FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23901
CYBERSHOP.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3979226
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
116 Newark Avenue, Jersey City, NJ 07302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 234-5000
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that 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 of the Registrant's common stock, par value $.001 per
share, outstanding on August 3, 1999 was 8,612,062 shares.
CYBERSHOP.COM, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc.)
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 2
Consolidated Statements of Operations for the Three and
Six Months ended June 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1999 and 1998 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements
CYBERSHOP.COM, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc.)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,721,000 $ 12,285,000
Accounts receivable, net of allowance for doubtful
accounts of $61,000 and $5,000, as of June 30, 1999
and December 31, 1998, respectively 691,000 176,000
Inventories 806,000 526,000
Prepaid expenses and other 695,000 375,000
------------ ------------
Total current assets 4,913,000 13,362,000
Property and equipment, net 1,806,000 1,944,000
Goodwill, net 14,508,000 --
Other assets 83,000 160,000
------------ ------------
Total assets $ 21,310,000 $ 15,466,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,679,000 $ 2,403,000
Accrued liabilities 1,336,000 1,953,000
Acquisition related payable 361,000 --
Deferred revenues 49,000 72,000
------------ ------------
Total current liabilities 5,425,000 4,428,000
Deferred rent 107,000 49,000
------------ ------------
Total liabilities 5,532,000 4,477,000
------------ ------------
Stockholders' equity:
Common stock, $.001 par value; 75,000,000 shares
authorized; 8,597,728 and 7,493,350 shares issued
and outstanding as of June 30, 1999 and
December 31, 1998, respectively 9,000 7,000
Additional paid-in capital 26,816,000 18,318,000
Accumulated deficit (11,047,000) (7,336,000)
------------ ------------
Total stockholders' equity 15,778,000 10,989,000
------------ ------------
Total liabilities and stockholders' equity $ 21,310,000 $ 15,466,000
============ ============
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these balance sheets.
2
CYBERSHOP.COM, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues:
Product sales $ 2,058,000 $ 523,000 $ 3,110,000 $ 930,000
Advertising & set up fees 9,000 30,000 32,000 62,000
----------- ----------- ----------- -----------
Total revenues 2,067,000 553,000 3,142,000 992,000
Cost of revenues 1,457,000 394,000 2,377,000 695,000
----------- ----------- ----------- -----------
Gross profit 610,000 159,000 765,000 297,000
Operating expenses:
Sales and marketing 729,000 1,128,000 1,456,000 1,473,000
General and administrative 1,700,000 920,000 3,220,000 1,504,000
Merger and acquisition related
costs, including amortization
of goodwill 259,000 -- 259,000 --
----------- ----------- ----------- -----------
Total operating expenses 2,688,000 2,048,000 4,935,000 2,977,000
----------- ----------- ----------- -----------
Loss from operations (2,078,000) (1,889,000) (4,170,000) (2,680,000)
Interest income, net 93,000 242,000 215,000 249,000
Minority interest 112,000 -- 244,000 --
----------- ----------- ----------- -----------
Net loss $(1,873,000) $(1,647,000) $(3,711,000) $(2,431,000)
=========== =========== =========== ===========
Net loss per share, basic and diluted $ (0.24) $ (0.22) $ (0.48) $ (0.41)
Weighted average common shares
outstanding, basic and diluted 7,910,000 7,470,000 7,702,000 5,879,000
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated statements.
3
CYBERSHOP.COM, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
----------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss $ (3,711,000) $ (2,431,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 344,000 75,000
Amortization of goodwill 240,000 --
Non-cash compensation expense 24,000 --
Minority interest (244,000) --
Increase (decrease) in cash from changes in:
Accounts receivable, net (515,000) 43,000
Inventories (280,000) (23,000)
Prepaid expenses and other (76,000) (162,000)
Other assets 77,000 138,000
Accounts payable 1,276,000 333,000
Accrued liabilities (598,000) (184,000)
Deferred revenues (23,000) (68,000)
Deferred rent 58,000 4,000
------------ ------------
Net cash used in operating activities (3,428,000) (2,275,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (206,000) (729,000)
Acquisitions of businesses, net of cash acquired (6,281,000) --
------------ ------------
Net cash used in investing activities (6,487,000) (729,000)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock -- 18,810,000
Proceeds from exercise of stock options 351,000 --
Proceeds of short-term loan -- 500,000
Repayment of short-term loan -- (500,000)
Payments of capital lease obligations -- (28,000)
------------ ------------
Net cash provided by financing activities 351,000 18,782,000
------------ ------------
Net increase (decrease) in cash (9,564,000) 15,778,000
Cash and cash equivalents, beginning of period 12,285,000 787,000
------------ ------------
Cash and cash equivalents, end of period $ 2,721,000 $ 16,565,000
============ ============
Supplemental cash flow information:
Common stock issued in connection with acquisition $ 8,125,000 --
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these consolidated statements.
