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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[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 0-27587
CDKNET.COM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3586087
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Garden City Plaza, Suite 202
Garden City, New York 11530
(516) 222-8800
WWW.CDKNET.COM
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(Address, including zip code, telephone number,
including area code, and web address of the principal
executive offices of the registrant)
595 Stewart Avenue, Suite 710, Garden City, New York 11530
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(Former name, former address and former fiscal year,
if changed since last report)
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 l2, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes [X] 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: May 18, 2000 21,151,831
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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<PAGE>
Table of Contents
Item No. Page
- -------- ----
Part I. Financial Information.
1. Financial Statements ....................................... F-1
Notes to Financial Statements .............................. F-5
2. Management's Discussion and Analysis ....................... 2
Part II. Other Information.
1. Legal Proceedings .......................................... II-1
2. Changes in Securities ...................................... II-1
3. Defaults Upon Senior Securities ............................ II-10
4. Submission of Matters to a Vote of Security Holders ........ II-10
5. Other Information .......................................... II-10
6. Exhibits and Reports on Form 8-K ........................... II-10
Signatures .......................................................... II-11
i
<PAGE>
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and June 30, 1999 F-1
Consolidated Statements of Operations for the three months ended March 31,
2000 and 1999, nine months ended March 31, 2000 and 1999 (unaudited) F-2
Consolidated Statement of Stockholders' Equity for the period
July 1, 1999 to March 31, 2000 (unaudited) F-3
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2000 and 1999 (unaudited) F-4
Notes to Consolidated Financial Statements F-6 -F-8
</TABLE>
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
March 31, June 30,
2000 1999
------------ ------------
ASSETS (unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,400,301 $ 231,347
Accounts receivable 64,194 19,000
Notes receivable 262,500 11,600
Prepaid expenses & other current assets 40,640 9,907
------------ ------------
TOTAL CURRENT ASSETS 2,767,635 271,854
FURNITURE AND EQUIPMENT - at cost less accumulated
depreciation and amortization of $260,056 and
$152,286 at March 31, 2000 and June 30, 1999,
respectively 696,019 489,053
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED,
less accumulated amortization of $2,543,942 and
$1,472,753 at March 31, 2000 and June 30, 1999,
respectively 4,597,315 5,668,504
INTANGIBLE ASSETS, less accumulated amortization of
$658,297 and $452,467 at March 31, 2000 and
June 30, 1999, respectively 713,906 919,736
OTHER ASSETS
Security deposits 45,024 --
Deferred financing costs, less accumulated amortization
of $59,549 and $37,400 at March 31, 2000 and June 30,
1999, respectively 22,351 210,750
------------ ------------
$ 8,842,250 $ 7,559,897
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 67,000 $ 220,778
Accrued expenses and other current liabilities 901,570 415,334
Due to related party -- 125,000
Current portion of long-term debt and capitalized
lease obligations 103,597 67,939
------------ ------------
TOTAL CURRENT LIABILITIES 1,072,167 829,051
LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS,
net of current portion 145,597 205,416
SUBORDINATED CONVERTIBLE DEBENTURES 255,000 1,671,000
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTEREST 352,954 --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - par value $.0001 per share; authorized
5,000,000 shares; (redemption value $1,500,000) 1,264,863 --
Common stock - par value $.0001 per share; authorized 40,000,000
shares; 21,068,771 and 14,046,906 shares issued and outstanding
at March 31, 2000 and June 30, 1999 2,107 1,405
Additional paid-in capital 18,350,313 12,232,100
Accumulated deficit (12,600,750) (7,379,075)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 7,016,533 4,854,430
------------ ------------
$ 8,842,250 $ 7,559,897
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-1
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
Three months ended March 31, Nine months ended March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 43,448 $ 115,184 $ 83,602 $ 457,237
Cost of revenues 41,764 24,630 79,369 133,572
------------ ------------ ------------ ------------
Gross profit 1,685 90,554 4,234 323,664
Selling, general and administrative expenses 2,138,383 787,978 3,953,464 2,210,998
Depreciation and amortization 467,747 504,453 1,410,150 1,502,991
------------ ------------ ------------ ------------
Loss from operations (2,604,445) (1,201,877) (5,359,380) (3,390,324)
Other income and (expense):
Interest income 11,078 4,891 13,783 5,175
Interest expense, including interest relating to
beneficial conversion and debt discount (9,085) (670,963) (73,423) (780,879)
------------ ------------ ------------ ------------
Total other income and expense 1,992 (666,072) (59,641) (775,704)
Minority interest in loss of subsidiary 197,346 -- 197,346 --
------------ ------------ ------------ ------------
NET LOSS $ (2,405,107) $ (1,867,950) $ (5,221,675) $ (4,166,029)
============ ============ ============ ============
Basic and diluted earnings (loss) per share $ (0.13) $ (0.13) $ (0.31) $ (0.33)
Weighted-average shares outstanding -
basic and diluted 19,214,875 14,023,453 16,821,909 12,673,627
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-2
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Nine months ended March 31, 2000
<TABLE><CAPTION>
Preferred Stock Common Stock
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - JUNE 30, 1999 -- $ -- 14,046,906 $ 1,405
Issuance of common stock -- -- 5,215,333 521
Exercise of stock options -- -- 1,462,073 146
Compensation related to stock
option plan and donated services -- -- -- --
Common stock and stock warrants
issued for services -- -- 315,000 32
Conversion of indebtedness to common stock -- -- 29,459 3
Conversion of 5.75% debentures to 5.75%
preferred stock 1,500,000 1,264,863 -- --
Preferred stock dividend - paid -- -- -- --
Equity in Value Flash -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
BALANCE - MARCH 31, 2000 (unaudited) 1,500,000 $ 1,264,863 21,068,771 $ 2,107
============ ============ ============ ============
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Equity
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE - JUNE 30, 1999 $ 12,232,100 $ (7,379,075) $ 4,854,430
Issuance of common stock 2,278,624 -- 2,279,145
Exercise of stock options 724,123 -- 724,269
Compensation related to stock
option plan and donated services 123,875 -- 123,875
Common stock and stock warrants
issued for services 777,968 -- 778,000
Conversion of indebtedness to common stock 20,392 -- 20,395
Conversion of 5.75% debentures to 5.75%
preferred stock -- -- 1,264,863
Preferred stock dividend - paid (7,969) -- (7,969)
Equity in Value Flash 2,201,200 -- 2,201,200
Net loss -- (5,221,675) (5,221,675)
------------ ------------ ------------
BALANCE - MARCH 31, 2000 (unaudited) $ 18,350,313 $(12,600,750) $ 7,016,533
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-3
