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 ACT OF 1934:
For the Quarterly Period ended March 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from __________________ to __________________
Commission File number 1-14798
b2bstores.com Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3500746
- ---------------------------------------- ------------------------------
(State or other jurisdiction of I.R.S. Employer ID No.
incorporation or organization)
249 East Ocean Boulevard
Suite 620
Long Beach, California 90802
-----------------------------
(Address of principal executive offices)
(562) 491-7180
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
---- ----
As of May 11, 2000, 8,621,643 shares of the Issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (check one):
YES NO X
----- ------
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ---------------------------------------------------------------------------
Financial Statements (Unaudited and Condensed):
Balance Sheets 2
Statements of Loss 3
Statements of Stockholders' Equity (Deficit) 4
Statements of Cash Flows 5
Notes to Financial Statements 6-10
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b2bstores.com Inc.
Balance Sheets
<TABLE>
March 31, December 31,
2000 1999
ASSETS (unaudited)
<S> <C> <C>
Current:
Cash and cash equivalents $ 11,404,078 $ 72,629
Marketable securities 13,426,681 --
Finance proceeds receivable 4,320,000 --
Prepaid expenses and other current assets 198,144 38,915
---------------------------
Total current assets 29,348,903 111,544
Deposits 51,813 20,796
Deferred offering costs -- 320,367
Property and equipment, net 2,010,911 362,874
---------------------------
$ 31,411,627 $ 815,581
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 706,478 $ 72,129
Accrued expenses and other current liabilities 3,913 93,936
Deferred revenue -- 987
Due to principal stockholder -- 824,836
----------------------------
Total current liabilities 710,391 991,888
----------------------------
Commitments
Stockholders' equity
Preferred stock, $.01 par value - shares authorized
5,000,000; none issued -- --
Common stock, $.01 par value - shares authorized
25,000,000; issued 8,621,643 and 4,021,643 86,216 40,216
Additional paid-in capital 35,261,266 2,713,714
Deficit accumulated during the development stage (4,646,246) (2,930,237)
---------------------------
Total stockholders' equity (deficit) 30,701,236 (176,307)
---------------------------
$ 31,411,627 $ 815,581
===========================
</TABLE>
See accompanying notes to financial statements.
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b2bstores.com Inc.
Statements of Loss
<TABLE>
Cumulative, period from Period from
June 28, 1999 (Inception) Three months Ended June 28, 1999 (inception)
to March 31, 2000 March 31,2000 to December 31, 1999
(unaudited) (unaudited)
------------------------- ------------------ -------------------------
<S> <C> <C> <C>
Sales $ 6,383 $ 4,192 $ 2,191
Cost of Sales 176,122 115,614 60,508
--------------------------------------------------------------
Gross Loss (169,739) (111,422) (58,317)
--------------------------------------------------------------
Operating Expenses
General and administrative 948,178 622,423 325,755
Sales and marketing 579,145 380,175 198,970
Technology 299,500 196,604 102,896
Fulfillment Management 140,400 92,164 48,236
Start-up Costs 55,036 -- 55,036
Stock-based compensation relating to general
and administrative activities 216,430 -- 216,430
Stock-based compensation relating to start-up
activities 2,359,962 458,462 1,901,500
---------------------------------------------------------------
Total operating expenses 4,598,651 1,749,828 2,848,823
---------------------------------------------------------------
Loss from operations (4,768,390) (1,861,250) (2,907,140)
Interest income (expense) 122,144 145,241 (23,097)
---------------------------------------------------------------
Net loss $(4,646,246) $(1,716,009) $(2,930,237)
===============================================================
Loss per share (basic and diluted) $ (0.28) $ (0.75)
====================================
Weighted average common shares outstanding 6,063,401 3,910,780
====================================
</TABLE>
See accompanying notes to financial statements.
3
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b2bstores.com Inc.
