UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2002
[ ]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 00-28667
HOUSEHOLD DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0388634
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
HOUSEHOLD DIRECT, INC.
3 GLEN ROAD
SANDY HOOK, CT 06482
(Address of principal executive offices) (Zip Code)
(203) 426-2312
(Registrant's telephone number, including area code)
----------
None
(Former name or former address, if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (i) filed all report required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past
twelve months (or for such shorter period that the registrant to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
the number of shares outstanding of each the issuer's class of common
stock
CLASS OUTSTANDING ON MARCH 31, 2002
-------- ----------------------------
Common stock 127,174,545
Transitional Small Business Disclosure Format: ___Yes ____No
HOUSEHOLD DIRECT, INC.
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 2002
Consolidated Statements of Operations for the
three Months Ended March 31, 2002 and 2001,
and from inception on May 18, 1998 to
March 31, 2002
Consolidated Statements of Cash Flows for the
three Months Ended March 31, 2002 and 2001,
and from inception on May 18, 1998 to
March 31, 2002
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14,713
Due from affiliates 23,000
---------
Total current assets 37,713
Investment in affiliates 6,593
---------
Total nin-current assets 6,593
Property and equipment, net 25,550
Deposits 9,225
---------
TOTAL ASSETS $ 79,081
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 2,253,998
Accrued interest 23,559
Current portion of note payable 73,031
Amounts payable to related parties 371,587
----------
Total current liabilities 2,722,175
----------
SHAREHOLDERS' DEFICIT
Common stock, 100,000,000 shares of $0.001 par value
authorized; 127,174,545, Shares issued and
outstanding at March 31, 2002 207,683
Additional paid-in capital 5,805,669
Deficit accumulated during the development stage (8,656,446)
----------
TOTAL SHAREHOLDERS' DEFICIT (2,643,094)
----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 79,081
==========
The accompanying notes are an integral part of these consolidated financial
statements.
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Cumulative
During
Development
Stage Three Months Ended
May 18, 1998 March 31,
to March 31, 2002 2002 2001
----------- ----- ------
REVENUES:
Consulting services $ 330,593 $ 22,000 $ 32,075
Service fees 42,568 6,665 25,810
Sales 283,903 -- --
------------ -------- ---------
657,064 28,665 57,885
Cost of Sales 238,741 -- 24,419
------------ -------- ---------
Gross Profit 418,323 28,665 33,466
------------ -------- ---------
OPERATING EXPENSES:
Salaries and benefits 1,364,675 -- 71,994
Research and development 871,705 -- 9,919
Depreciation and amortization 141,624 24,144 11,657
Consulting and professional fees 3,477,935 302,252 188,980
General and administrative 3,266,374 33,601 119,284
------------ -------- --------
TOTAL OPERATING EXPENSES 9,122,313 359,997 401,834
------------ -------- ---------
LOSS FROM OPERATIONS (8,703,990) (331,332) (368,368)
------------ -------- ---------
OTHER EXPENSE:
Interest expense 28,828 -- 4,971
Loss from subsidiary 319,737 -- --
Write-off Inventory and Equipment 197,969 41,700 69,854
------------ -------- ---------
TOTAL OTHER EXPENSE 546,534 41,700 74,825
------------ -------- ---------
NET LOSS BEFORE INCOME TAX
AND EXTRAORDINARY ITEM (9,250,524) (373,032) (443,193)
EXTRAORDINARY ITEM FORGIVENESS
OF DEBT 594,079 -- --
------------ -------- --------
NET LOSS $(8,656,445) $(373,032) $ (443,193)
============ ======== ========
Basic and diluted net loss per weighted
average share of common stock
outstanding $ (.002) $(.002) $ (.01)
============ ======== ========
Weighted average number of shares of
basic and diluted common stock
outstanding 127,174,545 127,174,545 35,288,619
============ =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the For the
Period from Period from
January 1, January 1,
2002 to 2001 to
March 31, March 31,
2002 2001
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (373,032) $ (443,193)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation & Amortization (23,692) 11,657
Shares issued for services, consulting and
purchases of Company's 293,454 45,622
Write-off Inventory and Equipment 38,683 69,854
Write-off Intangibles 15,748 --
Interest paid with stock -- --
(Increases) decreases in operating assets:
Accounts receivable -- 4,500
Contracts receivable 58,500 --
Prepaid expenses and other current assets 4,600 4,600