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
Nine months ended March 31,
------------------------
2000 1999
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(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,221,675) $(4,166,029)
---------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,410,150 1,502,991
Common stock warrants issued for debt discount expensed 663,000
Compensation related to stock option plan and donated services 123,875
Common stock and stock warrants issued for services 778,000 117,150
Minority interest in net loss (197,346)
Changes in assets and liabilities
Accounts receivable (45,194) 30,375
Notes receivable (250,900) (9,229)
Prepaid expenses and other current assets (30,733) 20,727
Accounts payable (153,778) (128,148)
Accrued expenses and other current liabilities 486,236 187,087
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NET CASH USED BY OPERATIONS (3,101,365) (1,782,076)
CASH FLOWS FROM INVESTING ACTIVITIES:
Other assets (45,024) --
Purchase of furniture and equipment (302,836) (288,206)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (347,860) (288,206)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from notes payable -- 450,000
Proceeds from subordinated convertible debentures -- 1,829,000
Repayment of shareholder loans (106,000)
Principal payments on long-term debt and capitalized
lease obligations (128,766) 175,000
Minority interest 550,300
Equity in Value Flash 2,201,200
Preferred dividends paid (7,969)
Proceeds from issuance of common stock 3,003,414
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NET CASH PROVIDED BY FINANCING ACTIVITIES 5,618,179 2,348,000
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NET DECREASE IN CASH 2,168,954 277,718
CASH, beginning of the period 231,347 469,266
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CASH, end of the period $2,400,301 $ 746,984
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for Interest $ 11,708 $ 12,277
Noncash investing and financing transactions:
Common stock and stock warrants issued for purchase of fixed assets 110,000 --
Common stock issued for purchase of minority interest -- 4,506,122
Debt discount -- 130,318
Issuance of stock upon conversion of subordinated debentures -- 300,000
Common stock and stock warrants issued for financing costs
and services 105,000 766,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-4
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying consolidated financial statements of CDKNET.COM, Inc. (the
"Company") and for the periods ended March 31, 2000 and the periods ended
March 31, 1999 are unaudited and have been prepared on the same basis as
the audited financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein have been
included, in accordance with generally accepted accounting principles. The
results of operations for the nine months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the annual financial statements for the year
ended June 30, 1999 on Form 10-SB12/G.
NOTE 1 - EQUITY TRANSACTIONS
a. For the nine months ended March 31, 2000, the Company issued an
aggregate of 5,982,000 stock options to certain officers and an
employees at an exercise price of $1.00. The quoted market price of the
Company's stock at the date of grant ranged from $1.00 - $1.50.
b. On August 1, 1999, the Company's wholly-owned subsidiary, CDKNET, LLC,
entered into a two-year employment agreement with its president. The
agreement provides for a minimum annual salary of $150,000 and the
issuance of 750,000 stock options, expiring in five years, with an
exercise price of $1.00 vesting over the term of the agreement or
earlier if a change in control or CDKnet terminates the agreement
without cause. The quoted market value of the Company's stock on the
date of grant was $1.50. The agreement provides for six months of
severance pay. All payments under the agreement are guaranteed by the
Company. During the three months ended September 30, 1999, the Company
recorded compensation expense relating to the stock options of $46,875.
On August 1, 1999, CDKnet entered into a two-year employment agreement
with an executive vice president. The agreement provides for a minimum
annual salary of $150,000 and the issuance of 1,000,000 stock options,
expiring in five years, with an exercise price of $1.00 vesting over
the term of the agreement or earlier if a change in control or CDKnet
terminates the agreement without cause. The quoted market value of the
Company's stock on the date of grant was $1.50. The agreement provides
for severance payments, under certain conditions, for the unexpired
term of the agreement. All payments under the agreement are guaranteed
by the Company. During the three months
F-5
<PAGE>
ended September 30, 1999, the Company recorded a compensation expense
relating to the stock options of $65,000.
c. On October 1, 1999, the Company gave notice to the holders of the
$1,500,000 5.75% Subordinated Convertible Debentures and exercised its
right to call the outstanding Debentures in exchange for $1,500,000 of
5.75% Convertible Preferred Stock. Under the terms of the Debentures,
the Convertible Preferred Stock shall have: (1) liquidation preferences
equal to the principal amount of the Debenture, (2) a 5.75% cumulative
annual dividend payable quarterly, (3) rights to convert into shares of
Common Stock at the same conversion rate as the Debentures and (4) the
same redemption rights at the option of the Company. The Company has
paid dividends for these debenture holders in the amount of $7,969,
during the third quarter ended March 31, 2000.
d. During August and September 1999, the Company issued 332,000 shares of
common stock to an unrelated investor and received net proceeds of
$310,000. In connection with the transaction, the investor was given a
30-day option, which expired September 17, 1999 to purchase up to an
additional 2,668,000 shares of common stock for approximately
$3,410,000.
e. In August 1999 and March 2000, stock options to purchase 450,000 shares
of common stock were exercised, using cashless exercises pursuant to
which 345,000 shares of common stock were issued.
f. Individuals exercised options to purchase 767,073 shares of common
stock for $461,768 for the nine months ended March 31, 2000.
g. On November 1, 1999, pursuant to a securities purchase agreement, the
Company issued 1,000,000 shares of common stock and received net
proceeds of $500,000. Further, in connection with the agreement, the
Company issued 200,000 stock warrants, expiring May 2002, with an
exercise price of $1.25 per share and granted the purchasers the option
to purchase an additional 2,000,000 shares of common stock for $.50 per
share which were exercised in January and February 2000. In February
2000, the Company sold an additional 133,333 shares of common stock to
another individual for $100,000.
h. On November 2, 1999, the Company issued 1,250,000 shares of common
stock and received net proceeds of $437,500. In connection with the
transaction, in which the Company's CEO and other shareholders
fulfilled a commitment to invest $200,000 in the Company, the Company
issued 125,056 stock warrants, expiring November 2, 2001, at an
exercise price of $.75 per share. The warrants include provisions for
cashless exercises and adjustments to the purchase price and the number
of shares, as defined. Further, the Company and the purchasers executed
a registration rights agreement which requires mandatory registration
of the shares issued within a specified period.
i. On November 16, 1999, the Company's CEO rescinded 750,000 options
granted on August 1, 1999 to purchase the Company's common stock for no
future consideration.
