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 September 30, 2002
COMMISSION FILE NUMBER 0-28720
SALES ONLINE DIRECT, INC.
(Exact name of small business issuer 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)
Issuer's telephone number, including area code: (508) 791-6710
Common Stock, $0.001 Par Value
(Title of each class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter 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 November 1, 2002, the issuer had outstanding 123,657,331 shares of
its Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format
Yes |_| No |X|
Sales Online Direct, Inc.
and Subsidiary
Form 10-QSB
For the Quarterly Period ended September 30, 2002
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001 (unaudited)..... 3
Consolidated Statements of Operations
Three and Nine months ended September 30, 2002 and
2001 (unaudited)......................................... 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and
2001 (unaudited)......................................... 5
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2002
(unaudited).............................................. 6
Notes to Consolidated Financial Statements
Nine months ended September 30, 2002 and 2001............ 7-13
Item 2. Management's Discussion and Analysis or
Plan of Operation........................................ 14
Item 3. Controls and Procedures.................................. 18
Part II - Other Information
Item 1. Legal Proceedings........................................ 19
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
Certifications....................................................20-22
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SALES ONLINE DIRECT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 2002 2001
------------- -------------
Current assets:
Cash and cash equivalents $ 70,836 $ 47,669
Accounts receivable 7,813 15,295
Marketable securities 320 121
Inventory 1,112,137 1,160,810
Prepaid expenses 96,702 37,595
Other current assets 22,989 77,557
------------ ------------
Total current assets 1,310,797 1,339,047
Property and equipment, net 1,048,086 1,136,931
Other intangible assets 2,483,448 3,078,391
Debt financing costs, net -- 30,000
------------ ------------
Total assets $ 4,842,331 $ 5,584,369
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes Payable $ 130,000 $ --
Accounts payable 300,077 359,218
Accrued expenses 373,813 882,433
------------ ------------
Total current liabilities 803,890 1,241,651
------------ ------------
Convertible debt 3,796,967 4,544,968
------------ ------------
Stockholders' equity (deficit):
Common stock, $.001 par value, 350,000,000 shares
authorized; 122,644,325 and 79,683,494 shares issued
and outstanding at September 30, 2002
and December 31, 2001, respectively 122,644 79,683
Additional paid-in capital 14,936,460 12,010,313
Accumulated deficit (14,725,570) (12,057,863)
Unearned compensation (92,060) (234,383)
------------ ------------
Total stockholders' equity (deficit) 241,474 (202,250)
------------ ------------
Total liabilities and stockholders' equity $ 4,842,331 $ 5,584,369
============ ============
See accompanying notes to consolidated financial statements
3
SALES ONLINE DIRECT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Nine months Three months Nine months
ended ended ended ended
September September September September
30, 2002 30, 2002 30, 2001 30, 2001
------------- ----------- ------------ --------------
Revenues $ 275,185 $ 930,958 $ 231,843 $ 808,475
Cost of revenues 149,473 523,952 138,139 367,324
----------- ----------- ---------- ----------
Gross profit 125,712 407,006 93,704 441,151
----------- ----------- ---------- ----------
Operating expenses:
Selling general and administrative
expenses 715,276 2,171,788 545,432 2,254,913
Web site development costs 230,170 595,511 312,760 689,152
----------- ----------- ---------- ----------
Total operating expenses 945,446 2,767,299 858,192 2,944,065
----------- ----------- ---------- ----------
Loss from operations (819,734) (2,360,293) (764,488) (2,502,914)
----------- ----------- ---------- ----------
Other income (expense):
Interest expense (80,501) (332,085) (156,882) (450,730)
Other income (expense) 25,644 24,671 990 3,287
----------- ----------- ---------- ----------
Total other expense (54,857) (307,414) (155,892) (447,443)
----------- ----------- ---------- ----------
Loss before income taxes (874,591) (2,667,707) (920,380) (2,950,357)
Provision for income taxes -- -- -- --
----------- ----------- ---------- ----------
Net Loss $ (874,591) $ (2,667,707) $ (920,380) $(2,950,357)
=========== =========== ========== ==========
Loss per share (basic) $ (0.01) $ (0.02) $ (0.01) $ (0.05)
=========== =========== ========== ==========
Weighted average shares 120,464,189 113,482,167 65,036,806 59,086,018
=========== =========== ========== ==========
See accompanying notes to consolidated financial statements
4
SALES ONLINE DIRECT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
2002 2001
---- ----
Operating activities:
Net loss $(2,667,707) $(2,950,357)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,073,869 1,110,383
Amortization of unearned compensation 142,323 142,323
Amortization of debt discount 47,804 161,250
Beneficial conversion feature 113,145 --
Stock issued in payment of interest 260,565 177,698
Stock issued in payment of professional
and consulting fees 716,807 100,900
Stock options issued to employees for services 529,938 500,184
Loss (gain) on marketable securities 1,428 (3,118)
Changes in assets and liabilities:
Accounts receivable 7,482 (27,143)
Inventory 48,674 88,191
Accounts payable (59,141) 247,201
Accrued expenses (508,621) 77,838
Other, net (4,539) 70,583
----------- -----------
Net cash used in operating activities (297,973) (304,067)
----------- -----------
Investing activities:
Purchase of securities (1,627) (2,644)
