<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File No. 000-28243
parts.com, Inc.
------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
NEVADA 88-0344869
--------------------------------- -------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
121 EAST FIRST STREET
SANFORD, FLORIDA 32771
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number:(407) 302-1314
Former name, former address and former fiscal year,
If changed since last report: N/A
Check whether the Registrant (1) has filed all reports to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such a 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.
X
---
YES NO
As of November 13, 2000, there were 25,257,291 shares of common stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Index to Financial Statements
PARTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
September 30, 2000 and December 31, 1999 3-4
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statement of Stockholders' Equity for
the Nine Months Ended September 30, 2000 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 7-8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 15-17
Other Information and signatures 18
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Reference is made in particular to the description of our plans and objectives
for future operations, assumptions underlying such plans and objectives, and
other forward-looking statements included in this report. Such statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "intend," "continue," or similar
terms, variations of such terms or the negative of such terms. Such statements
are based on management's current expectations and are subject to a number of
factors and uncertainties, which could cause actual results to differ materially
from those described in the forward-looking statements. Such statements address
future events and conditions concerning capital expenditures, earnings,
regulatory matters, markets for products and services and liquidity and capital
resources. Actual results in each case could differ materially from those
anticipated in such statements by reason of factors such as future economic
conditions, changes in consumer demand, legislative, regulatory and competitive
developments in markets in which we operate, and other circumstances affecting
anticipated revenues and costs. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based. Additional factors that could cause such results to
differ materially from those described in the forward-looking statements are set
forth in connection with the forward-looking statement.
2
<PAGE> 3
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash $ 105 $ 1,180,833
Accounts receivable, net
of allowance for doubtful accounts
$77,863 and $53,885, respectively 5,636 50,597
Inventory 54,589 54,589
Prepaid expenses and other current
assets 185,235 77,824
---------- -----------
Total Current Assets 245,565 1,363,843
---------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$224,614 and $126,284, respectively 905,127 823,221
DEFERRED LOAN COSTS, net of
accumulated amortization of
$21,542 and $10,137, respectively 236,958 248,363
OTHER ASSETS, net of
accumulated amortization of
$744,188 and $235,526, respectively 288,141 415,400
PATENT, net of accumulated amortization
of $1,212,100 and $249,550, respectively 5,204,900 6,167,450
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED,
net of accumulated
amortization of $730,249
and $380,266, respectively 1,602,529 1,952,490
---------- -----------
Total Assets $8,483,220 $10,970,767
========== ===========
See Accompanying Notes
3
<PAGE> 4
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 942,500 $ 565,814
Other current liabilities 429,321 158,352
Current portion of mortgages payable 1,428 1,428
Current portion of capitalized leases -- 10,113
Convertible promissory notes 625,000 --
Deferred revenue 648,194 586,000
------------ ------------
Total Current Liabilities 2,646,443 1,321,707
LONG TERM PORTION OF BANK NOTE AND
MORTGAGES PAYABLE 397,174 397,976
------------ ------------
Total Liabilities 3,043,617 1,719,683
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value,
10,000,000 shares authorized,
no shares issued and outstanding -- --
Common Stock, $.001 par value,
50,000,000 shares authorized,
24,466,291 and 23,051,206 shares
issued and outstanding, respectively 24,466 23,051
Additional paid-in capital 20,536,466 16,090,049
Accumulated deficit (15,121,329) (6,862,016)
------------ ------------
Total Stockholders' Equity 5,439,603 9,251,084
------------ ------------
Total Liabilities and
Stockholders' Equity $ 8,483,220 $ 10,970,767
============ ============
See Accompanying Notes
4
<PAGE> 5
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(unaudited) (unaudited)
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 350,716 $ 321,899 $ 732,846 $ 1,153,414
COST OF SALES 215,442 256,921 684,839 876,552
------------ ------------ ------------ ------------
GROSS PROFIT 135,274 64,978 48,007 276,862
------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Stock Based Employee Compensation 33,280 -- 2,002,159 253,000
Stock Based Consulting Fees 113,223 82,400 324,323 107,585
Other 881,426 314,678 3,793,501 1,387,632
Amortization 451,296 161,924 1,426,063 353,887
