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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-29501
[LOGO]
COM-GUARD.COM, INC.
(Exact name of registrant as specified in its charter)
NEVADA 33-0879853
(State or other jurisdiction of incorporation or (IRS Employer ID No.)
organization)
2075 CORTE DEL NOGAL, SUITE B
CARLSBAD, CALIFORNIA 92009
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (760) 431-2206
Check 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 past 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
--- ---
The number of shares outstanding of the registrant's common stock as of
March 31, 2000, was 9,571,000.
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<CAPTION>
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets
March 31, 2000 (unaudited) and June 30, 1999 (audited) 2
Statements of Operations
Three months ended March 31, 2000 and 1999 (unaudited) 3
Statements of Operations
Nine months ended March 31, 2000 and 1999 (unaudited) 4
Statements of Cash Flows
Nine months ended March 31, 2000 and 1999 (unaudited) 5
Notes to Financial Statements. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 11
SIGNATURES 12
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COM-GUARD.COM, INC.
(A Development Stage Entity)
BALANCE SHEETS
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<CAPTION>
ASSETS
6/30/99 3/31/00
(AUDITED) (UNAUDITED)
<S> <C> <C>
Current assets
Cash $ 221,285 $ 74,102
Vendor advance to purchase inventory 50,000 -
Inventories - 483,414
Prepaid expenses 2,500 -
---------- ---------
Total current assets 273,785 557,516
---------- ---------
Fixed assets
Furniture and equipment 20,844 33,136
Accumulated depreciation (1,596) (7,396)
---------- ---------
Furniture and equipment, net 19,248 25,740
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$ 293,033 $ 583,256
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 11,920 $ 105,692
Notes payable - 200,000
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Total current liabilities 11,920 305,692
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Stockholders' equity
Common stock, $0.001 par value, 100,000,000 shares
authorized; 9,094,500 and 9,571,000 shares issued and
outstanding at June 30, and March 31, 2000 9,095 9,571
Additional paid-in capital 919,705 1,575,729
Stockholder loans and advances (55,000) (170,089)
Accumulated deficit during development (592,687) (1,137,647)
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Total shareholders' equity 281,113 277,564
---------- ---------
$ 293,033 $ 583,256
========== =========
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SEE NOTES TO FINANCIAL STATEMENTS.
2
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COM-GUARD.COM, INC.
(A Development Stage Entity)
STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 2000
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Revenues
Interest $ 598 $ 1,531
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Costs and expenses
Research and development 60,883 31,050
Provision to write down inventory - 148,126
General, and administrative 42,064 111,410
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102,947 290,586
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Net loss $ (102,349) $ (289,055)
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Net loss per share available to common
shareholders
Basic and Diluted $ (0.01) $ (0.03)
=========== =============
Weighted average common shares 8,331,742 9,559,333
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
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COM-GUARD.COM, INC.
(A Development Stage Entity)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FROM INCEPTION
MARCH 31 THROUGH
MARCH 31
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
Revenues
Interest $ 598 $ 3,381 $ 6,409
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Costs and expenses
Research and development 60,883 69,323 460,814
Provision to write down inventory - 148,126 148,126
General, and administrative 103,956 330,892 535,116
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164,839 548,341 1,144,056
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Net loss $ (164,241) $ (544,960) $(1,137,647)
============= =========== ===========
Net loss per share available to common
shareholders
Basic and Diluted $ (0.02) $ (0.06) $ (0.14)
============= =========== ===========
Weighted average common shares 7,434,571 9,304,073 8,175,656
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
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COM-GUARD.COM, INC.
