UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended 09/30/2000.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period [n/a].
Commission file number: 0-28377
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COSMOZ.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------------
Delaware 94-3319536
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 S. El Camino Real, Suite 100
San Mateo, California 94402
(Address of principal executive offices)
650/358-1188
Registrant's telephone number)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: [X] No: [ ]
1
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes:[ ] No:[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 64,513,448
2
<PAGE>
Part I--Financial Information
Item 1. Financial Statements.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
three months ended
September 30,
2000 1999
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Revenues:
Revenues $ 6,126 $ 71,745
Costs of revenues -- --
------------ ------------
Net revenues 6,126 71,745
------------ ------------
Operating Expenses:
Sales and marketing 11,516 259,645
Product development 152,666 76,464
General and administrative 295,817 500,973
Amortization of intangibles 141,341 66,089
Depreciation and amortization 12,889 3,761
------------ ------------
Total operating expenses 614,229 906,932
------------ ------------
Loss from operations (608,103) (835,187)
------------ ------------
Other Income (loss):
Interest income -- 3,374
Interest expense (2,969) (131)
Dividend income 1,318 8,675
------------ ------------
Total other income (1,651) 11,918
------------ ------------
Net loss before taxes (609,754) (823,269)
Provision for income tax -- --
------------ ------------
Loss after income taxes from operations (609,754) (823,269)
Net loss $ (609,754) $ (823,269)
============ ============
Net loss per share:
Net loss per share - basic $ (0.009) $ (0.014)
============ ============
Net loss per share - diluted $ (0.009) $ (0.013)
============ ============
Shares used in per share calculation - basic 64,514,849 59,237,324
============ ============
Shares used in per share calculation - diluted 64,514,849 63,847,324
============ ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in
Shareholders' Equity
for the three month period ended September 30, 2000
(Split Table)
Accumulated
Other
Additional Comprehensive
Preferred Stock Common Stock Paid-in Income
Shares Amount Shares Amount Capital (loss)
---- ---- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 2000 - $ - 64,514,849 $64,514 $13,505,657 $(17,543)
Comprehensive income
(loss):
Net loss from operations
during the period - - - - - -
Net unrealized loss
on securities - - - - - (1,669)
Sale of common stock - - - - 400,000 -
Balance, September 30, 2000 - $ - 64,514,849 $64,514 $13,905,657 $(19,212)
==== ==== ========== ======= =========== ========
Total
Accumulated Shareholders' Comprehensive
Deficit Equity Income
(loss)
------------ ---------- --------
Balance, June 30, 2000 $(10,238,532) $3,314,096 $ -
Comprehensive income
(loss):
Net loss from operations
during the period (609,754) (609,754) (609,754)
Net unrealized loss
on securities - (1,669) (1,669)
Sale of common stock - 400,000 -
Balance, September 30, 2000 $(10,848,286) $3,102,673 $(611,423)
============ ========== =========
</TABLE>
4
<PAGE>
Consolidated Statements of Cash Flows
For the three months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net cash (used in) provided by operating
activities (432,492) (784,322)
--------- ---------
Investing activities:
Sale of marketable securities -- 607,312
Other investments -- (479,501)
Purchases of equipment (33,503) (59,481)
--------- ---------
Net cash provided by investing activities (33,503) 68,330
--------- ---------
Financing activities:
Sale of common stock 400,000 --
Payments received on note receivable -
related party -- 900,000
Payments on amounts due to related parties (100,000) (596,875)
--------- ---------
Net cash provided by financing activities 300,000 303,125
--------- ---------
(Decrease) increase in cash and cash equivalents (165,995) (412,867)
Cash and cash equivalents, beginning of period 175,678 424,781
--------- ---------
Cash and cash equivalents, end of period $ 9,683 $ 11,914
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 2,475 --
Taxes $ -- --
The following non cash transactions occurred during the three months ended
September 30, 2000:
Acquisition of StreetIQ.com, Inc.
Intangibles $ 800,200
Issuance of common stock for acquisition (800,200)
---------
Cash received $ --
Acquisition of MB Technologies, Inc.
Intangibles $ 315,150
Issuance of common stock for acquisition (315,150)
---------
Cash received $ --
=========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
---------------------------------------------
A. General Description of Business
Cosmoz.com, Inc., a Delaware corporation, (http://www.cosmoz.com), offers
through the World Wide Web a network of branded, technology and community-driven
Websites focused on the following categories: personal finance and investing;
search and directory; commerce; and games; and it provides incubation services
to companies in the Internet industry. The Company provides strategic
consulting, business services, and seed capital to emerging companies that are
developing Internet Websites or Web-enabling technologies.
The Company was incorporated in Delaware on October 15, 1996, as MIS
International, Inc., which merged with MIS Multimedia Interactive Services Inc.,
a Canadian corporation, as of July 1, 1997. MIS Multimedia Interactive Services
Inc. and its subsidiaries (Pretzel Franchising, Inc. and Wheel to Wheel
Franchising, Inc.) were engaged in the business of developing and selling
franchises. Wheel to Wheel Franchising, Inc. ("WTW"), concentrated on the
marketing of franchises for automotive service centers that used recycled
automotive parts, and it operated an automotive service center in Ontario,
Canada. Pretzel Franchising, Inc. ("PFI"), concentrated on the marketing of
franchises for "Pretzel Twister" and it operated a store in Toronto, Ontario.