F-6
<PAGE>
j. On November 16, 1999, pursuant to a Subscription Agreement with a third
party, the Company issued 200,000 shares of common stock and received
net proceeds of $100,000. In connection with the agreement, the
investor agreed to purchase an additional 1.6 million shares of common
stock at $.50 per share through May 2000. In addition, the Company and
the investor entered into a Technology and Licensing Agreement which
will give the Company a 4.89% interest in the investor and additional
fees upon completion of specified services and further, grants a
license to use certain of CDK's technology. Another $150,000 has been
received for the sale of 300,000 shares of common stock through
February 3, 2000 pursuant to the aforementioned stock subscription
agreement.
k. In March 2000, $20,000 of 6% convertible debentures and $1,800 of
accrued interest was converted into 29,459 shares of common stock,
pursuant to the exercise rights of the 6% convertible debenture
holders.
l. During the nine months ended March 31, 2000, the Company recorded costs
of $272,854 as a reduction to paid in capital for the registering
certain common stock of the Company and the raising of funds during the
nine months March 31, 2000.
m. During the nine months ended March 31, 2000, 315,000 shares of common
stock were issued for services, which $110,000 was capitalized as
software development costs and $480,000 was expensed for consulting
services an additional 150,000 of stock options and warrants in the
Company at exercise prices ranging from $.75 to $1.00 were issued for
services valued at $376,500, which was expensed as consulting services.
n. On March 31, 2000, an individual and an entity exercised 350,000 stock
options with the Company holding two notes receivable totaling $262,500
in lieu of a cash payment of the common stock purchased. The notes are
due by June 15, 2000 and bear interest.
o. In April 2000, ValueFlash.com entered into an employment agreement with
its CFO, whereby the CFO is entitled to certain compensation
arrangements and 250,000 stock options to purchase the Company's common
stock at an exercise price of $3.00, which vest over time.
NOTE 2 - VALUEFLASH.COM, INC. TRANSACTIONS
a. The Company recently completed the V-Flash software, a communication
module which provides a real-time, direct communication vehicle for
marketers to reach their customers, such software is to be distributed
through a separate newly formed subsidiary ValueFlash.com, Inc.
("ValueFlash"). The Company has raised an additional $2,500,000 through
the sale of 1,250,000 shares of common stock and options in the
ValueFlash subsidiary or 20% of the entity. The Company has recorded a
$2,201,200 increase in equity due to the ValueFlash equity transactions
and recorded the intial minority interest of $550,300. The minority
interest represents an interest in ValueFlash not held by the Company.
b. The Company issued 7,533,000 stock options to its officers and
employees at an exercise price of $1.50 for a period of five years. The
Company issued an additional 250,000 stock options to a vendor for
services rendered exercisable at $2.00 per share, which has been valued
at $251,500 and expensed.
F-7
<PAGE>
NOTE 3 - SUBSEQUENT EVENTS
Lease
- -----
During the quarter ended March 31, 2000, we committed to a new 10-year lease for
the 250 57th Street premises beginning on May 1, 2000. The lease calls for
annual rent payments at $149,575 from 2000 to 2002, $159,225 from 2002 to 2004,
$164,050 from 2004 to 2006 and $168,875 from 2006 through 2010.
Stock Dividend
- --------------
On April 12, 2000, we announced our intention to issue a stock dividend based
upon 10% of our holdings in our subsidiary, ValueFlash.com, Incorporated,
subject to registration and underwriter approval prior to distribution. Our
board of directors will meet in the near future to decide whether to issue the
dividend based upon the advice of the underwriter and other advisors, including
our independent auditors.
F-8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
This information should be read in conjunction with the unaudited financial
statements and the notes attached thereto included in Item 1 of Part I of this
Quarterly Report and the audited financial statements and notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended June 30, 1999 contained in our Form 10-SB filing, as amended.
The following contains forward-looking statements based on current expectation,
estimates and projections about our industry, management's beliefs and
assumptions made by management. All statements, trends, analyses and other
information contained in this report relative to trends in our financial
condition and liquidity, as well as other statements, including, but not limited
to, words such as "anticipate," "believe," "plan," "intend," "expect,"
"predict," and other similar expressions constitute those statements. These
statements are not guarantees of future performance and are subject to risks and
uncertainties that are difficult to predict. Accordingly, actual results may
differ materially from those anticipated or expressed in the statements.
Potential risks and uncertainties include, among others, those set forth below.
Particular attention should be paid to the cautionary statements involving our
limited operating history, the unpredictability of its future revenues, the
unpredictable and evolving nature of our business model, the competitive online,
multimedia compact disc (CD) industry and the risks associated with capacity
constraints, systems development, management of growth and business expansion,
as well as other risk factors.
Overview
- --------
We have developed a multimedia technology, called CDK(TM), which integrates
audio, video and Internet connectivity on a standard compact disc. Our
technology enables users to create their own personalized compact discs simply
by visiting a Website. These custom compact discs play audio and display videos
on a full-screen, using high-quality videos and digital technology. The custom
compact discs also include software applications and targeted Web links.
We have also developed "V-Flash(TM)", our new software based communication
module which we are distributing through our subsidiary, ValueFlash.com
Incorporated. V-Flash provides a real time, direct communication vehicle for
marketers to reach their customers using a personal computer desktop
application. Our subsidiary, CDKnet, LLC, initially developed the V-Flash
product. It was transferred to ValueFlash in January 2000 for further
development, production, marketing and distribution. V-Flash will be distributed
primarily by multimedia CD's that will be produced by us.
