<PAGE> 1
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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 June 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 July 17, 2000, there were 24,072,091 shares of common stock outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Index to Financial Statements
PARTS.COM, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
June 30, 2000 and December 31, 1999 3-4
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2000 and 1999 5
Consolidated Statement of Stockholders' Equity for
the Six Months Ended June 30, 2000 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 7-8
Notes to Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 14-16
Other Information and signatures 17
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
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PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
---------- ------------
(unaudited)
CURRENT ASSETS:
Cash $ 535 $ 1,180,833
Accounts receivable trade, net
of allowance for doubtful accounts
$63,885 and $53,885, respectively 34,776 50,597
Inventory 54,589 54,589
Prepaid expenses and other current
assets 162,763 77,824
---------- -----------
Total Current Assets 252,663 1,363,843
---------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$198,482 and $126,284, respectively 931,408 823,221
DEFERRED LOAN COSTS, net of
accumulated amortization of
$17,740 and $10,137, respectively 240,760 248,363
OTHER ASSETS, net of
accumulated amortization of
$630,912 and $235,526, respectively 592,536 415,400
PATENT, net of accumulated amortization
of $891,250 and $249,550, respectively 5,525,750 6,167,450
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED,
net of accumulated
amortization of $613,579
and $380,266, respectively 1,719,199 1,952,490
---------- -----------
Total Assets $9,262,316 $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
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 793,224 $ 565,814
Other current liabilities 262,517 158,352
Current portion of mortgages payable 1,428 1,428
Current portion of capitalized leases -- 10,113
Deferred revenue 964,721 586,000
------------ ------------
Total Current Liabilities 2,021,890 1,321,707
LONG TERM PORTION OF BANK NOTE AND
MORTGAGES PAYABLE 396,678 397,976
------------ ------------
Total Liabilities 2,418,568 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,
24,072,791 and 23,051,206 shares
issued and outstanding, respectively 24,073 23,051
Additional paid-in capital 19,930,241 16,090,049
Accumulated deficit (13,110,566) (6,862,016)
------------ ------------
Total Stockholders' Equity 6,843,748 9,251,084
------------ ------------
Total Liabilities and
Stockholders' Equity $ 9,262,316 $ 10,970,767
============ ============
See Accompanying Notes
4
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PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
(unaudited) (unaudited)
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 336,886 $ 379,733 $ 382,130 $ 831,515
COST OF SALES 188,856 284,087 469,397 619,631
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 148,030 95,646 (87,267) 211,884
------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,262,317 575,686 2,912,075 1,072,954
AMORTIZATION 439,920 109,930 974,767 191,963
DEPRECIATION 47,111 15,290 72,198 30,476
STOCK BASED COMPENSATION 343,318 25,185 2,179,979 278,185
INTEREST, NET 14,802 18,637 22,264 22,469
ASSET IMPAIRMENT CHARGE -- 74,000 -- 74,000
------------ ------------ ------------ ------------
TOTAL EXPENSES 2,107,468 818,728 6,161,283 1,670,047
------------ ------------ ------------ ------------
NET LOSS (1,959,338) $ (723,082) $ (6,248,550) $ (1,458,163)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.08) $ (.06) $ (.27) $ (.12)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 23,858,126 12,604,115 23,480,713 12,089,020
============ ============ ============ ============
</TABLE>
See Accompanying Notes
5
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PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 778,585 779 1,334,180 -- 1,334,959
Issuance of common stock to
directors 60,000 60 719,040 -- 719,100
Issuance of common stock for
NASCAR sponsorship 34,000 34 550,766 -- 550,800
Termination of NASCAR sponsorship
and cancellation of restricted
shares (34,000) (34) (550,766) -- (550,800)
Issuance of common stock for
services 183,000 183 1,580,646 -- 1,580,829
Net loss for the period -- -- -- (6,248,550) (6,248,550)
---------- -------- ------------ ------------ -----------
Balance - June 30, 2000 24,072,791 $ 24,073 $ 19,930,241 $(13,110,566) $ 6,843,748
========== ======== ============ ============ ===========
</TABLE>
See Accompanying Notes
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PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------------
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(6,248,550) $(1,458,163)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 974,767 191,963
Depreciation 72,198 30,476
Stock based compensation 2,179,979 278,185
Asset impairment charge -- 74,000
Changes in operating assets and liabilities:
Receivables 15,821 (71,181)
Inventory -- (29,105)
Prepaid expenses and other
current assets (41,439) 129,917
Deferred revenue 378,721 (197,500)
Accounts payable and accrued
expenses 242,287 282,353
Other current liabilities 104,165 (60,167)