Proceeds from sale of securities -- 22,918
Intangible asset additions (16,000) --
Property and equipment additions (344,081) (98,170)
----------- -----------
Net cash used in investing activities (361,708) (77,896)
----------- -----------
Financing activities:
Net proceeds from convertible debt 549,900 --
Proceeds from notes payable 130,000 --
Proceeds from loan payable -- 569,940
Payment of stock registration costs -- (244,600)
Proceeds from exercise of stock options 2,948 --
----------- -----------
Net cash provided by financing activities 682,848 325,340
----------- -----------
Net increase (decrease) in cash and equivalents 23,167 (56,623)
Cash and equivalents, beginning 47,669 102,534
----------- -----------
Cash and equivalents, ending $ 70,836 $ 45,911
=========== ===========
See accompanying notes to consolidated financial statements
5
SALES ONLINE DIRECT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)
Common stock Additional
------------ Paid-in Accumulated Unearned
Shares Amount Capital deficit Compensation Total
----------- --------- ------------ ------------ ------------ ------------
Balance, December 31, 2001 79,683,494 $ 79,683 $ 12,010,313 $(12,057,863) $ (234,383) $ (202,250)
Amortization of stock-based
compensation -- -- -- -- 142,323 142,323
Common stock issued in payment of
interest on convertible debt 3,054,556 3,054 257,511 -- -- 260,565
Issuance of stock options to
employees for services 5,846,150 5,846 524,092 -- -- 529,938
Stock issued in payment of
professional and consulting fees 7,421,572 7,422 709,385 -- -- 716,807
Exercise of stock options 294,750 295 2,653 -- -- 2,948
Conversions of notes payable 26,343,803 26,344 1,253,056 -- -- 1,279,400
Beneficial conversion discount -- -- 179,450 -- -- 179,450
Net loss -- -- -- (2,667,707) -- (2,667,707)
----------- --------- ------------ ------------ ---------- ------------
Balance, September 30, 2002 122,644,325 $ 122,644 $ 14,936,460 $(14,725,570) $ (92,060) $ 241,474
=========== ========= ============ ============ ========== ============
See accompanying notes to consolidated financial statements
6
SALES ONLINE DIRECT, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
Note 1. Organization
The Company operates and maintains an internet portal dedicated to
collectibles in a variety of categories. The Company conducts person-to-person
online auctions of its own inventory of collectibles and items posted under
consignment arrangements by third party sellers.
On March 7, 2000, the Company acquired Internet Collectible Awards ("ICA")
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, a web site, has been allocated to other intangible assets.
On November 8, 2000, the Company acquired certain assets of ChannelSpace
Entertainment, Inc., a Virginia corporation ("CSEI") and Discribe, Ltd.,
("Discribe") a Canadian corporation wholly owned by CSEI. CSEI and Discribe are
converged Internet content providers and producers of affinity portals,
including the CollectingChannel.com and CelticChannel.com websites. The
consideration paid by the Company for the acquired assets was 7,530,000
unregistered shares of the Company's common stock valued at $4,648,996 and
$300,000 worth of the Company's common stock to be registered (711,136 shares
based upon the average closing bid price of the stock on the five trading days
prior to February 6, 2001, the date of filing the registration statement). The
assets acquired - consisting principally of software licenses, a video library,
a library of articles, a user list, Domain names, furniture, and fixtures and
equipment - had an estimated fair value of approximately $4,974,000. The fair
values of the individual assets acquired, and the consideration paid, have been
determined by independent appraisal. The excess of the fair value of the assets
acquired over the purchase price, approximately $25,000, has been allocated
pro-rata as a reduction of the fair values of the intangible assets acquired.
On February 1, 2002 the Company entered into a Settlement Agreement and
Mutual Release regarding a variety of claims by both parties to the CSEI
transaction. The settlement discharged the Company from the requirement to
issue, and register, the above mentioned 711,136 shares of common stock and
granted to the Company a call option for 2,283,565 shares of unregistered common
stock held by CSEI as discussed in Note 6. The $300,000 value of the 711,136
common shares has been accounted for as additional amounts in excess of the fair
value of the assets acquired over the purchase price and has been allocated
pro-rata as a reduction of the intangible assets and property and equipment
acquired.
On November 7, 2001, the Company, through a subsidiary, Rotman Collectibles
Inc. (a Delaware Corporation), entered into a merger agreement with Rotman
Collectibles, Inc. (a Massachusetts Corporation) ("RCI"), a seller of movie
posters. In connection with this agreement the Company issued 100 common shares,
valued at $6, in exchange for the outstanding common shares of RCI. The
acquisition has been accounted for under the purchase method of accounting. In
addition, the Company issued the Rotman Note discussed in Note 8 in the amount
of $1,000,000 in exchange of a convertible note previously issued by RCI. The
sole stockholder, director, and officer of RCI was Leslie Rotman, who is the
mother of Gregory and Richard Rotman, both of whom are executive officers and
directors of the Company.
Note 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.
7
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 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, 2001 which, is included in the Company's Form 10-KSB.
Principles of consolidation
The accompanying 2002 financial statements include the accounts of Sales
Online Direct, Inc. and its wholly-owned subsidiary, Rotman Collectibles, Inc.,
acquired on November 7, 2001. All material inter-company transactions have been
eliminated.
