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U. S. Securities & Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file Number 0-29711
PageLab Network, Inc.
(Exact name of small business issuer)
Minnesota 41-1596056
(State of incorporation) IRS Employer Identification number
43 Main St SE, Suite #508, Minneapolis, MN 55414
(Address of principal executive offices)
(612) 362-9224
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
periods 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 each of the registrant's classes of capital
stock, as of October 30, 2000:
Common Stock, no par value, 10,163,332 shares.
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PageLab Network, Inc.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page
<S> <C> <C>
Balance Sheets -
September 30, 2000 and December 31, 1999 3
Statements of Operations - 4
Three and Nine months ended September 30, 2000 and 1999
Statements of Stockholders' Equity - 5
Nine months ended September 30, 2000
Statements of Cash Flows - 6
Nine months ended September 30, 2000 and 1999
Notes to Financial Statements - September 30, 2000 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
</TABLE>
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PAGELAB NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
---- ----
(unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 695 $ 18,441
Accounts receivable 2,250 3,247
Prepaid expenses 5,000 1,628
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Total current assets 7,945 23,316
PROPERTY AND EQUIPMENT, NET 42,173 17,195
INTANGIBLES, NET 199,680 235,034
OTHER ASSETS 7,300 0
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TOTAL ASSETS $ 257,098 $ 275,545
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 66,051 $ 9,035
Current portion of long-term debt 54,150 36,879
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Total current liabilities 120,201 45,914
LONG-TERM DEBT, NET OF CURRENT PORTION 86,100 161,569
STOCKHOLDERS' EQUITY
Common Stock, 40,000,000 shares authorized;
no par or stated value 1,045,465 307,500
Accumulated deficit (994,668) (239,438)
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50,797 68,062
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 257,098 $ 275,545
=========== =========
</TABLE>
See Accompanying Notes to Financial Statements.
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PAGELAB NETWORK, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -------------------------------
2000 1999 2000 1999 *
---- ---- ---- ------
<S> <C> <C> <C> <C>
REVENUES $ -- $ 9,880 $ 2,493 $ 9,880
COSTS AND EXPENSES:
Costs of revenues earned 15,689 8,115 43,825 8,115
Selling, general and administrative 182,667 40,598 486,488 40,598
Research and development 78,016 18,245 224,946 18,245
----------- ----------- ----------- -----------
Total Costs and Expenses 276,372 66,958 755,259 66,958
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (276,372) (57,078) (752,766) (57,078)
OTHER INCOME (EXPENSE):
Other income 0 0 3,114 0
Interest expense (1,923) 0 (6,658) 0
Interest income 0 0 1,080 0
----------- ----------- ----------- -----------
NET LOSS $ (278,295) $ (57,078) $ (755,230) $ (57,078)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,842,999 5,333,332 9,348,887 5,333,332
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE ($0.03) ($0.01) ($0.08) ($0.01)
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
* For the period from Inception (July 17,1999) through September 30, 1999.
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PAGELAB NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
SHARES OF TOTAL
COMMON STOCK COMMON ACCUMULATED STOCKHOLDERS'
OUTSTANDING STOCK DEFICIT EQUITY
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 8,457,665 $ 307,500 $(239,438) $ 68,062
Common Stock issued, January 2000 1,950,000 390,000 390,000
Reduction of Subscription Notes Receivable, February 2000 3,334 3,334
Stock-based compensation expense 22,298 22,298
Common Stock issued May-Sept 2000 219,000 219,000 219,000
Retirement of Investment Account shares, August 2000 (1,000,000) 0 0
Stock Issued for Services, September 2000 5,000 5,000 5,000
Exercise of Stock Options, July to Sept. 2000 30,000 6,000 6,000
Exercise of warrants, August 2000 501,667 100,333 100,333
Subscription Notes Receivable, August 2000 (8,000) (8,000)
Net loss for the nine months ended September 30, 2000 (755,230) (755,230)
---------- ----------- --------- --------
Balance, September 30, 2000 10,163,332 $ 1,045,465 $(994,668) $ 50,797
========== =========== ========= ========
</TABLE>
See Accompanying Notes to Financial Statements.