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Net cash used in
operating activities (2,322,051) (829,222)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property and
equipment (180,385) (423,739)
Payments for other assets (1,410) (21,601)
----------- -----------
Net cash used in
investing activities (181,795) (445,340)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under mortgages payable -- 370,500
Repayments of other liabilities -- (20,000)
Proceeds from note payable 23,600 --
Repayment of note payable (23,600) --
Repayments of bank and other
note payable (1,298) (22,956)
Repayments of capitalized leases (10,113) (11,971)
Proceeds from issuance of
common stock 1,334,959 918,524
----------- -----------
Net cash provided by financing
activities 1,323,548 1,234,097
----------- -----------
DECREASE IN CASH (1,180,298) (40,465)
CASH, AT BEGINNING OF PERIOD 1,180,833 65,509
----------- -----------
CASH, AT END OF PERIOD $ 535 $ 25,044
=========== ===========
</TABLE>
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PARTS.COM, INC. AND SUBSIDIARY
(FORMERLY MIRACOM CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Six Months Ended
June 30
------------------------------
2000 1999
----------- -----------
(unaudited) (unaudited)
[S] [C] [C]
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $29,712 $14,366
======= =======
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Six Months Ended June 30, 2000:
Issuance of 60,000 shares of common stock in connection with the appointment of
two independent directors, in the aggregate amount of $719,100.
Issuance of 130,500 shares of common stock in connection with employment
contracts and employee bonuses, in the aggregate amount of $1,350,308.
Issuance of 42,500 shares of common stock in payment of $165,089 of consulting
Fees.
Issuance of 10,000 shares for advertising costs valued at $65,250. At June 30,
2000, $43,500 of such costs were recorded as a prepaid expense.
Six Months Ended June 30, 1999:
Issuance of 100,000 shares of common stock, valued at $331,870, in payment of
deferred consulting fees.
Issuance of 600,000 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 75,000 shares of common stock in payment of expenses in the amount
of $75,185.
Excess of fair market value of options to purchase 550,000 shares of common
stock over their aggregate option price, in the amount of $253,000.
See Accompanying Notes
8
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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 provider
of Internet-based business and online buying solutions. 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.
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 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.
9
<PAGE> 10
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
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 June 30, 2000 and for the six month periods
ended June 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
June 30, 2000 and the results of our operations and cash flows for the
six month periods ended June 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
six month period ended June 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 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 June 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 $13,110,566. At June 30, 2000, the Company had a working capital
deficit of $1,769,227. 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.
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<PAGE> 11
PARTS.COM, INC.
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
LIQUIDITY AND PLAN OF OPERATIONS - As of June 30, 2000, the
Company had cash of $535 and a working capital deficit of $1,769,227.
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. Based upon its current
business plan, the Company believes it will generate sufficient cash
flow through operations and external sources of capital to continue to
meet its obligations in a timely manner.
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
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PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY 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 six months ended
June 30, 2000, the Company recognized minimal amounts of revenue from
e-commerce transactions and recorded three 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 six months ended June 30, 2000 and the period
ended June 30, 1999, the Company generated gross revenues of
approximately $20,000 and $600,000, respectively, from the production
of radio and television media.
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, in connection with M&M/Mars
Incorporated entered into an agreement 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 also issued 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 cancelled the 34,000 share
issuance; reduced Prepaid expenses and other current assets by
$719,000; and reduced Stockholders' Equity by $550,800.
4. 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 six months ended June 30, 2000, employees of the Company were
issued options to purchase a total of 631,000 shares of the Company's
Common Stock, at exercise prices ranging from $3.00 to $20.00 per share
expiring March 2005 (unrecognized imputed charge of $5,021,629 or $0.21
per share, computed using the Black Scholes Model.)
