<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File Number: 33-17229-D
uMember.com, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-00978689
------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
10350 Santa Monica Boulevard South, Suite 130
West Los Angeles, California 90025
--------------------------------------------------------------------
(Address of principal executive offices including zip code)
(310) 552-3444
---------------------------
(Issuer'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 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___
As of August 10, 2000, the Registrant had 20,005,323 shares of its no par
value common stock outstanding.
<PAGE>
UMEMBER.COM, INC.
(A Development Stage Enterprise)
Form 10-QSB Quarterly Report
Table of Contents
Part I - Financial Statements Page
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 2000 and 1999,
for the six months ended June 30, 2000, from February 1,
1999 (date of inception) to June 30, 1999, and from
inception to June 30, 2000 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2000, from inception to
June 30, 1999, and from inception to June 30, 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis and Results
Operations 8
Part II - Other Information 12
Signatures 13
2
<PAGE>
UMEMBER.COM, INC.
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
(Unaudited)
----------- ------------
ASSETS:
Cash $ 288,227 $ -
Accounts Receivable 28,095 -
Due from Employees 31,856 19,533
Inventory 129,337 -
Prepaids and Other Current Assets 62,019 41,978
----------- ----------
Total Current Assets 539,534 61,511
Property, Plant & Equipment, Net 1,869,653 437,901
Other Assets 41,231 -
----------- ----------
Total Assets $ 2,450,418 $ 499,412
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 517,193 $ 219,092
Current Portion - Capital Lease 384,089 -
Due to Affiliate 74,219 1,234,880
Other Current Liabilities 94,928 -
----------- ----------
Total Current Liabilities 1,070,429 1,453,972
Long Term Capital Lease 503,025 -
STOCKHOLDERS' EQUITY:
Common Stock, no par value; 100,000,000
shares authorized, 20,005,323 and
5,000,000 issued and outstanding at
June 30, 2000 and December 31, 1999,
respectively 3,898,817 -
Deficit Accumulated During the Development
Stage (3,021,853) (954,560)
----------- ----------
Total Stockholders' Equity 876,964 (954,560)
----------- ----------
Total Liabilities and Stockholders' Equity $ 2,450,418 $ 499,412
=========== ==========
See Notes to Condensed Financial Statements.
3
<PAGE>
UMEMBER.COM, INC.
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
February 1,
1999
Six Months (Date of February 1, 1999
Three Months Ended Ended of Inception) (Date of Inception)
June 30, June 30, to June 30, to June 30,
2000 1999 2000 1999 2000
----------- ---------- ----------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 89,247 $ - $ 104,063 $ - $ 104,063
Cost of Sales 152,999 - 167,745 - 167,745
----------- ---------- ----------- ---------- -----------
Gross Profit (63,752) - (63,682) - (63,682)
----------- ---------- ----------- ---------- -----------
Operating Expenses:
Selling, General and
Administrative 1,122,202 101,460 1,783,550 120,524 2,679,120
Depreciation and
Amortization 99,507 3,000 183,292 3,000 210,938
----------- ---------- ----------- ---------- -----------
Total Operating
Expenses 1,221,709 104,460 1,966,842 123,524 2,890,058
----------- ---------- ----------- ---------- -----------
Loss From Operations (1,285,461) (104,460) (2,030,524) (123,524) (2,953,740)
Interest Expense, Net 14,336 2,282 35,969 2,449 66,513
----------- ---------- ----------- ---------- -----------
Loss Before Taxes (1,299,797) (106,742) (2,066,493) (125,973) (3,020,253)
Provision for Income
Taxes 800 800 800 800 1,600
----------- ---------- ----------- ---------- -----------
Net Loss $(1,300,597) $ (107,542) $(2,067,293) $ (126,773) $(3,021,853)
=========== ========== =========== ========== ===========
Basic Loss Per Share $ (0.084) $ (0.022) $ (0.141) $ (0.025) $ (0.220)
=========== ========== =========== ========== ===========
Average Common Shares
Outstanding 15,480,267 5,000,000 14,686,346 5,000,000 13,721,223
=========== ========== =========== ========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
4
<PAGE>
UMEMBER.COM, INC.