These two Canadian subsidiaries are inactive as of September 30, 1998.
During the year ended June 30, 2000, the Company consummated the acquisitions of
Ivory Acquisition Corporation, StreetIQ, Inc., iTrack, Inc., and the remaining
51% interest in MB Technologies, Inc. The shareholders of these corporations
exchanged all of their shares for shares of our Common Stock.
6
<PAGE>
Our wholly-owned Internet properties include:
o BuckInvestor.com, Inc. (www.buckinvestor.com), which provides financial
and investment information in a format targeted to investors under the
age of 35;
o KingFine, Inc. (www.monsterpick.com), which operates an investment
content website and online message boards targeted to active investors;
o MB Technologies, Inc. (www.tickerzone.com), a message board community
solutions provider;
o StreetIQ, Inc. (www.streetiq.com), which provides focused online
investment information and a community for women;
o iTrack, Inc. (www.itrack.com), operates an online auction monitoring
service that allows consumers to track specific products on the various
online auction houses; and
o Other Company Internet properties include www.monsterquote.com;
www.profitwire.com; www.financialcontent.com; www.casinowhiz.com; and
www.cosmozmall.com.
B. Basis of Presentation and Organization
These unaudited consolidated financial statements represent the financial
activity of Cosmoz.com, Inc., a publicly traded company listed and traded on the
NASDAQ Over the Counter Bulletin Board ("OTCBB"). The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to consolidated financial statements
and footnotes thereto for the fiscal quarter ended September 30, 2000, included
herein. The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All inter-company transactions have
been eliminated. Our fiscal year ends on June 30 each year.
C. Cash and Cash Equivalents, Short and Long-Term Investments
For purposes of cash flows, the Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents, those
with original maturities greater than three months and current maturities less
than twelve months from the balance sheet date are considered short-term
investments, and those with maturities greater than twelve months from the
balance sheet date are considered long-term investments. All of Cosmoz's
short-term investments are classified as available-for-sale at the balance sheet
dates. Investments classified as available-for-sale are recorded at fair value
and any material temporary difference between the cost and fair value of an
investment is presented as a separate component of accumulated other
comprehensive income/loss.
7
<PAGE>
The Company invests in equity instruments of privately held information
technology companies for business and strategic purposes. These investments are
included in other long-term assets and are accounted for under the cost method
when ownership is less than 20%. For these non-quoted investments, our policy is
to regularly review the assumptions underlying the operating performance and
cash flow forecasts in assessing the carrying values.
Restricted Cash
In accordance with the letter of credit agreement with Shanghai Bank, the
Company is required to keep $125,000 on deposit as collateral for the letter of
credit issued by the bank. The letter of credit is required pursuant to the
lease agreement for our office facilities.
D. Property and Equipment
Property and equipment are recorded at cost and are depreciated over the
estimated useful lives of the assets using the straight-line method. Estimated
useful lives for financial reporting purposes are as follows: furniture and
fixtures, five to seven years; computer hardware and software, three years;
leasehold improvements, over the shorter of five years or the lease term. The
cost and related accumulated depreciation of all property and equipment retired
or otherwise disposed of are removed from the accounts. Any gain or loss is
recognized in the current period. Various accelerated methods are used for tax
purposes.
Maintenance and repair costs are charged to expense as incurred, and renewals
and improvements that extend the useful lives of the assets are added to the
property and equipment.
E. Income Taxes
The Company accounts for its income taxes using the Financial Accounting
Standards Board Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the establishment of a deferred
tax asset or liability for the recognition of future deductible or taxable
amounts and operating loss and tax credit carryforwards. Deferred tax expense or
benefit is recognized as a result of timing differences between the recognition
of assets and liabilities for book and tax purposes during the year.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards, and then a valuation allowance is established to reduce
that deferred tax asset if it is "more likely than not" that the related tax
benefits will not be realized.
F. Revenue Recognition
Our revenues are derived principally from two sources. The first source is the
sale of banner and sponsorship advertisements that appear on our website
properties.
Our standard rates for banner advertising are based on cost per thousand
impressions for run of network. The price depends on whether the advertising is
targeted to specific audiences and properties. To date, the duration of our
banner advertising commitments has ranged from one week to 2 months.
8
<PAGE>
Sponsorship advertising contracts have longer terms (ranging from one month to
one year) than standard banner advertising contracts and also involve more
integration with Cosmoz services, such as the placement of buttons that provide
users with direct links to the advertiser's Web site. Advertising revenues on
both banner and sponsorship contracts are recognized ratably over the period in
which the advertising is displayed, provided that no significant Company
obligations remain at the end of a period and collection of the resulting
receivable is probable.
