-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OV/Y4AUVEHd2FJYawab2IpajrJS4KHhB2z0mYWoy/MkR8oI3HTI4PLTg3sKEMFR8 1Qn3R90HuBlOciXPVV+dQg== /in/edgar/work/20000811/0001014100-00-000079/0001014100-00-000079.txt : 20000921 0001014100-00-000079.hdr.sgml : 20000921 ACCESSION NUMBER: 0001014100-00-000079 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALES ONLINE DIRECT INC CENTRAL INDEX KEY: 0001017655 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 731479833 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28720 FILM NUMBER: 695248 BUSINESS ADDRESS: STREET 1: 4 BRUSSELS STREET STREET 2: SUITE 220 CITY: WORCESTER STATE: MA ZIP: 01610 BUSINESS PHONE: 5166254040 MAIL ADDRESS: STREET 1: 7633 EAST 63RD PL STREET 2: SUITE 220 CITY: TULSA STATE: OK ZIP: 74133 FORMER COMPANY: FORMER CONFORMED NAME: SECURITIES RESOLUTION ADVISORS INC DATE OF NAME CHANGE: 19980814 FORMER COMPANY: FORMER CONFORMED NAME: ROSE INTERNATIONAL LTD DATE OF NAME CHANGE: 19960627 10QSB 1 0001.txt 10-QSB 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 0-28720 SALES ONLINE DIRECT, INC. (Exact name of registrant as specified in its charter) DELAWARE 73-1479833 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) 4 Brussels Street, Worcester, Massachusetts 01610 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 791-6710 Common Stock, $0.001 Par Value ------------------------------ (Title of each class) Check whether the issuer: (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 twelve 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 1, 2000, the issuer had outstanding 47,056,140 shares of its Common Stock, par value $.001 per share. Transitional Small Business Disclosure Format Yes No X ---- ---- Sales Online Direct, Inc. Form 10-QSB For the three months ended June 30, 2000 TABLE OF CONTENTS Part I - Financial Information Item 1. Financial Statements Balance Sheet - June 30, 2000 (unaudited)...................................3 Statements of Operations-- Three and Six months ended June 30, 2000 and 1999 (unaudited)............................................4 Statements of Cash Flows - Six-months ended June 30, 2000 and 1999 (unaudited)..........................................5-6 Statements of Shareholders' Equity - Six-months ended June 30, 2000 and 1999 (unaudited).................................................7 Notes to Financial Statements Six-months ended March 31, 2000 and 1999.................8-13 Item 2. Management's Discussion and Analysis or Plan of Operations .....................................14-17 Part II - Other Information Item 1. Legal Proceedings......................................18 Item 2. Changes in Securities and Use of Proceeds..............19 Item 3. Defaults Upon Senior Securities........................19 Item 4. Submission of Matters to a Vote of Security Holders....19 Item 5. Other Information .....................................19 Item 6. Exhibits and Reports on Form 8-K.......................19 Signatures...........................................................20 - 2 - PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS --------------------
SALES ONLINE DIRECT, INC. BALANCE SHEET June 30, 2000 (unaudited) Assets Current assets: Cash and cash equivalents $ 1,467,180 Accounts receivable 28,494 Inventory 726,749 Marketable securities 127,178 Prepaid expenses 98,484 Other current assets 45,806 ------ Total current assets 2,493,891 Property and equipment, net 605,118 Goodwill 38,281 Other intangible assets 268,925 Debt financing costs, net 232,500 Other assets 16,667 ------ Total assets $ 3,655,382 =========== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 47,288 Accrued expenses 420,401 ------- Total current liabilities 467,689 ------- Convertible Debt 2,629,696 --------- Stockholders' equity: Common stock, $.001 par value, 100,000,000 shares authorized; 47,056,140 shares issued and outstanding 47,056 Additional paid-in capital 5,809,211 Accumulated deficit (4,776,425) Unearned compensation (521,845) -------- Total stockholders' equity 557,997 ------- Total liabilities and stockholders' equity $ 3,655,382 =========== See accompanying notes to unaudited financial statements
-3- SALES ONLINE DIRECT, INC STATEMENTS OF OPERATIONS (unaudited)