Statements of Stockholders' Equity (Deficit)
(unaudited)
<TABLE>
Period from June 28, 1999 (inception) to March 31, 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Common Stock Additional during the Total
------------------- paid-in development stockholders'
shares Amount capital stage equity (deficit)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founding & other stockholders: June 29, 1999 3,666,667 $ 36,667 $ -- $ -- $ 36,667
Issuance of common stock to investors: August 23, 1999 333,333 3,333 2,497,500 -- 2,500,833
Issuance of common stock to directors
& consultants: September 15, 1999 21,643 216 216,214 -- 216,430
Net loss for the period -- -- -- (2,930,237) (2,930,237)
- ---------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 4,021,643 40,216 2,713,714 (2,930,237) (176,307)
Issuance of common stock in connection with initial
public offering, net February 15, 2000 4,000,000 40,000 27,775,090 -- 27,815,090
Issuance of common stock in connection with overallotment,
net, March 29, 2000 600,000 6,000 4,314,000 -- 4,320,000
Stock based compensation from vesting of options to officers -- -- 458,462 -- 458,462
Net loss for three months -- -- -- (1,716,009) (1,716,009)
- --------------------------------------------------------------------------------------------------------------------------
Balance March 31, 2000 (unaudited) 8,621,643 $ 86,216 $35,261,266 $(4,646,246) $30,701,236
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
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b2bstores.com Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
Cumulative, period
from June 28,1999 Three months Period from
(inception) to ended June 28, 1999
March 31, 2000 March 31, 2000 (Inception) to
(unaudited) (unaudited) December 31, 1999
----------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,646,246) $ (1,716,009) $ (2,930,237)
----------------------------------------------------------
Adjustments to reconcile net loss to net cash used in
operating Activities:
Expense recognized in connection with issuance of common stock
relating to start-up and general and administrative activities 2,576,392 458,462 2,117,930
Depreciation and amortization 74,427 45,894 28,533
Changes in assets and liabilities:
Increase in prepaid expenses and other current assets (198,145) (159,230) (38,915)
Increase/(Decrease) in other assets (51,812) (31,016) (20,796)
Decrease in deferred revenue 987 -- 987
Increase/(Decrease) in accrued expenses 2,926 (91,010) 93,936
Increase in accounts payable 706,478 634,349 72,129
----------------------------------------------------------
Total adjustments 3,111,253 857,449 2,253,804
----------------------------------------------------------
Net cash, used in operating activities (1,534,993) (858,560) (676,433)
----------------------------------------------------------
Cash flows from investing activities:
Marketable securities (13,426,681) (13,426,681) --
Capital expenditures (2,085,338) (1,693,931) (391,407)
---------------------------------------------------------
Net cash, used in investing activities (15,512,019) (15,120,612) (391,407)
Cash flows from financing activities:
Deferred offering costs (320,367) - (320,367)
Loans from principal stockholder 1,399,836 575,000 824,836
Repayment of loans from principal stockholder (1,399,836) (1,399,836) -
Proceeds from issuance of common stock 28,771,457 28,135,457 636,000
----------------------------------------------------------
Net cash provided by financing activities 28,451,090 27,310,621 1,140,469
----------------------------------------------------------
Net Increase in cash 11,404,078 11,331,449 72,629
Cash and equivalents, beginning of period -- 72,629 --
----------------------------------------------------------
Cash and equivalents, end of period $ 11,404,078 $ 11,404,078 $ 72,629
==========================================================
Non-cash items:
Deferred offering costs $ 320,367 $ 320,367 $ --
Finance proceeds receivable (4,320,000) (4,320,000) --
Supplemental cash flow information:
Interest paid on loans from principal stockholder $ 22,838 $ 22,838 $ --
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Business
b2bstores.com Inc. ("b2bstores" or the "Company"), a development stage
enterprise, was incorporated on June 28, 1999 under the laws of the State of
Delaware. The Company operates an Internet web site that is specifically
designed to assist business customers in the operation and development of their
businesses. The site provides our business customers with access to quality
products and supplies, a premier network of business services and a broad menu
of business content.
The Company's web site moves business-to-business transactions and other
business operations away from traditional modes to the Internet. This web site
is designed as a community mall, a place where business customers can visit a
"virtual storefront" or product category of their choice, seek out services from
professionals, research issues important to their business and meet and
communicate with customers, suppliers, colleagues and competitors. The Company
is developing its web site to make it user friendly and to create an experience
that is highly useful, efficient, enjoyable and informative for the business
customer.
Basis of Presentation
The financial statements included herein have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company's management believe that the disclosures are
adequate to make the information presented not misleading.
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These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained herein. You should read these
financial statements together with the audited financial statements and notes
thereto for the period from June 28, 1999 (Inception) to December 31, 1999
included in the Company's Registration Statement on Form SB-2MEF (No. 333-30376)
which was declared effective by the Securities and Exchange Commission on
February 14, 2000. The Company follows the same accounting policies in
preparation of its interim reports.