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PAGELAB NETWORK, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------
2000 1999 *
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($755,230) $(57,078)
Adjustments required to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 42,535 --
Stock-based compensation expense 27,298 --
Gain on sale of property (3,114)
(Increase) decrease in:
Accounts receivable 997 --
Prepaid expenses (3,372) --
Other assets (7,300)
Increase (decrease) in:
Accounts Payable 57,016 --
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NET CASH USED IN OPERATIONS (641,170) (57,078)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (31,175) --
Purchase of intangibles (1,869) --
Proceeds from sale of property 4,000 --
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (29,044) --
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants 660,666 --
Proceeds from loan 26,000 56,000
Reduction of long-term debt (34,198) --
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 652,468 56,000
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DECREASE IN CASH AND CASH EQUIVALENTS (17,746) (1,078)
BEGINNING CASH BALANCE 18,441 --
--------- --------
ENDING CASH BALANCE $ 695 (1,078)
========= ========
NON-CASH FINANCING TRANSACTIONS:
Long-term Debt Converted to Common Stock $ 50,000 $ --
Long-term Debt Issued for Intangibles $ -- $150,000
Common Stock Issued for Intangibles $ -- $100,000
</TABLE>
See Accompanying Notes to Financial Statements.
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PAGELAB NETWORK, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They should be read in conjunction with the financial statements
for the year ended December 31, 1999 included in the Company's Form 10SB
registration statement. In the opinion of management, the interim condensed
financial statements include all adjustments (consisting of normal recurring
accruals) necessary for the fair presentation of the results for interim periods
presented. The results of operations for the three and nine months ended
September 30, 2000, are not necessarily indicative of the results to be expected
for the full year.
Earnings per share is computed using the weighted average shares of common stock
outstanding during the period. Options and warrants are anti-dilutive and were
therefore excluded from the calculation.
The Company is currently attempting to raise additional capital through the
offering of subordinated convertible notes in an amount up to $750,000. In
addition, the Company is also pursuing equity financing in the form of Preferred
or Common Stock. The Company is also prepared to reduce its operating levels to
reduce liquidity needs. However, no assurance can be given that the Company will
be able to secure additional financing when needed, or at all or able to
adequately reduce its liquidity needs. Failure to obtain additional financing
would force the Company to curtail its operations and scale back its business
plan.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company will adopt SAB No. 101 when required in the fourth quarter of 2000.
Management believes the adoption of SAB No. 101 will not have a significant
affect on its financial statements.
NOTE 2. STOCK OPTIONS AND WARRANTS
As of September 30, 2000, the Company had outstanding options and warrants to
purchase 2,250,970 and 1,417,997 shares of common stock, respectively. The
exercise price of these instruments range from $0.20 to $1.10.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PageLab Network has developed an artificial intelligence-based, next generation
dialogue search engine, Subjex(TM). The Subjex engine is a licensable software
application for on-site web search, private databases and wireless device
infrastructures. In addition to the licensing capability, the Subjex.com web
portal provides the search tool free to Internet users, thereby demonstrating
the dialogue capabilities of the Subjex engine and building a large transaction
hub around e-commerce activity that occurs routinely via search engines.
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Our business development efforts are being currently directed to Global 5000
corporations where the Subjex Dialogue Engine can be licensed as a friendly user
interface to web site information or other private data. These efforts are being
conducted through our own direct sales force and in conjunction with services
established through a strategic marketing alliance with an unrelated private
company. We are seeking additional marketing alliances to achieve additional
market share, especially with respect to the licensing opportunities.
We are also focusing direct sales efforts on establishing revenue-sharing and
affiliate relationships within the Subjex.com search engine-based affiliate
network (SEBAN) program. Our sales approach is targeted at companies or
associations who have created existing e-commerce merchant, affiliate or user
relationships. These targeted customers include the financial services industry,
web portals, affiliate network service providers and Internet Service Providers.