Three months Six months Three months Six months ended June 30, ended June 30, ended June ended June 2000 2000 30, 1999 30, 1999 ---- ---- -------- -------- Revenues $ 327,927 $ 770,297 $ 155,189 $ 312,644 Cost of revenues 356,532 585,098 46,582 73,831 ------- ------- ------ ------ Gross Profit (Loss) (28,605) 185,199 108,607 238,813 Selling, general and adminsitrative expenses 903,223 1,620,323 583,458 790,367 ------- --------- ------- ------- Loss from operations (931,828) (1,435,124) (474,851) (551,554) -------- ---------- -------- -------- Other income (expense) Interest expense (147,501) (1,162,456) -- -- Other income 17,033 28,326 45,706 45,706 ------ ------ ------ ------ Total other income (expense) (130,468) (1,134,130) 45,706 45,706 -------- ---------- ------ ------ Loss before income taxes (1,062,296) (2,569,254) (429,145) (505,848) Provision for taxes on income -- -- -- -- ---------- ---------- ------------ -------- Net loss (1,062,296) (2,569,254) $ 429,145 (505,848) ---------- ---------- ------------ -------- Loss per share Basic $ (0.02) $ (0.05) $ (0.01) $ (0.01) ------------ ------------ ------------ ------------ Weighted average shares 47,056,140 46,946,167 46,711,140 43,820,727 ========== ========== ========== ==========
See accompanying notes to unaudited financial statements -4-
SALES ONLINE DIRECT, INC. STATEMENTS OF CASH FLOWS For the six months ended (unaudited) June 30, 2000 June 30, 1999 Operating activities: Net (loss) $(2,569,254) $ (505,848) Adjustments to reconcile net (loss) to net cash (used in) operating activities Depreciation and amortization 138,763 12,038 Amortization of unearned compensation 92,066 Realized (gain) on marketable securities (20,112) (18,823) Unrealized (gain) loss on marketable securities 20,952 (18,557) Beneficial converstion feature 1,000,000 Amortization of debt discount 59,696 Changes in assets and liabilities: Accounts receivable 20,188 (6,392) Inventory (97,020) (98,177) Due from related parties -- 4,006 Accounts payable (306,381) 9,065 Accrued expenses 338,918 106,456 Other, net (60,062) (112,227) ------- -------- Net cash (used in) operations (1,391,246) (628,459) ---------- -------- Investing activities: Acquisition of marketable securities (382,575) (987,391) Proceeds from sales of marketable securities 263,557 789,992 Acqusition of Securities Resolution Advisors, Inc. -- 488 Merger with Rotman Auction, Inc. -- 9,864 Property and equipment additions (60,957) (50,697) ------- ------- Net cash (used in) investing activities (179,975) (237,744) -------- -------- Financing activities: Proceeds from assignment of common stock call options 87,188 2,450,000 Net proceeds from convertible securities 2,300,000 -- Proceeds form sale of warrants 430,000 -- ------- --------- Net cash provided by financing activities 2,817,188 2,450,000 --------- --------- Net increase in cash and equivalents 1,245,967 1,583,797 Cash and equivalents, beginning 221,213 -- ------- ---------- Cash and equivalents, ending $ 1,467,180 $ 1,583,797 =========== =========== See accompanying notes to unaudited financial statements
-5- SALES ONLINE DIRECT, INC. STATEMENTS OF CASH FLOWS (continued) For the six months ended (unaudited)
June 30, 2000 June 30, 1999 ------------- ------------- Supplemental disclosures of cash flow information: Cash paid during the period for : Interest $ -- $ -- ========= ========== Income taxes $ 5,185 $ -- ========= ========== Supplemental schedule of Non-cash Investing and Financing Activities: Contributions of inventories $ -- $ 769,764 ========= ========== Contribution of the net assets of World Wide Collectors Digest, Inc. were recorded at their fair values as follows: Due form shareholder $ -- $ 2,737 Other current assets -- 1,000 Property and equipment -- 29,877 Liabilities assumed -- (385) Paid-in capital -- 33,229 Merger of Rotman Auction, Inc. accounted for utilizing the purchase method of accounting. The assets were recorded at their fair values as follows: Cash received in the transaction -- 9,864 Accounts receivable -- 11,841 Inventory -- 31,454 Due from affiliate -- 10,919 Other current assets -- 7,115 Property and equipment -- 1,697 Due to shareholder -- (11,820) Other liabilities assumed -- (129,975) Goodwill -- 68,905 Acquisition of Internet Collectible Awards for Common stock and liabilities $ 287,500 Consulting fees paid in common stock 44,835 See accompanying notes to unaudited financial statements
-6-
SALES ONLINE DIRECT, INC. STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY For the six months ended June 30, 2000 (unaudited) Common Stock Additional ------------------ Paid-in Accumulated Unearned Shares Amount Capital Deficit Compensation Total ------ ------ ------- ------- ------------ ----- Balance, December 31, 1999 46,711,140 $ 46,711 $ 4,010,033 $(2,207,171) $ (613,911) $ 1,235,662 Common stock issued in connection with call option agreement 110,000 110 (110) -- -- -- Common stock issued to consultant for services 35,000 35 44,800 -- -- 44,835 Acqusition of Internet Collectible Awards 200,000 200 237,300 -- -- 237,500 Proceeds from assignment of options -- -- 87,188 -- -- 87,188 Beneficial conversion discount -- -- 1,000,000 -- -- 1,000,000 Issuance of warrants -- -- 430,000 -- -- 430,000 Amortization of stock-based compensation -- -- -- -- 92,066 92,066 Net loss -- -- -- (2,569,254) -- (2,569,254) ---------- -------- ------------ ----------- ----------- ----------- Balance, June 30, 2000 47,056,140 $ 47,056 $ 5,809,211 $(4,776,425) $ (521,845) $ 557,997 ========== ======== =========== =========== =========== ===========