Results of operations for the interim periods may not be indicative of
annual results.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period's presentation.
Cash and Cash Equivalents
The Company invests certain of its excess cash in debt instruments of the
US Government, municipalities and their agencies, money market accounts, and of
high quality corporate issuers and 94% of the balances are held at one broker.
All highly liquid instruments with an original maturity of three months or less
are considered cash equivalents.
Marketable Securities
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents; those with an original
maturity greater than 90 days are considered marketable securities. At March 31,
2000, short-term investments consist of investments in high quality corporate
issuers and have been classified as held to maturity. Unrealized gains and
losses for the period ending March 31, 2000 were not significant. All short-term
investments and 94% of cash equivalents are held at one broker. Accordingly, the
Company is subject to credit risk if the broker is unable to repay the balance
in the account or deliver the Company's securities. The Company manages this
credit risk by only investing in high-quality money market instruments,
municipal securities, and corporate issuers.
Revenue Recognition
To date, the Company has generated nominal revenues. b2bstores anticipates
that its revenue will primarily be comprised of sales of merchandise either
purchased by b2bstores or placed on consignment with b2bstores, commissions,
advertising and other revenue.
The Company will recognize revenues according to:
o the type of product or service being sold,
o the structure of the contract negotiated with the individual
vendor, and
o the substantive nature of the risks of ownership we incur in
connection with the sale and shipment of the product.
For product sales involving substantive risk of ownership, the Company will
generally recognize revenue at the gross transaction value. For service and
referral sales where risk of loss is minimal, the Company will generally
recognize revenue on a net fee or commission basis. For auction sales where the
Company incurs risk of loss in the transactions, it will recognize gross
revenues. For auction sales where the Company acts as auctioneer and has little
risk of loss, it will recognize revenue on a net basis or transaction fee basis.
Currently, policy setting groups of the Emerging Issues Task Force and the
Financial Accounting Standards Board are reviewing the guidelines under which
revenue is recognized on a gross basis versus a net basis. As the Company
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currently recognizes certain of its revenue on a gross basis, there is a risk
that future guidelines may require the Company to change, retroactively, its
revenue recognition policy. This could cause the Company to report markedly
lower revenues than currently anticipated. Although such a change would cause
the Company to report markedly lower revenues and costs of products, it would
not change the Company's reporting with respect to other expenses, net revenue
or earnings before and after tax.
The Company will allow customers to return merchandise in certain
circumstances; accordingly, the Company will not recognize revenue from the sale
of those products covered by the return policy until the return policy period
has expired or the customer's right of return has expired. The Company will
recognize the sales amount as deferred revenue upon verification of the credit
card transaction authorization and shipment of the merchandise until such time
that the Company is able to estimate returns.
Advertising Revenue
The Company will also earn revenue from the sale of advertising on its web
site. These revenues will be recognized as the advertisement is displayed.
Property and Equipment
Property and equipment, net consists of the following:
Capitalized software development costs: March 31, 2000
----------------
Purchased software.................................... $1,120,011
Internally developed software......................... 521,137
Computer equipment............................................. 406,603
Furniture and equipment........................................ 34,587
Leasehold improvements......................................... 3,000
------------
2,085,338
Less: Accumulated depreciation and amortization.............. 74,427
------------
Property and equipment, net................................... $2,010,911
------------
Depreciation expense for the three months ended March 31, 2000 was $45,894.
8
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Capitalized software development costs: December 31, 1999
-------------------
Purchased software................................. $120,011
Internally developed software...................... 117,860
Computer equipment.......................................... 118,545
Furniture and equipment..................................... 32,691
Leasehold improvements...................................... 2,300
------------
391,407
Less: Accumulated depreciation and amortization............ 28,533
------------
Property and equipment, net................................. $362,874
------------
Depreciation and amortization expense was $28,533 for the period from June 28,
1999 (inception) to December 31, 1999.
Capitalized Software Development Costs
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs.
The Company has capitalized certain incurred software development costs in
the amount of approximately $1.6 million in connection with its online services.
The majority of these costs were in connection with purchasing the perpetual,
non-revocable license to the software technology used for the e-commerce
platform from Netgateway upon which the Company has built its e-commerce portal.
As part of this transaction, the Company no longer has any future obligations to
Netgateway. The costs associated with research and development of such
technology were expensed as incurred. Software development costs incurred
subsequent to establishing technological feasibility have been capitalized.