Depreciation 26,132 14,191 98,330 44,667
INTEREST, NET (inclusive of noncash
interest of $625,000 for 2000
and $0 for 1999) 640,680 22,163 662,944 44,632
ASSET IMPAIRMENT CHARGE -- -- -- 74,000
------------ ------------ ------------ ------------
TOTAL 2,146,037 595,356 8,307,320 2,265,403
------------ ------------ ------------ ------------
NET LOSS $ (2,010,763) $ (530,378) $ (8,259,313) $ (1,988,541)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.08) $ (.04) $ (.35) $ (.16)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 24,393,003 13,740,447 23,786,981 12,640,338
============ ============ ============ ============
</TABLE>
See Accompanying Notes
5
<PAGE> 6
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1999 23,051,206 $ 23,051 $ 16,090,049 $ (6,862,016) $ 9,251,084
Issuance of stock options to
directors -- -- 206,326 -- 206,326
Issuance of common stock for cash
in private placements, net of
$66,840 in offering costs 1,178,585 1,178 1,483,780 -- 1,484,958
Issuance of common stock to
directors 60,000 60 719,040 -- 719,100
Issuance of convertible debt with a
beneficial conversion feature -- -- 625,000 -- 625,000
Issuance of common stock for
services 176,500 177 1,412,271 -- 1,412,448
Net loss for the period -- -- -- (8,259,313) (8,259,313)
---------- -------- ------------ ------------ -----------
Balance - September 30, 2000 24,466,291 $ 24,466 $ 20,536,466 $(15,121,329) $ 5,439,603
========== ======== ============ ============ ===========
</TABLE>
See Accompanying Notes
6
<PAGE> 7
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(8,259,313) $(1,988,541)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 1,426,063 353,887
Depreciation 98,330 44,667
Noncash interest expense 625,000 --
Stock based compensation 2,326,482 360,585
Asset impairment charge -- 74,000
Changes in operating assets and liabilities:
Receivables 44,961 (61,627)
Inventory -- (78,216)
Prepaid expenses and other
current assets (63,911) 159,627
Deferred revenue 62,194 (197,500)
Accounts payable and accrued
expenses 373,976 162,733
Other current liabilities 270,969 24,562
----------- -----------
Net cash used in
operating activities (3,095,249) (1,145,823)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property and
equipment (180,236) (469,564)
Payments for other assets (4,286) (20,780)
----------- -----------
Net cash used in
investing activities (184,522) (490,344)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under mortgages payable -- 380,000
Repayments of other liabilities -- (24,250)
Proceeds from convertible promissory notes 625,000 50,000
Proceeds from notes payable 126,100 --
Repayment of notes payable (126,100) --
Repayments of bank and other
note payable (802) (25,968)
Repayments of capitalized leases (10,113) (15,729)
Proceeds from issuance of
common stock 1,484,958 1,228,524
----------- -----------
Net cash provided by financing
activities 2,099,043 1,592,577
----------- -----------
DECREASE IN CASH (1,180,728) (43,590)
CASH, AT BEGINNING OF PERIOD 1,180,833 65,509
----------- -----------
CASH, AT END OF PERIOD $ 105 $ 21,919
=========== ===========
</TABLE>
7
<PAGE> 8
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Nine Months Ended
September 30
---------------------------------
2000 1999
----------- -----------
(unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for
interest $ 39,147 $ 32,534
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Nine Months Ended September 30, 2000:
Issuance of 114,000 shares of common stock in connection with employment
contracts and employee bonuses, in the aggregate amount of $1,168,046.
Issuance of 52,500 shares of common stock in payment of $179,152 of consulting
Fees.
Issuance of 10,000 shares for advertising costs valued at $65,250. At September
30, 2000, $43,500 of such costs were recorded as a prepaid expense.
Nine Months Ended September 30, 1999:
Issuance of 100,000 shares of common stock, valued at $331,870, in payment of
deferred consulting fees.
Issuance of 640,000 shares of common stock in connection with the acquisition of
LiveCode, Inc. valued at $1,521,800.
Issuance of 110,000 shares of common stock in payment of deferred loan costs in
the amount of $258,500.
Issuance of 10,000 shares of common stock in partial payment of the purchase of
an Internet Domain name in the amount of $30,370.
Issuance of 335,000 shares of common stock in payment of consulting fees,
deferred loan costs and deferred consulting fees, in the aggregate amount of
$778,325.
Issuance of 171,091 shares of common stock in satisfaction of $85,546 of amounts
due to officers and directors.
See Accompanying Notes
8
<PAGE> 9
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - parts.com, Inc. ("the Company") is a marketplace
and software solutions provider for the automotive parts industry. The
Company also supplies its TradeMotion solutions for other industry
verticals. The Company (formerly Miracom Corporation) was incorporated
in Nevada on September 13, 1995, under the name I.E.L.S., Inc., which
had no revenue and insignificant expenses, assets and liabilities and
whose common stock was traded on the OTC, Bulletin Board. Effective
January 5, 2000, the Company changed its name from Miracom Corporation
to parts.com, Inc.