Company obligations typically include guarantees of minimum number of
"impressions," or times that an advertisement appears in pages viewed by users
of our on-line properties. To the extent minimum guaranteed impressions are not
met, the Company defers recognition of the corresponding revenues until the
remaining guaranteed impression levels are achieved. The Company has agreements
that provide revenue from electronic commerce transactions. These revenues are
recognized by the Company upon notification from the advertiser of revenues
earned by Cosmoz.
Our second source of revenues is the distribution of advertisements and reports
on behalf of growth stock companies via electronic mail to our opt-in email
distribution list. This opt-in email list was obtained through marketing efforts
in its family of investment-related websites.
The Company often receives payment in shares of stock, in lieu of cash, from
customers who receive services from its ProfitWire Media Group. The Company
policy is to sell such securities within three months.
G. Product and Web-site Development
Costs incurred in the development of new products or properties and enhancements
to existing products are charged to expense as incurred. Material software
development costs incurred subsequent to the establishment of technological
feasibility are capitalized. Technological feasibility is determined based on
the completion of a working model. The Company has not capitalized any software
development costs.
H. Advertising Costs
All advertising costs are expensed as incurred. Advertising expense totaled
approximately $0 and $214,591 for the three month period ended September 30,
2000 and 1999, respectively.
I. Marketable Securities
Our marketable securities are classified as available-for-sale as of the balance
sheet date and are reported at fair value, with unrealized gains and losses, net
of tax recorded in shareholders' equity. The Company invests its excess cash in
mutual funds and equity securities traded on national stock markets. Realized
gains or losses and permanent declines in value, if any, on available-for-sale
securities are reported in other income or expense as incurred. The Company
recorded a net unrealized loss of $1,669 in the three month period ended
September 2000 and a net unrealized gain of $24,872 in the three month period
ended September 30, 1999, on these types of investments.
The Company invests in equity instruments of privately held, Internet and
information technology companies for business and strategic purposes. These
investments are included in other long-term assets and are accounted for under
9
<PAGE>
the cost method when ownership is less than 20%. For these non-quoted
investments, our policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the carrying values.
The Company identifies and records impairment losses on long-lived assets when
events and circumstances indicated that such assets might be impaired. To date,
no such impairment has been recorded.
J. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Management makes estimates that affect reserves for discontinued operations,
deferred income tax assets and reserves for any other commitments or
contingencies. Any adjustments applied to estimates are recognized in the year
in which such adjustments are determined.
K. Earnings per Share
The Company follows SFAS No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share ("EPS") and applies to
entities with publicly held common stock or potential common stock.
Basic EPS is computed by dividing net income (loss) by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable through stock
options, warrants and other convertible securities when the effect would be
dilutive. Shares issued during the period and shares repurchased by the Company
are weighted for the portion of the period that they were outstanding for both
basic and diluted EPS calculations.
The difference between Basic and Diluted EPS is due to the effect of dilutive
stock options and warrants.
L. Segments of an Enterprise and Related Information
The Company follows SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Currently, the
Company operates in only one segment.
M. Comprehensive Income
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and unrealized gains (losses) on
available for sale marketable securities and is presented in the consolidated
statements of shareholders' equity and comprehensive income. The Statement
requires only additional disclosures in the consolidated financial statements
and does not affect our financial position or results of operations.
10
<PAGE>
N. Business Risks and Credit Concentrations
The Company operates in the Internet-Portal industry segment, which is
relatively new, rapidly evolving and highly competitive. The Company relies on
third-party suppliers of topical and relevant information content. There can be
no assurance that the Company will be able to continue product development and
secure content sufficient to support its operations.
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash, cash equivalents, short
and long-term investments, and accounts receivable. Substantially all of our
cash, cash equivalents, and short and long-term investments are managed by two
financial institutions.
Accounts receivable are typically unsecured. The Company performs ongoing credit
evaluations of its customers' financial condition. It generally requires no
collateral and maintains reserves for potential credit losses on customer
accounts, when necessary. Management estimates that no such reserves are
warranted at September 30, 2000.
O. Foreign Currency and International Operations
International operations were discontinued during the year ended June 30, 1999.
There were no foreign exchange transactions during the period ended September
30, 2000 and 1999.
P. Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137 (SFAS 137), "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. SFAS 137 defers its effective date for fiscal years
beginning after June 15, 2000. The Company is currently not engaged in hedging
activities nor does it have any derivative instruments, thus there is no impact
on the current period financial statements.
Q. Software Developed for Internal Use
The American Institute of Certified Public Accountants issued Statement of
Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This standard requires companies to
capitalize qualifying computer software costs, which are incurred during the
application development stage and amortize them over the software's estimated
useful life. SOP 98-1 is effective for fiscal years beginning after December 15,
1998. The Company has adopted SOP 98-1 and is deemed to not have a material
impact on the financial statements and related disclosures.
R. Intangibles
Intangible assets consist of goodwill resulting from acquisition of websites and
other Internet properties. The difference between the fair market value of the
assets acquired and consideration paid is recorded as goodwill. The Company
estimates that the economic useful life of the goodwill is seven years.
