancelled.
5. CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation and comprise:
<TABLE>
<CAPTION>
MAY 31, 2000 FEBRUARY 29, 2000
------------------------------ --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
$ $ $ $
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Office furniture 33,037 4,960 32,273 3,310
Production equipment 6,672 1,112 6,672 556
Computer software 14,123 4,785 14,123 3,020
Computer hardware 80,399 18,036 64,494 11,336
Website costs 187,327 57,658 143,155 34,242
Leasehold improvements 2,466 616 2,466 308
------------------------------------------------------------------------------------------------------
324,024 87,167 263,183 52,772
------------------------------------------------------------------------------------------------------
NET BOOK VALUE 236,857 210,411
======================================================================================================
</TABLE>
<PAGE>
6. NOTES PAYABLE
Notes payable comprise and are due to:
MAY 31,
RATE OF 2000
DUE DATE INTEREST $
--------------------------------------------------------------------------------
DGD Wealth Management May 30, 2001 5% 500,000
DGD Wealth Management October 25, 2001 5% 500,000
Eagle Harbour Management December 8, 2001 16% 500,000
Eagle Harbour Management February 15, 2002 16% 500,000
Eagle Harbour Management April 12, 2002 16% 500,000
--------------------------------------------------------------------------------
2,500,000
================================================================================
The notes payable to DGD Wealth Management and Eagle Harbour Management are
unsecured. During the three month period ending May 31, 2000, the Company
incurred $51,781 of interest during the first quarter of fiscal 2001. Total
interest of $107,173 is due within the next twelve months. Management believes
the fair value of the notes bearing interest at 16% approximates their carrying
values. Management believes the fair value of the notes bearing interest at 5%
is $715,000.
7. COMMITMENTS
[i] At May 31, 2000, the Company has entered into commitments for leases
for premises. The future payments for the 12 months ended February 28
are:
$
-----------------------------------------------------------------------------
2001 66,672
2002 72,733
-----------------------------------------------------------------------------
139,405
=============================================================================
[ii] The Company has entered into an operating lease in respect of its
United States office premises on a month by month basis. The monthly
lease payment is $2,524.
[iii] At May 31, 2000, the Company has entered into an agreement with a
company to receive internet hosting services at a cost of $5,000 per
month.
[iv] On April 10, 2000, the Company entered into an agreement with Women.com
networks. Under the terms of the agreement, Women.com networks will
provide various marketing and advertising services in exchange for $1
million, which will be payable in twelve equal instalments within 60
days of the completion of the services.
<PAGE>
ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS
The discussion in this Report contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed herein. Such risks and uncertainties are detailed in filings with the
Securities and Exchange Commission, including without limitation those discussed
in this section Item 2 below.
OVERVIEW
--------
The Company launched its principal Website during December 1999. The Company has
begun to derive its revenues mainly from the sale of jewelry and jewelry related
products via the Internet. Secondary revenues are intended to be generated
through major sponsorships on the Company's website and the sale of advertising
on its Website although no steps have been taken by the Company in these
regards.
Since the launch of its principal website, the Company has focused on
establishing strategic alliances with leading online portals, developing and
maintaining supplier relationships and a fulfillment center in the Los Angeles
Jewelry District, building brand awareness, and the execution of its sales
strategy.
The market for jewelry and jewelry related products is highly seasonal. The
Company expects to experience significant seasonal fluctuations in net sales
that will cause quarterly fluctuations. Specifically, management expects that a
disproportionate amount of net sales will occur within the fourth quarter of any
given fiscal year due to the gift giving during the holiday season. Management
expects further that this trend will continue in future periods.
RESULTS OF OPERATIONS
---------------------
The following tables set forth selected information from the statements of
operations for the three months ended May 31, 2000 and for the three months
ended May 31, 1999 and the Balance Sheets as at May 31, 2000 and February
29,2000.
SELECTED STATEMENT OF OPERATIONS INFORMATION
For the three For the three
months months
Ended May 31, 2000 Ended May 31, 1999
------------------------ -----------------------
Revenues 57,680 ----
Gross Profit 13,055 ----
Operating Expenses 694,095 37,368
Net Loss 681,040 37,368
<PAGE>
SELECTED BALANCE SHEET DATA
February 29, 2000 February 28, 2000
--------------------- -------------------
Working Capital (385,617) 321,869
Total Assets 674,167 809,534
Long Term Debt 2,000,000 2,000,000
Deficit 2,159,760 1,478,720
Total Shareholders' Deficiency 2,148,760 1,467,720
REVENUES
--------
Revenues consist of net sales from jewelry and jewelry related products net of
returns and of interest earned on the average balances of the Company's
principal banking facilities. The Company's revenues increased $57,680 during
the three months ended May 31, 2000 compared to nil for the three months ended
May 31, 1999. This increase was driven by the availability of the company's
website to the public as of December 1999 and the subsequent sales of the
Company's products and services totaling $55,465 for the three months ended May
31, 2000 to consumers. $2,215 of the total revenue was derived from interest
earned. It is anticipated that the Internet will continue to become more
accessible and that the market opportunities for the Company will continue to
expand.