ACQUISITIONS - Effective September 30, 1998, the Company
acquired all of the assets and business operations and assumed all of
the outstanding liabilities of MTV Pinnacle Advertising Group, Inc.
("MTV") and United Equity Partners, Inc. ("UEP") in exchange for the
issuance of an aggregate of 732,000 shares of the Company's Common
Stock. MTV was engaged in the business of providing full service
advertising to commercial customers and UEP was engaged in the business
of providing Internet hardware and software solutions. The purchase
price was allocated to the assets acquired based upon their estimated
fair values at the date of acquisition. The excess of the purchase
price over the fair value of the net assets acquired was approximately
$811,000 and is being amortized on a straight line basis over 5 years,
beginning October 1, 1998. The purchase price of $329,400 was
determined by valuing the 732,000 shares of the Company's Common Stock
at $.45 per share, which represents a 10% discount from market on the
date of the acquisition. Market price for the Company's Common Stock
was determined based upon private sales to unrelated parties, since no
active trading market existed at that time.
On May 28, 1999, the Company acquired all of the assets and
business operations and assumed all of the outstanding liabilities of
LiveCode, Inc. ("LiveCode") a closely held corporation in exchange for
600,000 shares of the Company's Common Stock and a promissory note in
the original principal amount of $20,000. LiveCode was engaged in the
business of software development and from its inception through May 28,
1999, its major source of operating revenues was from services
performed under one contract for UEP. The purchase price of $1,521,800
was determined by valuing the 600,000 shares of the Company's Common
Stock at $2.50 per share, which represents a 10% discount from market,
based upon the average of the high and low trading prices on the OTC
Bulletin Board on May 28, 1999, plus the promissory note of $20,000.
Approximately $47,000 was distributed to the LiveCode
stockholders as of the effective date of the acquisition. Subsequent to
the acquisition, the operations of LiveCode were merged into the
Company. The excess of the purchase price over the fair value of the
net assets acquired was $1,521,800 and is being amortized on a straight
line basis over 5 years beginning June 1, 1999.
Effective September 30, 1999, the promissory note was repaid by
issuance of 40,000 shares of the Company's Common Stock.
On October 21, 1999, the Company acquired all of the outstanding
Common Stock of FlexRadio, Inc. ("Flex") for 6,200,000 shares of the
Company's Common Stock. The majority stockholders of Flex were also
stockholders, directors and officers of the Company. Under the terms of
the purchase, the Company obtained the rights to Flex's provisional
patent application (its sole asset) for a radio frequency detection and
reporting service for providing real time research. From its inception
through October 21, 1999, Flex had no significant operations. Flex will
be able to improve current methods of monitoring consumers radio
listening habits which to this date, utilizes paper, telephone
9
<PAGE> 10
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
and limited electronic surveys to quantify and tabulate data for the
advertising industry. Flex intends to provide improved customer service
by assisting clients in making advertising/media decisions which best
fit their needs.
The purchase price of Flex was based upon an independent
valuation of the estimated fair value of Flex as of the date of
acquisition. The 6,200,000 shares were valued at $1.035 per share,
which represents a 10% discount from the market price per share based
upon the average high and low trading prices on October 21, 1999 as
reported on the OTC Electronic Bulletin Board. The total purchase price
of $6,417,000 was allocated to Flex's provisional patent application
which represented Flex's sole asset at the date of acquisition.
The above acquisitions were accounted for by the purchase method
of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations do not include any revenues,
costs or expenses related to these acquisitions prior to their
respective closing dates.
INTERIM RESULTS AND BASIS OF PRESENTATION - The unaudited
financial statements as of September 30, 2000 and for the nine month
periods ended September 30, 2000 and 1999 have been prepared by us and
are unaudited. In our opinion, the unaudited financial statements have
been prepared on the same basis as the annual financial statements and
reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position as of
September 30, 2000 and the results of our operations and cash flows for
the nine month periods ended September 30, 2000 and 1999. The financial
data and other information disclosed in these notes to the interim
financial statements related to these periods are unaudited. The
results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results to be expected for any subsequent
quarter or the entire fiscal year ending December 31, 2000. The balance
sheet at December 31, 1999 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. It is suggested that these
unaudited financial statements be read in conjunction with our audited
financial statements and notes thereto for the year ended December 31,
1999 as included in our report on Form 10-KSB as filed with the SEC on
March 16, 2000.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements at September 30, 2000, include the accounts of the
Company and its wholly-owned subsidiary Flex. All significant
intercompany transactions and balances have been eliminated for the
periods presented.