Inventory -- 15,443
Increases (decreases) in operating liabilities:
Accounts payable and accrued salaries (23,398) 133,191
Amounts payable to related parties 53,670 7,658
Deferred revenue -- --
--------- ---------
Net cash used in operating activities 44,533 (150,668)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits on Web construction -- ( 57,031)
Investment in Software -- --
Investment in affiliates (29,593) --
Cash acquired from acquisition of Thunderstick -- --
Additions to property and equipment -- --
Deposits as Security (1,472) --
--------- ---------
Net cash used in investing activities (31,065) ( 57,031)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on notes payable -- 228,502
Payments on notes payable -- (13,616)
--------- ---------
Net cash provided by financing activities -- 214,886
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 13,468 7,187
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,245 --
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,713 $ 7,187
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest -- --
========== ========
Cash paid during the period for income taxes -- 450
========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative
During
Development
Stage
May 18, 1998
to March 31, 2002
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,656,445)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation & Amortization 51,135
Shares issued for services, consulting and
purchases of Company's 3,397,274
Write-off Inventory and Equipment 32,683
Write-off Intangibles 15,748
Interest paid with stock 20,500
(Increases) decreases in operating assets:
Accounts receivable (63,100)
Contracts receivable 58,500
Prepaid expenses and other current assets 4,600
Increases (decreases) in operating liabilities:
Accounts payable and accrued salaries 2,116,361
Amounts payable to related parties 213,713
---------
2,632,962
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliates (29,593)
Cash acquired from acquisition of Thunderstick (18,720)
Additions to property and equipment (105,801)
Deposits as security ( 9,228)
---------
(163,342)
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issued for cash 2,699,041
Cash received on stock subscriptions receivable 38,945
Advances on notes payable 93,000
Payments on notes payable ( 19,969)
---------
2,811,017
---------
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 14,713
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,713
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest 3,606
======
Cash paid during the period for income taxes --
======
The accompanying notes are an integral part of these consolidated financial
statements.
SUPPLEMENTAL INFORMATION March 31, 2002:
During the six months ended March 31, 2002, the Company issued:
1. During the period January 1, 2001 to March 31, 2001 the company issued
1,180,833 shares for financial advisory services valued at $45.622.
The accompanying notes are an integral part of these consolidated financial
statements.
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
On January 2, 1992, RDI Marketing, Inc. ("RDI") (AKA HouseHold Direct) was
formed as a Florida corporation. Upon formation, RDI issued 1,000 shares of
common stock. RDI essentially remained dormant with no direct or indirect
business activity until reinstatement on May 18, 1998. On May 18, 1998, RDI
adopted a plan of recapitalization whereby the 1,000 shares of common stock were
converted into 1,000,000 shares of .001 par value common stock. In addition to
the recapitalization on May 18, 1998, RDI filed a disclosure statement under
Rule 15C2-11 of the Securities and Exchange Act of 1934 (hereafter the "Exchange
Act") with the National Association of Securities Dealers ("NASD"). As a result,
commencing on June 11, 1998, RDI's common stock was quoted on the OTC Bulletin
Board.
On July 10, 1998, RDI exchanged 10,000,000 shares of common stock for all of the
outstanding stock of Preferred Consumer Network International, Inc. ("PCNI").
PCNI, incorporated on June 13, 1997, was engaged in the business of developing
and operating a wholesale buying club that, in addition provided buying,
marketing and financial services to third party owned wholesale buying clubs.
The traditional buying club business model (the "Traditional Model") being
utilized by PCNI was predicated on the sale of memberships to the general
public, which memberships entitled the holders to purchase goods and services
through the wholesale buying club at wholesale prices (exclusive of separately
charged taxes, handling and shipping charges and a processing fee of up to 10%).