4
CYBERSHOP.COM, INC. AND SUBSIDIARIES
(Formerly Cybershop International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of the Business and Basis of Presentation
During the second quarter 1999 stockholders voted to change the Company's
name from Cybershop International, Inc. to Cybershop.com, Inc. (the "Company").
The Company is an online and direct to consumer retailer. The flagship store
located at www.cybershop.com offers discounted designer and brand-name apparel,
electronics, home accessories, toys, gifts and watches all at closeout prices.
electronics.net, located at www.electronics.net, offers a broad assortment of
consumer electronics, appliances and home office equipment for sale online.
The information presented as of June 30, 1999 and 1998, and for the
six-month periods then ended, is unaudited, but, in the opinion of management of
the Company, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for the fair presentation of the Company's
financial position as of June 30, 1999, the results of its operations for the
three and six-month periods ended June 30, 1999 and 1998 and its cash flows for
the six-month periods ended June 30, 1999 and 1998. The consolidated financial
statements included herein have been prepared in accordance with generally
accepted accounting principles and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and accompanying notes for
the year ended December 31, 1998, included in the Company's Annual Report on
Form 10-K as filed with the Securities and Exchange Commission. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
2. Business Combinations
Effective June 1, 1999 the Company acquired all of the outstanding common
stock of The Magellan Group, Inc. ("Magellan"), an online and direct response
retailer of high quality personal care, home and health related products, in
exchange for 1,000,000 shares of the Company's common stock and $5,000,000 in
cash. The acquisition was accounted for as a purchase with essentially all of
the $14,387,000 purchase price allocated to goodwill. The goodwill in the
accompanying consolidated balance sheets is being amortized on a straight line
basis over five years. The results of Magellan are included in the Company's
consolidated financial results beginning on the date of acquisition. In
addition, the Company is required to pay the former shareholders of Magellan
earn-out payments based upon the profitablity of a particular product. As of
June 30, 1999, $361,000 of earnout payments are payable to the former
shareholders, which are reflected as Acquisition Related Payable in the
accompanying consolidated balance sheet. Concurrent with the acquisition, one of
these former shareholders of Magellan was appointed a member of the Company's
board of directors.
5
The pro forma combined consolidated financial information for the six
months ended June 30, 1999 and 1998, as though Magellan had been acquired on
January 1, 1998, would have resulted in net sales of $5,913,000 and $3,379,000,
net loss of $5,651,000 and $4,020,000, and basic and diluted net loss per share
of ($0.68) and ($0.58), respectively. The pro forma net loss includes
amortization of goodwill of $1,439,000 for the six months ended June 30, 1999
and 1998. This unaudited pro forma combined consolidated financial information
is presented for illustrative purposes only and is not necessarily indicative of
the consolidated results of operations in future periods or the results that
actually would have been realized had the Company and Magellan been a combined
company during the specified periods.
On March 24, 1999 the Company issued 250,000 shares of common stock in
exchange for all of the outstanding common stock of Dealaday, Inc ("Dealaday").
Dealaday, an internet retailer targeting off-price branded women's and
children's apparel and accessory products, began operations in February 1998.
The transaction was accounted for as a pooling of interests and, as a result,
the Company's financial statements have been restated for all periods presented.
Separate results for Dealaday included in the Company's results for the
periods prior to the acquisition consisted of net sales and net losses for the
current period of $90,000 and $42,000, respectively, and net sales and net
losses for the six-month period ending June 30, 1998 of $46,000 and $36,000,
respectively.