Our targeted industries include: (1) entertainment (music, movies, and TV); (2)
travel and tourism; (3) professional sports; (4) financial services; (5)
education; (6) toys/games; (7) fashion; (8) food/cooking; (9) automotive; and
(10) healthcare. Our primary customers and or strategic partners include
Peterson's, AtomicPop, Central Park Media, CollegeMusic.com, Megaforce Records
and DreamWorks Records.
We have a limited operating history. While we are currently generating revenues
primarily from development and use fees for client specific CD's and the sale of
custom CD's, most resources have been directed to developing and marketing the
V-Flash product in accordance with our fiscal 2000 operating plan.
In March 2000, the first V-Flash messenger application was launched and
marketing alliances with Atlantic Records, Impiric (formerly Wunderman Cato
Johnson) RCA Records and Artimis Records were announced. In May 2000,
2
<PAGE>
ValueFlash.com announced a partnership with PlanetGiving.com, an online charity
auction platform for non-profit fundraising.
We anticipate that V-Flash will be a major factor in our future revenue and
business growth. Significant expenditures have been incurred and will continue
to be required for marketing and advertising the product and to build the
infrastructure to support it.
From a marketing standpoint, we continue to: (1) maintain a corporate Web site
which solicits feedback from potential clients; (2) appear at relevant trade
shows and seminars; and (3) retain a public relations firm to service corporate
announcements to the press. In the near term, we will continue to focus on
generating revenue from the sale of client-specific CDKs, MixFactory custom CD
services, and the V-Flash desktop, direct marketing application and
communications module.
Our current business development efforts include both full-time employees as
well as outside consultants. Consultants are compensated on a performance basis.
We receive funds from product sales and services, we also continue to rely on
our ability to raise money through equity financing to fund our business
endeavors. To date, we have focused our funds on the development of CDK(TM)
products (including CDK(TM)) 1.0, CDK(TM) 2.0, and Gameplayer 2.0 and our new
E-commerce facility MixFactory.comTM), and V-Flash.
We have had success at recent financing efforts although we have had a history
of operating losses that raised doubt about our ability to continue operations.
For example, we have a licensing agreement with Asia Pioneer that provides us
with $150,000 infusion of capital each month for six months until May 2000 and,
therefore, serves as a liquidity and capital resource. The parties are currently
renegotiating the terms of the contract. Additionally, the parties have entered
into a technology and license agreement that gives us a 4.89% interest in Asia
Pioneer at the completion of the underlying services in exchange for a license
to use certain CDKTM technology. Our ownership interest in Asia Pioneer can be
sold in the event we need a cash infusion.
We have also successfully raised $2.5 million in private financings through our
subsidiary, ValueFlash.com, Inc. through March 31, 2000 and $5,372,486 to date.
If we are unable to obtain significant additional financing or otherwise obtain
working capital to fund our operations, we may be obliged to seek protection of
the bankruptcy courts. Our former independent certified public accountants added
an emphasis paragraph to their report on our consolidated financial statements
as of June 30, 1999 and for the year ended June 30, 1999, and in the period
October 1, 1997 (date of inception) to June 30, 1998, relating to factors that
substantial doubt about our ability to continue as a going concern. The factors
cited by them include the following: (1) continued losses; (2) use of
significant cash in operations and, and (3) lack of sufficient funds to execute
our business plan.
As of May 18, 2000, we had 21,151,831 shares of common stock issued and
outstanding. In April, 2000, we were reinstated on the Over-the-Counter Bulletin
Board where our stock is traded under the symbol "CDKX."
Recent Developments
- -------------------
Lease
- -----
During the quarter ended March 31, 2000, we committed to a new 10-year lease for
the 250 57th Street premises beginning on May 1, 2000. The lease calls for
annual rent payments at $149,575 from 2000 to 2002, $159,225 from 2002 to 2004,
$164,050 from 2004 to 2006 and $168,875 from 2006 through 2010.
3
<PAGE>
Stock Dividend
- --------------
On April 12, 2000, we announced our intention to issue a stock dividend based
upon 10% of our holdings in our subsidiary, ValueFlash.com, Incorporated,
subject to registration and underwriter approval prior to distribution. Our
board of directors will meet in the near future to decide whether to issue the
dividend based upon the advice of the underwriter and other advisors, including
our independent auditors.
Results of Operations - Quarter Ended March 31, 1999 Compared to Quarter Ended
- ------------------------------------------------------------------------------
March 31, 2000
- --------------
During the quarter ended March 31, 2000, we incurred a net loss of $2.4 million
on revenues of $45,000 compared to a net loss of $1.9 million on revenues of
$84,000 in the prior period ended March 31, 1999. Revenues declined $40,000 in
the current period due to the continued shift in focus to enhancing our core
technologies and product development.
The cost of revenues for the quarter ended March 31, 2000 was $42,000 compared
to $25,000 for quarter ended March 31, 1999.
From January 1, 2000 to March 31, 2000, we expended approximately $257,000 on
research and development compared to $50,000 during the period January 1, 1999
to March 31, 1999. Our research and development costs were higher in the third
quarter due to expenditures for the development of V-Flash, enhancements to our
core technology and product development.
For the quarter ended March 31, 2000, other operating expenses were $2.6
million, compared to $1.3 million in the quarter ended March 31, 1999 as
expenditures related to the marketing, advertising and infrastructure buildup to
support ValueFlash were incurred.
Interest expense was $9,085 for the quarter ended March 31, 2000, compared to
$670,963 in the quarter ended March 31, 1999 due to the prior period including
interest related to a beneficial conversion feature on subordinated convertible
debentures.
Results of Operations - First Nine Months of Fiscal 2000 Compared to First Nine
- -------------------------------------------------------------------------------
Months of Fiscal 1999
- ---------------------
During the nine months ended March 31, 2000, we incurred a net loss of $5.2
million on revenues of $83,602 compared to a net loss of $4.2 million on
revenues of $457,237 in the nine months ended March 31, 1999. Revenues declined
$375,635 in the current period due to the continued shift in focus to enhancing
our core technologies and product development.