(A Development Stage Entity)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
NINE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (164,241) $ (544,960) $ (1,137,647)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation - 5,800 7,396
Provision to write down inventory - 148,126 148,126
Stock issued for services 83,800 26,500 125,300
Stock issued for research and development 50,000 - 360,000
Services provided as contributed capital 15,000 30,000 60,000
Changes in operating assets and liabilities
Vendor advance - 50,000 -
Inventory - (631,540) (631,540)
Prepaid expenses - 2,500 -
Accounts payable and accrued liabilities - 93,773 105,693
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Net cash from operating activities (15,441) (819,801) (962,672)
----------- ----------- -------------
Cash flows from investing activities
Capital expenditures (6,157) (12,293) (33,137)
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Cash flows from financing activities
Issuance of notes payable - 200,000 200,000
Proceeds from issuance of stock 225,500 600,000 1,040,000
Stockholder loans and advances (15,602) (115,089) (170,089)
----------- ----------- -------------
Net cash from financing activities 209,898 684,911 1,069,911
----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents 188,300 (147,183) 74,102
Cash, beginning of period - 221,285 -
----------- ----------- -------------
Cash, end of period $ 188,300 $ 74,102 $ 74,102
=========== =========== =============
Supplemental disclosure of cash flow information
Interest paid - - -
Taxes paid - - -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
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COM-GUARD.COM, INC.
(A Development Stage Entity)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Com-Guard.com, Inc. (the "Company") have been prepared pursuant to the rules of
the Securities and Exchange Commission (the "SEC") for quarterly reports on Form
10-QSB and do not include all of the information and note disclosures required
by generally accepted accounting principles. These financial statements and
notes herein are unaudited, but in the opinion of management, include all the
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position, results of operations,
and cash flows for the periods presented. These financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto for the year ended June 30, 1999. Interim operating results are not
necessarily indicative of operating results for any future interim period or for
the full year.
The Company was formed and incorporated in the state of Nevada on October 7,
1998 as e-WORLD SECURITY, INC. On April 16, 1999 the Company changed its name to
COM-GUARD.COM, INC. Planned principal operations of the Company have not yet
commenced; activities to date have been limited to forming the Company,
assembling a management and consultant team, identifying markets, developing
products, and obtaining initial capitalization. The Company intends to sell
products that afford security protection to computer hardware and software in
microcomputers.
NOTE 2: NET LOSS PER COMMON SHARE
Basic loss per common share ("Basic EPS") excludes dilution and is computed
by dividing net loss available to common shareholders (the "numerator") by
the weighted average number of common shares outstanding (the "denominator")
during the period. Diluted loss per common share ("Diluted EPS") is similar
to the computation of Basic EPS except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. In
addition, in computing the dilutive effect of convertible securities, the
numerator is adjusted to add back the after-tax amount of interest recognized
in the period associated with any convertible debt. The computation of
Diluted EPS does not assume exercise or conversion of securities that would
have an anti-dilutive effect on net loss per share. All potential common
shares are anti-dilutive; therefore, Basic EPS equals Diluted EPS.
NOTE 3: INVENTORIES
Inventories consist of work in process stated at the lower of cost (first-in,
first-out) or market. During the quarter ended March 31, 2000, the Company
wrote-down inventories based on management's planned marketing and distribution
strategies and the expected pricing of the related products.
NOTE 4: NOTES PAYABLE
During the fiscal quarter ended March 31, 2000, the Company issued three
convertible notes together totaling $200,000. The notes bear 7% interest and
mature one year from the date of issuance. The principal and unpaid interest is
due at maturity. The note holders have the option to convert the all unpaid
principal and interest, only in their entirety, to common stock at $1.00 per
share, at any time until the due date, at which time the right to convert
expires.
NOTE 5: SHAREHOLDERS' EQUITY
During the fiscal quarter ended March 31, 2000, the Company issued 25,000 shares
of common stock for cash at a purchase price of $1 per share.
NOTE 6: COMMITMENTS AND CONTINGENCIES
The Company has minimal capital resources presently available to meet
obligations that normally can be expected to be incurred by similar companies,
and with which to carry out its planned activities. These factors impact the
Company's ability to operate. Management is seeking additional equity financing
to fund planned operations;
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management believes actions currently being taken provide the opportunity for
the Company to operate. However, there is no assurance that the Company will be
able to obtain such financing. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
in this Quarterly Report on Form 10-QSB. The discussion of the Company's
business contained in this Quarterly Report on Form 10-QSB may contain certain
projections, estimates and other forward-looking statements that involve a
number of risks and uncertainties, including those discussed below at "Risks and
Uncertainties." While this outlook represents management's current judgment on
the future direction of the business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
The Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.