Technological feasibility is established upon the completion of a detailed
program design (in the absence of any high risk issues or uncertainties).
Capitalized software costs are being amortized over a period of two years.
Maintenance costs incurred in connection with the software are being expensed as
incurred.
Stockholders' Equity
On February 15, 2000, the Company completed its initial public offering
("IPO") of 4,000,000 shares of its common stock at $8.00 per share. Net proceeds
to the Company aggregated approximately $27.8 million (net of underwriters'
commission and offering expenses of $4.2 million). Additionally, on March 29,
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<PAGE>
2000, the over-allotment option on the common stock offering was exercised in
full, resulting in an additional issuance of 600,000 shares of common stock with
net proceeds of approximately $4.3 million to the Company (net of underwriters'
commission and offering expenses of $500 thousand) which was received on April
3, 2000. This amount is reflected on the balance sheet as finance proceeds
receivable.
The Company used approximately $1.41 million of the net proceeds of the IPO
to repay in full the principal and interest due on a loan made by Enviro-Clean
of America Inc., a principal stockholder of the Company.
The Company issued warrants to purchase up to 400,000 shares of common
stock to the underwriter representatives in connection with the IPO.
The Company granted 1,000,000 options to officers of the Company in
connection with their initial employment by the Company.
1999 Performance Equity Plan
The Company has a Performance Equity Plan that authorizes the granting of
up to 2,000,000 shares of common stock to key employees, officers, directors and
consultants. Awards consist of stock options (both nonqualified options and
options intended to qualify as "Incentive" stock options under Section 422 of
the Internal Revenue Code of 1986, as amended), registered stock awards,
deferred stock awards, stock appreciation rights and other stock-based awards,
as described in the plan. As of March 31, 2000, 832,500 options were granted
under the plan to employees and directors.
10
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Loss Per Share
Basic loss per share is based only on the weighted average number of common
shares outstanding for the period. Diluted loss per share is similar to basic
loss per share except that the weighted average number of common shares
outstanding is increased to include the number of additional common shares that
would have been outstanding if dilutive potential common shares, such as options
and warrants, had been issued. Dilutive potential common shares are excluded
from the computation if their effect is antidilutive.
Basic and diluted loss per share are the same due to the options being
antidilutive in accordance with SFAS 128.
Stock-Based Compensation
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". Under the intrinsic value based
method, compensation cost is the excess, if any, of the fair market value of the
stock at grant date or other measurement date over the amount an employee must
pay to acquire the stock.
During the three months ended March 31, 2000, the Company charged to
operations $458,462 relating to officers' options granted in connection with the
IPO, and vested in the first quarter of the year.
Income Taxes
The company has not generated any taxable income to date and therefore has
not paid any federal or state income taxes since inception. The Company has
provided a full valuation allowance on the deferred tax asset created from these
taxable losses due to the uncertainty of future income streams and limitation
provisions created by the completion of the IPO.
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to our
future prospects, developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained
under Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. These factors include, but are not limited to, the following: changes
in general economic and business conditions; changes in current pricing levels;
changes in political, social and economic conditions and local regulations;
changes in technology and the development of new technology; foreign currency
fluctuations; reductions in sales to any significant customers; changes in sales
mix; industry capacity; competition; disruptions of established supply channels;
manufacturing capacity constraints; and the availability, terms and deployment
of capital. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected.
We do not undertake to update our forward-looking statements to reflect
future events or circumstances.
Overview
b2bstores.com Inc. is a development stage company. We were formed in June
1999 and assembled a core set of operating assets during the remainder of 1999.
These assets include a management team, a technology infrastrucuture, financing
and our basic web site, www.b2bstores.com, which first became available in
September 1999. In February 2000, we completed our Initial Public Offering
("IPO").
During the first quarter of 2000, we have continued to assemble additional
core assets, including the acquisition of a perpetual, nonrevocable license to
the software technology used for our core business. This technology will also
allow us to provide vendor management and other e-commerce services to other
businesses that seek to utilize the Internet for their inventory management
requirements and business products purchasing and selling. We have also expanded
the number of our employees from 23 to 45. This growth results from its
expansion of its development team in preparation of its launching site and its
expansion of its sales and marketing team hired to add new product vendors,
service vendors and content to the site. Our technology group has also increased
as it develops the electronic connectivity between the b2bstores.com Inc. portal
and our numerous vendors. All of this activity has resulted in increased
operating expenses as discussed below.