CONTINUED OPERATIONS - The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. Since its inception, the Company has
continued to suffer recurring losses from operations that to date,
total $15,121,329. At September 30, 2000, the Company had a working
capital deficit of $2,400,878. These factors among others may indicate
the Company will be unable to continue as a going concern for a
reasonable period of time. The accompanying consolidated financial
statements do not include any adjustments relating to the outcome of
this uncertainty.
10
<PAGE> 11
PARTS.COM, INC.
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
LIQUIDITY AND PLAN OF OPERATIONS - As of September 30, 2000, the
Company had cash of $105 and a working capital deficit of $2,400,878.
The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on
a timely basis. The Company's primary source of liquidity has been from
the cash generated by its operations and through the private placement
of equity and debt securities. The Company is presently developing its
infrastructure and ramping up operations of its main business divisions
in order to eventually achieve profitable operations. However, there
can be no assurance that the Company will be successful in achieving
profitability or acquiring additional capital or that such capital, if
available, will be on terms and conditions favorable to the Company.
Without short or long-term financing, in order to meet its current and
future capital needs, the Company will depend on cash receipts from
annual territory fees, fee revenue generated from its e-commerce web
site and proceeds from the sale of additional shares of common stock or
the issuance of debt securities. The Company is actively pursuing other
sources of new cash financing, but has not completed such financing and
cannot provide any assurances as to whether such financing will be
completed. Furthermore, there can be no assurance that additional
financing will be available when needed or that if available, such
financing will include terms favorable to our stockholders or us. The
availability of such financing is essential for the Company to continue
to meet operating obligations and continue as a going concern.
REVENUE AND EXPENSE RECOGNITION - Revenues are generally
recognized when the service has been performed and related costs and
expenses are recognized when incurred. Contracts for the development of
software that extend over more than one reporting period are accounted
for using the percentage-of-completion method of accounting. Revenue
recognized at the financial statement date under these contracts is
that portion of the total contract price that costs expanded to date
bears to the total anticipated final cost, based on current estimates
of cost to complete. Revisions in total costs and earnings estimates
during the course of the contract are reflected in the accounting
period in which the circumstances necessitating the revisions become
known. At the time a loss on a contract becomes known the entire amount
of the estimated loss is recognized in the financial statements. Costs
attributable to contract disputes are carried in the accompanying
balance sheet only when realization is probable. Amounts received on
contracts in progress in excess of the revenue earned, based upon the
percent of completion method, are recorded as deferred revenue and the
related costs and expenses incurred are recorded as deferred costs.
Parts.com transaction fee revenues on wholesale and consumer
sales are recognized at the time the transaction is completed. Because
individual sellers, rather than the Company deliver the actual product
to complete the sale, the Company will have no cost of goods sold, no
procurement, carrying or shipping costs and no inventory. A substantial
majority of end user accounts will be settled by directly charging
credit card numbers provided by sellers. Provisions for estimated
uncollectible accounts and authorized credits are recorded as
percentages of revenues at the time of revenue recognition.
The Company charges annual territory fees to customers based
upon each level of distribution and vehicle line that the customer
purchases. Annual fees are amortized into income over a period of 12
months commencing after March 31, 2000, and as the customer begins
fulfilling parts orders for the web site. Unamortized fees are recorded
as deferred revenue. Sales commissions associated with annual territory
fees are recorded as prepaid expenses and are charged against income as
11
<PAGE> 12
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
the related revenue is recognized. The Company's e-commerce web site
became operational on January 23, 2000. During the nine months ended
September 30, 2000, the Company recognized minimal amounts of revenue
from e-commerce transactions and recorded six months of territory fees.
ReallyKnow.com revenues and all costs and expenses related to
sales of Kiosks will be recognized at the time the products are
delivered. In connection with the implementation of its current
business plan for ReallyKnow.com which concentrates the Company's
advertising activities in the e-commerce sector, the Company is no
longer actively involved in the production of radio and television
advertising. For the nine months ended September 30, 2000 and the
period ended September 30, 1999, the Company generated gross revenues
of approximately $20,000 and $780,000 respectively, from the production
of radio and television media.
Revenues from the sale of the Company's TradeMotion software
solutions are derived from two sources-a software construction fee
recognized when the customer's website is deployed and a maintenance
fee that is recognized over the period of the contract.