Since the nature of our revenue-sharing streams in the SEBAN program is
performance-based, it is necessary to achieve a higher penetration of e-commerce
merchants, while at the same time increasing the number of Subjex users. At the
present date, approximately 42 merchants have agreed to participate in the SEBAN
program.
We have also assessed the strategic positioning of Subjex in the marketplace as
a necessary element in the growing influence of wireless and handheld
infrastructure and process machinery applications. We believe that the Subjex
search engine technology is highly suitable for licensing to wireless and
handheld device manufacturers and process machinery, including adaptability to a
voice recognition interface. Furthermore, we believe that the Subjex(TM)
dialogue-based search engine has enormous opportunities in the Asian and
European markets where wireless and handheld technology is achieving significant
growth. We are currently pursuing strategic alliances or joint ventures in this
regard.
The revenue stream from software services and merchant advertising fees was
$9,880 and $2,493 for the nine months ended September 30, 1999 and 2000,
respectively. This decrease in revenue is directly related to our decision to
concentrate our efforts on the development of the Subjex Dialogue Engine and the
Subjex.com web portal site. We believe that the improvements made to our
dialogue technology during the third quarter ended September 30, 2000, including
the launch of a newly formatted Subjex.com portal site, will now allow us to
achieve revenue generation through our business development efforts. Revenue
streams have begun in October 2000 as a result of licensing fees from the
deployment of Subjex as an on-site web search tool or other private databases.
Expenses for research and development were $78,106 and $224,946 for the three
and nine month periods ended September 30, 2000, respectively. This compares to
$18,245 of research and development expenses incurred for the three and nine
month period ended September 30, 1999. Research and development costs include
internal and subcontracted expenses to perform technological advancements to the
development of the Subjex Dialogue Engine and the functionality of SEBAN.
Selling, general and administrative expenses were $182,667 and $486,488 for the
three and nine month periods ended September 30, 2000. This compares to selling,
general and administrative expenses of $40,598 that were incurred as of
September 30, 1999. This increase is primarily related to the addition of
personnel, facilities, and consultative services with respect to the growth of
the sales, marketing, finance and administrative operations of the Company.
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Net loss for the three and nine months ended September 30, 2000 was $278,295 and
$755,230, respectively. This compares to the net loss incurred of $57,078 as of
September 30, 1999. The increase in the net loss from operations is related to
the growth in research and development and selling general and administrative
costs, combined with the decline in revenue streams.
Our working capital at September 30, 2000 is not sufficient to attain our plans
in the near term. To address this liquidity need, beginning in the fourth
quarter we are receiving up-front customer revenues through licensing
agreements, arranging for temporary financing achieved through insiders, and
selling 10% subordinated convertible notes up to an amount of $750,000. As of
October 30, 2000, the Company had received commitments for approximately $20,000
on the subordinated note offering and had received $15,000 in customer revenues.
We expect that the combination of the current note sales and customer revenues
would provide liquidity to fund operations through January 2001. To help meet
our longer-term liquidity needs, we have entered into a commitment with a finder
to accomplish an institutional debt or equity offering for $2-5 million. We have
further made preparations to conduct a private placement of common stock for
approximately $2 million. There can be no assurance that these debt or equity
private placements will be completed and/or that we will be able to obtain
financing on terms acceptable to the Company. Therefore, the Company may be
forced to curtail its operations and scale back its business plan.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities and Use of Proceeds
For the period from May through September 2000, the Company conducted a private
placement offering for Common Stock resulting in sales of Common Stock of
$219,000. In addition, certain warrant holders exercised warrants in August 2000
in the approximate amount of $100,300. Such amounts were utilized for operating
purposes. These offerings were exempt from registration pursuant to Section 4(2)
and rule 504 promulgated under Regulation D of the Securities Act of 1933, as
amended.
Item 3 - Defaults on 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
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.
PageLab Network, Inc.
(registrant)
/s/ Andrew D. Hyder 11/14/00
--------------------------------------- -----------------
Andrew D. Hyder, President and CEO Date
/s/ John Brand 11/14/00
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John Brand, Chief Financial Officer Date
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