During the fourth quarter of 1998, RDI elected to suspend development and
implementation of the Traditional Model in preference to a new business model
(the "New Model") predicated on the mass marketing (through telemarketing and
the Internet) of memberships. Additionally, the operations of PCNI, based on the
Old Model were suspended and PCNI became inactive. Subsequently, RDI sold all of
the issued and outstanding capital stock of PCNI to Mr. John Folger (the
President, a member of the Board of Directors and a principle shareholder of
RDI) for nominal consideration of $1.00.
RDI, in furtherance of the development of the New Model, entered into several
acquisitions during 1999. On May 7, 1999, the Company acquired all of the common
stock of Thunderstick LLC in exchange for 1,000,000 shares of the Company's
common stock. A shareholder loaned 500,000 shares to the Company and the shares
were given as 50% of the consideration to the former shareholders of
Thunderstick. The Company recorded a liability of $5,000 as due to the former
owner of Thunderstick, pending the issuing of an additional 500,000 shares. In
May 2000, the Company issued the additional 500,000 shares to the former
shareholders of Thunderstick and charged off the liability. Thunderstick,
through its wholly-owned affiliate Thunderstick Software, LLC, is engaged in the
business of developing and marketing Internet software which will be utilized to
support the Company's Web site and e-commerce operations and in providing
similar services, on a consulting basis, to third parties.
In July, 1999, RDI, changed its corporate domicile from Florida to Delaware, and
its name to HouseHold Direct, Inc. (the "Company"). These changes were
effectuated by merging the Company into its wholly-owned Delaware subsidiary,
and such merger had no impact on the shareholders or the capital accounts of the
Company.
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION (Continued)
In September, 1999, the Company entered into an acquisition agreement with
Megappliance, Inc. ("Mega") pursuant to which the Company agreed to acquire a
Web site (including software, technology and related commercial relationships)
in exchange for 124,000 shares of the Company's common stock.
On March 9, 2000, the Company executed an Agreement and Plan of Merger with
CrossCheck Corp., a Colorado corporation ("Cross") and a Letter Agreement with
the shareholders of Cross. Pursuant to such agreements, the Company merged Cross
(which had no business operations but was registered, and fully reporting, under
the Exchange Act) into the Company so that the Company could achieve "successor
issuer" status under the Exchange Act. In connection with such merger which was
consummated on March 20, 2000, the Company paid $150,000 in cash and issued
100,000 shares of common stock of the Company to the former shareholders of
Cross. The Company expensed the acquisition in the second quarter of 2000 in the
amount of $164,130.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate the
continuation of the Company as a going-concern. However, the Company is in the
development stage, and since inception has been engaged primarily in raising
capital and developing its Web site, product, and market strategy. The Company
has not generated significant revenues from operations, and in the course of
funding product and Web site development and other start-up activities, has
experienced cumulative net losses of $ 8,656,445 for the period from May 18,
1998 (inception) to March 31, 2002, and has used cash in operations of
$2,632,962 for the period from May 18, 1998 (inception) to March 31, 2002. The
Company expects that it will continue to incur net operating losses as it
expends substantial resources on Web site development and sales and marketing in
an attempt to capture market share and develop market recognition. Management is
continually trying to raise additional capital through issuance of stock and
debt. Management of the Company believes that the additional capital that is
expected to be raised in the future will be sufficient to cover its working
capital needs until the Company's revenue volume reaches a sufficient level to
cover operating expenses. The absence of assurances of additional capital,
raises a substantial doubt about the Company's ability to continue as a
going-concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Intercompany transactions and balances
have been eliminated in consolidation.
Research and Development Costs
Research and development costs are expensed as incurred.
Start-up Costs
The Company has implemented the Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," (SOP 98-5) which requires costs of start up
activities to be expensed as incurred.
Revenue Recognition
Revenue for services is recognized when the service is rendered, while product
revenue is recognized when the product is shipped to the customer. Revenue
consisted of products sold and shipped pursuant to the operating agreements with
PCNI and PCS, consulting services performed by Thunderstick, and service income
earned related to the contract entered into with Personal Consumer Services,
Inc. ("PCS").