2. MERCHANT ACCOUNT:
The Company maintains a merchant account for the electronic
processing of its transactions with a credit card processor. Pursuant
to the terms of the account, the Company is required to maintain a
compensating balance of $100,000 which may be used by the credit card
processor, if needed. In June 2000, the credit card processing company
returned the compensating balance to the Company in full.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
In February 2000, the Company entered into an agreement with
M&M/Mars Incorporated to be an associate sponsor of a NASCAR Winston
Cup race car for the entire NASCAR season from February 17, 2000
through November 19, 2000. The Company made an initial payment of
$200,000 and was committed to make an additional payment of $200,000
in May 2000. The Company was also obligated to issue 34,000 shares of
Common Stock, valued at $550,800, to Mars Incorporated. The costs were
to have been amortized over the 2000 NASCAR season. On May 24, 2000,
the Company terminated its relationship with M&M/Mars. As a result of
the cancellation of the agreement, the Company terminated the pending
34,000 share issuance; reduced Prepaid expenses and other current
assets by $719,000; and reduced Stockholders' Equity by $550,800.
4. CONVERTIBLE PROMISSORY NOTES:
On July 20, 2000, the Company executed a Convertible Promissory
Note ("the Note") with an individual for up to a principal amount of
$500,000. The Note bears interest at 10% per annum and is due and
payable in a single balloon payment of principal and interest on July
20, 2001. The note, including accrued interest may be prepaid in full
prior to maturity, without penalty. The note is collateralized by the
Company's real property located in Sanford, Florida, and is subordinate
to $562,000 of existing indebtedness applicable to such property. As of
September 30, 2000, the holder of the Note had advanced $375,000 to the
Company under the note.
Provided the note has not been prepaid prior to maturity, the
holder may convert the principal balance plus any accrued interest,
before or at the scheduled maturity date of the note into shares of the
Company's Common Stock at a conversion price of the lower of $.36 per
share or 80% of the 5-day average closing bid price prior to the
conversion date.
12
<PAGE> 13
PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
Subsequent to September 30, 2000, the Holder advanced the
Company an additional $125,000 under the note, resulting in an
outstanding principal balance of $500,000.
On September 1, 2000, the Company executed a $250,000 unsecured
Convertible Promissory Note with an individual. The Note bears interest
at 10% per annum and is due and payable in a single balloon payment of
principal and interest on September 1, 2001. The note, including
accrued interest may be prepaid in full prior to maturity, without
penalty.
Provided the note has not been prepaid prior to maturity, the
holder may convert the principal balance of the note plus any accrued
interest, before or at the scheduled maturity date of the note into
shares of the Company's Common Stock at a conversion price of $.375 per
share.
5. STOCKHOLDERS' EQUITY:
The Company has adopted the disclosure-only provisions of SFAS
No. 123. Accordingly, no compensation expense has been recognized for
the issuance of stock options to employees, as all options had an
exercise price at or above market price on the date of issuance. For
the nine months ended September 30, 2000, employees of the Company were
issued options to purchase a total of 749,500 shares of the Company's
Common Stock, at exercise prices ranging from $1.50 to $20.00 per share
expiring March 2005 (unrecognized imputed charge of $4,976,763 or $0.21
per share, computed using the Black Scholes Model.)
In July and September 2000, the Company entered into two
convertible promissory notes with individuals. The Notes contained a
nondetachable beneficial conversion feature that allowed the
individuals to convert the Notes and accrued interest thereon into the
Company's common stock at a conversion price of $.375 per share and
the lower of $.36 per share or 80% of the 5-day average closing bid
price prior to the conversion date. The fair value of the beneficial
conversion feature exceeded the value of the Notes. Since the notes
were convertible at any time, the Company recorded debt discount of
$625,000 as "non-cash" interest expense upon issuance of the Notes and
correspondingly charged additional paid-in capital.
6. RELATED PARTY TRANSACTIONS:
During the nine months ended September 30, 2000, the Company
issued a total of 80,000 shares of Common Stock to an officer and a key
employee in payment of bonuses, at a per share price of $9.90 for an
aggregate of $792,000.
In April 2000, the President loaned the Company $23,600, payable
on demand and bearing interest at 8%. The Company repaid the loan with
$41 in interest in April 2000.
In July 2000, Walter Anderson, father of the Co-CEO and indirect
owner of more than 5% of the Common Stock of the Company, loaned the
Company $20,000, payable on demand and bearing interest at 8%. The
Company repaid the loan with $233 in interest in July and September
2000.