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months February 1, 1999 (Date
Ended June 30, of Inception) to June 30,
2000 1999 2000
-------------- ---------- ------------
Operating Activities:
Net Loss $(2,067,293) $(126,773) $(3,021,853)
Adjustments to reconcile
net loss to net cash used
in operating activities
Depreciation and amortiza-
tion 183,292 3,000 210,938
Consulting services
exchanged for Common Stock 102,500 - 102,500
Change in operating assets and
liabilities:
Accounts receivable (28,095) - (28,095)
Due from employees (12,323) - (31,856)
Inventory (129,337) - (129,337)
Prepaids and other assets (61,272) (16,041) (103,250)
Accounts payable and accrued
expenses 298,101 - 517,193
Other current liabilities 94,928 - 94,928
----------- --------- -----------
Net Cash Used in Operating
Activities (1,619,499) (139,814) (2,388,832)
Investing Activities:
Purchase of property and
equipment (400,209) (84,385) (865,756)
----------- --------- -----------
Net Cash Used in Investing
Activities (400,209) (84,385) (865,756)
Financing Activities:
Net proceeds from issuance
of common stock 3,796,317 - 3,796,317
Due to/from affiliate (1,160,661) 252,449 74,219
Capital lease payments (327,721) - (327,721)
----------- --------- -----------
Net Cash Provided by Financing
Activities 2,307,935 252,449 3,542,815
----------- --------- -----------
Net Increase in Cash 288,227 28,250 288,227
Cash Beginning of Period $ - $ - $ -
----------- --------- -----------
Cash End of Period $ 288,227 $ 28,250 $ 288,227
=========== ========= ===========
Supplemental Disclosure of
Cash Flows Information:
Cash paid during the period
for Income Taxes $ - $ - $ 800
Interest $ 35,969 $ 2,449 $ 66,513
Non-Cash Financing Activities:
Purchase of Computer Equipment
Under Capital Lease $ 1,214,835 $ - $ 1,214,835
Issuance of Common Stock
for Past Service $ 102,500 $ - $ 102,500
Issuance of Common Stock
in Exchange for Cancella-
tion of Warrants $ 68,750 $ - $ 68,750
See Notes to Condensed Financial Statements.
5
<PAGE>
UMEMBER.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL INFORMATION
In management's opinion, the unaudited condensed consolidated financial
statements of uMember.com, Inc. (uMember or the Company) at June 30, 2000 and
at December 31, 1999, and for the periods ended June 30, 2000 and June 30,
1999 include all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present these financial statements. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. Operating results for the three and six months ended June 30,
2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. These condensed statements should be read
in conjunction with uMember's most recent 10-K and 8-K filings with the SEC.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
During 1999 and the first half of 2000, uMember concentrated on
developing its technology, administrative and sales infrastructure. As a
result, for the three and six months ended June 30, 2000, uMember had net
losses of $1,300,597 and $2,067,293, respectively, and a working capital
deficit of $530,895 at June 30, 2000. For the year ended December 31, 1999,
the Company had a working capital deficit of $1,392,461 with a net loss of
$954,560. These financial statements have been prepared on a going concern
basis. The Company has accumulated a deficit of $3,021,853 since inception.
Its ability to continue as a going concern is dependent upon the ability of
the Company to generate profitable operations in the future and/or to obtain
the necessary financing to meet its obligations and repay its liabilities
arising from normal business operations when they come due. The Company is
currently in the process of raising additional private placement funds
sufficient to fund its operations through at least June 30, 2001, however, no
assurance can be given that these efforts will be successful.