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<PAGE>
S. Long-lived Assets
The Company identifies and records impairment losses on long-lived assets and
identifiable intangible assets, when events and circumstances indicate that such
assets might be impaired. To date, no such impairment has been recorded.
T. Stock Based Compensation
The Company accounts for its stock based compensation plan based on accounting
Principles Board ("APB") Opinion No. 25. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has determined that it will not change to the fair
value method and will continue to use APB Opinion No. 25 for measurement and
recognition of any expense related to employee stock based transactions. As
such, compensation expense would generally be recorded on the date of grant only
if the current market price of the underlying stock exceeds the exercise price.
In March 2000, the FASB released Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." This Interpretation addresses
certain practice issues related to APB Opinion No. 25. The provisions of this
Interpretation are effective July 1, 2000, and except for specific transactions
noted in paragraphs 94-96 of this Interpretation, shall be applied prospectively
to new awards, exchanges of awards in business combinations, modifications to an
outstanding award, and exchanges in grantee status that occur on or after that
date. Certain events and practices covered in this Interpretation have different
application dates, and events that occur after an application date but prior to
July 1, 2000, shall be recognized only on a prospective basis. Accordingly, no
adjustment shall be made upon initial application of the Interpretation to
financial statements for periods prior to July 1, 2000. Thus, any compensation
cost measured upon initial application of this Interpretation that is attributed
to periods prior to July 1, 2000 shall not be recognized. The adoption of FASB
Interpretation No. 44 has no material impact on the financial statements for the
three-month period ended September 30, 2000.
2. Income Taxes
---------------
Due to the uncertainty surrounding the realization of deferred tax assets, the
Company has recorded a valuation allowance against its net deferred tax asset.
The Company has loss carryforwards of approximately $10,166,132 from continuing
operations, which may be used to offset future United States income taxes and
which begin to expire in 2019.
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<PAGE>
3. Investments
At September 30, 2000, short and long-term investments in marketable securities
were classified as available-for-sale as follows:
Gross Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
-------- ------- -------- --------
Equity securities $ 10,000 $ -- (8,062) $ 1,938
Corporate equity securities,
privately-held 210,982 -- -- 210,982
-------- ------- -------- --------
Total $220,982 $ -- $ (8,062) $212,920
======== ======= ======== ========
At June 30, 2000, short and long-term investments in marketable securities were
classified as available-for-sale as follows:
Gross Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
-------- ------- -------- --------
Equity securities $ 10,000 $ -- $ (6,657) $ 3,343
-------- ------- -------- --------
Total short-term
investments 10,000 -- (6,657) 3,343
Corporate equity
securities,
privately-held 210,982 -- -- 210,982
-------- ------- -------- --------
Total $220,982 $ -- $ (6,657) $214,325
======== ======= ======== ========
Investments in corporate equity securities of privately held companies, in which
the Company holds a less than 20% equity interest, are classified as long-term.
On April 26, 2000, eCal Corporation ("eCal") acquired iPing, Inc. ("iPing"). The
Company had made an early-stage investment in iPing. The acquisition of iPing by
eCal resulted in 500,000 Series B iPing Preferred Stock owned by Cosmoz being
converted into $375,000, (the original cash investment), and 56,108 shares of
eCal Common Stock. Currently, eCal is a privately held corporation, and the
value of eCal shares is not determinable.
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4. Stock Option Plan
--------------------
On November 17, 1999, our board of directors approved the Cosmoz.com, Inc. 1999
Stock Option Plan (the "Plan"). On December 20, 1999, our shareholders, at our
annual meeting, approved the Plan, and authorized a pool of 6,000,000 shares of
common stock to be issued according to the Plan. Options are usually granted at
the prices equal to the current fair value of our common stock at the date of
grant. The vesting period is usually related to the length of employment or
consulting contract period.
The Board of Directors has granted management the authority to issue
non-statutory stock options to employees and consultants of the Company. As
September 30, 2000, the Company has granted options exercisable for our common
stock to its employees and other eligible participants. The exercise price
varies depending on the trading price of our common stock on the date of
issuance among other factors.
Under this plan, no option may be exercised after the expiration date of ten
years from the date of grant. There are two categories of options: Incentive
Stock Options (ISO) and Non-Qualified Stock Options (NSO).
ISOs are granted to employees and the purchase price shall not be less than the
Fair Market Value of the common stock share at the date of grant and no ISO
shall be exercisable more than ten (10) years from date of grant, and, no NSO
shall be exercisable more than five (5) years from date of grant. NSOs may be
granted to any eligible participant, and ISO are granted only to employees of
the Company.
In general, granted ISO's expire three months after the termination date. If
employment termination is due to cause, the options shall expire immediately;
and if employment termination is due to permanent and total disability, the
options may be exercised up to one year following termination.