Inventory
Inventory consists of collectible merchandise for sale and is stated at the
lower of average cost or market on a first-in, first-out (FIFO) method.
On a periodic basis management reviews inventories on hand to ascertain if
any is slow moving or obsolete. In connection with this review, at September 30,
2002 and December 31, 2001 the Company has provided for reserves totaling
$180,000 and $190,000, respectively.
Revenue Recognition
The Company generates revenue on sales of its purchased inventory, from
fees and commissions on sales of merchandise under consignment type
arrangements, from web hosting services, from appraisal services, and from
advertising and promotional services.
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 customer returns and collecting accounts
receivable. The Company recognizes revenue upon verification of the credit card
transaction and shipment of the merchandise, discharging all obligations of the
Company with respect to the transaction.
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 or ownership of merchandise. When an auction is completed,
consigned merchandise that has been sold is shipped 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 and shipment of
the merchandise. The Company then releases the net sales proceeds to the
Consignor, discharging all obligations of the Company with respect to the
transaction.
The Company charges a fixed monthly amount for web hosting services. This
revenue is recognized on a monthly basis as the services are provided.
Appraisal revenues are recognized when the appraisal is delivered to the
customer.
Advertising revenues are recognized at the time the advertisement is
initially displayed on the company's web site. Sponsorship revenues are
recognized at the time that the related event is conducted.
Intangible Assets:
The Company adopted Financial Accounting Standards Statements Nos. 141,
"Business Combinations" (SFAS No. 141), and 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142), effective January 1, 2002. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination and the accounting for goodwill and other intangible assets
subsequent to acquisition. SFAS No. 142 provides that intangible assets with
finite lives be amortized and that goodwill
8
and intangible assets with indefinite lives not be amortized, but rather be
tested at least annually for impairment.
Advertising Costs
Advertising costs totaling approximately $73,500 in 2002 and $52,600 in
2001, are charged to expense when incurred.
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 inventory, intangible assets, and 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 Common 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 convertible
debt and outstanding stock options and warrants. The number of common shares
that would be issued upon conversion of the convertible debt would have been
89,484,553 as of September 30, 2002 and 410,958,904 as of September 30, 2001.
The number of common shares that would be included in the calculation of
outstanding options and warrants is determined using the treasury stock method.
The assumed conversion of outstanding dilutive stock options and warrants would
increase the shares outstanding but would not require an adjustment of income as
a result of the conversion. Stock options and warrants applicable to 642,250
shares and 937,000 shares at September 30, 2002 and 2001, respectively, have
been excluded from the computation of diluted earnings per share, as have the
common shares that would be issued upon conversion of the convertible debt,
because they were antidilutive. Diluted earnings per share have not been
presented as a result of the Company's net loss for each period.
Asset Impairment
The Company adopted Financial Accounting Standards Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", effective
January 1, 2002. In accordance with SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", long-lived assets to be held and used by the
Company are reviewed to determine whether any events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. For
long-lived assets to be held and used, the Company bases its evaluation on such
impairment indicators as the nature of the assets, the future economic benefits
of the assets, any historical or future profitability measurements, as well as
other external market conditions or factors that may be present. If such
impairment indicators are present or other factors exist that indicate that the
carrying amount of the asset may not be recoverable, the Company determines
whether an impairment has occurred through the use of an undiscounted cash flow
analysis of assets at the lowest level for which identifiable cash flow exist.
If impairment has occurred, the Company
9
recognizes a loss for the difference between the carrying amount and the
estimated value of the asset. The fair value of the asset is measured using an
estimate of discounted cash flow analysis.
Web Site Development Costs
The Company accounts for website development costs in accordance with the
provisions of Emerging Issues Task Force 00-2, "Accounting for Web Site
Development Costs" ("EITF 00-2"), which requires that costs incurred in
planning, maintaining, and operating stages that do not add functionality to the
site be charged to operations as incurred. External costs incurred in the site
application and infrastructure development stage and graphic development are
capitalized. During the nine months ended September 30, 2002 and 2001, the
Company capitalized approximately $316,000 and $97,000, respectively, of Web
site development costs. Such capitalized costs are included in "Property and
equipment."
Note 3. Intangible assets
At September 30, 2002 intangible assets are comprised of the following:
Gross carrying Accumulated
Amount Amortization
-------------- ------------
Software License $2,882,660 $1,109,464
Acquired Web Sites 762,301 330,692
Domain Names 77,025 34,192
Customer & User Lists 327,157 125,914
Patent pending 16,000 353
Other 30,763 11,843
---------- -----------
Total $4,095,906 $1,612,458
========== ==========
Amortization expense for the nine months ended September 30, 2002 and 2001
totaled $610,943 and $652,440, respectively.
Approximate future amortization expense at September 30, 2002 for the
remaining life of the intangible assets is as follows:
Year Ended
December 31, Amortization
2002 $205,000
2003 815,000
2004 814,000
2005 635,000
2006 and thereafter 14,000
Note 4. Notes payable
During 2002 Steven Rotman, the father of Gregory and Richard Rotman,
provided a line of credit facility that is secured by inventories. The facility
bears interest at 8%, provides for maximum borrowings of $150,000, and is due
August 7, 2003. Interest expense on this note was $649 during 2002. As of
September 30, 2002 the balance outstanding on this line of credit was $80,000.