The cost of revenues for the nine months ended March 31, 2000 was $79,369
compared to $153,572 for the nine months ended March 31, 1999.
For the first nine months of fiscal 2000, we expended approximately $484,000 on
research and development compared to $141,000 during the first nine months of
Fiscal 1999. Our research and development costs were higher during the first
nine months of fiscal 2000 due to expenditures for the development of V-Flash,
enhancements to our core technology and product development.
For the first nine months of fiscal 2000, other operating expenses were $5.4
million compared to $3.7 million during the first nine months of fiscal 1999 as
expenditures related to the marketing, advertising and infrastructure buildup to
support ValueFlash were incurred.
4
<PAGE>
Interest expense was $73,423 for the first nine months of fiscal 2000, compared
to $780,879 in the first nine months of fiscal 1999, as expenditures
particularly in the third quarter of 2000 related to marketing, advertising and
infrastructure buildup to support ValueFlash were incurred.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 2000, we had $2.4 million in cash and cash equivalents. Our
principal commitments are $255,000 in Subordinated Convertible Debentures,
$175,000 in long-term debt and operating and capital lease obligations. We have
no material commitments for capital expenditures, nor do we anticipate any. We
anticipate that we will experience growth in advertising, marketing and
operating expenses for the foreseeable future and that such expenses will be a
material use of our cash resources.
Our cash requirements have historically been financed primarily through the sale
of debentures and common stock. In the nine months ended March 2000, $3 million
has been raised from the sale of our common stock and $2,500,000 from the sale
of ValueFlash.com, Inc. common stock to outside investors. We do not maintain
credit facilities with any financial institutions. Future financings will be
necessary to fund our operations in the form of additional debt and equity
transactions. There can be no assurances that we will be able to secure
sufficient funding to continue executing its operating plan, but management
believes that we will be able to secure sufficient financing for operations for
the next twelve months.
Net cash used by operating activities equaled $3.1 million for the nine months
ended March 31, 2000, compared to net cash used in operating activities of $1.8
million for the first nine months ended March 31, 1999. Cash used by operations
resulted from net losses partly offset by non-cash depreciation and amortization
charges, compensation charges related to stock options and services paid in
common stock and warrants.
Net cash from financing activities was $5.6 million for the nine months ended
March 31, 2000, compared to $2.3 million for the nine months ended March 31,
1999. Cash provided by financing activities resulted from $3 million in proceeds
from the sale of our common stock, $2,500,000 in proceeds from the sale of
ValueFlash.com. common stock and minority interest sale.
The proceeds from these issues have and will be used to (i) continue our ongoing
operations, (ii) development of CDK(TM), V-Flash, Gameplayer, and
MixFactory.com(TM) product lines, and (iii) to repay our debt.
Factors Affecting Future Results
- --------------------------------
We do not provide forward looking financial information. However, from time to
time statements are made by employees that may contain forward looking
information that involve risks and uncertainties. In particular, statements
contained in this quarterly report that are not historically containing
predictions and are made under the Safe Harbor Corporate Private Sector
Litigation Reform Act of 1995. Our actual result of operations and financial
condition have varied and may in the future vary significantly from those stated
in any predictions. Factors that may cause these differences include without
limitation the risk, uncertainties and other information discussed within this
registration statement, as well as the accuracy of our internal estimate of
revenue and operating expense levels. We face a number of risk factors which may
create circumstances beyond the control of management and adversely impact the
ability to achieve our business plan.
5
<PAGE>
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On March 30, 2000, our subsidiary, CDKnet, LLC, Shai Bar Lavi (Chief
Executive Officer of CDKnet, LLC), and Jon Nussbaum (the "Defendants"), were
sued in Superior Court in California, County of Los Angeles by Worldsite, Inc.,
the landlord of our California office (the "Plaintiff"), alleging conversion,
fraud, and breach of oral contract. The Plaintiff seeks damages in excess of
$25,000.00. All other legal proceedings are incorporated by reference from our
registration statement on Amendment No. 4 on Form 10-SB filed on March 6, 2000.
Item 2. Changes in Securities
---------------------
None
SB-2 Filings
------------
On March 17, 2000, we filed an Amendment to our Registration
Statement on Form SB-2 with the Commission under the Securities Act of 1933
registering 7,610,578 shares of our common stock: (1) for sale by investors who
purchased 1,505,522 shares of common stock in private placements by us, (2)
issuable upon the exercise of options to purchase 1,250,000 shares of common
stock, (3) issuable upon exercise of warrants to purchase 1,855,056 shares of
common stock, and (4) 2,500,000 shares of common stock issuable upon the
conversion of preferred stock. On March 27, 2000, that registration statement
was declared effective.
Recent Sales of Unregistered Securities
---------------------------------------
As of May 17, 2000, there were issued and outstanding 21,151,831 shares of
common stock which were issued or sold in reliance upon the exemptions from
registration provided by the Securities Act as set forth below.
During the last three years, we have issued or sold the following securities
without registering them under the Securities Act of 1933 in reliance upon the
exemptions from registration provided by the Securities Act as follows:
o 3,000 options to purchase our common stock at an exercise price
of $2.25 and 2,000 options to purchase the common stock of our
subsidiary, ValueFlash.com at an exercise price of $1.50 per
share to Derrick Sai Lu effective May 4, 2000, in accordance
with CDKnet.com's and ValueFlash.com's Stock Option Plan,
respectively. We issued options to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2).
o 100,000 shares of common stock to The Blackmor Group on April
17, 2000 in exchange for services to be performed by the
Blackmor Group. We issued the stock to the purchaser in reliance
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upon the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the stock for investment purposes.
o 62,550 shares of common stock to The Gross Foundation pursuant
to the exercise of cashless options on April 14, 2000. We issued
the stock to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the stock for
investment purposes.
o 250,000 five-year options to purchase our common stock at an
exercise price of $3.00 per share to Robert Reeves effective
April 10, 2000, in accordance with his employment Agreement with
us. We issued options to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2) because
the purchaser is an accredited investor who purchased the
options for investment purposes.