NOTE 2 - NEW SERVICE OFFERINGS AND REORGANIZATION
In June 2000, the Company elected to enhance its service offerings to
allow individuals to directly purchase a membership, regardless of any
membership group affiliations. The Company will also offer its shopping
engine, uMember MegaStore-in-a-Box, under license agreements to other online
companies beginning in September 2000. In order to focus the Company on its
new service offerings, uMember.com has significantly reduced its staff, and
reorganized into a much flatter, more responsive organization. In conjunction
with this reorganization, Leon Hasson, previously a director and President of
uMember, has resigned both these positions to pursue other interests. Mr.
Hasson remains a significant investor in the Company. Yuki Rosenfeld,
previously Vice President Products and Merchandising, has been promoted to
the position of Executive Vice President Managing Director and is
6
<PAGE>
responsible for the day to day operations of the Company. As a result of the
reorganization, the Company has recorded approximately $100,000 in severance
costs in June 2000.
NOTE 3 - BASIC LOSS PER SHARE
Basic loss per share in the accompanying consolidated financial
statements is calculated in accordance with SFAS No. 128. SFAS No. 128
requires that basic earnings per share be calculated on weighted average
number of common shares outstanding for the period without giving effect to
outstanding common share equivalents on weighted average number of common
shares outstanding.
During a loss period the assumed exercise of "in the money" stock options
has an anti dilutive effect. "In the money" options to purchase approximately
366,546 and 587,000 shares of common stock were outstanding at June 30, 2000
and 1999, respectively. There were no common stock equivalents outstanding
during any of the periods reported on.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
(Unaudited) (Unaudited)
Net Loss Shares EPS Net Loss Shares EPS
----------- ---------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $(1,300,597) 15,480,267 $(0.084) $(107,542) 5,000,000 $(0.022)
=========== ========== ======= ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended February 1, 1999 (Date of
June 30, 2000 Inception) to June 30, 1999
(Unaudited) (Unaudited)
Net Loss Shares EPS Net Loss Shares EPS
----------- ---------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $(2,067,293) 14,686,346 $(0.141) $(126,773) 5,000,000 $(0.025)
=========== ========== ======= ========= ========= =======
</TABLE>
February 1, 1999 (Date of
Inception) to June 30, 2000
(Unaudited)
Net Loss Shares EPS
----------- ---------- -------
Basic EPS $(3,021,853) 13,721,223 $(0.220)
=========== ========== =======
7
<PAGE>
ITEM 2
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. You should not regard their
inclusion as a representation by us that the objectives or plans will be
achieved. Factors that might cause such a difference include, but are not
limited to, competitive, technological, financial and business challenges
making it more difficult than expected to continue to sell products and
services over the Internet. We may be unable to retain existing key sales,
technical and management personnel; there may be other material adverse
changes in the Internet industry or in our operations or business, and any or
all of these factors may affect our ability to achieve our projected sales
growth. Forward-looking information provided by uMember pursuant to the safe
harbor established by recent securities legislation should be evaluated in the
context of these factors.
Certain important factors affecting the forward-looking statements made
herein include, but are not limited to (a) low number of current members and
limited current sales; (b) dependence by us on certain distributors; (c)
continued downward pricing pressures in sales made over the Internet; (d)
seasonal patterns of sales over the Internet; (e) changing economic influences
in the industry; (f) the development by competitors of new or superior
delivery technologies or entry in the market by new competitors; (g) our
dependence on key personnel, and potential influence by executive officers and
principal stockholders; (h) volatility in price and limited trading of the
company's stock; (i) delays in the shipment of products; (j) any delay in
execution and implementation of our system development plans; (k) changes in
the quantity and/or quality of the suppliers available for the company's
products; (l) changes in the costs or availability of products; (m) general
business conditions in the economy; and (n) inability to raise additional
private or public capital necessary for development of our business to that of
a profitable enterprise.
Assumptions relating to budgeting, marketing, and other management
decisions are subjective in many respects. They are therefore susceptible to
interpretations and periodic revisions. These interpretations and revisions
may be based on actual experience and business developments and their impact
may cause us to alter our marketing, capital expenditure or other budgets.