See accompanying notes to unaudited financial statements -7- SALES ONLINE DIRECT, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Six months ended June 30, 2000 and 1999 1. ORGANIZATION On February 25, 1999, Securities Resolution Advisors, Inc. ("SRAD") purchased all of the outstanding common stock of Internet Auction, Inc. ("Internet Auction"). The acquisition was made pursuant to an Agreement and Plan of Reorganization (the "Agreement") dated January 31, 1999 between SRAD and the principal shareholders ("IA Shareholders") of Internet Auction. Pursuant to the Agreement, SRAD acquired all of the issued and outstanding shares of Internet Auction in exchange for the issuance to the IA Shareholders of an aggregate of 37,368,912 shares, representing approximately 80%, of SRAD's issued and outstanding common stock, and the business of Internet Auction became the business of SRAD. In accordance with the Agreement, after the transaction described above, the IA Shareholders were appointed to SRAD's Board of Directors and became officers of SRAD. The previously serving directors resigned from the Board. SRAD subsequently changed its name to Sales OnLine Direct, Inc. (the "Company"). For accounting purposes, the transaction described above is considered, in substance, a capital transaction rather than a business combination. It is equivalent to the issuance of common stock by Internet Auction for the net assets of the Company, accompanied by a recapitalization. This accounting treatment is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible asset has been recorded. Accordingly, the accompanying financial statements reflect the acquisition by Internet Auction of the net assets of the Company and the recapitalization of Internet Auction's common stock based on the exchange ratio in the Agreement. On March 7, 2000, the Company acquired Internet Collectible Awards (www.collectiblenet.com), an internet business that polls consumers and reports on the best Internet collectibles Web sites in a variety of categories. As consideration for the acquisition, the Company recorded accounts payable of $50,000 and issued 200,000 shares of the Company's common stock valued at $237,500 (based on the Company's stock price at the date of acquisition). The acquisition has been accounted for under the purchase method of accounting. The excess of the purchase price, $287,500, over the fair value of the assets acquired has been allocated to other intangible assets. (See Note 6) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited. - 8 - Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report for the year ended December 31, 1999 which is included in the Company's Form 10KSB. Marketable Securities Marketable securities are classified as trading and are stated at fair value. Goodwill Goodwill is being amortized on a straight-line basis over an estimated useful lives of three to five years. Other intangible assets The other intangible assets acquired from Internet Collectible Awards are being amortized over their estimated useful life of five years. Debt financing costs Debt financing costs associated with the convertible debt are being amortized over the two year term of the related debt. Revenue Recognition The Company generates revenue on sales of its purchased inventory and from fees and commissions on sales of merchandise under consignment type arrangements. For sales of merchandise owned and warehoused by the Company, the Company is responsible for conducting the auction, billing the customer, shipping the merchandise to the customer, processing merchandise returns and collecting accounts receivable. The Company recognizes the gross sales amount as revenue upon verification of the credit card transaction and shipment of the merchandise. For sales of merchandise under consignment-type arrangements, the Company takes physical possession of the merchandise, but is not obligated to, and does not, take title to or ownership of the merchandise. When an auction is completed, consigned merchandise which has been sold is shipped to the customer upon receipt of payment. The Company recognizes the net commission and service revenues relating to the consigned merchandise upon receipt of the gross sales proceeds. The Company then releases the net sales proceeds to the Consignor. - 9 - Income Taxes Deferred tax asset and liabilities are recorded for temporary differences between the financial statement and tax bases of assets and liabilities using the enacted income tax rates expected to be in effect when the taxes are actually paid or recovered. A deferred tax asset is also recorded for net operating loss, capital loss and tax credit carry forwards to the extent their realization is more likely than not. The deferred tax expense for the period represents the change in the deferred tax asset or liability from the beginning to the end of the period. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the amounts reported of assets and liabilities as of the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Material estimates that are particularly susceptible to significant change in the near term relate to the inventory valuation and the deferred tax asset valuation. Although these estimates are based on management's knowledge of current events and actions, they may ultimately differ from actual results. Earnings per share Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options, convertible debt and common stock warrants and are determined using the treasury stock method. The potential common shares have been excluded from the computation of earnings per share because they were antidilutive as a result of the Company's net loss for the period. Fair Value of Financial Instruments The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, and marketable securities, approximate fair value. The fair value of the convertible debt, based upon the market value of the common stock and the terms of the note, is estimated to be $4.0 million. 3. COMMON STOCK Call Option Agreement In connection with the agreement described in Note 1, on February 25, 1999 SRAD entered into a Call Option Agreement ("Option Agreement") with Universal Funding, Inc. (Universal), a shareholder of SRAD and a beneficial owner of 3,000,000 shares of SRAD's common stock. Under the Agreement, Universal agreed to grant certain options to SRAD to acquire 2,000,000 shares of SRAD's common stock owned by Universal. The options consist of 1,000,000 shares at $.50 per share exercisable through February 25, 2000 and 1,000,000 shares at $.75 per share exercisable through February 25, 2001. The exercise price was reduced to .375 per share through April 30, 1999. In addition, the Company assigned options to purchase 160,000 shares of stock from Universal to Richard Singer, the former President of SRAD, for services rendered to SRAD in connection with the acquisition of Internet Auction, Inc. Also, the Company assigned options to purchase 700,000 shares of stock from Universal to Steven Rotman, the father of Richard and Gregory Rotman, in connection with the acquisition of certain inventories. - 10 - In April 1999, the Company assigned options to purchase 500,000 shares of stock from Universal to certain individuals in exchange for $2,450,000, which was added to the paid-in capital of the Company. In March 2000 the Company assigned options to purchase 142,500 shares of stock from Universal to certain individuals in exchange for $87,188, which was added to the paid-in capital of the Company. At June 30, 2000, the Company had a balance of 497,500 shares remaining under the agreement with an exercise price of $.75 and an expiration date of February 25, 2001. Issuance of Common Stock On February 17, 2000, the Company issued 75,000 shares of its common stock to Universal Funding, Inc. for payment of certain fees due in connection with the granting of the common stock call options and temporary reduction of the call option exercise price. In addition, the Company issued 35,000 shares of its common stock to an investment consultant for service rendered in connection with the common stock option grant transactions. The aggregate value of the common stock issued was $140,000 treated as a cost of raising capital, with no impact on the net worth of the Company. Also, the Company issued 35,000 shares to a consultant for services rendered in the first quarter of 2000. The fair value of the shares issued, $44,800, was charged to expense and added to additional paid in capital in the first quarter of 2000. 4. INCOME TAXES There was no provision for income taxes for the periods ended June 30, 2000 or 1999 due to the Company's net operating loss and its valuation reserve against deferred income taxes. The difference between the provision for income taxes from amounts computed by applying the statutory federal income tax rate of 34% and the Company's effective tax rate is due primarily to the net operating loss incurred by the Company and the valuation reserve against the Company's deferred tax asset. At June 30, 2000 the Company has federal and state net operating loss carryforwards of approximately $3,260,000 available to offset future taxable income that will expire in 2020. 