At September 30, 2002 the Company is also obligated on a note payable in
the amount of $50,000 to an unrelated third party. This note bears interest at
18% per annum and is due on November 26, 2002.
Note 5. Accrued Expenses
At September 30, 2002 and December 31, 2001 accrued expenses are comprised of
the following:
10
September 30, December 31,
2002 2001
------------- ------------
General operating expenses $ 224,638 $ 218,472
Professional fees 90,000 485,356
Interest 59,175 178,605
------------- ------------
Total $ 373,813 $ 882,433
============= ============
Note 6. Common Stock
Call Option Agreements
In connection with the Settlement Agreement and Mutual Release with CSEI
discussed in note 1, the Company was granted call options for 2,283,565
unregistered common shares held by CSEI at an exercise price of $.001 per share.
The call options expire on January 31, 2005.
Stock Options
In July 1999, the Company granted an option to an employee to purchase
471,000 shares of common stock at $.01 per share. The option vests over a
four-year period. The Company recorded unearned compensation of $757,848, based
on the difference between the fair market value of the common stock at the grant
date and the exercise price. The unearned compensation is being amortized over
the vesting period of the option. Amortization expense related to unearned
compensation amounted to $142,323 for each of the nine months ended September
30, 2002 and 2001.
On February 1, 2001 the Company adopted the 2001 Non-Qualified Stock Option
Plan (the "2001 Plan") and has filed Registration Statements on Form S-8 to
register 40,000,000 shares of its common stock. Under the 2001 Plan employees
and consultants may elect to receive their gross compensation in the form of
options to acquire the number of shares of the Company's common stock equal to
their gross compensation divided by the fair value of the stock on the date of
grant. During the nine months ended September 30, 2002 and 2001 the Company
granted options for 13,267,722 and 11,575,702 shares, respectively, at various
dates aggregating $1,246,745 and $500,184, respectively, under this plan. All
options granted during the period were exercised.
Note 7. Income Taxes
There was no provision for income taxes for the nine months ended September
30, 2002 and 2001 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 September 30, 2002, the Company has federal and state net operating loss
carry forwards of approximately $9,996,000 available to offset future taxable
income that will expire through 2022.
Note 8. Convertible Debt Financing
As of September 30, 2002 the Company has issued $4,205,774 of convertible
debt, which is presented net of unamortized beneficial conversion discounts of
approximately $408,807.
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 (the "Series A Note"), due in shares of common stock on March 31,
2002 to Augustine Fund, L.P. (the "Buyer"). The Series A Note, as most recently
modified on May 21, 2002, is convertible into common stock at a conversion price
equal to the lesser of: (1) $.375 per share, or (2) seventy-three percent (73%)
of the average of the closing bid price for the common stock for the five (5)
trading days immediately preceding the conversion date. In connection with the
Agreement, the Company also issued
11
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 $2.70, 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. A
May 21, 2002 modification agreement extended the maturity date of the note until
September 30, 2002, provided for additional ninety-day extensions, the first of
which was exercised on September 30, 2002, beyond that date until March 31,
2005, waived interest for periods after March 31, 2002, and released the Company
from all requirements to register any common shares issuable under the note or
to keep any existing registration statement effective. As of September 30, 2002
the outstanding balance of this note was $2,720,600, since $279,400 had been
converted into 2,427,257 shares of the Company's common stock at conversion
prices ranging from $0.2358 to $0.0483 per share during the nine months ended
September 30, 2002.
On November 7, 2001, the Company entered into a Loan Agreement, whereby it
issued an 8% convertible note in the amount of $1,000,000, due November 7, 2003
(the "Series B Note") to Buyer. This note was modified on May 21, 2002 to, among
other things, allow the Company to borrow up to $2,000,000. The Series B Note,
as modified, is convertible into common stock at a conversion price equal to the
lesser of: (1) $.25 per share, or (2) seventy three percent (73%) of the average
of the closing bid price for the common stock for the five (5) trading days
immediately preceding the conversion date. Based upon advances through September
30, 2002, had the Buyer converted the Series B Note at issuance, Buyer would
have received $2,034,485 in aggregate value of the company's common stock upon
conversion of the convertible note. As a result, in accordance with EITF 00-27,
the intrinsic value of the beneficial conversion feature of $549,311 is being
charged to interest expense over the term of the related note. The total
beneficial conversion discount related to this note has been recorded as an
increase in additional paid in capital and the unamortized portion as a
reduction of the related note. In addition, the Company entered into a
Registration Rights Agreements whereby the Company agreed to file a Registration
Statement with the Securities and Exchange Commission (SEC) within sixty (60)
days of a request from the Buyer (Filing Date), covering the common stock to be
issued upon the conversion of the Series B Note. If this Registration Statement
is not declared effective by the SEC within sixty (60) days of the filing dated
the conversion percentage shall decrease by two (2%) for each month that the
Registration Statement is not declared effective. The May 21, 2002 modification
extended the maturity date of the Series B Note to November 7, 2004, provided
the opportunity to extend the maturity date to November 7, 2005, required that
principal and interest be payable in shares of common stock, or cash, at the
discretion of the Company, and provided that any fees or expenses related to any
registration of the common stock will be borne equally by the Company and the
Buyer, or entirely by the Buyer in the case of a filing by Buyer and filed
before April 10, 2003.