Stock options issued as of September 30, 2000 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- -------------------------
Number Weighted Number of Weighted
of average options average
options exercise exercise
price price
----------- ------- -------------- -------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 792,500 $ 0.36 2,700,000 $ 0.15
Granted - - 970,000 3.25
Exercised
Forfeited/Cancelled (65,500) 0.40 - -
----------- ------- -------------- -------
Outstanding at end of year 727,000 0.36 3,670,000 1.68
=========== ------- ============== -------
Exercisable at end of year 434,028 $ 0.34 2,625,000 $ 0.21
=========== ======= ============== =======
</TABLE>
The non-statutory stock options are for periods of three to four years. Options
to purchase 434,028 shares were vested as of June 30, 2000.
14
<PAGE>
The following table summarizes information about options outstanding at
September 30, 2000.
<TABLE>
<CAPTION>
Weighted Number
Average Exercisable
Weighted Average Remaining as of
Exercise Number Exercise Price per Contractual June 30,
prices Outstanding Share Life in Years 2000
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
452,000 $ 0.59 2.55 259,028
$0.59
$1.00 100,000 1.00 1.00 100,000
$1.50 175,000 1.50 2.82 75,000
---------- ---------
727,000 434,028
========== =========
</TABLE>
The exercise period for the options range from two to four years from the date
of the grant, and have various vesting requirements.
5. Common Stock Transactions
----------------------------
On May 6, 2000, the Company signed a subscription agreement with Tupelo
Investment Co., Ltd. to purchase 3,030,303 shares of our restricted common stock
at a discount from market price of $0.33 per share, for an aggregate
consideration of One Million Dollars ($1,000,000). Total payment shall be made
in five equal monthly installments commencing May 31, 2000. Each installment
payment shall be paid no later than 30th of the month until the aggregate amount
of $1,000,000 is fully paid. During the three months ended September 30, 2000,
the Company received payment of $400,000 from Tupelo Investment under this
agreement. The Company has a subscription receivable for $200,000 as of
September 30, 2000. The Company received this amount in October 2000.
On June 26, 2000, the Company entered into an investment agreement with Swartz
Private Equity, LLC. ("Swartz"). According to this investment agreement, Cosmoz
may, in its sole discretion and subject to certain restrictions, periodically
sell shares of its common stock to Swartz. The sale of shares is called a "put".
Under the investment agreement, the Company may sell up to $20,000,000 of its
shares. The Company may begin putting shares when the shares become registered,
in accordance with the Securities and Exchange Act of 1933, and for three years
after. The investment agreement allows the Company to choose to sell common
stock to Swartz at times that it decides are advantageous. The investment
agreement is not a debt instrument. Any put exercised by the Company is the sale
of common stock and not a loan. The investment agreement with Swartz operates as
follows:
o Cosmoz is permitted to sell to Swartz up to $20,000,000 worth of its
common stock;
o The Company determines number of shares that it wishes to issue to
Swartz, but the amount it sells is subject to volume limitations;
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o Swartz pays the Company either the market price of the common stock
less 7.5 cents, or 91% of the market price, whichever is less;
o Swartz may either hold the shares, or sell them in the public market;
o The Company also issued a warrant to Swartz as part of this agreement;
Specifically, it issued warrants which are convertible into 2,400,000
shares of common stock. Warrants for 1,200,000 shares bear an exercise
price of $0.375, which is based upon the lowest closing price for the
five days preceding June 26, 2000. The other warrants for 1,200,000
shares bear an exercise price that is the lower of the lowest closing
price for the 5 trading days prior to the effective date of this
registration statement; or the lowest closing price for the 5 trading
days prior to October 27, 2000. The exercise price is subject to
adjustment every six (6) months and is tied to the lowest closing price
for the five trading days preceding the adjustment;
o Swartz also has the right to additional warrants. Specifically, Swartz
is entitled to warrants for 10% of the number of shares that the
Company sells to them under this agreement. The price per share under
these warrants will be 110% of the market price when the warrant is
issued. The exercise price is subject to adjustment every six (6)
months and is tied to the lowest closing price for the five trading
days preceding the adjustment.
Warrants
As of September 30, 2000, the company has outstanding warrants, which are
convertible into 6,400,000 shares of common stock.
Certain warrants (convertible into 2,400,000 shares of common stock) have a
clause that causes the exercise price to be adjusted down, based on the quoted
share price measured on certain incremental measurement dates. The warrants
expire 3-5 years from the date of grant.
9. Related Party Transactions
-----------------------------
The following transactions occurred between the Company and certain related
parties:
A. Asia Pacific Ventures
Asia Pacific Ventures (APV) is a company whose headquarters are in Hong Kong,
and its authorized representative was Wilfred Shaw, the current CEO of Cosmoz.
APV has loaned money to the Company in previous years. Additionally, APV is a
shareholder holding greater than 10% of the outstanding common stock of the
Company and whose current authorized representative is a family member of
Wilfred Shaw, current CEO of the Company. In February 2000, APV advanced to the
Company $250,000. The note payable is due upon demand and bears an annual
interest rate of 12%, and the balance as of September 30, 2000 is $50,000.