In addition to the continuing assembly of additional core assets, we
engaged in the following activities, which are currently ongoing during the
first quarter of 2000:
Expansion of our business product categories. We regularly seek to expand
our product categories by establishing relationships with additional fulfillment
agents. These fulfillment agents are vendors that actually supply the products
purchased by our customers through our web site. The terms of any agreement
governing a relationship with a new fulfillment agent must be negotiated and
will vary on a case-by-case basis.
Implementation of auction functions. We are currently integrating the
necessary technology to provide online auctions at our web site. The technology
we are using for the auction functions is being developed internally.
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Introduction and expansion of business referrals. We negotiate with
providers of financial services, accounting services, legal services and other
services to serve as service providers to customers at our web site. We are
spending significant time in connection with our efforts to assemble a group of
service providers willing to utilize our web site for the promotion of their
services.
Provision of business information and content. We provide business
information and other content to our customers, including:
o computer product reviews,
o news,
o stock market information, and
o downloadable driving directions.
This information is supplied by third-party content providers. We are
required to pay a fee for the content we make available through our web site. We
intend to expand our roster of content providers and the information available
through our web site. The arrangement we have with each content provider varies
on a case-by-case basis.
Sources of Revenue
We believe that we will derive our revenues from the following sources:
o product sales;
o service referral fees and commissions;
o advertising;
o "click through" fees; and
o vendor management fees.
We will recognize revenues according to:
o the type of product or service being sold,
o the structure of the contract negotiated with the individual
vendor, and
o the substantive nature of the risks of ownership we incur in
connection with the sale and shipment of the product.
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For product sales involving substantive risk of ownership, we will
generally recognize revenue at the gross transaction value. For service and
referral sales where risk of loss is minimal, we will generally recognize
revenue on a net fee or commission basis. For auction sales where we incur risk
of loss in the transactions, we will recognize gross revenues. For auction sales
where we act as auctioneer and have little risk of loss, we will recognize
revenue on a net basis or transaction fee basis.
Seasonality
Although we have a limited operating history, we expect to experience
seasonal variations in our e-commerce and advertising revenue, especially during
the summer period, when user traffic levels are expected to decline. Our
e-commerce revenue may be affected by stronger consumer goods sales during the
fourth calendar quarter of the year. In addition, our advertising revenue may
experience the same seasonal and cyclical patterns as those in traditional
media, where advertising increases ahead of the year-end holiday buying season.
Results of Operations
Three Months ended March 31, 2000
We incurred a net loss of approximately $1.7 million for the three month
period ended March 31, 2000 and a $2.9 million loss for the period from June 28,
1999 (inception) to December 31, 1999. At March 31, 2000 we had an accumulated
deficit of $4.7 million. The net losses and accumulated deficit resulted from
our lack of substantial revenues, while incurring development and operational
costs and stock based compensation expense. Because of our expansion plans, we
expect to incur significant operating losses for the foreseeable future.
Although we are expecting revenue growth in current periods, such growth may not
be substantial and, therefore, these current periods should not be considered
indicative of future performance. We may never achieve significant revenues or
profitability or if we achieve significant revenues, it may not be sustained.
Revenues. Revenues were nominal for the three months ending March 31, 2000.
We continue to operate as a development stage company. The Company was
established on June 29, 1999 and, therefore, comparative amounts to the period
ended December 31, 1999 have not been presented.
Cost of Sales. Cost of sales includes the costs of the products or service
sold, which was approximately $2,400 for the three-month period and overhead
costs for the three-month period of approximately $113,000, necessary to support
and keep the site functioning properly for all 24 hour periods.
General and administrative expenses. General and administrative expenses
consist primarily of salaries and related costs for our officers, management,
administrative, finance, legal, and human resources department, as well as
support services and professional service fees. The general and administrative
expenses of approximately $622,000 are mainly comprised of salaries, bonuses and
related costs of $233,000, facility management costs of $94,000, professional
services of $97,000, directors' and officers' insurance costs of $40,000 and
travel and entertainment costs of $92,000.
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Sales and marketing expenses. Sales and marketing expenses consist
primarily of salaries for sales and marketing personnel, advertising, trade
shows, and travel and entertainment costs, including costs of attending trade
shows. The sales and marketing expense of approximately $380,000 for the three
months ended March 31, 2000 was mainly comprised of salaries and related costs
of $253,000,travel and entertainment expenses of $5,000, and advertising and
marketing costs of $73,000. We expect these expenses to continue to grow
significantly, as we pursue an aggressive growth strategy.