On September 16, 2002, the Company made a draw request in the amount of
$120,000 on Augustine's exiting $2,000,000 line of credit. Augustine has funded
only a portion of that request. The Company believes that Augustine is in breach
of the terms and conditions of the $2,000,000 line of credit. The Company had
agreed to the forbearance of Augustine's $3,000,000 note and to the fixed
conversion ratios because of Augustine's commitment of an additional $1,000,000
in financing.
On November 7, 2001, the Company entered into a second Loan Agreement
whereby it issued a 6% convertible note, due November 7, 2003 (the "Rotman
Note"), to Leslie Rotman, pursuant to an Agreement and Plan of Merger dated
October 23, 2001 (Note 1). The Rotman Note was converted into 23,916,378 shares
of common stock at conversion prices ranging from $.0298 to $.05152 per share in
early January 2002. Since the Rotman Note was fully converted in January 2002
the related beneficial conversion feature of $250,000 has been charged to
interest expense.
Note 9. Issuance of Common Stock
During the nine months ended September 30, 2002 and 2001 the Company issued
3,054,556 and 3,193,126 shares of common stock, respectively, in connection with
the payment of $260,565 and $177,698 of interest due on its convertible debt.
In addition, during the nine months ended September 30, 2002 and 2001 the
Company issued 7,421,572 and 1,734,658 shares of common stock, respectively, in
connection with the payment of $716,807 and $100,900 of legal and consulting
fees.
Note 10. Litigation
12
The Company leased its former technology location under an operating lease
commencing on January 1, 2000 and expiring on December 31, 2004. Prior to
December 31, 2000, the Company abandoned this facility and ceased payments
required under the lease. During 2001, the landlord initiated an action seeking
approximately $115,000 in damages, interest and attorneys' fees. The Company is
currently negotiating a settlement with the landlord and has recorded an
estimated liability in connection with this matter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Our primary business, based on our revenues, is the purchase and sale of
collectibles and memorabilia. We operate an online auction site that provides a
full range of services to sellers and buyers, and maintain multiple collectibles
portals, offering integrated information and services to the collectibles
community. The collectibles industry includes every person that collects items
having either economic or sentimental value, such as antiques, sports and
entertainment memorabilia, stamps, coins, figurines, dolls, collector plates,
plush and die cast toys, cottage/village reproductions and other decorative or
limited edition items that are intended for collecting and other memorabilia. A
portal is an Internet website that enables visitors to search for, and visit,
other related sites, access related services, and obtain relevant data. Over the
past two years, we have been working on the development and technology of
building portals and websites. Our main focus was portal development in our own
industry of collectibles; to that end, we acquired assets from Channel Space
Entertainment, Inc. ("CSEI") that include the website www.CollectingChannel.com,
and we acquired Rotman Collectibles, Inc. During 2002 we merged the best of our
different collectibles portals and websites into the Collecting Channel website.
We also plan to build other portals, some that will charge fees to access their
services, and others to leverage company-owned technology and websites.
In 2001, we developed "AuctionInc." a suite of online management tools
primarily to help companies that use our web-hosting and order processing
services. During 2002 we began to "beta test" "AuctionInc." with other online
sellers and in the fourth quarter of 2002 we will launch this product on a fee
for service basis. We also began sponsoring more premium autograph signing
events in 2002, and hosting these in various venues throughout New England. eBay
selected our Ask the Appraiser(TM) service offered through
www.CollectingChannel.com as a provider of online appraisal services. Effective
May 2, 2002, www.CollectingChannel.com made the "Ask the Appraiser" service
available to eBay's buyers and sellers for appraisals in more than 170
categories of memorabilia, antiques, and collectibles. This service is designed
to help individuals learn more online about their items before they buy or sell.
We manage the service and eBay provides the marketing.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 2 to
our financial statements. However, certain of our accounting policies are
particularly important to the portrayal of our financial position and results of
operations and require the application of significant judgment by our
management; as a result, they are subject to an inherent degree of uncertainty.
In applying these policies, our management makes estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures. Those estimates and judgments are based upon our historical
experience, the terms of existing contracts, our observance of trends in the
industry, information that we obtain from our customers and outside sources, and
on various other assumptions that we believe to be reasonable and appropriate
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Our critical accounting
policies include:
Inventory: Inventory is stated at the lower of average cost or market on a
first-in, first-out method. On a periodic basis we review inventories on
hand to ascertain if any is slow moving or obsolete. In connection with
this review, we establish reserves based upon our experience and our
assessment of current product demand.
Property and Equipment and Other Intangible Assets: Property and equipment
and other intangible assets are stated at cost. Depreciation and
amortization are computed over estimated useful lives that are reviewed
periodically. In connection with this review we consider changes in the
economic environment, technological advances, and our assessment of future
revenue potential.
Results of Operations
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.
13
Three months ended September 30, 2002 and 2001
The following discussion compares the Company's results of operations for
the three months ended September 30, 2002 with those for the three months ended
September 30, 2001.