B. Wilfred Shaw
Mr. Wilfred Shaw has been performing the duties of Chairman and CEO of Cosmoz
starting July 1, 1998 to December 31, 1999, and he has received no remuneration
for his services, which is pursuant to his decision. He has performed these
services pro bono.
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Mr. Shaw also did not receive any compensation for the period starting July 1,
1998 to December 31, 1999 for serving as the Chairman of the Board of Directors.
Mr. Shaw has $60,000 in director fees due from the Company for serving as the
Chairman of the Board of Directors for the period prior to June 30, 1998. The
amount is included in the liabilities for discontinued operations. On October
15, 1999, options convertible to 2,500,000 shares of common stock, which were
granted to CEO Wilfred Shaw, expired without being exercised.
C. Sharpmanagement, LLC.
The Company has signed a consulting contract with Sharpmanagment, LLC
("SharpManagement") to secure the services of Wilfred Shaw. Under the terms of
this contract the Company is required to pay an initial payment of $180,000 and
a payment of $15,000 per month for each month that Mr. Shaw provides services to
the Company. SharpManagement is 100% owned by Wilfred Shaw. As of September 30,
2000, SharpManagement is due $314,354.
10. Commitments and Contingencies
---------------------------------
A. Legal
The Company is periodically involved in legal actions and claims that arise as a
result of events that occur in the normal course of operations, including claims
of alleged infringement of trademarks, copyrights and other intellectual
property rights. The Company is not currently aware of any legal proceedings or
claims that the Company believes will have, individually or in the aggregate, a
material adverse effect on our financial position or results of operations.
B. Operating Leases
On March 1, 2000, our principal executive offices relocated to a 5,900 square
foot facility at 1515 S. El Camino Real, Suite 100, San Mateo, California 94402.
The Company leases the facility under a 3-year agreement that terminates on
February 28, 2003, with no renewal option. The aggregate annual rental rate for
the entire facility for the first, second, and third years of the lease term is
$248,094, $255,182, and $262,271, respectively. The Company is also obligated to
pay 33.34% of increases in operating expenses and property taxes paid or
incurred by the landlord in the second and third years of the lease term. All
operations including system development, control, and maintenance are performed
at this facility.
For the three month period ended September 30, 2000 and 1999, rent expense was $
62,024 and $ 18,486 respectively.
C. Letter-of-credit
As of September 30, 2000, the Company was contingently liable under an
outstanding irrevocable letter of credit from a bank in the principal amount of
$125,000, issued in connection with the lease of certain office space. The
letter of credit is collateralized by a $125,000 cash deposit with the bank.
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11. Going Concern Uncertainties
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has experienced recurring
operating losses and negative cash flows from operations. Our continued
existence is dependent upon its ability to increase operating revenues and/or
raise additional equity financing.
In view of these matters, management believes that actions presently being taken
to expand our operations and to continue its web-site development activity
provide the opportunity for the Company to return to profitability. Our focus on
strategic technological investments will improve our cash flow, profitability,
and ability to raise additional capital so that it can meet its strategic
objectives.
Management raised additional capital during the period, and is currently in the
process of negotiating additional equity financing with potential investors. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
In August 2000, the Company filed a Registration Statement, Form S-1, pertaining
to the sale of 26,666,667 shares of its common stock, of which none are issued
and outstanding, and the shares are issuable upon exercise of "put" options with
Swartz and for shares issuable under warrants outstanding. The shares are
issuable upon sale or exercise of securities, which were issued, by the Company
in private placement transactions. The Securities and Exchange Commission is
currently reviewing the Registration Statement filing.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
--------------------------------------------------------------------------------
This report contains forward-looking statements that address, among other
things, market acceptance of our solutions, expansion into new targeted
industries, product development, sales and marketing strategies, development and
maintenance of strategic alliances, technological advancement, global expansion,
use of proceeds, projected capital expenditures, liquidity and availability of
additional funding sources. These statements may be found throughout this
report. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expects, plans, anticipates, believes,
estimates, predicts, potential, continue or the negative of such terms or other
comparable terminology. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks discussed in the Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
Overview
We earn operating revenues from two principal sources. First, we earn revenues
from the sale of banner and sponsorship advertisements that appear on our
Internet websites. Sponsorship advertising contracts have terms ranging from one
month to one year, longer-than-standard banner advertising contracts and also
involve more integration with our web-sites, such as the placement of buttons
that provide users with direct links to our advertisers' websites. Advertising
revenues on both banner and sponsorship contracts are recognized on a prorated
basis over the period in which the advertising is displayed, if no significant
company obligations remain at the end of a period and collection of the
resulting receivable is probable. We have agreements that provide revenue from
electronic commerce transactions. We recognize these revenues upon notification
from the advertiser of revenues earned by us.
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We earn our second revenue source from providing investor relations services to
other companies through our ProfitWire subsidiary. We distribute advertisements
and reports through our family of financial websites and through an opt-in email
list on behalf of growth stock companies. We obtained this opt-in email list
through marketing efforts in our family of investment-related websites.