12
<PAGE> 13
PARTS.COM, INC. AND SUBSIDIARY
(FORMALLY MIRACOM CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (unaudited) Continued
5. RELATED PARTY TRANSACTIONS:
During the six months ended June 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.
The carrying value of land, building and improvements at June
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.
13
<PAGE> 14
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 $6,248,550 for the six months
ended June 30, 2000 and had an accumulated deficit of $13,110,566 at June 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-Six Months Ending June 30, 2000
During the six months ended June 30 2000, total revenues amounted to $382,130
versus last year's revenue of $831,515. The company is in a state of transition
with its expansion focused on its parts.com e-commerce business-to-business
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. $964,721 of this amount has been recorded as deferred revenue at
June 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 six 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 six months ended June 30, 2000 and
the six months ended June 30, 1999, the Company generated gross revenues of
approximately $20,000 and $600,000, respectively, from the production of radio
and television media. Additionally, for the six months ended June 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 $211,884 for the six months ended June
30, 1999 compared to a gross loss of $87,267 for the six months ended June 30,
2000. The primary reason for the change from a positive profit margin to a
negative margin is due to the Company focusing its efforts and resources on
selling auto parts over its web site in 2000. Significant expenditures incurred
during the six months ended June 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 and second quarter of 2000 and recognized one quarter worth of related
territory fees. The balance of Territory fees collected through June 30, 2000
have been recorded as deferred revenue and will continue to be amortized as
income on a quarterly basis. The Company has recently 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 $4,491,236 or 269% for the six months
ended June 30, 2000 compared to the same period last year as a result of several
factors. In the six months ended June 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 June 30, 1999 to 42 full-time employees and 3 full-time
programmer/developer outside consultants at June 30, 2000. Finally, in the six
months ended June 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 six months ended June 30, 2000 rose
$824,526 or 370% to $1,046,965 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 $2,179,979 for the
six months ended June 30, 2000 as compared to $278,185 for the same period last
year reflecting a conservation of cash resources by management.
Liquidity and Sources of Capital
During the six months ended June 30, 2000, the Company's operating cash
requirement was $2,322,051 attributable to a net loss of $6,248,550 mitigated by
non-cash charges for depreciation and amortization ($1,046,965) and stock based
compensation ($2,179,979). The net remaining shortfall was primarily funded by
the net sale of common stock for $1,334,959 and $693,000 in territory fees
received during the six months ended June 30, 2000. Partially offsetting this
funding were capital expenditures of $180,385 and the payment on capitalized
leases of $10,113.
During the six months ended June 30, 1999, the Company's operating cash
requirement was $829,222 attributable to a net loss of $1,458,163 mitigated by
non-cash charges for depreciation and amortization ($222,439) and stock based
compensation ($278,185). The net remaining shortfall was primarily funded by the
net sale of common stock for $918,524. Partially offsetting this funding were
capital expenditures of $423,739 and the payment of capitalized leases and other
debt of $54,927. Stock based compensation valued at $278,185 was used to
conserve cash.
The ability of the Company to satisfy its obligations depends in part on its
ability to reach a profitable level of operations and secure both short and
long-term financing for the development and expansion of its main businesses.
The Company is currently in negotiations with financial institutions and other
private lenders to provide additional funding through equity or debt financing
to fund its current business plan. 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. There can be no assurance, however, that the Company will be successful
in obtaining any such additional financing through equity or debt financing.
Changes in securities and use of proceeds
Recent Sales of Unregistered of Securities. The Company issued the following
unregistered securities during the six months ended June 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.
From January 3, 2000 through March 29, 2000, the Company issued a total of
27,500 shares of common stock to 13 employees, one of whom was an accredited
investor, pursuant to employment agreements. The securities were issued in
reliance on Section 4(2) of the Securities Act. The investors were provided
information about
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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 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 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 June 7, 2000, the Company sold 778,585 shares of
common stock in private placements to 11 investors (9 of which were accredited)
for net proceeds of $1,334,959 (share prices ranging from $1 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 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.
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On April 24, 2000, the Company issued 10,000 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
None.
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.
July 18, 2000 By: /s/ Shawn D. Lucas
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Shawn D. Lucas, President
/s/ Ian J. Hart
----------------------------------------
Ian J. Hart, Chief Financial Officer
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