5. CONVERTIBLE DEBT FINANCING On March 23, 2000, the Company entered into a Securities Purchase Agreement (the "Agreement"), whereby the Company issued an 8% convertible note in the amount of $3,000,000, due March 31, 2002 to Augustine Fund, L.P. (the "Buyer"). The note is convertible into common stock at a conversion price equal to the lesser of: (1) one hundred ten percent (110%) of the lowest of the closing bid price for the common stock for the five (5) trading days prior to March 23, 2000, or (2) seventy-five percent (75%) of the - 11 - average of the closing bid price for the common stock for the five (5) trading days immediately preceding the conversion date. Had the Buyer converted the note on March 23, 2000, the Buyer would have received $4,000,000 in aggregate value of the company's common stock upon the conversion of the $3,000,000 convertible note. As a result, for the period ended March 31, 2000, the intrinsic value of the beneficial conversion feature of $ 1,000,000 has been allocated to debt discount and additional paid-in capital. Since the debt was convertible at date of issuance, the debt discount was charged to interest expense in the period ended March 31, 2000. In connection with the Agreement, the Company also issued warrants to the Buyer and Delano Group Securities to purchase 300,000 and 100,000 shares of common stock, respectively. The purchase price per share of common stock is equal to one hundred and twenty percent (120%) of the lowest of the closing bid prices for the common stock during the five (5) trading days prior to the closing date. The warrants are exercisable on June 23, 2000 and expire on March 31, 2005. The fair value of the warrants granted is estimated to be $430,000 using the Black-Scholes option-pricing model. The amount of the proceeds allocated to the warrants results in a debt discount of $430,000 which will be amortized as additional interest expense during the two years ending March 23, 2002. Amortization of $5,945 and $59,696 has been charged to operations during the three and six months ended June 30, 2000, respectively. In addition, the Company entered into a Registration Rights Agreement, whereby the Company agreed to file a Registration Statement with the Securities and Exchange Commission (SEC), within 180 days of the closing date, covering the common stock to be issued upon the conversion of the convertible note and stock purchase warrants. All fees and expenses related to the registration of the common stock will be paid by the Company. Estimated fees and expenses to be incurred in connection with this agreement in the amount of $35,000 have been accrued during the six months ended June 30, 2000. If the Registration Statement is not declared effective by the SEC on or before September 30, 2000, then with respect to any portion of the note not previously converted into common stock, the applicable conversion percentage will decrease by two percent (2%) each thirty day period until the Registration Statement is declared effective by the SEC. If the SEC has not declared the Registration Statement effective within one year after March 23, 2000, the applicable conversion percentage shall be fifty percent (50%). Also, if the Registration Statement is not filed by the filing date and not declared effective by the SEC on or prior to September 30, 2000, the Company shall pay cash, as liquidating damages, for such failure. The required payment will be equal to two (2%) of the purchase price of the note and warrant for each thirty-day period, until the breach of the Registration Rights Agreement is cured. Expenses incurred in connection with the sale of this convertible note amounted to $270,000. These expenses are being amortized to interest expense over the term of the convertible note. 6. LITIGATION On June 1, 2000, the Company filed a lawsuit against Marc Stengel, a director, stockholder and Executive Vice President of the Company seeking damages against Stengel for actions taken, or not taken, that the Company alleges are in breach of his fiduciary duty and - 12 - otherwise adversely impact the Company. The lawsuit also alleges that the acquisition of the Internet Collectible Awards discussed in note 1 was a related party transaction. Various motions and responses have been filed in connection with this matter. As of August 11, 2000 the Court has not ruled on these matters and discovery has not yet begun. Greg Rotman, President and CEO of the Company, has called a special meeting of the stockholders to be held on September 7, 2000 for the election of directors. Greg and Richard Rotman, who are brothers, have filed proxy solicitation materials with the SEC. No other party has filed any proxy solicitation materials. The Company is unable to predict the ultimate outcome of the litigation described above. - 13 