Deferred Revenues
Deferred revenues, as presented on the balance sheet, relate to unpaid service
agreement fees to be paid by PCS from uncollected accounts receivable of
Personal Consumer Services, Inc (PCS). Due to the uncertainty of collection
history of PCS, only the fee actually paid by PCS to the Company during the year
and the first two months of 2000 were recorded as revenue. Only revenues
projected to be collected in the next year are shown as current.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives, ranging from three to five
years. Maintenance and repair costs are expensed as incurred.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosure About Fair Value
of Financial Instruments," requires disclosure about the fair value of all
financial assets and
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
liabilities for which it is practicable to estimate. At December 31, 2000, the
carrying value of all of the Company's accounts receivable, accounts payable and
accrued liabilities approximate fair value because of their short-term nature.
The note payable carrying value approximates fair value based on the borrowing
rate currently available for similar loans
Goodwill/Intangibles
Goodwill reflects the excess of purchase price over the fair value of net assets
purchased and is amortized on a straight-line basis over 3 years.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with initial maturities of three months or less to
be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
principally on the average cost method. Inventory of merchandise available for
resale was $0, at March 31, 2001. During the first quarter of 2001 the Company
closed out the inventory of merchandise it was holding in its two Southern
facilities and realized a loss on the sale of $48,613.
Common Stock Issued for Consideration Other Than Cash
When common stock is issued for consideration other than cash, the fair market
value of the stock or the fair market value of the property or services,
whichever is more objectively determinable is used to record the transaction.
The quoted market values of the shares, restricted as to marketability, are
discounted for limited liquidity. The discount factor is computed as the
difference between the average price of the shares issued for cash, computed
from the beginning of the year until the date of transaction, and the market
price of the shares at the date of transaction. The average cash prices, during
the current year, are used: to recognize substantial yearly changes in the
nature and size of the Company's operations; to reduce the impact of random
price movements associated with low volume transactions; and to incorporate
recently available market value information.
Website Development Costs
The Company accounts for website development costs in accordance with the AICPA
Statement of Position 98-12, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". Computer software costs that are
incurred in the preliminary project stage are expensed as incurred. Internal and
external costs incurred to develop
HOUSEHOLD DIRECT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
internal-use software during the application development stage are capitalized.
Post implementation and operation costs of training and maintenance are expensed
as incurred.
Loss per Share
Net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding for the period. Net loss per share has been
stated for all periods presented in accordance with SFAS No. 128.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income Taxes
Deferred income taxes, reflecting the net tax effects of temporary differences
between the carrying amount of assets and liabilities recognized for financial
reporting purposes and the amounts recognized for income ax purposes, are based
on tax laws currently enacted. A valuation allowance is established when
necessary to reduce deferred tax assts to the amount expected to be realized.
Prospective Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations, and Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
Statement No. 141 requires all business combinations initiated after June 30,
2001, to be accounted for using the purchase method of accounting. Under
Statement No. 142, goodwill will no longer be subject to amortization over its
estimated useful life. Rather, goodwill will be subject to at least an annual
assessment for impairment by applying a fair-value-based test. In addition,
Statement No. 142 requires separate recognition for certain acquired intangible
assets that will continue to be amortized over their useful lives.
NOTE 3. RELATED PARTY TRANSACTIONS
Directors, Officers and Shareholders of the Company, John Folger and Ann
Jameson, have entered into various transactions with the Company since
inception. The balance of the loan due them on March 31, 2001 was $271,689.
HOUSEHOLD DIRECT, INC.
Item 2. Management's Discussion and Analysis.
OVERVIEW
HouseHold Direct, Inc. is in the process of creating a unique new "consumer
services membership club" by creating a shopping platform that will offer direct
access to "cost-plus handling charge" prices from manufacturers and
distributors. The Company believes manufacturers are seeking a new Internet
based consumer service solution for the first time, which can be coupled to a
network of physical locations or service centers. Through its fulfillment
partners and direct relationships, the Company provides direct pricing from
brand name manufacturers/distributors on their entire current product line. The
Company believes the Management Team when completed will possess the required
skills and experience from corporate to startup backgrounds; and, will be
experienced in business development, marketing, operations, web-site design and
management, and database application support.