Revenue. For the three months ended September 30, 2002, revenue was
$275,200, 94.8% of which is attributable to sales of the Company's own product
and fees from buyers and sellers through the Rotman Auction operations. Gross
sales of the Company's own product were approximately $261,000 while gross sales
on items on consignment were de minimus. Sales of the Company's own product
represented 94.7% of gross sales. Advertising and web hosting fees were $7,900
or 2.9% of revenues. Appraisal fees related to Ask the Appraiser were 2.3% of
revenues
The Company's third quarter 2002 revenues represent an increase of $43,300
(18.7%) from the three-month period ended September 30, 2001, in which revenue
was $231,800. For the three months ended September 30, 2001, sales of the
Company's product were $175,600 and sales of items on consignment were de
minimus. For that quarter, sales of Company owned product represented 75.7% of
revenues. Advertising and web hosting fees during the quarter ended March 31,
2001 were $56,200 or 24.3% of revenues.
The reason for the increase in revenues was a combination of higher sales
of Company owned product of $85,400 from the same period in 2001 and the Ask the
Appraiser revenues of $6,200, which were offset by lower advertising and web
hosting revenues of $48,300. The increase in sales of Company owned product were
due to higher sales of both sports memorabilia and movie posters. Gross profit
from Company owned product sales for the three months ended September 30, 2002
was $115,600, which represents an increase of $76,900 from the comparable
quarter in 2001, in which gross profit from Company owned product sales was
$38,800. Since gross margin percentages on Company owned product in 2002
increased to 44.3% from 22.1% in 2001, and sales of company owned product were
$85,400 higher in the quarter ended September 30, 2002, the Company produced
$76,900 more gross margin dollars. The reason for the increase in gross margins
is improved purchasing practices and an effort to seek out higher quality
collectibles. Lower web hosting and advertising revenues were partially offset
by the new Ask the Appraiser revenues.
Operating Expenses. Total operating expenses for the three months ended
September 30, 2002 were $945,400, compared to $858,200 for the corresponding
period in 2001. Sales, general and administrative ("SG&A") expenses for the
three months ended September 30, 2002 were $715,300, compared to $545,400 for
the three months ended September 30, 2001. The increase in SG&A costs includes
an increase in professional fees of $152,600, due to the affects of
reclassification of professional fees associated with registration of the
Company's common stock in 2001. Costs associated with planning, maintaining and
operating our websites for the three months ended September 30, 2002 decreased
approximately $82,600 from the corresponding period in 2001. This decrease is
due primarily to decreases in consulting and professional fees of $121,200
offset by increases in payroll and related costs of $16,800 and depreciation of
$21,800.
Interest Expense. For the quarter ended September 30, 2002, the Company
incurred interest charges of $80,500 principally associated with convertible
notes, compared to interest charges of $156,900 for the corresponding period in
2001. The decrease of $76,400 is attributable to convertible debt becoming
non-interest bearing on April 1, 2002, and full recognition as of March 31, 2002
of Warrants and deferred finance fees, offset by charges associated with new
convertible debt and new short term borrowings.
Net Loss. The Company realized a net loss for the three months ended
September 30, 2002 of approximately $874,600, or $.01 per share, as compared to
a loss of $920,400, or $.01 per share for the three months ended September 30,
2001.
Inflation. The Company believes that inflation has not had a material
effect on its results of operations.
Nine months ended September 30, 2002 and 2001
The following discussion compares the Company's results of operations for
the nine months ended September 30, 2002 with those for the nine months ended
September 30, 2001.
Revenue. For the nine months ended September 30, 2002, revenue was $931,000,
95.8% of which is attributable to sales of the Company's own product and fees
from buyers and sellers through the Rotman Auction operations. Gross
14
sales of the Company's own product were $892,200 while gross sales on items on
consignment were de minimus. Sales of the Company's own product represented
95.6% of gross sales. Advertising and web hosting fees were approximately
$26,500 or 2.8% of revenues. Appraisal fees related to Ask the Appraiser were
1.3% of revenues.
The Company's 2002 revenues represent an increase of $122,500 (15.2%) from
the comparable period in 2001, in which revenue was $808,500. For the nine month
period ended September 30, 2001, sales of the Company's product were $685,700
and sales of items on consignment were $97,000, of which the Company received
$14,500 as fees. Sales of the Company's own product and sales of consignment
merchandise represented 77.0% and 10.9%, of gross sales, respectively, but as
the Company only receives a fee for sales on consignment, Company owned product
sales represented 84.8% of the Company's revenues. Advertising and web hosting
fees during 2001 were $108,300 or 13.4% of revenues.
The reason for the increase in revenues was a combination of higher sales
of Company owned product of $206,500 and the Ask the Appraiser revenues of
$11,900, which were offset by $14,100 less fees on consignment goods and lower
advertising and web hosting revenues of $82,000. The increase in sales of
Company owned product was due to higher sales of both sports memorabilia and
movie posters. Gross profit from Company owned product sales for the nine months
ended September 30, 2002 was $375,300, which represents an increase of $55,600
from the comparable period in 2001, in which gross profit from Company owned
product sales was $319,700. The increase in gross profit is a result of the
increase in sales offset by a lower gross margin on Company owned product sales.
Lower consignment revenues and web hosting and advertising revenues were
partially offset by the new Appraiser revenues.
Operating Expenses. Total operating expenses for the nine months ended
September 30, 2002 were approximately $2,767,300, compared to $2,944,100 for the
corresponding period in 2001. Sales, general and administrative ("SG&A")
expenses for the nine months ended September 30, 2002 were approximately
$2,171,800, compared to $2,254,900 for the nine months ended September 30, 2001.