o 2,000 options to purchase our common stock at an exercise price
of $2.25 and 2,000 options to purchase the common stock of our
subsidiary, ValueFlash.com at an exercise price of $1.50 per
share to Elan Aronov effective May 4, 2000, in accordance with
CDKnet.com's and ValueFlash.com's Stock Option Plan,
respectively. We issued options to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2).
o 22,500 shares of common stock to Joel Schneider through the
exercise of cashless options on March 30, 2000. We issued the
stock to the purchaser in reliance upon the exemption provided
by Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the stock for investment
purposes.
o 22,500 shares of common stock to Herb Sommer through the
exercise of cashless options on March 30, 2000. We issued the
stock to the purchaser in reliance upon the exemption provided
by Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the stock for investment
purposes.
o 250,000 shares of common stock at $.75 per share to Steve
Wildstein through the exercise of options on March 31, 2000, in
exchange for a note payable to us in the amount of $187,500. We
issued stock to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the stock for
investment purposes.
o 100,000 shares of common stock at $.75 per share to Freshstart
Capital, Inc. on March 31, 2000 in exchange for a Note payable
to us in the amount of $75,000. We issued stock to the purchaser
in reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 750,000 shares of our common stock to Steven Horowitz through
the exercise of options on March 28, 2000. We issued stock to
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
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<PAGE>
o 133,000 shares of common stock to Abbey Blatt at $.75 per share
on March 28, 2000. We issued the stock to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 500,000 shares of stock in our subsidiary, ValueFlash.com,
Incorporated, at $2.00 per share on March 28, 2000 to Mabcrown,
Inc., and 250,000 five-year options to purchase the common stock
of ValueFlash.com at an exercise price of $2.00 per share. We
issued options to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the options
for investment purposes.
o 250,000 five-year options to purchase the common stock of our
subsidiary, ValueFlash.com, at an exercise price of $1.50 per
share on April 10, 2000 to Robert Reeves. We issued options to
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
o 50,000 shares of stock in our subsidiary, ValueFlash.com,
Incorporated, at $2.00 per share on March 13, 2000 to Dr. Aizik
Wolf, and 25,000 five-year options to purchase the common stock
of ValueFlash.com at an exercise price of $2.00 per share. We
issued options to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the options
for investment purposes.
o 50,000 options to purchase our common stock at an exercise price
of $1.00 effective October 1, 1999 and 10,000 options to
purchase the common stock of our subsidiary, ValueFlash.com,
Incorporated, at an exercise price of $1.50 per share to Don
Hegarty effective March 1, 2000, in accordance with CDKnet.com's
and ValueFlash.com's Stock Option Plan. We issued options to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2).
o 10,000 options to purchase our common stock at an exercise price
of $2.25 and 5,000 options to purchase the common stock of our
subsidiary, ValueFlash.com, Incorporated, at an exercise price
of $1.50 per share to Nick Baciu effective May 5, 2000, in
accordance with CDKnet.com's and ValueFlash.com's Stock Option
Plan. We issued options to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2).
o 18,000 options to purchase our common stock at an exercise price
of $1.00 effective October 25, 1999 and 8,000 options to
purchase the common stock of our subsidiary, ValueFlash.com,
Incorporated, at an exercise price of $1.50 per share to Larry
Shirley effective March 1, 2000, in accordance with
ValueFlash.com's Stock Option Plan. We issued options to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2).
o 6,000 options to purchase the common stock of our subsidiary,
ValueFlash.com, Incorporated, at an exercise price of $1.50 per
share to Lauree Peoples effective March 1, 2000, in accordance
with ValueFlash.com's Stock Option Plan. We issued options to
II-3
<PAGE>
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2).
o 16,667 five-year options to purchase the common stock of our
subsidiary, ValueFlash.com, at an exercise price of $2.00 per
share on April 4, 2000 to D.S. Wolf Associates, Inc. We issued
options to the purchaser in reliance upon the exemption provided
by Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
o 5,000 five-year options to purchase the common stock of our
subsidiary, ValueFlash.com, at an exercise price of $2.00 per
share on May, 2000 to Shraga Zaiger for each new contract with a
total option pool of 250,000 and a grant of 250,000 options to
purchase ValueFlash.com common stock at $2.00 per share in the
event ValueFlash.com is sold. We issued options to the purchaser
in reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the options for investment purposes.
o 120,000 warrants to purchase the common stock of our subsidiary,
ValueFlash.com, at an exercise price of $2.00 per share on April
4, 2000 to Richard A. Eisner & Company, LLP vesting as follows:
60,000 warrants upon the signing of the consulting agreement
between the purchaser and us; 15,000 shares on July 15, 2000;
15,000 shares on October 15, 2000; 15,000 shares on January 15,
2001; and 15,000 shares on April 15, 2000. We issued warrants to
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the warrants for investment
purposes.
o 1,000,000 shares of common stock to Erno and Rachel Bodek for
$500,000 through the exercise of options on February 21, 2000.
We issued the stock to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2) because
the purchaser is an accredited investor who purchased the stock
for investment purposes.
o 300,000 shares to Great Wizard Investments Limited on February
14, 2000, pursuant to a subscription agreement entered into
between us and Asia Pioneer Limited. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 50,000 shares to Energenic, LLC on February 7, 2000, together
with the issuance 50,000 one-year options exercisable at $1.00
per share for the purchase of common stock for services valued
at $60,000 pursuant to the software Agreement between us and
Energenic, LLC. We issued stock and options to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 125,000 shares of common stock of our subsidiary, ValueFlash.com
Incorporated, to Michael Vasinkevich for $250,000 on February 7,
2000, together with 62,500 eight-month options to purchase
common stock of ValueFlash.com Incorporated, at an exercise
price of $2.00 per share. We issued stock and options to the
purchaser in reliance upon the exemption provided by Regulation
II-4
<PAGE>
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 100,000 five-year warrants to purchase our common stock at an
exercise price of $1.00 per share to Fred Smithline on February
3, 2000, in accordance with a Finder's Agreement between Fred
Smithline, Shai Bar-Lavi and CDKnet, LLC. We issued warrants to
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the warrants for investment
purposes.