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS ---------------------------------------------------------- This Quarterly Report on Form 10-QSB contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding the Company and its business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements in this Report. Additionally, statements concerning future matters such as the development of new services, technology enhancements, purchase of equipment, credit arrangements, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements. Although forward-looking statements in this Report reflect the good faith judgment of the Company's management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks, contingencies and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in this Form 10-QSB. Although the Company believes that its plans, intentions and expectations reflected in these forward-looking statements are reasonable, the Company can give no assurance that its plans, intentions or expectations will be achieved. For a more complete discussion of these risk factors, see Exhibit 99.1, "Risk Factors", in the Company's Form 10-KSB for the fiscal year ended December 31, 1999. Overview The Company's primary business is collectibles. The Company's online collectibles site is located at "www.salesonlinedirect.com." In order to take advantage of the tremendous growth in both the online auction and e-commerce industries, the Company is now focused on the creation of a unique and multi-faceted internet collectibles market place that services all aspects of the purchase, ownership and sale of collectibles. Our mission is to become the premier internet collectibles site consisting not only of a collectibles portal but also a global auction search and research center. We will derive revenues from the sale at auction of collectibles from our own inventory as well as from merchandise under consignment type arrangements with the public through our Rotman Auction division; sale of advertising on our website; and fees for services such as appraisals and gradings. The Company's new website, which can also be accessed through the Company's primary website, is located at "www.collectingexchange.com". Results of Operations The following discussion compares the Company's results of operations for the three months ended June 30, 2000, with those for the three months ended June 30, 1999. The Company's financial statements and notes thereto included elsewhere in this report contain detailed information that should be referred to in conjunction with the following discussion. Revenue. For the three months ended June 30, 2000 revenue was $328,000, substantially all of which is attributable to sales of the Company's own product and fees from buyers and sellers through the Rotman Auction operations. This represents an increase of approximately $173,000, or 112% from the three-month period ended June 30, 1999, in which revenue was $155,000. The primary reason for the increase is that, since the third quarter 1999, the - 14 - Company switched from an 80% consignment model to approximately 20% consignment sales. We purchase these collectibles from dealers and collectors and assume the inventory and price risks of these items sold. Due to the inherently unpredictable nature of auctions, it is impossible to determine with certainty whether an item will sell for more than the price we paid. Most of the Company's sales consist of Company-owned product. Loss from product sales (gross loss) for the three months ended March 31, 2000 was $28,000, compared with a gross profit of $109,000 for the comparable 1999 quarter. The loss is a result of the Company auctioning lower margin, slower moving merchandise during the second quarter while reserving the higher margin and faster moving inventory for sale in the third and fourth quarters. The Company believes this will result in better prices and gross profit. Sales, General, and Administrative Expenses. Sales, general and administrative ("SG&A") expenses for the three months ended June 30, 2000 were $903,000, compared to $583,000 for the three months ended June 30, 1999. The increase in SG&A costs includes an increase in professional fees of $163,000, which are primarily attributable to the Company's legal activities. Marketing and advertising costs decreased by approximately $37,000 from the three months ended June 30, 1999. Marketing expenses were primarily attributable to print and online marketing and advertising programs designed to create brand awareness for the Company's online sites. The Company also incurred expenses relating to the closing of the Maryland office and moving of the Company's Internet infrastructure to Massachusetts in June 2000. In addition the Company made investments in product development that it believes