The Company was initially engaged, through its subsidiary PCNI, in the business
of developing and operating a wholesale buying club that, in addition provided
buying, marketing and financial services to third party owned wholesale buying
clubs. The traditional buying club business model (the "Traditional Model") was
predicated on the sale of memberships to the general public. The membership
entitled the holders to purchase goods and services through the wholesale buying
club at manufacturer direct prices (exclusive of separately charged taxes,
handling and shipping charges and a processing fee of up to 10%). During the
fourth quarter of 1998, the Company elected to suspend development and
implementation of the Traditional Model in preference to a new business model
(the "New Model") predicated on the mass marketing (through telemarketing and
the Internet) of memberships. Additionally, the operations of PCNI, based on the
Old Model were suspended and PCNI became inactive. Subsequently, the Company
sold all of the issued and outstanding capital stock of PCNI to Mr. John Folger
(the President, a member of the Board of Directors and a principle shareholder
of the Company) for nominal consideration of $1.00.
The services being developed by the Company are expected to create a substantial
benefit for two constituent groups - consumer and manufacturer. The consumers
benefit by a dramatic reduction in product prices. While supplying this price
advantage, the Company collects significant and valuable personal data and
product preferences information on the members who purchase products from the
Company. This rich demographic product and psychographic data can be helpful to
manufacturers in developing a consumer-direct, knowledge based, product order
and fulfillment capability. These manufacturers are expected to contribute
advertising dollars and participation fees for these services. Value added
service providers, such as insurance and financial services can also be allied
strategically with the Company. This innovative concept of "cost-plus handling
charge" may position the Company in a groundbreaking new business category for
Internet service companies and informational content providers, and drive
revenue for membership fees and advertising.
The Company expects to expand its membership base by using a "members only"
style of telemarketing program. Residual monthly membership revenues could be
increased by the introduction of additional bundled services. The inexpensive
monthly fee for core services allows for the bundling of additional ISP
(Internet Service Provider), Telco and utility payment services. This revenue
stream, coupled with rich consumer data, will become a valuable corporate asset.
Financing efforts will center on: a) guiding the Company from its planning stage
into an aggressive implementation phase, pursuing the consolidation strategy; b)
providing and coordinating a wide range of skills from strategic planning,
market assessment, technology evaluation, financial analysis, deal structure and
negotiation, and financial and legal engineering; c) advisement and coordination
of the near term expansion of the management team and the nomination of the
Board of Direcots; d) providing a full spectrum of investment banking services,
focused upon a contemplated series of acquisitions to begin the Company's
consolidation of the private wholesale buying club industry; e) separate
financing for each acquisition, combining debt, equity, and/or coordinating the
multi-disciplinary activities of other experts and advisors to participate in
the due diligence and integration process of anticipated acquisitions.
We had signed a definitive financing contract for a $10 million equity credit
line with JJ&T Investors, an investment fund associated with Wall Street
Financing Group of Boca Raton, Florida. The agreement signed with JJ&T has been
replaced by an agreement with DRH Capital and Dutchess Private Equities Fund,
L.P., for the same amount of equity financing and $100,000 bridge-financing.
We are working out the schedule by which to draw against the larger equity
package, which is related to the Company filing an amended SB-2 Registration
Statement which was originally filed in July 2001.
On July 6, 2001 the Company signed an agreement with Family Savers Inc., a
Charleston, South Carolina based consumer services membership club, to acquire
100% of the assets. As part of the agreement, a schedule of cash payments
extending to October 31, 2001 was established. The payments total $475,000
sellers' compensation, working capital and debt reduction against total sellers
liability of over $1 million. The Company made the initial $50,000 payment as
part of a good faith deposit required by the agreement. As the second $25,000
payment was initiated, the seller demanded a controlling interest in the public
corporation as a result of a 1 or 2 delay in funds settlement. The Company has
declined this offer, turned the matter over to counsel for resolution and is
awaiting the outcome of this matter.