OVERVIEW
The Company was incorporated as e-World Security, Inc. in the State of
Nevada on October 7, 1998. The Company's name was changed to Com-Guard.com, Inc.
and filed on April 16, 1999.
The Company has limited operating history and is in the development
stage. It's principal business is the exploitation of niche products for the
microcomputer industry that provide enhanced system security for both individual
users and network administrators. The Company's initial product, Com-Guard(TM),
includes unique software and hardware that will enable users to protect and
limit access to data; and to provide a security system against tampering and
unauthorized use of computers.
The Com-Guard-TM- system monitors a computer or network and detects,
through proprietary software and hardware, unauthorized attempts to use, tamper
with, or remove data or equipment. The system is designed to generate an alarm,
which can be sent to any receiving device, including pagers, telephones, and
other computers.
The market for Com-Guard-TM- consists of individual users and industry.
The popularity of the internet has created a need for both data security and
access limitations. Limiting access to sensitive and/or confidential files has
grown to be a need for all users of microcomputers.
Home automation, including systems to provide "internal" security to
certain areas of a home or office, represents an additional market for
Com-Guard-TM-. The system, installed in a PC, has the ability to function as an
internal home security system, controlling a series of sensors to protect
against theft and intrusion, and child safety.
The Company's business continues to be the development phase.
Accordingly, quarter-to-quarter financial comparisons may be of limited
usefulness now and for the next several quarters as the Company prepares to
launch and market its first products.
The Company's current strategy is to develop, commercialize and
distribute its products. To successfully execute its strategy, the Company will
need to improve its working capital position. The Company needs to raise
additional funds to fully develop its business. There can be no assurance,
however, that the Company will be able to complete any additional debt or equity
financing on favorable terms or at all, or that any such financings, if
completed, will be adequate to meet the Company's capital requirements. Any
additional equity or convertible debt financings could result in substantial
dilution to the Company's stockholders. If adequate funds are not available, the
Company will be required to delay, reduce or eliminate some or all of its
planned activities. The Company's inability to fund its capital requirements
would have a material adverse effect on the Company. Also See "Risks and
Uncertainties" included in this discussion.
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RESULTS OF OPERATIONS
NET REVENUES
Revenues were $1,531 and $598 for the three month period ended March
31, 2000 and 1999, respectively. Revenues were $3,381 and $598 for the nine
month period ended March 31, 2000 and 1999, respectively. All revenues were from
interest earned from bank deposits. The increases from 1999 to 2000 were due to
corresponding increases in average cash balances.
RESEARCH AND DEVELOPMENT EXPENSES
For the three month period ended March 31, 2000 and 1999, research and
development expenses were $31,050 and $60,883, respectively. For the nine month
period ended March 31, 2000 and 1999, research and development expenses were
$60,883 and $69,323, respectively. Included in the figures for the period ended
March 31, 1999 is $50,000 of research and development relating to the
acquisition of core product technology, which was made through the issuance of
common stock. Technological feasibility has not yet been established for this
technology. Cash expenditures to develop the core technology increased from
$10,883 to $31,050 for the three month period ended March 31, 1999 and 2000, and
from $10,883 to $69,323 for the nine month period ended March 31, 1999 and 2000,
respectively.
PROVISION TO WRITE DOWN INVENTORIES
During the quarter ended March 31, 2000, the Company wrote-down
inventories based on management's planned marketing and distribution strategies
and the expected pricing of the related products.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $111,410 and $42,064 for the
three month period ended March 31, 2000 and 1999, respectively, an increase of
$68,346 or 162%. For the nine month period ended March 31, 2000 general and
administrative expenses were $330,892 compared to $103,956 for the nine months
ended March 31, 1999, an increase of $226,936 or 218%. The increases were due to
several factors related to building the business, including increases in
expenses related to facilities and staff. More specifically, general and
administrative expenses included salaries and related costs for general
corporate functions, including finance, accounting, facilities, legal,
advertising, marketing related expenses, and fees for professional services.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the development stage and has financed its operations
primarily through cash generated from the sale of its stock.