3. Advertising and Promotion Costs
The recognition of advertising costs is in accordance with the provisions
of the AICPA Statement of Position 93-7, Reporting of Advertising Costs.
Advertising costs other than direct response are expensed at the time the
initial advertising takes place. Direct response advertising costs are amortized
over the period, during which associated net revenues are expected, generally
approximating three months or less.
4. Commitments and Contingencies
Marketing Agreements
The Company has entered into certain marketing agreements, which include
fixed fees through the the end of the current year ending December 31, 1999. The
expenses associated with these agreements are recognized on a systematic basis
over the term of the related agreements as services are received. Future minimum
commitments under the terms of these agreements are $311,000 during the
remainder of 1999. During July 1999 the Company and an internet media company
providing promotions and advertising for the Company's stores, agreed to
terminate their existing agreement which as of June 30, 1999 had represented
future commitments of $375,000 through the year 2000.
5. Shareholders' Equity
At the Company's Annual Meeting of Stockholders held on June 3, 1999,the
Company's stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock that the Company
is authorized to issue from 25,000,000 to 75,000,000.
6
6. Stock Option Plan
At the Company's Annual Meeting of Stockholders held on June 3, 1999 the
Company's stockholders approved an amendment to the Company's 1998 Stock Option
Plan (the Plan) increasing the number of shares available for issuance from
1,000,000 to 3,000,000. During the six months ended June 30, 1999, options to
purchase approximately 560,650 shares of the Company's Common Stock were
granted, at market value on date of grant, to employees under the Plan.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements which are not
historical fact, but are forward-looking statements relating to matters such as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical and anticipated results or other expectations
expressed in the Company's forward looking statements. Such forward-looking
statements may be identified by the use of certain forward-looking terminology,
such as "may," "will," "expect," "anticipate," "intend," "estimate," "believe,"
"goal," or "continue," or comparable terminology that involves risks or
uncertainties. Actual future results and trends may differ materially from
historical results or those anticipated depending on a variety of factors,
including, but not limited to those set forth under "Overview" and "Liquidity
and Capital Resources" included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations. Except as required by law, the
Company undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise. Readers,
however, should carefully review the factors set forth in other reports or
documents that the Company has filed or files from time to time with the
Securities and Exchange Commission.
Overview
The Company is an online and direct to consumer retailer. The flagship store
located at www.cybershop.com offers discounted designer and brand-name apparel,
electronics, home accessories, toys, gifts and watches all at closeout prices.
electronics.net, the Company's joint venture with Tops Appliance City (Tops),
located at www.electronics.net, offers a broad assortment of consumer
electronics, appliances and home office equipment for sale online.
Beginning in the first quarter of the current year, the Company began
implementing several operating initiatives at its flagship store, cybershop.com,
designed to better serve its customers and streamline its operations. The
Company has completed a shift in its merchandising strategy to focus on offering
off-price branded merchandise such as that found in outlets and traditional
discount retailers. The Company initiated a significant overhaul of its
infrastructure, migrating its web-based order processing onto a new platform,
redesigning the web site and integrating it with a new order fulfillment system.
The transition to an inventory-based model was completed in the second quarter
with the development of a new distribution and fulfillment center. In addition,
the Company launched two new online auction sites. With this initiative, the
Company introduced the excitement of the online auction experience to all its
customers, complementing its existing product offerings. The initiative also
offers the Company a new way to attract customers, learn more about their
shopping preferences and provide an effective mechanism to manage excess
inventory.
8
Effective June 1, 1999 the Company acquired all of the outstanding common
stock of The Magellan Group, Inc. ("Magellan"), an online and direct response
retailer of high quality personal care, home and health related products, in
exchange for 1,000,000 shares of the Company's common stock and $5,000,000 in
cash. The acquisition was accounted for as a purchase with essentially all of
the $14,387,000 purchase price allocated to goodwill. The goodwill in the
accompanying consolidated balance sheets is being amortized on a straight line
basis over five years. The results of Magellan are included in the Company's
consolidated financial results beginning on the date of acquisition. In
addition, the Company is required to pay the former shareholders of Magellan
earn-out payments based upon the profitablity of a particular product.