In July 2000, Select Media Ltd., owned by an individual who
indirectly owns more than 10% of the Common Stock of the Company,
loaned the Company $35,000, payable on demand and bearing interest at
8%. The Company repaid the loan with $167 in interest in July 2000.
In July 2000, Select Media Ltd., loaned the Company $2,500,
payable on demand and bearing interest at 8%. The Company repaid the
loan with $9 interest in September 2000.
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PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
In August 2000, New Era, Inc., owned by an individual who
indirectly owns more than 10% of the Common Stock of the Company,
loaned the Company $45,000, payable on demand and bearing interest at
8%. The Company repaid the loan with $170 interest in September 2000.
The carrying value of land, building and improvements at
September 30, 1999, was reduced by $74,000, which amount represented
the excess of the purchase price of the property over its appraised
value at the date of purchase. This amount has been included in "asset
impairment charge." The property was purchased from Stonestreet
Investments, Inc., which is owned by three directors, one key employee
and a greater than 5% shareholder of the Company.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
UNAUDITED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED IN THIS QUARTERLY
REPORT, AS WELL AS THE AUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
1999 AS FILED WITH THE SEC ON MARCH 16, 2000.
Overview
As noted in the Company's Report of Independent Certified Public Accountants
included in the Company's Form 10-KSB for the year ended December 31, 1999, the
Company has experienced significant operating losses and an accumulated deficit
which raise doubt about the Company's ability to continue as a going concern.
The Company incurred additional net losses of $8,259,313 for the nine months
ended September 30, 2000 and had an accumulated deficit of $15,121,329 at
September 30, 2000. The Company is continuing its efforts to increase its sales
volume and attain a profitable level of operations. However, there is no
assurance that the Company's efforts will be successful. There are many events
and factors in connection with the development of, manufacture and sale of the
Company's products over which the Company has little or no control, including
without limitation, marketing difficulties, lack of market acceptance of our
products, superior competitive products based on future technological innovation
and continued growth of e-commerce businesses. There can be no assurance that
future operations will be profitable or will satisfy future cash flow
requirements.
Results of Operations-Nine Months Ending September 30, 2000
During the nine months ended September 30, 2000, total revenues amounted to
$732,846 versus last year's revenue of $1,153,414. The company is in a state of
transition with its expansion focused on its parts.com e-commerce
business-to-business and software solutions and the further development of its
online real-time data gathering business, ReallyKnow.com. The Company has
collected approximately $1.3 million in annual territory fees from dealerships
participating in its e-commerce initiative. Of this amount, $648,194 has been
recorded as deferred revenue at September 30, 2000. The launch of the Company's
web site occurred in late-January, 2000, and as a result, the Company processed
a minimal amount of transactions for the first nine months of the year. As such,
the Company began recognizing these annual territory fees as income on a
quarterly basis in April 2000. In connection with the implementation of its
current business plan for ReallyKnow.com which concentrates the Company's
advertising activities in the e-commerce sector, the Company is no longer
actively involved in the production of radio and television advertising. For the
nine months ended September 30, 2000 and the nine months ended September 30,
1999, the Company generated gross revenues of approximately $20,000 and
$780,000, respectively, from the production of radio and television media.
Additionally, for the nine months ended September 30, 1999, the Company
recognized $198,000 in software development revenue for services related to a
contract that was deferred at December 31, 1998.
The Company generated a gross profit of $276,862 for the nine months ended
September 30, 1999 compared to a gross profit of $48,007 for the nine months
ended September 30, 2000. The primary reason for the lower profit margin from
1999 to 2000 is due to the Company focusing its efforts and resources on selling
auto parts over its web site in 2000 and licensing its e-commerce software
solutions. Significant expenditures incurred during the nine months ended
September 30, 2000 include web site hosting costs and related telephone,
internet and T-1 expenses, as well as technical support salaries. The Company
generated minimal transactions from its web site in the first three quarters of
2000 and recognized one-half of the collected territory fees. The balance of
Territory fees collected through September 30, 2000 have been recorded as
deferred revenue and will continue to be amortized as income on a quarterly
basis. The Company has continually seen a steady increase in its web site
transactions and believes that increased site traffic will result in sales as
its product becomes known and gains market acceptance; however there can be no
assurance that such market acceptance shall be attained.
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Operating and other expenses increased $6,041,917 or 267% for the nine months
ended September 30, 2000 compared to the same period last year as a result of
several factors. In the nine months ended September 30, 2000, the Company spent
$195,000 in marketing and advertising costs in connection with the launch of the
web site parts.com, its e-commerce business-to-business exchange, at the
National Automobile Dealers Association convention in Orlando, Florida.