RESULTS OF OPERATIONS
Revenues
Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31,
2001
The Company has been in its developmental stage since May 18, 1998. Net Revenues
for the three months ended March 31, 2002 were $28,665 as compared to revenues
for the three months ended March 31, 2001 which were $57,855 from consulting
services.
The Company has not focused its attention on revenues until it can get its
financing in place.
From Inception May 18, 1988 to March 31, 2002
Company revenues earned since inception were $657,064. Revenues from sale were
$283,903 or 43% of the total revenues from inception. Consulting income was
$330,593 which is 50% of the total revenues, over the same period. Membership
fees, all earned from January 1, 2000, were $42,568, only 7% of the total
revenues.
Operating Expenses
Three Months Ended March 31, 2001 compared to the three Months Ended March 31,
2002
Total Operating Expenses other than Cost of Sales for the three months ended
March 31, 2002 were $359,997 compared with $401,834 for the same period in 2001,
a decrease of 10%.
Salaries and related costs decreased from $71,994 for the three months ended
March 31, 2001 to $0 for the three months ended March 31, 2002. This is
primarily attributable to the Company's closing the two Southern facilities and
the Company's executives working almost exclusively to arrange financing
Consulting and professional fees increased by $113,272 (60%) from $188,980 for
the three months ended March 31, 2001 to $302,502, for the three months ended
March 31, 2002.
Research and development costs are primarily to develop the Company's Web site.
General and Administrative expenses decreased from $119,284 for the three months
ended March 31, 2001 to $33,601 for the same period in 2002.
Liquidity and Future Plans
Three Months Ended March 31, 2002 compared to the three months Ended March 31,
2001
For the three months ended March 31, 2002, net cash used by operations was
$44,553 principally due to the quarterly loss of $373,032. This was partially
offset by depreciation and amortization of $23,692 and shares issued for
services in the amount of $293,454 while current assets and liabilities provided
$93,372. For the quarter ended March 31, 2001, net cash used by operations was
$150,668 which was offset by depreciation and amortization of $11,567 and shares
issued for services $45,622, while current assets and liabilities used cash of
$165,392.
Cash used by investing activities for the three months ended March 31, 2001 were
principally related to the investment in software $57,031. For the quarter ended
March 31, 2002, cash used in investing activities was $31,605, primarily for
investments in affiliates.
The Company anticipates that the current working capital deficiency of
$2,517,391 will be supplemented in the short term by the sale of common stock
and short term borrowing.
From Inception May 18, 1988 to March 31, 2002
The net cash outflow from operations was $2,632,962, over the period May 18,
1998 to March 31, 2002. Primarily, through issuance of common stock, the
Company obtained the funds need to pay for the operating cash deficiency and the
investment of $163,342 in property, equipment, and other assets.
The Company plans to continue the policy of financing its operations primarily
through issuance of common stock for cash and services until such time as the
development stage is completed.
Risk Factors
Acquisition Activities
The growth plans are substantially based on acquisitions of complementary
businesses, product lines and technology. The acquisition activities may not be
profitable for the following reasons:
1. Acquisition agreements may require substantial expense and
management time. Suitable acquisition candidates may not be
found or potential acquisitions consummated.
2. The acquisitions terms may turn out to be unfavorable or the acquired
companies personnel, assets, or technology may not be
successfully integrated into the Company
3. The Company may have to incur debt or issue equity securities to pay
for any future acquisition, the issuance of which may
be dilutive to our existing stockholders.
4. The Company's products and services may not receive market
acceptance or the Company may not be able to expand its
operations in a cost-effective or timely manner.
Dependence on the Internet and Internet Infrastructure Development.
1. If the Internet fails to develop, or develops more slowly than we
expect as a commercial or business medium, it may adversely affect
our business.
2. We expect competition to intensify in the future because barriers to
entry in the e-commerce marketplace are minimal, and current and new
competitors can launch new Web sites at a relatively low cost.