Concurrent with the acquisition, one of these former shareholders of Magellan
was appointed a member of the Company's board of directors.
Results of Operations
Three Months Ended June 30, 1999 compared to Three Months Ended June 30, 1998.
Revenues: Revenue is comprised of sales of products, net of returns, outbound
shipping charges and vendor set-up fees. Total revenues increased 274% in the
second quarter, or $1,514,000, to $2,067,000 as compared to $553,000 in the
second quarter of 1998. This increase was primarily attributable to greater
marketing efforts, an expanded customer base, repeat purchases from existing
customers, acquisitions, and strong sales of four products, which represented
approximately 49% of total revenues in the three months ended June 30, 1999.
Advertising and set-up fees decreased by 70%, or $21,000, to $9,000 in the
second quarter of 1999 from $30,000 in the second quarter of 1998, as a result
of a decrease in emphasis on this revenue stream and an increased focus on the
Company's merchandising strategies.
Cost of Revenues: Cost of revenues consists of the cost of products sold to
customers and shipping costs. Costs of revenues increased by 270%, or
$1,063,000, to $1,457,000 in the second quarter of 1999 from $394,000 in the
second quarter of 1998. Gross profit margins were 30% in the second quarter of
1999 compared to 29% in the second quarter of 1998. The increase in gross margin
is the result of improvements in merchandise mix and pricing, and outbound
freight costs, offset by a greater emphasis on consumer electronics which
typically yield lower gross profit margins, and an increase in inventory
allowances to reflect anticipated future markdowns on closeout and auction
related merchandise.
Sales and Marketing: Sales and marketing primarily consists of advertising,
fulfillment, promotional costs and related payroll expenses. Sales and marketing
decreased by 35%, or $399,000, to $729,000 in the second quarter of 1999 from
$1,128,000 in the second quarter of 1998. This reflects the Company's strategy
which has been to optimize the effectiveness of its marketing campaigns by
regularly evaluating the return on investment on marketing dollars spent versus
increased customer traffic and revenues. As a result of this ongoing evaluation,
effective June 30, 1999 the Company terminated its two-year agreement with
Excite. The Company intends to continue to evaluate new and existing marketing
relationships in this manner and may as a result increase or decrease its
operating expenses to fund marketing and advertising expenditures and to
establish strategic relationships which satisfy this evaluation and which are
considered important to the success of the Company.
9
General and Administrative: General and administrative expenses consist
primarily of administrative, accounting, and management payroll related
expenses, recruiting, legal fees, and general corporate expenses. General and
administrative expenses increased by 85%, or $780,000 to $1,700,000 in the
second quarter of 1999 from $920,000 in the second quarter of 1998. The increase
is primarily attributable to increased payroll related expenses, recruiting,
legal, and general corporate expenses to support the Company's increased
infrastructure.
Merger and Acquisition Related Costs: Merger and acquisition related costs
consist primarily of goodwill associated with the purchase of Magellan.
Interest Income, net: Interest income decreased $149,000 to $93,000 in the
second quarter of 1999 from $242,000 in the second quarter of 1998. The decrease
is primarily the result of the decrease in cash and cash equivalents to
$2,721,000 as of June 30, 1999 from $12,285,000 as of December 31, 1998.
Minority Interest: Minority interest represents Tops' 49% interest in the
earnings of the joint venture, electronics.net, which is 51% owned by the
Company and accounted for as a subsidiary in its consolidated financial
statements.
Net Loss: As a result of the factors discussed above, the Company reported a
consolidated net loss of $1,873,000 during the second quarter of 1999 compared
with a net loss of $1,647,000 during the second quarter of 1998. During the
second quarter, the net loss per common share, basic and diluted was ($0.24) per
share compared with a net loss of $(0.22) per share during the second quarter of
1998.
Pro forma results, reflecting the exclusion of merger and acquisition related
costs are as follows:
Quarter Ended, Quarter Ended,
June 30, 1999 June 30, 1998
------------- -------------
Pro forma net loss $ (1,614,000) $ (1,647,000)
Pro forma net loss per share, basic and diluted $ (0.20) $ (0.22)
The Company expects that it will continue to incur net losses and generate
negative cash flow from operations for the foreseeable future as it continues to
develop its business and no assurance can be given as to when, if at all, the
Company will achieve profitability.