This may in turn affect our business, financial position, results of
operations and cash flows. Therefore, you should not place undue reliance on
forward-looking statements contained in this 10-Q.
8
<PAGE>
The following table sets forth certain financial data for the periods
indicated:
February 1,
1999 (Date
Six Months of Incep-
Ended tion) to
Statement of Operations Data June 2000 June 1999
---------------------------- ----------- ----------
Net Revenue $ 104,063 $ -
Cost of Sales 167,745 -
Gross Margin (63,682) -
Selling, General and Administrative 1,783,550 120,524
Depreciation and Amortization 183,292 3,000
Total Operating Expense 1,966,842 123,524
Interest Expense, Net 35,969 2,449
Net Loss (2,067,293) (126,773)
Results of Operations:
Net Revenue. As we are in start-up operations, net revenues during the
three and six months ended June 30, 2000 were minimal and there was no revenue
during the comparable periods of 1999. Of the $89,247 and $104,063 in net
revenue for the three and six month periods ended June 30, 2000, 100% and 84%,
respectively, related to off line sales to a single overseas company. While
sales to this company are expected to continue, they should become a much
smaller percentage of our sales as our online sales ramp up. Another company
owned by three of our founders (who continue to be investors in the company)
accounted for 12% of net revenue for the six months ended June 30, 2000.
There were no sales to this related party during the second quarter of 2000,
however, we have begun to sell to them again in the third quarter.
Selling, General, & Administrative Expenses. During the three and six
months ended June 30, 2000 selling, general and administrative expenses were
$1,122,202 and $1,783,550, respectively, compared to $101,460 and $120,524 for
the comparable periods in 1999. These increases of $1,020,742 and $1,663,026,
respectively are primarily due to the first quarter of 1999 being our first
quarter of operations. The majority of selling, general and administrative
expenses were employee related expenses, which increased to $705,036 and
$1,162,400 for the three and six months ended June 30, 2000 compared to
$80,454 and $91,149 for the three and five month periods from the date of
inception to June 30, 1999. These increases resulted from increases to our
staff to support our start-up sales, marketing and technology efforts. The
remainder of the selling, general and administrative expenses in both periods
of 2000 related primarily to sales and marketing, and to costs associated with
hosting our web site. The remainder of the selling and administrative
expenses in both periods of 1999 related primarily to rent and other
facilities costs.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased from $3,000 in the three and five month periods ended June
30, 1999 to $99,507 and $183,292 in the comparable periods of 2000, as we
purchased depreciable office and technology assets in 2000, including computer
equipment purchased under a capital lease for hosting our web site.
9
<PAGE>
Interest Expense. $14,336 and $26,056 of the interest expense in the
three and six months ended June 30, 2000, respectively related to interest
paid for equipment purchased under the terms of the capital lease. The
remainder of the interest expense in the three and six months ended June 30,
2000, and all of the interest expense in the comparable periods of 1999
related to interest paid to Wareforce.com, Inc. (Wareforce the parent
company of uMember prior to the private placement, and currently the majority
shareholder with approximately 39.2% of the Company's outstanding common
stock) under the terms of a loan agreement. The balance outstanding under
this loan agreement was repaid in March 2000.
Liquidity and Capital Resources:
From inception through March 16, 2000, operations were financed primarily
through credit from vendors and loans from Wareforce. Wareforce had committed
to fund $1.0 million of our initial operations and development costs. In
August 1999 we entered into a loan agreement with Wareforce guaranteeing
repayment of the $1.0 million (or any amounts advanced under the agreement) no
later than the earlier of February 20, 2001 or the date of an Initial Public
Offering or private placement by us. Interest accrued on this loan agreement
at the bank prime rate. As of March 16, 2000 Wareforce had funded
approximately $1.0 million in excess of the $1.0 million commitment.