ProfitWire also recently began offering standard investor relations services. We
often receive payment in shares of stock in lieu of cash.
Costs and expenses are recognized as incurred. The majority of costs and
expenses are related to product development, salaries, management fees, public
and investor relations services, and amortization of goodwill.
Sales and marketing expenses consist principally of salaries and benefits for
sales, marketing and associated support group personnel. Also included are the
costs for public relations, advertising, tradeshows and marketing materials.
Product and development expenses consist primarily of salaries and benefits for
research and development personnel and also include related expenses, such as
general hardware and software costs and fees paid to outside contractors for
quality assurance activities, maintenance activities, web hosting, financial
content news feeds and stock quotes. Costs incurred in the development of new
products or properties and enhancements to existing products are charged to
expense as incurred until technological feasibility is achieved. Material
software development costs incurred subsequent to the establishment of
technological feasibility are capitalized. Technological feasibility is
determined based on the completion of a working model. We have not incurred
material software development costs and accordingly have not capitalized any
software development costs.
General and administrative expenses consist of salaries and benefits for
executive staff and administrative personnel, management fees paid to
SharpManagement for the services of Wilfred Shaw, chairman and chief executive
officer, facility costs, recruiting, legal, accounting and other general
corporate expenses.
Amortization expenses consist of amortization of goodwill. Goodwill from the
acquisition of Internet properties is amortized over seven years.
Investment gain/loss resulted from sales of marketable securities that are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses, net of tax recorded in
shareholders' equity. We invest our excess cash in mutual funds and equity
securities traded on national stock markets. Realized gains or losses and
permanent declines in value, if any, on available-for-sale securities are
reported in other income or expense as incurred.
We have incurred net losses and negative cash flows from operations. For the
three months ended September 30, 2000, we had a net loss of $609,754 from
operations. We have been able to raise capital through the sale of our common
stock. The cash we raised is used to fund operations. We intend to continue to
fund, acquire and develop Internet companies by providing strategic consulting
services, business services and seed capital to emerging companies that are
developing Internet web sites or web-enabling technologies. We believe that we
will continue to incur operating losses and negative cash flow for the
foreseeable future. In addition, we believe that as a result of the rapidly
evolving nature of our business and our limited operating history,
period-to-period comparisons of our revenues and operating results are not
meaningful and should not be relied upon as indicators of future performance.
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Results of Operations for the three months ended September 30, 2000 and 1999
Revenues decreased to approximately $6,126 for the three months ended September
30, 2000 from approximately $71,745 for the three months ended September 30,
1999. This decline in revenues was primarily attributable to decline in
sponsorship advertisements income from our various websites.
Sales and marketing. Sales and marketing expenses decreased to approximately
$11,516 for the three months ended September 30, 2000 from approximately
$259,645 for the three months ended September 30, 1999. The primary reason for
the decrease resulted from elimination of our advertising campaign.
Product development. Product development expenses increased to approximately
$152,666 for the three months ended September 30, 2000 from approximately
$76,464 for the three months ended September 30, 1999. The increase was the
result of an increase in product development personnel and other related
expenses.
General and administrative. General and administrative expenses decreased to
approximately $295,817 for the three months ended September 30, 2000 from
approximately $500,973 for the three months ended September 30, 1999. The
decrease was the result of decrease in administrative personnel, third party
public relations services, investor relations expenses, general operating
facilities, legal, accounting fees, telephone and other support costs.
Amortization of intangibles. Amortization of intangibles expenses increased to
approximately $141,341 for the three months ended September 30, 2000 from
approximately $66,089 for the three months ended September 30, 1999. The
increase was the result of various acquisitions of Internet properties recorded
under the purchase method in accordance with the provisions of APB 16.
Intangible assets are being amortized on a straight-line basis over seven years.
Depreciation and amortization. Depreciation and amortization expenses increased
to approximately $12,889 for the three months ended September 30, 2000 from
approximately $3,761 for the three months ended September 30, 1999. Property and
equipment is being depreciated over the estimated useful life of the related
assets, generally three to seven years using the straight-line method.
Other income (loss). Net other loss was approximately $1,651 for the three
months ended September 30, 2000 as compared to net other income $11,918 for the
three months ended September 30, 1999. The increase resulted from loss on sale
of marketable securities.
Income Taxes. We have not recorded income tax benefit of $10,000,000 primarily
due to loss carryforwards from continuing operations, which may be used to
offset future United States income taxes and which begin to expire in 2019 due
to the uncertainty surrounding the realization of deferred tax assets.
Liquidity and Capital Resources
To date, we have financed our operations primarily through the private placement
of equity securities. As of September 30, 2000, we had approximately $9,683 of
cash, cash equivalents and short-term investments and working capital deficit of
$758,396.
Net cash used in operating activities was $432,492 for the three months ended
September 30, 2000 compared to $784,322 for the three months ended September 30,
1999. The cash used during these periods was primarily attributable to net
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operating losses of $609,754 in 2000 and $823,269 in 1999, offset in part by
depreciation and amortization. These losses were principally related to expenses
as more fully described in the section entitled "Results of operations." Our
losses were principally related to sales and marketing expenses, product
development and general and administrative expenses.