Additionally, the Company incurred $318,000 in expenses related to its marketing
efforts through NASCAR and its associate sponsorship with M&M's/Mars
Incorporated. The Company also increased its workforce from 18 full-time
employees and 0 outside consultants at September 30, 1999 to 42 full-time
employees and 1 full-time developer/outside consultant at September 30, 2000.
Finally, in the nine months ended September 30, 2000, the Company spent more
than $150,000 in professional fees (accounting and legal) directly attributable
to becoming a "reporting" entity with the SEC as a result of new guidelines
established by the NASD. Depreciation and amortization for the nine months ended
September 30, 2000 rose $1,125,839 or 282% to $1,524,393 as a result of
amortization of goodwill associated with the Company's Livecode acquisition (May
1999) and the acquisition of the FlexRadio patent (October 1999), not prevalent
in the same period in the prior year. Stock based compensation totaled
$2,326,482 for the nine months ended September 30, 2000 as compared to $360,585
for the same period last year reflecting a conservation of cash resources by
management.
Liquidity and Sources of Capital
During the nine months ended September 30, 2000, the Company's operating cash
requirement was $3,095,249 attributable to a net loss of $8,259,313 mitigated by
non-cash charges for interest ($625,000), depreciation and amortization
($1,524,393) and stock based compensation ($2,326,482). The net remaining
shortfall was primarily funded by the net sale of common stock for $1,484,958,
proceeds from the issuance of convertible promissory notes ($625,000) and
approximately $700,000 in territory fees received during the nine months ended
September 30, 2000. Partially offsetting this funding were capital expenditures
of $180,236 and the payment on capitalized leases of $10,113.
During the nine months ended September 30, 1999, the Company's operating cash
requirement was $1,145,823 attributable to a net loss of $1,988,541 mitigated by
non-cash charges for depreciation and amortization ($398,554) and stock based
compensation ($360,585). The net remaining shortfall was primarily funded by the
net sale of common stock for $1,228,524. Partially offsetting this funding were
capital expenditures of $469,564 and the payment of capitalized leases and other
debt of $65,947. Stock based compensation valued at $360,585 was used to
conserve cash.
Since its reverse merger and 504 offering conducted in September 1998, the
Company has financed its operations primarily through cash receipts from annual
territory fees, equity private placements and most recently, proceeds from the
issuance of convertible notes payable. At September 30, 2000, the Company had
$105 of cash and a working capital deficit of $2,400,878. Subsequent to
September 30, 2000, the Company conducted an equity private placement which
raised net proceeds of $150,000. As these funds have been largely used for
operating purposes as of the date of this report, the Company requires
additional financing in the near future to fund operations. The Company is
actively pursuing other sources of new cash financing, but has not completed
such financing and cannot provide any assurances to whether such financing will
be completed. Furthermore, there can be no assurance that additional financing
will be available when needed or that if available, such financing will include
terms favorable to our stockholders or us. The availability of such financing
is essential for the Company to continue to meet operating obligations and
continue as a going concern.
Changes in securities and use of proceeds
Recent Sales of Unregistered of Securities. The Company issued the following
unregistered securities during the nine months ended September 30, 2000:
On January 1, 2000, the Company issued 5,000 shares to Eugene Gramzow, an
accredited investor, in respect of consulting services. The investor was
provided information about the Company or had access to such information, and
the investor was provided opportunities to ask questions of management
concerning the information provided or made available. The investor confirmed in
writing his investment intent, and the certificates for the securities bear a
legend accordingly.
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From January 3, 2000 through March 29, 2000, the Company issued a total of
11,000 shares of common stock to 9 employees pursuant to employment agreements.
The securities were issued in reliance on Section 4(2) of the Securities Act.
The investors were provided information about the Company or had access to such
information, and the investors were provided opportunities to ask questions of
management concerning the information provided or made available. The investors
confirmed in writing their investment intent, and the certificates for the
securities bear a legend accordingly.
On February 11, 2000, the Board of Directors approved the contingent issuance
of 34,000 shares of common stock to Mars Incorporated in connection with a
NASCAR promotion. The Company is relying on the exemption from registration
provided under Section 4(6) since Mars Incorporated is an accredited investor,
no advertising or public solicitation was conducted in connection with the
transaction, and the Company filed a notice with the SEC. On May 24, 2000, by
board resolution the Company cancelled the contingent issuance and shares were
returned to treasury.