On March 16, 2000, we obtained outside financing through a private
placement of equity, in which we sold 2 million shares of our common stock for
net proceeds of $3.8 million. The amounts due to Wareforce as of March 16,
2000 were repaid with some of the proceeds from this private placement.
During 1999 and the first half of 2000, we concentrated on developing our
technology, administrative and sales infrastructure. As a result, for the
three and six months ended June 30, 2000, we had net losses of $1,300,597 and
$2,067,293, respectively, and a working capital deficit of $530,895 at June
30, 2000. For the year ended December 31, 1999, we had a working capital
deficit of $1,392,461 with a net loss of $954,560. The Company has
accumulated a deficit of $3,021,853 since inception. Its ability to continue
as a going concern is dependent upon the ability of the Company to generate
profitable operations in the future and/or to obtain the necessary financing
to meet its obligations and repay its liabilities arising from normal business
operations when they come due. The Company is currently in the process of
raising additional private placement funds sufficient to funds its operations
through at least June 30, 2001, however, no assurance can be given that these
efforts will be successful.
The Company is considered a development stage enterprise devoting
substantially all of its efforts to establishing customers and vendor
relationships, establishing complete product lines, and building its
operational infrastructure. The Company is subject to the risks and
challenges associated with other companies at a similar stage of development
including dependence on key individuals, successful development and marketing
of its products and services, the continued acceptance of the Internet as a
medium for electronic commerce, competition from substitute products and
services and larger companies with greater financial, technical management and
marketing resources. Further, during the period required to develop
commercially viable products, services and sources of revenues, the Company
may require additional funds that may not be readily available.
10
<PAGE>
Net cash flows used in investing activities for the six months ended June
30, 2000 of $0.4 million were used primarily to fund development of our Web
Site, and to purchase computer equipment for our internal use.
Net cash flows provided by financing activities for the six months ended
June 30, 2000 were $2.3 million. The sources of this financing activity were
the $3.8 net proceeds from our private placement and from exercises of stock
options, net of the $1.2 million used to repay Wareforce, and $.3 million used
to make payments under the terms of the capital lease used to finance the
computer system for our web site.
In June 2000 we elected to enhance our service offerings to allow
individuals to directly purchase a membership, regardless of any membership
group affiliations. We also redirected our marketing efforts to include more
affiliations with internet based organizations. As a result of these changes
our membership base has doubled from June 30, 2000 to over 200,000 at July 31,
2000. Beginning in September 2000, we will also offer our shopping engine,
MegaStore-in-a-box, under license agreements to other online companies.
License fees under these agreements are expected to substantially improve our
cash flow, as there are minimal costs related to implementing the
MegaStore-in-a-box.
In June 2000 we underwent a reorganization in which we significantly
reduced our staff, and reorganized into a much flatter, more responsive
organization. In addition to reducing our costs, which will assist us in
achieving profitability more quickly, management believes that this change
will allow us to focus our resources on key service offerings, including those
new offerings described above.
Many factors relating to obtaining financing are beyond our control. Any
decrease or material limitation on the amount of borrowings available to us
from our vendors, will adversely affect our ability to fill sales orders
and/or increase our sales. It will also adversely affect our financial
position and operating results. We cannot guarantee that our creditors will
continue to extend credit to us in the amounts they currently do.
We anticipate that we will need additional equity investments in the
future to continue to fund our general working capital. There can be no
assurance that such investments will be obtained. If they are not, we will be
materially, negatively affected.
11
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities and Use of Proceeds.
None
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.
(a) Exhibits.
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K.
On May 30, 2000, the Company filed an Amendment to its Report on
Form 8-K dated March 16, 2000. The amendment included audited financial
statements and pro forma financial information under Item 7.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UMEMBER.COM, INC.
Dated: August 14, 2000 By:/s/ Sharon A. Vanzant
Sharon A. Vanzant
Chief Financial Officer
and Chief Operating Officer
12
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
------- ----------------
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