3. We currently compete primarily with other wholesalers and distributors.
We also compete with the growing number of manufacturers who sell their
products directly, either online or through traditional distribution
channels. Many of these manufacturers, wholesalers and distributors are
larger and have substantially greater resources than we do.
4. We expect to continually enhance and expand our technology and
transaction processing systems, and network infrastructure and other
technologies, to accommodate increases in the volume of traffic on our
Web site. We may be unsuccessful in these efforts or we may be unable
to accurately project the rate or timing of increases in the use of our
Web site.
5. If competitors introduce products and services embodying new
technologies or if new industry standards and practices emerge,
then our existing Web sites, proprietary technology and systems may
become obsolete
6. While we contract with a third party to provide back up web hosting
services, our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and other third party events and Acts of God. We
carry no business interruption insurance to compensate us for losses
that may occur. In addition, our security mechanisms or those of our
suppliers may not prevent security breaches or service breakdowns.
Despite our implementation of security measures, our servers may be
vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions. These events could cause interruptions or delays
in our business, loss of data or render us unable to accept and fulfill
orders.
7. We may not be able to convert customers from traditional shopping
methods or draw them from our online competitors. Among other things,
our potential customers may be concerned with shopping at our Web site
due to shipping costs, delivery time, and product.
8. Our Internet product sales currently are not subject to sales tax,
except for purchases made in the state of Connecticut. Nonetheless, if
individual states or the federal government choose to impose sales tax
obligations on out-of-state e-commerce transactions, our revenues and
growth potential may be materially and adversely affected.
9. The success of the Company's service will depend in large part upon the
development and maintenance of the Web infrastructure, such as a
reliable network backbone with the necessary speed, data capacity and
security. The infrastructure of complementary products or services
necessary to make the Web a viable commercial marketplace of the
long-term may not be developed and, even if it is developed, the Web
may not become a viable commercial marketplace for products and
services such as those offered by the Company. If the necessary
infrastructure, standard or protocols or complementary
Governmental Regulation of the Internet
1. The growth and development of the market for online commerce may prompt
calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our
business.
2. . In the future, more stringent consumer protection laws in the United
States and abroad could impose additional burdens on e-commerce
companies. The adoption or modification of such laws or regulations
could materially and adversely affect our business.
Inability to Continue as a Going Concern without a Significant Improvement in
the Company's Financial Condition
Although we were formed in 1992, we are still in the development stage. From
inception through March 31, 2001, we had an accumulated deficit of approximately
$7,204,854. We expect that our deficit will continue to increase. Revenues were
insignificant are primarily from our membership service agreement with PCS. We
do not currently have any significant source of membership revenue. At this time
we have no basis to believe that we will ever generate operating revenues from
the sale of, or services to, any membership base.
The Company may not be able to obtain additional financing that is needed to
continue and expand its operations. If adequate funds are not available, or are
not available on terms favorable to us, we may not be able to effectively to
continue or complete the implementation of the business plan.
Dependence on Manufacturers, Distributors, Shippers, and Key Personnel
1. The Company does not have long-term or exclusive arrangements with any
supplier, vendor or distributor that guarantees the availability of
products for purchase or auction. From time to time the Company has
experienced difficulty in obtaining sufficient product allocation from
certain vendors. If the Company is not able to offer its customers or
contractors sufficient quantities or a variety of products, the
Company's business, financial condition and operating results will be
materially adversely affected.
2. We are not certain that any manufacturer or distributor who supplies
goods or services to our Company might not change their business
practices, adjust their prices, modify their distribution requirements
or distribution areas, or do anything else that may make it impossible
to us to continually have access to the products that we intend to
offer for sale to our "members".
3. The Company relies upon third party carriers to ship the products the
Company sells. Therefore, the Company is subject to risks affecting a
carrier's ability to provide delivery services to meet its shipping
needs. In the past, the Company's failure to promptly deliver products
has led to customer complaints and regulatory action against the
Company. Failure to deliver the products the Company sells in a timely
manner could materially adversely affect its business, financial
condition and operating results.