Technology expenses. Technology expenses consist primarily of the
management of the hardware and software systems necessary to operate an internet
sales portal. Portal issues include the electronic communications between the
company's web-based systems and the numerous product and service vendors
represented on the site. The technology expense of approximately $197,000 for
the three months ended March 31, 2000 were mainly comprised of salaries and
related costs of $136,000, and subscription fees of $40,000. We expect these
expenses to continue to grow as business expands.
Fulfillment management expenses. Fulfillment management expenses consist of
all customer service issues relating to the "customer experience" in shopping at
the b2b portal and the management of all vendor fulfillment issues (delivery of
the products to the customers). The fulfillment management expense of
approximately $92,000 for the three months ended March 31, 2000 was mainly
comprised of salaries and related costs of $54,000, service fees of $23,000 and
training costs of $13,000. We expect these expenses will continue to grow as we
expand our business.
Stock-based compensation expense. Stock-based compensation expense of
$458,462 consists of expense relating to officers options vested in connection
with the IPO. There are additional options that were granted in connection with
the IPO that will vest over the next two years and create compensation charges
of approximately $822,000.
Interest Income earned on our cash management account for the three months
ended was $145,000.
As a result of all of the above, the net loss to common shareholders for
the three months ended March 31, 2000 was $1.7 million. On a basic and diluted
per share basis, the net loss to common shareholders for the three months ended
March 31, 2000 was $ (.28) per share.
Liquidity and Capital Resources
For the three months ended March 31, 2000, cash provided by financing
activities of $27 million was primarily due to our initial public offering of
4,000,000 shares of its common stock at $8.00 per share. Thereafter, on March
29, 2000, we completed the sale of an additional 600,000 shares pursuant to the
over-allotment option granted to the underwriters in the IPO. Net proceeds to us
from the IPO (and the over-allotment option) aggregated approximately $32.1
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million (net of underwriters' commission and offering expenses of approximately
$4.7 million) of which $4.3 million relating to the over-allotment was received
on April 3, 2000.
In connection with the IPO, bonuses in the aggregate amount of $105,000
were paid.
We used approximately $1.41 million of the net proceeds of the IPO to repay
in full the principal and interest due on a loan made by Enviro-Clean of America
Inc., a principal stockholder of the Company.
As of March 31, 2000, our primary source of liquidity consisted of cash and
cash equivalents derived from the IPO. At March 31, 2000, the Company had cash
and cash equivalents of $24,830,759. Giving effect to the over-allotment, we had
Finance Proceeds receivable of $4.3 million, which was received on April 3,
2000.
For the three months ended March 31, 2000, cash used in operating
activities was $858,000. Cash used in operating activities consisted mostly of
net operating losses and increases in accounts payable and accrued expenses. We
expect these expenses to grow as we transition from a development stage company.
Net cash used in investing activities was $1.7 million for the three months
ended March 31, 2000. Our investing activities were for capital expenditures
which mainly comprised of purchasing the perpetual non-revocable license to the
software technology used for the e-commerce platform from Netgateway which the
Company has built its e-commerce portal on. As a part of this transaction, the
Company no longer has any future obligations to Netgateway.
Risks relating to our financial condition
In addition to the other information included in this report, the following
factors should be considered in evaluating our business and future prospects:
Because we have a very short operating history, there is no track record to
indicate that we will successfully manage our business or achieve profitability.
We may not be able to grow our business as planned or ever become a
profitable business. We began our commercial operations in September 1999 and
have a limited operating history upon which you may evaluate us. Our business
prospects are subject to all the risks, expenses and uncertainties encountered
by any new company. We also face the risks inherent in operating in the rapidly
evolving markets for Internet products and services.
Because our operating expenses and capital expenditures will outpace our
revenues, we will incur significant losses in the near term.
We expect to incur significant operating expenses and make relatively high
capital expenditures as we develop our Internet business. These operating
expenses and capital expenditures will initially outpace revenues and result in
16
<PAGE>
significant losses in the near term. We have generated only nominal revenues for
three months ended March 31, 2000 and have incurred a net loss of $1.7 million,
and since inception have incurred a net loss of $4.6 million.
Because our executive officers lack significant management experience, we may
not be able to effectively manage our growth.