o 500,000 shares of common stock of our subsidiary, ValueFlash.com
Incorporated, to Amro International for $1,000,000 on February
2, 2000, together with 250,000 eight-month options to purchase
common stock of ValueFlash.com Incorporated, at an exercise
price of $2.00 per share. We issued stock and options to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 100,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Israel Hersh effective
February 1, 2000, in accordance with a letter agreement dated
January 21, 2000 between Israel Hersh and us. We issued options
to the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
o 280,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Michael Jolly effective
January 14, 2000, in accordance with by unanimous consent of
directors in lieu of a meeting. We issued options to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the options for investment purposes.
o 1,000,000 five-year options to purchase shares of common stock
in our subsidiary, ValueFlash.com, Incorporated, at an exercise
price of $1.35 per share and 1,000,000 five-year options to
purchase shares of common stock of ValueFlash.com at an exercise
price of $1.50 on January 14, 2000 to Tom Ross. We issued
options to the purchaser in reliance upon the exemption provided
by Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
o 300,000 five-year options to purchase shares of common stock in
our subsidiary, ValueFlash.com, Incorporated, at an exercise
price of $1.35 per share on January 14, 2000 to Michael Jolly.
We issued options to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2) because
the purchaser is an accredited investor who purchased the
options for investment purposes.
o 300,000 five-year options to purchase shares of common stock in
our subsidiary, ValueFlash.com, Incorporated, at an exercise
price of $1.35 per share on January 14, 2000 to Russell Kern. We
issued options to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the options
for investment purposes.
II-5
<PAGE>
o 150,000 five-year options to purchase the common stock of our
subsidiary, ValueFlash.com, Incorporated, at an exercise price
of $2.00 per share to Energenic effective January 31, 2000, in
accordance with a letter agreement between Energenic and
CDKNET.com, Inc. We issued options to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the options for investment purposes.
o 50,000 five-year options to purchase the common stock of our
subsidiary, ValueFlash.com, Incorporated, at an exercise price
of $2.00 per share to Bob Hopwood effective January 31, 2000, in
accordance with a letter agreement between Energenic and
CDKNET.com, Inc. We issued options to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the options for investment purposes.
o 50,000 five-year options to purchase the common stock of our
subsidiary, ValueFlash.com, Incorporated, at an exercise price
of $2.00 per share to Energenic effective January 31, 2000, in
accordance with a letter agreement between Energenic and
CDKNET.com, Inc. We issued options to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the options for investment purposes.
o 75,000 shares of common stock of our subsidiary, ValueFlash.com
Incorporated to Alvin Pock for $150,000 on January 31, 2000,
together with 75,000 eight-month options to purchase common
stock of ValueFlash.com Incorporated, at an exercise price of
$2.00 per share. We issued stock and options to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 500,000 five-year options (and 750,000 five-year options held in
escrow) to purchase common stock of ValueFlash.com Incorporated,
at an exercise price of $2.00 per share to Michael Vasinkevich
on January 28, 2000, in accordance with a Finder's Agreement
between ValueFlash.com Incorporated and Michael Vasinkevich. We
issue options to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the options
for investment purposes.
o 1,250,000 five-year options to purchase common stock of
ValueFlash.com Incorporated, at an exercise price of $2.00 per
share to Shai Bar Lavi on January 28, 2000, in accordance of an
Employment Agreement between ValueFlash.com Incorporated and
Shai Bar Lavi. We issue options to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the options for investment purposes.
o 750,000 five-year options to purchase common stock of
ValueFlash.com Incorporated, at an exercise price of $2.00 per
share to Steven A. Horowitz on January 28, 2000, in accordance
of a Finder's Agreement between ValueFlash.com, Incorporated and
Steven A. Horowitz. We issue options to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the options for investment purposes.
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<PAGE>
o 750,000 five-year options to purchase common stock of
ValueFlash.com Incorporated, at an exercise price of $2.00 per
share to Shlomo Shur on January 28, 2000, in accordance of an
Employment Agreement between ValueFlash.com, Incorporated and
Shlomo Shur. We issue options to the purchaser in reliance upon
the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the options for investment purposes.
o 20,000 shares of common stock to Cabaret Software, Inc. on
January 20, 2000 for services valued at $20,000. We issued stock
to the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the stock for investment
purposes.
o 750,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Caldwell Capital Corp. on
January 14, 2000, pursuant to a Consulting Agreement between
CDKNET.com, Inc. and Michael Vasinkevich. We issued options to
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
o 250,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Shai Bar Lavi on January
14, 2000. We issued options to the purchaser in reliance upon
the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the options for investment purposes.
o 750,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Shai Bar Lavi on January
14, 2000, in accordance with employment agreement. We issued
options to the purchaser in reliance upon the exemption provided
by Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the options for investment
purposes.
o 250,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Shai Bar Lavi on January
14, 2000, in accordance with a finder's agreement between Shai
Bar-Lavi and CDKNET, LLC. We issued options to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the options for investment purposes.
o 250,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Shai Bar Lavi on January
14, 2000, in accordance with a Consulting Agreement between Shai
Bar Lavi and CDKnet, LLC. We issued options to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the options for investment purposes.
o 500,000 five-year options to purchase our common stock at an
exercise price of $1.00 per share to Shlomo Shur on January 14,
2000. We issued options to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2) because
the purchaser is an accredited investor who purchased the
options for investment purposes.