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998.
Revenues: Total revenues increased 217% during the six months ended June 30,
1999, or $2,150,000, to $3,142,000 as compared to $992,000 during the first six
months of 1998. This increase was primarily attributable to greater marketing
efforts, an expanded customer base, repeat purchases from existing customers and
strong sales of four products, which represented approximately 40% of total
revenues for the six months ended June 30, 1999. Advertising and set-up fees
decreased by 48%, or $30,000, to $32,000 during the first six months of 1999
from $62,000 during the first six months of 1998, as a result of a decrease in
emphasis on this revenue stream and an increased focus on the Company's
merchandising strategies.
10
Cost of Revenues: Costs of revenues increased by 242%, or $1,682,000, to
$2,377,000 during the first six months of 1999 from $695,000 during the first
six months of 1998. Gross profit margins were 24% during the first six months of
1999 compared to 30% during the first six months of 1998. The decrease in gross
margin is the result of higher promotional discounts, an unfavorable product mix
and a greater emphasis on lower profit margin consumer electronics during the
first quarter of 1999 and inventory allowances to reflect anticipated future
markdowns on closeout and auction related merchandise offset by a more favorable
merchandise mix, product pricing and outbound shipping costs in the second
quarter of 1999.
Sales and Marketing: Sales and marketing decreased by 1%, or $17,000, to
$1,456,000 during the first six months of 1999 from $1,473,000 during the first
six months of 1998. As a percentage of total revenues, sales and marketing
expenses decreased to 46% during the first six months of 1999 from 149% during
the first six months of 1998, reflecting the Company's strategy which has been
to continuously evaluate the productivity and return on investment of our
marketing expenditures.
General and Administrative: General and administrative expenses increased by
114%, or $1,716,000 to $3,220,000 during the first six months of 1999 from
$1,504,000 during the first six months of 1998. The increase is primarily
attributable to increased payroll related expenses, recruiting, legal, and
general corporate expenses to support the Company's increased infrastructure
Merger and Acquisition Related Costs: Merger and acquisition related costs
consist primarily of goodwill associated with the purchase of Magellan.
Interest Income, net: Interest income decreased $34,000 to $215,000 during the
first six months of 1999 from $249,000 during the first six months of 1998. The
decrease is primarily the result of the decrease in cash and cash equivalents to
$2,721,000 as of June 30, 1999 from $12,285,000 as of December 31, 1998.
Minority Interest: Minority interest represents Tops' 49% interest in the
earnings of the joint venture, electronics.net, which is 51% owned by the
Company and accounted for as a subsidiary in its consolidated financial
statements.
Net Loss: As a result of the factors discussed above, the Company reported a
consolidated net loss of $3,711,000 for the six months ended June 30, 1999 as
compared with a net loss of $2,431,000 during the first six months of 1998.
During the first six months of 1999, the net loss per common share, basic and
diluted was ($0.48) per share compared with a net loss of $(0.41) per share
during the second quarter of 1998.
Pro forma results, reflecting the exclusion of merger and acquisition related
costs are as follows:
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
Pro forma net loss $ (3,452,000) $ (2,431,000)
Pro forma net loss per share, basic and diluted $ (0.45) $ (0.41)
The Company expects that it will continue to incur net losses and generate
negative cash flow from operations for the foreseeable future as it continues to
develop its business and no assurance can be given as to when, if at all, the
Company will achieve profitability.
11
Liquidity and Capital Resources
Net cash used in operations increased $1,153,000 to $3,428,000 during the
first six months of 1999 from $2,275,000 during the first six months of 1998.
The net use of cash in operations in the current period is primarily
attributable to current period net losses of $1,280,000, and a $280,000 increase
in inventory levels as the Company began migrating towards an inventory based
model and continued stocking its new distribution and fulfillment center.
Additionally, accounts receivable increased $515,000 reflecting an increase in
sales late in the second quarter of 1999 and the availability of a customer
installment payment plan on one of the Company's products. Offsetting these
increases in current assets is a net increase in accounts payable and accrued
liabilities of $678,000.