COST OF SALES
-------------
Cost of sales consists primarily of the cost of jewelry and jewelry related
products sold. Gross profit for the three months ended May 31, 2000 was $13,055
or 23.5% of net sales or 22.6% of total revenue. The gross profit percentage of
23.5% of net sales achieved by the Company for three months ended May 31, 2000
is lower than expected principally due to the mix of products sold and
additional product related costs incurred as the Company transitioned out of the
start up phase of its operations.
OPERATING EXPENSES
------------------
Operating expenses for the three months ending May 31, 2000 amounted to $694,095
compared to $37,368 for the period ending May 31, 1999. The significant increase
is principally due to increased marketing and media expenses, headcount related
expenses, leased premises expenses, professional fees and website operations as
discussed below.
MARKETING AND MEDIA: The Company's marketing and media expenses consist
primarily of advertising costs, affiliate program costs, production expenses,
and market research. Our advertising activities are intended to build brand
awareness, generate website traffic, and increase overall sales. Affiliate
program costs of $11,393 for the first quarter of fiscal 2001, relate to
referral fees paid to registered affiliates for maintaining links to the
Company's website and for traffic and sales generated from said links. Marketing
and media expenses increased to $94,191 for the three months ended May 31, 2000
compared to nil for the three months ended May 31, 1999. This increase is due to
the fact that the company had not yet launched its website at the quarter ending
May 31, 1999 thus marketing and media expenditures were not incurred.
<PAGE>
SALARIES AND BENEFITS: Salaries and benefits expenses have increased to $256,902
(34 full time equivalent employees) for the three months ending May 31, 2000
compared to $15,061 (3 full time equivalent employees) for the same period last
year due to the increase in headcount required as a result of the website launch
in December 1999.
GENERAL AND ADMINISTRATIVE: General and administrative expenses include office
supplies and expenses, leased premises related expenses, professional fees and
other expenses. General and administrative expenses have increased $165,863 for
the period ended May 31, 2000 compared to the same period last year. The
increase is driven primarily by the growth of staffing levels required in the
operations and fulfillment processes and professional fees associated with
technology based consulting.
WEBSITE OPERATIONS: Website operations expenses include website hosting and
maintenance related costs. Website operations expenses amounted to $65,430 for
the three months ending May 31, 2000 as compared to nil for the three months
ending May 31, 1999. This increase is due to the launch of the Company's website
in December 1999 which requires ongoing hosting and related support costs to
maintain.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has been funded to date through debt financing from private arm's
length lenders. The sum of $2,500,000 US was received by the Company for the
period from incorporation on January 6, 1999 to May 31, 2000 pursuant to notes
payable to DGD Wealth Management and Eagle Harbour Management.
The Company has secured an additional $3,500,000 US through debt financing,
which combined with revenues from sales, will enable the Company to meet its
operating and capital obligations for the next nine to twelve months.
At May 31, 2000, the Company had $197,658 in cash compared to $433,850 at
February 29, 2000. The decrease in the cash balance is due primarily to $686,835
cash used in operations offset by an additional $500,000 in debt financing.
Working capital at May 31, 2000 has decreased from $321,869 at February 29, 2000
to ($385,617). Accounts Receivable increased to $60,908 compared to $20,098 at
February 29, 2000. This increase is due mainly to the generation of revenues
from the sale of jewelry on the Company's website which launched in December
1999. Prepaid expenses and deposits increased to $178,744 at May 31, 2000 from
$137,035 at February 29, 2000 due principally to the Company's deposits on
account with several vendors in the United States. Accounts Payable and other
accrued liabilities increased from $206,137 at February 29, 2000 to $214,640 the
majority of which is comprised of trade and payroll related liabilities.
Short-term note payable increased to $500,000 versus nil for the same period
last year as a long-term promissory note to DGD Wealth Management is due and
payable on May 30, 2001.
Net cash used in operating activities increased to $686,835 for the three months
ended May 31, 2000 from $42,549 compared to the same period last year. This net
change in cash consumed reflects primarily the Company's transition from the
development stage to operating stage.
Cash used in investing activities for the three months ended May 31, 2000
amounted to $49,357 compared to $19,102 for the three months ended May 31, 1999.
The cash was used mainly to develop the Company's website from which the Company
will derive its primary source of revenue.
<PAGE>
Cash provided by financing activities increased from $100,000 for the three
months ended May 31, 1999 to $500,000 for the three months ended May 31, 2000.
This increase is the result of unsecured debt financing from private arm's
length lenders.
OUTLOOK
-------
The Company anticipates that revenues from sales will not initially meet
expenses and as such, the Company plans to continue to finance operations
through additional debt financing from arm's length private lenders until such
time as revenues from sale meet or exceed expenses.
Once achieved, the Company intends to begin repaying the private arm's length
lenders. In addition, the Company will raise additional money as is deemed
necessary by management through private placements of stock issued out of the
treasury of the Company to individuals or corporations who have expressed
interest in obtaining stock in the Company.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
--- ----------- -----------
27 Financial Data Schedule
(b) There are no reports on Form 8-K that were filed for the quarter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) Denmans.com, Inc.
By: /s/ Kurt S. Dohlen
------------------
President, Chairman of the Board, Chief Operating
Officer, and Director
Date: July 12, 2000
By: /s/ Sheryl E. Scobie
--------------------
Vice President, Finance
Date: July 12, 2000