The decrease in SG&A costs includes a decrease in professional fees of $53,800
which is primarily attributable to resolution of the Company's litigation in
2001 and settlements of balances due various professionals in 2002. Depreciation
and amortization decreased by approximately $46,400 due to certain assets
becoming fully depreciated during 2001. Costs associated with planning,
maintaining and operating our websites for the nine months ended September 30,
2002 decreased approximately $93,600 from the corresponding period in 2001. This
decrease is due primarily to a $197,000 increase in costs capitalized as website
development costs, offset by increases of $22,000 in payroll and consulting and
$81,200 in depreciation and amortization.
Interest Expense. For the nine months ended September 30, 2002, the Company
incurred interest charges of $332,100 principally associated with convertible
notes, compared to interest charges of $450,700 for the corresponding period in
2001. The decrease of $118,600 is attributable to $3,000,000 of convertible debt
becoming non-interest bearing effective April 1, 2002, and full recognition as
of March 31, 2002 of warrants and deferred finance fees, offset by charges
associated with new convertible debt.
Net Loss. The Company realized a net loss for the nine months ended
September 30, 2002 of approximately $2,667,700, or $.02 per share, as compared
to a loss of $2,950,400, or $.05 per share for the nine months ended September
30, 2001.
Inflation. The Company believes that inflation has not had a material
effect on its results of operations.
Assets
At September 30, 2002, total assets of the Company were $4,842,300 compared
to $5,584,400 at December 31, 2001. The decrease was primarily due to
depreciation and amortization totaling $1,073,900 and inventory reductions of
$48,700 offset by increases in property and equipment and intangible assets of
$360,100 and prepaid expenses of $59,100. The increase in prepaid expenses is
principally attributable to the $87,600 balance of a payment in late March for
services to be rendered during the remainder of 2002.
Working Capital and Liquidity
Although gross margins from auctions during the nine months ended September
30, 2002 have decreased slightly with the same period a year ago, they have
increased from the year ended December 31, 2001 and we anticipate that
15
our suite of management tools, called "AuctionInc.", offered through our online
web properties and partner sites like PayPal, an eBay Company, our new online
appraisal service, Ask the Appraiser(TM), offered through eBay, and sales from
our movie poster inventory, will produce revenues during the remainder of 2002
and beyond. Subject to the discussion below, management believes that we have
sufficient financing, along with sufficient anticipated revenues, to fund
operations during the next 12 months.
The Settlement Agreement and Mutual Releases related to the CSEI assets
provided us with call options for approximately 2.3 million shares of common
stock. We believe that the assignment of these call options can generate between
$125,000 and $175,000 of cash during the period ending September 30, 2003. In
addition, on May 21, 2002, we entered into modification agreements with
Augustine Fund, L.P. ("Augustine"), where Augustine will provide financing, at
the Company's request, of up to $2,000,000. Approximately $500,000 remains
available in the Augustine financing. We believe that these plans, along with
the sale of inventory and services, should result in obtaining sufficient
operating cash. However, there can be no assurance that an assignment of the
call options can be concluded on reasonably acceptable terms or that Augustine
will honor our draw requests. If the assignments are not completed or the draw
requests are not honored, we may need to seek alternative sources of capital to
support operations.
At September 30, 2002 current liabilities were $803,900 compared to
$1,241,700 at December 31, 2001. During the nine months ended September 30, 2002
current liabilities were reduced primarily through the issuance of common stock
for interest and professional fees, and agreed upon settlements of various
professional fee liabilities.
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. The note is convertible into
common stock at a conversion price equal to the lesser of: (1) $2.475 per share
or (2) 73% of the average of the closing bid price for the common stock for the
five trading days immediately preceding the conversion date.
In connection with the Agreement, the Company also issued warrants to
Augustine 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
$2.70, which was 120% of the lowest of the closing bid prices for the common
stock during the five trading days prior to the closing date. The warrants
expire on March 31, 2005.
The $3,000,000 note was due and payable in common stock in March 2002.
However, on March 24, 2002, the Company and Augustine executed a letter of
understanding to forbear the note for up to one year. On May 21, 2002 the
Company and Augustine entered into a modification agreement that extended
settlement of the note until September 30, 2002, provided for additional
extensions beyond that date until March 31, 2005, changed the conversion ratio's
fixed price from $2.475 to $.375, and waived interest for periods after March
31, 2002. As of September 30, 2002, Augustine had converted $279,400 of this
note into common stock.
On November 7, 2001, the Company issued another 8% convertible note to
Augustine, in return for $1,000,000 in financing. This convertible note was
issued on substantially the same terms as the original convertible note and is
secured by all assets. The new funding was used to finance the Company's
operations.
On May 21, 2002, the Company and Augustine entered into a modification
agreement with respect to the November 2001 note that, among other things,
increased the amount that can be borrowed to $2,000,000, added a fixed price to
the conversion ratio of $.25, and extended the maturity date to November 7,
2004, within an additional extension to November 7, 2005 permitted by either
party. On September 16, 2002, the Company made a draw request in the amount of
$120,000 on Augustine's existing $2,000,000 line of credit. Augustine has funded
only a portion of the draw request. The Company believes that Augustine is in
breach of the terms and conditions of the $2,000,000 line of credit. If
Augustine does not cure its breach, the Company may need to seek alternative
financing. The Company had agreed to the forbearance of Augustine's $3,000,000
note and to the fixed conversion ratios because of Augustine's commitment of an
additional $1,000,000 in financing. If Augustine does not timely honor the
Company's draw requests, the Company may consider the May 21, 2002 modification
agreement to be null and void by paying out the $3,000,000 note based on its
original terms.