Net cash used in investing activities during the first six months of 1999
of $6,487,000 represents capital expenditures, primarily for computer equipment
and software to support the Company's expansion and increased infrastructure and
the acquisition of Magellan. Net used in investing activities during the first
six months of 1998 of $729,000 represents capital expenditures primarily for
computer equipment and software.
Additionally, the Company is required to pay the former shareholders of
Magellan earn-out payments related to the profitablity of a particular product
from the date of the acquisition through June 30, 1999 of $361,000. These
amounts are payable in the third quarter of 1999.
On March 26, 1998, the Company completed its initial public offering
("IPO") of 3,220,000 shares of Common Stock at a price of $6.50 per share. Net
proceeds from the IPO, net of underwriting discounts and offering costs, were
$18,749,000. Prior to the IPO, the Company had financed its operations primarily
from capital contributions from private investors. At June 30, 1999, the Company
had cash and cash equivalents of $2,721,000, negative working capital of
$(512,000), stockholders' equity of $15,778,000 and no debt. The Company
believes that its existing capital resources will enable it to maintain its
operations at existing levels for at least the next six months. The Company is
seeking additional debt and/or equity financing through a public offering or
private placement. There can be no assurance that any additional financing or
other sources of capital will be available to the Company upon acceptable terms,
if at all. The inability to obtain additional financing, when needed, would have
a material adverse effect on the Company's business, financial condition and
operating results, its ability to continue operating at existing levels, and
significantly slow the pace of both customer and revenue growth.
12
Year 2000
The Company believes that its computer systems and software products are
fully year 2000 compliant. However, it is possible that certain computer systems
or software products of the Company's suppliers or customers may not accept
input of, store, manipulate and output dates in the year 2000 or thereafter
without error or interruption. The Company is querying its current suppliers as
to their progress in identifying and addressing problems that their computer
systems will face in correctly processing date information as the year 2000
approaches. However, there can be no assurance that all date-handling problems
of its suppliers will be identified by the Company or its suppliers in advance
of their occurrence, or that the Company or the suppliers will be able to
successfully remedy problems that are discovered. In the event that problems are
discovered with its current suppliers which cannot be remedied the Company
intends to seek alternative suppliers who are fully year 2000 compatible. The
Company believes that most of its current customers who access its website are
using software that is fully year 2000 compatible. The Company may, however, be
required to make significant expenditures to address or remedy any year 2000
problems of its customers or vendors which are not identified in advance, or to
satisfy liabilities to which the Company may become subject as a result of such
problems.
13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Use of Proceeds:
On March 20, 1998 the Company's Registration Statement on Form S-1 (File
No. 333-42707) was declared effective by the Securities and Exchange Commission.
Pursuant to the Registration Statement the Company registered and sold 3,220,000
shares of Common Stock at a price of $6.50 per share. The managing underwriters
were C.E. Unterberg, Towbin and Fahnestock & Co. Inc. The aggregate price of the
amount offered and sold was $20,930,000.
The net offering proceeds to the Company after deducting underwriting
discounts and commissions and other expenses was $18,749,000.
From the effective date of the Registration Statement through June 30,
1999 the Company used the following amounts from the net offering proceeds for
the purposes set forth below:
Construction of plant $ --
Building, facilities and leasehold improvements $ 349,000
Purchase and installation of machinery, equipment and software $1,767,000
Purchase of real estate $ --
Acquisition of other business $6,281,000
Repayment of indebtedness $ 500,000
Working capital $8,096,000
Temporary investments $1,756,000
The use of proceeds set forth above does not represent a material change
in the use of proceeds described in the Registration Statement.
Changes in Securities
Increase in Authorized Shares: At the Company's Annual Meeting of Stockholders
held on June 3, 1999 the Company's shareholders approved an amendment to the
Company's Amended Certificate of Incorporation to increase the number of shares
of Common Stock, par value $.001 per share, that the Company is authorized to
issue from 25,000,000 to 75,000,000. The additional authorized shares will
provide the Company with flexibility in connection with possible future stock
splits, equity financings, joint ventures and acquisitions, in raising
additional capital, for grants and as incentives to employees, officers,
directors and consultants of the Company, and other general corporate purposes.