As of March 31, 2000, the Company had working capital of $251,824 as
compared to working capital of $261,865 at June 30, 1999. The $10,041 or 4%
decrease in working capital is due primarily to the provision of $148,126 to
write down inventory to the lower of cost or market. During the nine months
ended March 31, 2000 the Company raised capital of $630,000 in cash and $26,500
in services, which has been the Company's principal source of liquidity since
its inception.
The Company has no material commitments for capital expenditures.
RISKS AND UNCERTAINTIES
LACK OF OPERATIONS AND PROFITABILITY.
The Company is in the development-stage and commenced pre-operating activities
approximately one year ago. It has no history of operations or profits in the
industries in which it participates.
UNCERTAINTY OF COMMERCIAL SUCCESS.
Although the Company is optimistic about its revenue and profitability
prospects, there can be no assurance of
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commercial success of its Com-Guard product. Furthermore, the computer industry
is characterized by rapid change and growth. There can be no assurance that the
Company will be able to keep up with the pace of technological change or fund
its growth.
COMPETITION.
The Company is subject to competition from other companies that may try to
emulate or compete with similar products or services. These competitors have
been in the business longer than the Company and may have large executive and
operating staffs. There can be no assurance that the Company's prospects will
not be adversely affected by competition from these companies.
NEED FOR ADDITIONAL FINANCING.
The Company will require additional financing in order to establish profitable,
ongoing operations; there is no assurance that such financing will be available
or, if available, that it can be obtained on terms favorable to the Company.
DEPENDENCE ON MANAGEMENT.
The Company is largely dependent upon the efforts and abilities of Dr. Edward W.
Savarese and there can be no assurance that the Company can be successful in
operating the Company should the services of Dr. Savarese be unavailable. Dr.
Savarese has had extensive experience in marketing, sales and financing. He has
managed for Hewlett-Packard and has extensive contacts in the computer industry.
DIVIDENDS.
The Company has never paid a cash dividend on its common stock. The Company is
not obligated to pay a dividend on its common stock and does not anticipate
payment of any dividends for the foreseeable future. The Company anticipates
retaining its earnings to finance its operations, growth, and expansion.
NO ASSURANCE OF PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE.
There currently is no public trading market for the Company's common stock.
There can be no assurance that an active public trading market can be
established or sustained. Furthermore, if a public market for the common stock
is established, the shares could be subject to significant fluctuations in
response to operating results and other factors, many of which are not within
the control of the Company.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF THIRD PARTY INFRINGEMENT CLAIMS.
Although the Company has received patent protection, there can be no assurance
that the Company's measures to protect its current proprietary rights will be
adequate to prevent misappropriation of such rights or that the Company's
competitors will not independently develop or patent technologies that are
substantially equivalent to or superior to the Company's technologies.
Additionally, although the Company believes that its products and technologies
do not infringe upon the proprietary rights of any third parties, there can be
no assurance that third parties will not assert infringement claims against
products and technologies that the Company licenses, or has the rights to use,
from third parties. Any such claims, if proved, could materially and adversely
affect the Company's business and results of operations. In addition, though any
such claims may ultimately prove to be without merit, the necessary management
attention to, and legal costs associated with litigation or other resolution of
such claims could materially and adversely affect the Company's business and
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(3) Articles of incorporation and bylaws of Com-Guard.com, Inc.,
as amended, incorporated by reference to Form 10-SB, as
amended, filed October 11, 2000.
10(a) Technology Purchase Agreement, dated January 14, 1999, with
Kyungki System Co., Inc., incorporated by reference to Form
10-SB filed, as amended, October 11, 2000.
10(b) Consulting Agreement, dated January 1, 1999, with Woo Young
Kim, incorporated by reference to Form 10-SB filed, as
amended, October 11, 2000.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None.
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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.
Dated: December 7, 2000
COM-GUARD.com, INC.
BY: /s/ EDWARD W. SAVARESE
--------------------------
Edward W. Savarese
Chief Executive Officer
(Principal Financial and Accounting Officer)
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