The Company issued a 6% convertible note on November 7, 2001 in the amount
of $1,000,000 to Leslie Rotman (the "Rotman Note"), as the sole stockholder of
Rotman Collectibles, Inc., upon the merger of Rotman Collectibles, Inc. into a
subsidiary of the Company under the same name. Rotman Collectibles, Inc.
obtained a large collection of
16
entertainment memorabilia in connection with this transaction. In January 2002
the Rotman Note was converted into 23,916,378 shares of common stock of the
Company. Management believes that sales from the Rotman Collectibles, Inc.
inventory will generate up to $500,000 in the next 12 months. The Rotman Note
was issued on substantially the same terms as the original convertible note to
Augustine, except that the interest rate was 6% rather than 8%, and the base
price at which the note could be converted into shares of common stock of the
Company was 80%, rather than 73%.
Had periodic advances under the November 7, 2001 convertible notes been
converted upon issuance, the holders would have received a total of
approximately $799,312 more in aggregate value of the Company's common stock
than they had advanced. As a result, in accordance with EITF 00-27, the
intrinsic value of the beneficial conversion feature of $799,312 is being
charged to interest expense over the term of the related notes. Since the Rotman
note was fully converted in January 2002, substantially all the related
beneficial conversion feature of $250,000 was charged to interest expense in
2001.
Forward Looking Statements
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 Report. 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, 2001.
For example, the Company's ability to achieve positive cash flow and to
become profitable may be adversely affected as a result of a number of factors
that could thwart its efforts. These factors include the Company's inability to
successfully implement the Company's business and revenue model, the
collectibles community not accepting the services the Company offers, higher
costs than anticipated, the Company's inability to sell its products and
services to a sufficient number of customers, the Company's failure to attract
sufficient interest in and traffic to its sites, the Company's inability to
complete development of its sites, the failure of the Company's operating
systems, and the Company's inability to increase its revenues as rapidly as
anticipated. If the Company is not profitable, it will not be able to continue
its business operations
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures
as of a date within 90 days of the filing date of this quarterly report, each of
Gregory Rotman, the President of the Company, and Richard Rotman, the Chief
Financial Officer of the Company, have concluded that the Company's disclosure
controls and procedures are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
Securities and Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported, within the time period specified by the Securities and
Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
17
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 14, 2002 and April 1, 2002, the Company issued 2,393,400 and
428,083 shares of its common stock, par value $.001 per share, respectively, to
Augustine Fund, L.P., in payment of $59,836 and $150,000, respectively, in
interest due pursuant to the eight percent convertible note issued by the
Company to the Augustine Fund, L.P. on March 23, 2000. No additional interest is
due on this note.
In addition, during the third quarter of 2002, Augustine Fund, L.P.
converted $39,000 of the March 23, 2000 eight percent convertible note into
699,780 shares of common stock of the Company. Augustine Fund, L.P. is an
accredited investor that represented that it acquired the convertible notes and
the warrants issued in connection with the note for its own account. The
issuance of the securities is exempt from registration under Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder.
The Company did not issue any shares of its common stock, par value $.001
per share, to Augustine Fund, L.P., for interest due pursuant to the eight
percent convertible note issued by the Company to the Augustine Fund, L.P. on
November 7, 2001.
In January 2002, the Company issued 23,916,378 shares of its common stock,
par value $.001 per share, to Leslie Rotman, in full payment of a $1,000,000
convertible note issued by the Company to Leslie Rotman on November 7, 2001.
Leslie Rotman is an accredited investor who represented that she acquired the
convertible note for her own account. Leslie Rotman is the mother of the CEO and
CFO of the Company. The issuance of the securities is exempt from registration
under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.
In addition, on May 29, 2002, the Company issued 147,326 and 85,747 shares,
respectively, of its common stock, par value $.001 per share, to the Augustine
Fund, L.P. and Leslie Rotman in payment of $30,974 and $19,756, respectively, of
interest due pursuant to the November 7, 2001 convertible notes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Effective September 24, 2002, John Martin resigned as Director of the
Company and from all other management duties for the Company to devote more time
as an employee to development of the Company's software.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification of President and CFO pursuant to Section 906 of the
2002 Sarbanes-Oxley Act
(b) Reports on Form 8-K
None
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 14, 2002 SALES ONLINE DIRECT, INC.
Registrant
/s/ Gregory Rotman
-------------------------------------------
Gregory Rotman, President
/s/ Richard Rotman
-------------------------------------------
Richard Rotman, Chief Financial Officer,
Vice President and Secretary
CERTIFICATIONS
I, Gregory Rotman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sales Online
Direct, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
19
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Gregory Rotman
----------------------------------
Gregory Rotman, President
I, Richard Rotman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sales Online
Direct, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Richard Rotman
----------------------------------
Richard Rotman, Chief Financial Officer
20
LIST OF EXHIBITS
Exhibit No. Description
99.1 Certification of President and CFO pursuant to Section 906
of the 2002 Sarbanes-Oxley Act
21