are required to remain competitive and handle increased growth. Interest expense. The Company sustained charges associated with the issuance of a $3,000,000 convertible note and warrants. See "Working Capital and Liquidity" below. Loss. The Company realized a loss for the three months ended June 30, 2000 of $1,062,000, or ($.02) per share as compared to a loss of $429,000, or ($.01) per share for the three months ended June 30, 1999. The following discussion compares the Company's results of operations for the six months ended June 30, 2000, with those for the six months ended June 30, 1999. Revenue. For the six months ended June 30, 2000 revenue was $770,000, substantially all of which is attributable to sales of the Company's own product and fees from buyers and sellers through the Rotman Auction operations. This represents an increase of approximately $457,000 or 146% from the six-month period ended June 30, 1999 in which revenue was $313,000. The primary reason for the increase is that, since the third quarter 1999, the Company switched from an 80% consignment model to approximately 20% consignment sales. As a result, most of the Company's sales consist of Company-owned product. Gross profit for the six months ended June 30, 2000 was $185,000 compared with $239,000 for the six months ended June 30, 1999. Sales, General, and Administrative Expenses. Sales, general and administrative ("SG&A") expenses during the six months ended June 30, 2000 were $1,620,000 compared to $790,000 for the six months ended June 30, 1999. The increase in SG&A costs includes professional fees ($158,000), which are primarily attributable to the Company's legal activities, personnel related costs ($306,000), depreciation and amortization ($89,000) and computer expenses ($89,000). Marketing and advertising costs decreased by approximately $69,000 from the six months ended June 30, 1999. The Company also incurred expenses relating to the closing of the Maryland office and moving of the Company's Internet infrastructure to Massachusetts in June 2000. In - 15 - addition the Company made investments in product development that it believes are required to remain competitive and handle increased growth. Interest expense. The Company sustained charges associated with the issuance of a $3,000,000 convertible note and warrants as well as a $1,000,000 one time charge associated with the beneficial conversion feature in that debt. See "Working Capital and Liquidity" below. Loss. The Company realized a loss for the six months ended June 30, 2000 of $2,569,000, or ($.05) per share, compared to $506,000 or ($.01) per share for the six months ended June 30, 1999. Inflation. The Company believes that inflation has not had a material effect of its results of operations. Working Capital and Liquidity Cash and cash equivalents were $1,467,000 at June 30, 2000, compared to $1,584,000 at June 30, 1999. On March 23, 2000, the Company entered into a Securities Purchase Agreement (the "Agreement"), whereby the Company sold an 8% convertible note in the amount of $3,000,000, due March 31, 2002 to Augustine Fund, L.P. (the "Buyer"). The note is convertible into common stock at a conversion price equal to the lesser of: (1) one hundred ten percent (110%) of the lowest of the closing bid price for the common stock for the five (5) trading days prior to March 23, 2000, or (2) seventy-five percent (75%) of the average of the closing bid price for the common stock for the five (5) trading days immediately preceding the conversion date. Had the Buyer converted the note on March 23, 2000, the Buyer would have received $4,000,000 in aggregate value of the company's common stock upon the conversion of the $3,000,000 convertible note. As a result, the intrinsic value of the beneficial conversion feature of $1,000,000 has been allocated to debt discount and additional paid-in capital. Since the debt was convertible at date of issuance, the debt discount was charged to earnings during the quarter ended March 31, 2000. In connection with the Agreement, the Company also issued warrants to the Buyer and Delano Group Securities to purchase 300,000 and 100,000 shares of common stock, respectively. The purchase price per share of common stock is equal to one hundred and twenty percent (120%) of the lowest of the closing bid prices for the common stock during the five (5) trading days prior to the closing date. The warrants expire on March 31, 2005. In addition, the Company entered into a Registration Rights Agreement, whereby the Company agreed to file a Registration Statement with the Securities and Exchange Commission (SEC), within 180 days of the closing date, covering the common stock to be issued upon the conversion of the convertible note and stock purchase warrants. If