14
Item 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on June 3, 1999. At the
close of business on the record date for the meeting (which was April 9,1999),
there were 7,565,047 shares of Common Stock issued and outstanding and entitled
to vote at the meeting. Holders of 6,143,590 shares of Common Stock
(representing a like number of votes) were present at the meeting, either in
person or by proxy. The following individuals were elected to the Company's
Board of Directors to hold office for a term until the next annual meeting of
stockholders and until their respective successors are duly elected and
qualified.
Nominee In Favor Withheld
- -------- -------- ---------
Michael Kempner 6,114,916 28,674
Robert Matluck 6,114,916 28,674
Warren Struhl 6,114,916 28,674
Jeffrey Tauber 6,114,916 28,674
The results of the voting on the following items were as follows:
Approval of an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of Common Stock from 25,000,000 to
75,000,000.
In Favor Against Abstained
- -------- ------- ---------
6,003,428 124,824 15,338
Approval of an amendment to the 1998 Stock Option Plan increasing the
number of shares available for issuance from 1,000,000 to 3,000,000.
In Favor Against Abstained
- -------- ------- ---------
2,777,218 134,181 20,227
Ratification of the selection of Arthur Andersen, LLP as independent
certified public accountants for the fiscal year ending December 31, 1999.
In Favor Against Abstained
- -------- ------- ---------
6,109,474 20,058 14,058
Approval of an amendment to the Company's Certificate of Incorporation
changing the corporate name.
In Favor Against Abstained
- -------- ------- ---------
6,106,874 26,466 10,250
15
Item 6. Exhibits and Reports on Form 8-K
a. The following is a list of exhibits filed as part of this Form 10-Q:
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession: None
3. Articles of Incorporation:
3.1 Certificate of Incorporation, as amended and as currently in effect
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-42707).
3.2 Certificate of Amendment of The Certificate of Incorporation of
Cybershop International, Inc.
By-Laws:
3.3 By-Laws as currently in effect (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No.
333-42707).
Material Contracts:
10.1 Agreement and Plan of Merger by and among Cybershop International,
Inc., MG Acquisition Corp., The Magellan Group, Inc., Ian S.
Phillips and Howard J. Kuntz III dated as of June 1, 1999
(incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K. File No. 0-23901)
10.2 Employment Agreement dated June 1, 1999, by and between Ian S.
Phillips and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc.
10.3 Employment Agreement dated June 1, 1999, by and between Howard J.
Kuntz III and MG Acquisition Corp which is a wholly owned subsidiary
of Cybershop International, Inc.
11. Statement re computation of per share earnings: Statement regarding
computation of per share earnings is not required because the computation
can be readily determined from the material contained in the financial
statements included herein.
15. Letter re unaudited financial information: None
16. Letter re change in accounting principles: None
19. Report furnished to security holders: None
22. Published report regarding matters submitted to vote of security holders:
None
23. Consents of Experts and Counsel: None
24. Power of Attorney: None
16
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only
99. Additional Exhibits: None
b. Reports on Form 8-K, 1999.
On June 17, 1999, the Company filed a Current Report on Form 8-K reporting
the acquisition of The Magellan Group, Inc.
17
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 hereunto duly authorized.
Date: August 13, 1999 By: /s/ Jeffrey S. Tauber
Jeffrey S. Tauber
President, Chief Executive Officer and Chairman
of the Board of Directors
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ Jeffrey Leist
Jeffrey Leist
Senior Vice President and Chief Operating and
Financial Officer
(Principal Financial and Accounting Officer)
18
Exhibit Index
3.2 Certificate of Amendment of The Certificate of Incorporation of Cybershop
International, Inc.
10.2 Employment Agreement dated June 1, 1999, by and between Ian S. Phillips
and MG Acquisition Corp which is a wholly owned subsidiary of Cybershop
International, Inc.
10.3 Employment Agreement dated June 1, 1999, by and between Howard J. Kuntz
III and MG Acquisition Corp which is a wholly owned subsidiary of
Cybershop International, Inc.
27. Financial Data Schedule.
19