4. HouseHold Direct is currently wholly dependent upon the personal
efforts and abilities of our three full-time executive officers, only
one of whom, John Folger, Chief Executive Officer, has any experience
in the membership club industry. The loss or unavailability to us of
the services of John Folger or Ann Jameson, Vice President of
Operations, could have a material negative impact on our business
prospects and any potential earning capacity; and, therefore, we have
obtained "key-man" insurance on the lives of Mr. Folger and Ms.
Jameson in the amounts of $1,000,000 and $1,000,000 respectively. If
our level of operations significantly increases, the business may
depend upon our abilities to attract and hire additional management
and staff employees. It is possible that we will be unable to secure
such additional management and staff when necessary.
Legal Risks
1. It is possible that claims could be made against online services
companies under both United States and foreign law for defamation,
libel, invasion of privacy, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the
material disseminated through their services. Several private lawsuits
seeking to impose such liability upon other online services companies
are currently pending.
2. In addition, legislation has been proposed in several states, including
California, Maryland, Nevada, Virginia and Washington that imposes
liability for, or prohibits the transmission over the Internet, of
certain types of unsolicited e-mail or advertisements.
3. The imposition upon the Company and other online service providers of
potential liability for information carried on or disseminated through
their services could require the Company to implement measures to
reduce its exposure to such liability, which may require the Company to
expend substantial resources and/or to discontinue certain service
offerings.
4. The Company does not carry liability insurance. Therefore, any costs
incurred by the Company as a result of such liability or asserted
liability could harm the Company's business, financial condition and
results of operations.
5. Buyers of the Company's products may sue if they are harmed by any of
the products whose sales the Company facilitates. Although the Company
does not manufacture these products, the Company is exposed to
potential liability. Liability claims could require the Company to
spend significant time and money in litigation and to pay significant
damages, which could harm the Company's business, financial condition
and results of operations. Although the Company intends to disclaim all
warranties and rely on the manufacturers to fulfill their warranty
obligations, the Company cannot be certain that the manufacturers will
be able to fulfill their warranty obligations. In addition, the Company
believes that some disclaimers may be unenforceable under the laws of
certain foreign jurisdictions.
6. The U.S. Patent Office recently issued several business-method patents
having an impact on business conducted on the Internet, among them the
business-method patents relating to `one click' online shopping
transactions (whereby third party affiliates provide certain services,
including book review, online) issued to Amazon.com. While the Company
does not believe that any of the business process patents issued to
date will directly impact the way the Company conducts business, there
are no assurances that the U.S. Patent Office will not issue
additional business-method patents which could have an adverse impact
on the Company's business, forcing modification to some of the
Company's business activities in order to avoid possible future claims
of patent infringement. The recent granting of such patents is still
being challenged. Furthermore, the likelihood and ability to enforce
such broad patents remains undetermined. Nonetheless, the continued
granting of such broad patents could, in the future, force the Company
to change its method of advertising, as well as other important
aspects of the Company's business, or face the risk of litigation.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The company is not a party to any material litigation and is not aware
of any threatened material litigation except that is has been
named as a defendant in a civil lawsuit, (a) Orienstar Finance Ltd.
vs. HouseHold Direct, Inc., et al., Case No. 01CV0598 filed in
the District Court, Jefferson County, State of Colorado. The
lawsuit filed on May 21, 2001 alleges that HouseHold violated certain
federal and Colorado securities laws including engaging in fraudulent
conduct and misrepresentations to induce Orienstar to purchase
$460,000 worth of HouseHold common stock. Orienstar is seeking
return of its $460,000 and rescission of the Purchase Agreement.
HouseHold has denied any wrongdoing and has engaged Colorado
counsel to defend the Company.
ITEM 2. Changes in Securities
The Company has increased the authorized shares from 50 million to
100 million.
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of a Security Holders
The amended charter dated July 13, 2001 authorizes the issuance of
100,000,000 shares of common stock at a par value of $.001 per share.
In lieu of a meeting and vote of stockholders, a majority of
the corporation's stockholders gave written consent to said amendment.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits None
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 hereunto duly authorized.
June 26, 2002 /s/ John Folger
- ------------------ ----------------------------------
Date President and
Chief Executive Officer