the Registration Statement is not declared effective by the SEC on or before September 30, 2000, then, with respect to any portion of the note not previously converted into common stock, the applicable conversion percentage will decrease by two percent (2%) each thirty day period until the Registration Statement is declared effective by the SEC. If the SEC has not declared the Registration Statement effective within one year after March 23, 2000, the applicable conversion percentage shall be fifty percent (50%). -16- Also, if the Registration Statement is not filed by the filing date and not declared effective by the SEC on or prior to September 30, 2000, the Company shall pay cash, as liquidating damages, for such failure. The required payment will be equal to two (2%) of the purchase price of the note and warrant for each thirty-day period, until the breach of the Registration Rights Agreement is cured. -17- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- The Company's Board of Directors consists of Gregory Rotman and Richard Rotman, who are brothers, and Hannah Kramer ("Kramer") and Marc Stengel ("Stengel"), who are aunt and nephew. On May 5, 2000, the Company's President and CEO advised Stengel in writing that the Company's Maryland office was being closed and that Stengel was relieved of his duties at that office. On June 1, 2000, the Company filed a lawsuit against Stengel, a director, stockholder and the Executive Vice President of the Company, Case No. WMN00CV1621, in the US District Court for the District of Maryland (Northern Division). The complaint seeks damages against Stengel for actions taken or failed to be taken that the Company alleges are in breach of his fiduciary duty. The complaint further alleges that Stengel made intentional misrepresentations to, and concealed material facts from, the other executive officers of the Company, engaged in constructive fraud with the respect to the Company and converted the Company's property to his own benefit. On June 7, 2000, the Company's President and CEO advised Stengel in writing that his employment with the Company was terminated. On June 16, 2000 Stengel commenced an action in the Delaware Court of Chancery, C.A. No. 18109 (the "Delaware Action") seeking, among other things, a determination from the Court that he was improperly removed as an officer and director of the Company and should be reinstated as such, and that the Rotmans be ordered to dismiss the Maryland action. On June 26, 2000, Stengel filed a Motion to Dismiss the Maryland lawsuit on the basis that the Company lacked the authority to bring the action in that the Board did not authorize the filing of the suit. On July 10, 2000, the Company filed an Opposition to Stengel's Motion to Dismiss asserting, among other things, that the filing of suit was properly authorized by the Company's President and CEO acting in his capacity as such. On July 21, 2000, Stengel filed a Memorandum in Reply to the Company's Opposition to Stengel's Motion to Dismiss. As of August 11, 2000, the Court has not ruled on Stengel's Motion to Dismiss. On July 20, 2000, Gregory Rotman, the President and CEO of the Company, called a special meeting of its stockholders to be held on September 7, 2000 for the election of directors. Gregory Rotman and Richard Rotman have nominated themselves, Andrew Pilaro and John Martin for election to the Company's board and have filed proxy soliciting materials with the SEC in support of their slate. No other nominations have been received by the Company and no proxy soliciting materials have been filed by any other party. On July 27, 2000, the Court of Chancery entered an order staying the Delaware Action pending the outcome of the special meeting of shareholders. -18- 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: Exhibit No. - ----------- 27 Financial Data Schedule -19- 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: August 11, 2000 SALES ONLINE DIRECT INC. Registrant /s/ Gregory Rotman --------------------------------------------- Gregory Rotman, President /s/ Richard Rotman --------------------------------------------- Richard Rotman, Chief Financial Officer, Vice President and Secretary -20- LIST OF EXHIBITS Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule EX-27 2 0002.txt FDS -- FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Form 10QSB and is qualified in its entirety by reference to such financial statements. 0001017655 SALES ONLINE DIRECT, INC. 1 U.S. DOLLAR 6-MOS DEC-31-2000 JAN-1-2000 JUN-30-2000 1 1,467,180 127,178 28,494 0 726,749 2,493,891 605,118 0 3,655,382 467,689 0 0 0 47,056 0 3,655,382 770,297 770,297 585,098 1,620,323 0 0 1,162,456 (2,569,254) 0 0 0 0 0 (2,569,254) (0.050) 0
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