From February 15, 2000 through March 29, 2000, the Company issued to two
employees a total of 5,500 shares of common stock as bonuses. The securities
were issued in reliance on Section 4(2) of the Securities Act. The investors
were provided information about the Company or had access to such information,
and the investors were provided opportunities to ask questions of management
concerning the information provided or made available. The investors confirmed
in writing their investment intent, and the certificates for the securities bear
a legend accordingly.
From February 28, 2000 through March 22, 2000, the Company issued a total of
60,000 shares of common stock to two directors of the Company, both accredited
investors. The securities were issued in reliance on Section 4(2) of the
Securities Act. The investors were provided information about the Company or had
access to such information, and the investors were provided opportunities to ask
questions of management concerning the information provided or made available.
The investors confirmed in writing their investment intent, and the certificates
for the securities bear a legend accordingly.
On March 29, 2000, the Company issued to Ian Hart, an executive officer of the
Company and as such an accredited investor, and Jon Palazzo, an employee of the
Company, 50,000 shares of common stock and 30,000 shares of common stock,
respectively, as bonuses. The securities were issued in reliance on Section 4(2)
of the Securities Act. The investors were provided information about the Company
or had access to such information, and the investors were provided opportunities
to ask questions of management concerning the information provided or made
available. The investors confirmed in writing their investment intent, and the
certificates for the securities bear a legend accordingly.
From April 7, 2000 through July 21, 2000, the Company sold 1,178,585 shares of
common stock in private placements to 11 investors (9 of which were accredited)
for net proceeds of $1,484,958 (share prices ranging from $.375 to $4). The
securities were issued in reliance on Section 4(2) of the Securities Act. The
investors were provided information about the Company or had access to such
information, and the investors were provided opportunities to ask questions of
management concerning the information provided or made available. The investors
confirmed in writing their investment intent, and the certificates for the
securities bear a legend accordingly.
On April 10, 2000, the Company issued 2,500 shares to Jeffrey Taylor for
consulting services. The securities were issued in reliance on Section 4(2) of
the Securities Act. The investor was provided information about the Company or
had access to such information, and the investors were provided opportunities to
ask questions of management concerning the information provided or made
available. The investor confirmed in writing their investment intent, and the
certificates for the securities bear a legend accordingly.
On April 13, 2000, the Company issued 10,000 shares to an accredited investor,
Mediawise Communications, for consulting services. The securities were issued in
reliance on Section 4(2) of the Securities Act. The investor was provided
information about the Company or had access to such information, and the
investors
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were provided opportunities to ask questions of management concerning the
information provided or made available. The investor confirmed in writing their
investment intent, and the certificates for the securities bear a legend
accordingly.
On April 24, 2000 and July 20, 2000, the Company issued a total of 20,000 shares
to an accredited investor, Richard Lobley, for consulting services. The
securities were issued in reliance on Section 4(2) of the Securities Act. The
investor was provided information about the Company or had access to such
information, and the investors were provided opportunities to ask questions of
management concerning the information provided or made available. The investor
confirmed in writing their investment intent, and the certificates for the
securities bear a legend accordingly.
From April 24, 2000 through June 26, 2000, the Company issued a total of 17,500
shares of common stock to 3 employees pursuant to employment agreements. The
securities were issued in reliance on Section 4(2) of the Securities Act. The
investors were provided information about the Company or had access to such
information, and the investors were provided opportunities to ask questions of
management concerning the information provided or made available. The investors
confirmed in writing their investment intent, and the certificates for the
securities bear a legend accordingly.
On June 8, 2000, the Company issued 25,000 shares to an accredited investor,
Anthem Communications, for consulting services. The securities were issued in
reliance on Section 4(2) of the Securities Act. The investor was provided
information about the Company or had access to such information, and the
investors were provided opportunities to ask questions of management concerning
the information provided or made available. The investor confirmed in writing
their investment intent, and the certificates for the securities bear a legend
accordingly.
Item 6. Exhibits and reports on Form 8-K
Exhibit 27 Financial Data Schedule (SEC use only)
On July 19, 2000, the Company filed a Form 8-K Current Report to disclose that
Deloitte & Touche LLP will act as its new independent auditors replacing Moore
Stephens and Lovelace, P.A. On August 3, 2000, the Company filed an amended Form
8-K Current Report modifying paragraph 2 of the July 19, 2000 report in order to
conform to SEC disclosure rules.
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.
PARTS.COM, INC.
November 13, 2000 By: /s/ Shawn D. Lucas
----------------------------------------
Shawn D. Lucas, President
/s/ Ian J. Hart
----------------------------------------
Ian J. Hart, Chief Financial Officer
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