Net cash used in investing activities was $33,503 for the three months ended
September 30, 2000 compared to cash provided by investing activities of $68,330
for the three months ended September 30, 1999. Cash used in 2000 primarily
related to purchase of capital expenditures. Cash provided in 1999 resulted from
net cash in the amount of $68,330 included sale of marketable securities,
purchases of capital expenditures and long-term investments.
For the three months ended September 30, 2000 we generated net proceeds from
financing activities of $300,000. For the three months ended September 30, 1999,
we generated net proceeds from financing activities of $303,125. Net cash used
in operating activities for the three months ended September 30, 2000 was
$432,492 and resulted from net losses, decreases in accounts receivable, and
decreases in prepaid expenses. These amounts were partially offset by an
increase of accrued expenses and decrease in accounts payable. Net cash used in
operating activities for the three months ended September 30, 1999 was $784,322
and resulted from net losses, increase in accounts receivable and decrease in
prepaid expenses. These amounts were partially offset by an increase of accounts
payable, decrease in accrued expenses.
Our future capital requirements depend on numerous factors, including market
acceptance of our services, the timing and rate of expansion of our business,
the resources we allocate to our customers and FirstParsec/Acceleration projects
and other factors. We have experienced substantial increases in our expenditures
since January 1, 1999 consistent with growth in our operations and personnel,
and we anticipate that our expenditures will continue to increase in the
foreseeable future. Our continued existence is dependent upon our ability to
increase operating revenues and/or raise additional equity financing. If
additional funds are raised through the issuance of equity securities, then the
percentage ownership of our existing stockholders will be reduced, stockholders
may experience additional and significant dilution and such equity securities
may have rights, preferences or privileges senior to those of our common stock.
There can be no assurance that additional financing will be available on terms
acceptable to us or at all. If adequate funds are not available or are not
available on terms acceptable to us, we may be unable to continue our business,
sales or marketing plan, respond to competitive forces or take advantage of
perceived business opportunities, which could have a material adverse effect on
our business, financial condition and operating results.
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PART II--Other Information
Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
(a)INDEX TO EXHIBITS
Number of
Item
Assigned in
Regulation
S-B, Item 601 Description of Exhibit
-------------- --------------------------
(2) 2.1. Agreement and Plan of Reorganization
between Cosmoz.com, Inc. and Ivory Acquisition
Corporation dated January 5, 2000. Certificate of
Ownership and Merger Merging Ivory Acquisition
Corporation into Cosmoz.com, Inc. (Incorporated by
reference to Exhibit 2 to Form 8-K/A, File No.:
000-28377)
(3) 3.1. Articles of Incorporation of Cosmoz.com,
Inc. (Incorporated by reference to Exhibit 3.(I)
to Form 8-K/A, File No.: 000-28377)
3.2. By-Laws of Cosmoz.com, Inc. (Incorporated
by reference to Exhibit 3.(II) to Form 8-K/A,
File No.: 000-28377)
(10) 10.1. Cosmoz.com, Inc. 1999 Stock option plan.
(Incorporated by reference to Exhibit 10.1 to
Form 10-Q, File No.: 000-28377)
10.2. Owen Naccarato Director's Agreement.
(Incorporated by reference to Exhibit 10.2 to
Form 10-Q, File No.: 000-28377)
10.3. Management and Consulting Agreement
Between Us and SharpManagement, LLC.
(Incorporated by reference to Exhibit 10 to Form
S-1 filed August 24, 2000, File No.: 333-44406)
10.4. Investment Agreement Between Us and Swartz
Private Equity, LLC. (Incorporated by reference
o Exhibit 10 to Form S-1 filed August 24, 2000,
File No.: 333-44406)
10.5. Warrant to Purchase Our Common Stock Issued
in Connection With the Investment Agreement
Between Us and Swartz. (Incorporated by reference
to Exhibit 10 to Form S-1 filed August 24, 2000,
File No.: 333-44406)
10.6. Registration Rights Agreement issued in
connection with the Investment Agreement Between
Us and Swartz. (Incorporated by reference to
Exhibit 10 to Form S-1 filed August 24, 2000, File
No.: 333-44406)
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10.7. Warrant Side Agreement Issued in
Connection With Investment Agreement Between Us
and Swartz. (Incorporated by reference to
Exhibit 10 to Form S-1 filed August 24, 2000,
File No.: 333-44406)
10.8. Commitment Warrant to Purchase Our Common
Stock Issued in Connection With Investment
Agreement Between Us and Swartz. (Incorporated by
reference to Exhibit 10 to Form S-1 filed August
24, 2000, File No.: 333-44406)
(b) Reports on Form 8-K: None.
COSMOZ.COM, INC.
By /s/ Wilfred Shaw
-------------------
Wilfred Shaw
Chairman and Chief Executive Officer
Date: November 17, 2000
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