The growth of our business may place a significant strain on our management
team and we may not be able to effectively manage our growth. None of our
executive officers has significant experience in managing a company or
overseeing a company's rapid growth.
PART II OTHER INFORMATION
Item 2(c). Unregistered Securities
During the first quarter of 2000, our board approved or ratified option
grants to the following seven directors and thirty employees. These options
allow for the purchase up to an aggregate of 832,500 stock options under our
1999 Performance Equity Plan:
<TABLE>
No. of Shares
Director Subject to Options Exercise Price
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Ellett, Philip 50,000 $11.50
Godfrey, Ralph 50,000 $11.50
Higgins, John 50,000 $11.50
Hileman, Garrick 50,000 $11.50
Raubvogel, Jay 50,000 $11.50
Strauss, William 50,000 $11.50
Walke, David 50,000 $11.50
No. of Shares
Employee Subject to Options Exercise Price
--------------------------------------------------------------------------------------------------
Anderson, Marsten G. 10,000 $8.00
Chu, Michelle 10,000 $11.50
Conley, Michael 25,000 $11.50
Crookston, Duncan 10,000 $11.50
DeFranco, Robert 25,000 $11.50
Ferguson, Ron 20,000 $8.00
Gardiner, Mark 5,000 $8.00
Goodsell, Laura 50,000 $8.00
Hoge, Thomas 25,000 $8.00
Jarrard, Lee 10,000 $8.00
Leimer, Shawna 25,000 $8.00
Mannarino, Amy 10,000 $11.50
Maybry, Terri 18,000 $11.50
</TABLE>
17
<PAGE>
<TABLE>
No. of Shares
Employee Subject to Options Exercise Price
--------------------------------------------------------------------------------------------------
<S> <C> <C>
McClaugherty, Catherine 5,000 $8.00
Metzler, Timothy A. 40,000 $8.00
Morris, Robert 5,000 $8.00
Mosio, Eva 10,000 $11.50
Mourer, Darrin M. 5,000 $8.00
Muramoto, David 3,000 $11.50
Olea, David 16,500 $8.00
Price, Anne 10,000 $8.00
Privett, Brianna M. 10,000 $8.00
Schneider, Darrin D. 25,000 $8.00
Summers, Chris 5,000 $8.00
Sussex, Eileen 25,000 $11.50
Valera, Vanessa 15,000 $11.50
Van Doren, La Mar 20,000 $11.50
Weber, Libby L. 25,000 $8.00
Wharton, Kate 10,000 $8.00
Williams, Eartha Kitt 10,000 $8.00
</TABLE>
Item 2(d). Use of Proceeds
On February 14, 2000, the Company's Registration Statement on Form SB-2MEF
covering the Offering of 4,000,000 shares of the Company's Common Stock,
Commission file number 333-30376 was declared effective.
The net proceeds of the offering to the Company (after deducting expenses)
were $27,815,090. On March 29, 2000, the over-allotment option was also
exercised and declared effective, resulting in the proceeds (after deducting
expenses) of $4,320,000, which were received upon settlement on April 3, 2000.
From the effective date of the Registration Statement to March 31, 2000, the net
proceeds have been used for the following purposes:
<TABLE>
<S> <C>
Repayment of indebtedness....................................................... $ 1,422,676
Development costs..................................................................1,000,000
Purchases of machinery and equipment.................................................100,000
Working capital..................................................................... 461,655
Other purposes (for which $100,00 has been used), including:
investments, including commercial
paper, short-term municipal securities, and
money markets funds..................................................... 24,830,759
----------
$27,815,090
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2000 b2bstores.com Inc.
(Registrant)
By:
/s/ Woo Jin Kim
------------------------------
Woo Jin Kim
Chief Executive Officer
By:
/s/ Mark Voorhis
------------------------------
Mark Voorhis
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,404,078
<SECURITIES> 13,426,681
<RECEIVABLES> 4,320,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,348,903
<PP&E> 2,085,338
<DEPRECIATION> 74,427
<TOTAL-ASSETS> 31,411,627
<CURRENT-LIABILITIES> 710,391
<BONDS> 0
<COMMON> 86,216
0
0
<OTHER-SE> 30,615,020
<TOTAL-LIABILITY-AND-EQUITY> 31,411,627
<SALES> 4,192
<TOTAL-REVENUES> 4,192
<CGS> 115,614
<TOTAL-COSTS> 115,614
<OTHER-EXPENSES> 1,749,828
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,716,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,716,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,716,009)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