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o On January 6, 2000, we raised $500,000 through the exercise of
options by Erno and Rachel Bodek to purchase 1,000,000 shares of
common stock at the exercise price of $0.50 per share. We issued
stock to the purchaser in reliance upon the exemption provided
by Regulation D and/or Section 4(2) because the purchaser is an
accredited investor who purchased the stock for investment
purposes.
o On November 16, 1999, we entered into a Subscription Agreement
with Asia Pioneer where we raised $100,000 from Asia Pioneer
through the issuance of 200,000 share of common stock, along
with six allotments to purchase an additional 300,000 shares of
common stock per month at $150,000 per allotment. The allotments
will be fulfilled in May 2000. We issued stock to the purchaser
in reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 714,286 shares The Gross Foundation for $250,000 on November 2,
1999 along with 71,486 two-year warrants to purchase common
stock for $.75 per share. We issued stock to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 50,000 shares to Energenic, LLC for services valued at $50,000
on October 29, 1999, in addition to an agreement to issue 50,000
shares of common stock to Energenic upon the completion of
milestones pursuant to the Software Agreement between us and
Energenic and the issuance of an additional 50,000 one-year
options exercisable at $1.00 per share for the purchase of
shares of common stock upon the completion of the project as set
forth in the Software Agreement. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 285,714 shares to Steven A. Horowitz for $100,000 on November 2,
1999 along with 28,571 two-year warrants to purchase common
stock for $.75 per share. We issued stock to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 107,143 shares Fox Distribution, Inc. for $37,500 on November 2,
1999 along with 10,714 two-year warrants to purchase common
stock for $.75 per share. We issued stock to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 142,857 shares Michael Sonnenberg for $50,000 on November 2,
1999 along with 14,285 two-year warrants to purchase common
stock for $.75 per share. We issued stock to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 1,000,000 shares to Erno and Rachel Bodek for $500,000 from Erno
and Rachel Bodek on November 1, 1999 through the issuance of
1,000,000 shares of common stock, along with 30-month Warrants
to purchase an additional 200,000 shares of common stock at
$1.25 per share, and an option to purchase another 2,000,000
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shares of common stock at $.50 per share which shall expire on
December 31, 1999. We issued stock to the purchaser in reliance
upon the exemption provided by Regulation D and/or Section 4(2)
because the purchaser is an accredited investor who purchased
the stock for investment purposes.
o 12,000 options to purchase our common stock at an exercise price
of $1.00 per share to Lauree Peoples effective October 25, 1999,
in accordance with our Stock Option Plan. We issued options to
the purchaser in reliance upon the exemption provided by
Regulation D and/or Section 4(2).
o 1,000,000 five-year options to purchase our common stock
effective August 1, 1999, to Tom Ross in accordance with an
Employment Agreement at an exercise price of $1.00 per share. We
issued options to the purchaser in reliance upon the exemption
provided by Regulation D and/or Section 4(2) because the
purchaser is an accredited investor who purchased the options
for investment purposes.
o 30,000 shares to Cabaret Software, Inc. on August 10, 1999, and
10,000 shares on September 18, 1999 for services valued at
$30,000. We issued stock to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2) because
the purchaser is an accredited investor who purchased the stock
for investment purposes.
o 216,000 shares to Y2G.Com, Inc. for $155,000. On September 8,
1999, the Company sold Y2G an additional 116,000 shares of
common stock for $155,000. We issued stock to the purchaser in
reliance upon the exemption provided by Regulation D and/or
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o 150,000 shares to Lawrence Adams Ltd. through the exercise of
cashless options on September 14, 1999. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 40,000 shares to Michael Sonnenberg through the exercise of
cashless options on September 14, 1999. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 17,073 shares to Alexander Zemel through the exercise of stock
options. We issued stock to the purchaser in reliance upon the
exemption provided by Regulation D and/or Section 4(2) because
the purchaser is an accredited investor who purchased the stock
for investment purposes.
o 110,000 shares to Steven Wildstein through the exercise of
cashless options on September 14, 1999. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation
D and/or Section 4(2) because the purchaser is an accredited
investor who purchased the stock for investment purposes.
o 75,000 shares to Lawrence Adams Ltd. for services valued at
$75,000 on September 14, 1999. We issued stock to the purchaser
in reliance upon the exemption provided by Regulation D and/or
II-9
<PAGE>
Section 4(2) because the purchaser is an accredited investor who
purchased the stock for investment purposes.
o During the period from July 1, 1998 to June 30, 1999, we issued
2,746,558 common shares, 600,000 Convertible Class A Debentures,
1,500,000 Convertible Class B Debentures for cash of $2,100,000, net
of issuance costs of $248,150. During the year ended June 30, 1999,
we also issued 1,328,498 Warrants to purchase common shares from the
following transactions: (1) 75,000 common shares and 100,000 Warrants
were issued to Bandai Holdings USA for the purchase of equipment used
in our MixFactory.com(TM) E-Commerce facility, and (2) 1,883,635
common shares were issued to Kelly Music for the purchase of its
26.15% interest in CDKnet, LLC which resulted in securing for us 100%
of the equity interests of CDKnet, LLC. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation D
because the purchaser is an accredited investor who purchased the
stock for investment purposes.
o During the period October 1, 1997 (date of inception) to June 30,
1998, our predecessor, International Pizza Group, issued 2,999,985
common shares $224,986 as part of a private placement. We issued
7,300,363 common shares in connection with the acquisition of 73.85%
of the equity interests in CDKnet, LLC. We issued stock to the
purchaser in reliance upon the exemption provided by Regulation D
because the purchaser is an accredited investor who purchased the
stock for investment purposes.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
Item 5. Other Information.
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
Exhibit 27. Financial Disclosure Schedule
(b) Forms 8-K
---------
No reports on Form 8-K were filed during the quarter
ended March 31, 2000.
II-10
<PAGE>
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.
CDKNET.COM, Incorporated
Date May 18, 2000 /s/ Steven A. Horowitz
------------------------
Chairman, Chief Executive Officer, Chief
Financial Officer, and Secretary
II-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2000 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR 9 MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,400,301
<SECURITIES> 0
<RECEIVABLES> 64,194
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,767,635
<PP&E> 956,075
<DEPRECIATION> 260,056
<TOTAL-ASSETS> 8,842,250
<CURRENT-LIABILITIES> 1,072,167
<BONDS> 400,597
0
0
<COMMON> 2,107
<OTHER-SE> 7,014,426
<TOTAL-LIABILITY-AND-EQUITY> 8,842,250
<SALES> 83,602
<TOTAL-REVENUES> 83,602
<CGS> 79,369
<TOTAL-COSTS> 79,369
<OTHER-EXPENSES> 5,363,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,423
<INCOME-PRETAX> (5,221,675)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,221,675)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
