Airbomb.com Inc
Management Discussion
2/7/01
AIRBOMB COM INC ("AIR-V;ABOM-L") - Management Discussion
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Airbomb.com Inc., through its wholly-owned subsidiary, Sportslink Direct
Marketing Ltd., is an internet retailer/wholesaler of sporting goods,
primarily bicycles and related parts and accessories. Because of the
Company's unique relationship with original equipment manufacturers
(OEMs), it is able to acquire a variety of products at preferential prices and
sell them to wholesalers, distributors or consumers at a significant
discount. The Company has developed strong relationships with some of
the largest component manufacturers in Asia and North America. The
retail market in the United States for bicycles and related parts and
accessories is approximately U.S. $5.4 billion, and globally is U.S. $25
billion.
The Company has applied for trademark protection in Canada and the
United States for the brand name "Airbomb. The Company has four web
sites. The primary marketing of bicycles, bicycle components and outdoor
sporting equipment is conducted at www.airbomb.com; sunglass sales
are conducted at www.sunbomb.com; and cycling products are marketed
in Canada at http:
ore.airbomb.com/Can. The fourth web site is a secure,
password-protected site for wholesale transactions. The company supports
various other internet retailer "web stores" by acting as a virtual store
and completing any transactions (sales) generated. In this fashion
airbomb.com is the "store behind the store". An example of this can be seen
at NSMB.com. Continued marketing efforts directed towards B2B customers
produced exponential growth in that sector. The company has worked to be
qualified as a manufacturer in the cycling industry and as such gained
access to lower OEM prices from numerous important suppliers. This has
strengthened the ability to provide private label branded bikes to
retailers and other resellers. The password-protected website directly
responds to this demand. The private label concept is new to this industry
and has been recognized by resellers as innovative, unique and profitable.
The Company feels its competitive advantage will be most successful in the
B2B category and by Q2 of 2001 this categories sales will exceed B2C
sales. A new Canadian based production facility assembles components
purchased in bulk into high quality bicycles. These completed bikes are
either labeled according to the request of the retailer or sold direct to
consumers under the well- known "Nuke Proof" name.
Airbomb.com has outlasted hundreds of well-financed e-tailers largely
through the use of inexpensive marketing methods. Weekly email "specials"
are broadcast to an increasing number of opt-in users. Custom software
helps the "tell-a-friend" program track referrals and encourage
word-of-mouth about the Company. At present the company has links on a
record number of other sites ranging from simple customer personal sites
to those of large manufacturers. In the last 90 days the Company has
attracted new customers by linking items placed on popular auction sites
through to the airbomb.com store. A firm specializing in maintaining the
simultaneous presence of individual items on multiple auction sites has
proved extremely effective. During the last quarter the company enjoyed
greater web traffic than ever before.
The Company has seen a marked increase in the proportion of its sales
that are processed purely through the internet versus those sales
transacted by phone or other means. This is seen as support for
management's recognition that its market segment is a proven early adopter
of online buying than are those for other segments such as groceries,
furniture, etc. The Company's customers do not have to be enticed online;
they are already there. This provides some distance from the risk
associated with the rate at which the general public embraces online
buying.
Other upgrades were made throughout the website as a reflection of the
expanded product offering and software upgrades. A concomitant growth in
the company's website traffic saw the benchmark of 1 million hits per
month eclipsed.
Airbomb.com dominates the Canadian market for online cycling sales, Q3
results are estimated to be 10 times larger than the closed competitor.
Results of Operations
Nine months ended December 31, 2000 and December 31, 1999.
Sales increased by 198.8 % or $532,108 to $ 799,734 during the period
ending December 31, 2000 compared to $ 267,626 for the period ending
December 31, 1999. This increase was due to a higher level of sales
through the Company's web site as well as increased performance from the
Company's Business to Business website.
Cost of goods sold increased by 116.5 % or $ 391,495 to $ 727,438 for
the period ending December 31, 2000, compared to $ 335,943 for the period
ending December 31, 1999. The cost of goods sold increased as the sales
volume increased.
Inventory increased by 84.4 % or $ 55,526 to $ 121,274 for the period
ending December 31,2000, compared to $ 65,748 for the period ending
December 31, 1999. Inventory levels are up over the past year as a result
of the increase in sales and to facilitate timely product deliveries.
General and administrative expenses increased by 286.0 % or $ 533,076
to $ 719,449 for the period ending December 31, 2000 compared to $ 186,373
for the period ending December 31, 1999. The Company incurred higher
costs in every category primarily due to the expense of being a public
company (listed on the Canadian Venture Exchange and OTC Bulletin Board)
along with an increase in sales.
Advertising and Promotion increased by 610.8 % or $ 70,897 to $
82,504 for the period ending December 31, 2000 compared to $ 11,607 for
the period ending December 31, 1999.
Amortization costs rose $ 23,191 to $ 26,974 for the period ending
December 31, 2000 compared to $ 3,783 for the period ending December 31,
1999 and relates to the amount of goodwill created as a result of the
Sportslink acquisition. Interest and foreign exchange decreased $ 7,673 to
$11,733 for the period ending December 31, 2000 compared to $ 19,406 for
the period ending December 31, 1999. This is as a result of the loss on
conversion from Canadian to U.S. dollars advanced to fund the operations
of Sportslink and expansion of the business operations.
Investor relations is a new expense category now that the Company is a
publicly-traded company. For the nine month period ending December 31,
2000, the Company incurred expenses of $84,022.
Office and Sundry costs increased by 592.8 % or $ 46,300 to $ 54,110
for the period ending December 31, 2000 compared to 7,810 for the period
ending December 31, 1999. These expenses support the increased costs of
being a public company and expansion of the business operations.
Professional fees increased 373.2 % or $ 84,676 to $ 107,360 for the
period ending December 31, 2000 compared to $ 22,684 for the period
ending December 31, 1999. Again, these expenses included the increased
legal and accounting costs of being a public company and the expansion of
the business operations.
Wages and contract labor increased 189.4 % or $ 141,584 to $ 216,314
for the period ending December 31, 2000 compared to $ 74,730 for the
period ending December 31, 1999. The increase in staff was necessary to
support the Company's expansion.
Plan of Operations
The Company's marketing plans and strategies include:
* Expand into the B to B market through acquisition of a wholesaler
* Expanding the product base and continuing to upgrade the web site.
* Developing brand names that link on-line customers to the Company.
* Launch a new brand of bicycles with a name TBA
* Upgrading web search engine results for key search words, often
brand names, that bring on- line shoppers directly to the Company web site.
* Expanding the customer database by developing additional opt-in
subscription strategies
* Purchasing/renting other highly qualified opt-in subscriber lists.
* Working with suppliers to match customers to a supplier's target
market.
* Enhancing the "weekly specials sheet" to attract buyers to special
deals and clear-out sales. This has proven attractive to both suppliers,
who use the feature to move inventory, and on- line buyers looking for
special prices.
* Offering competitive prices relative to the online channel.
* Expanding the "Tell-A-Friend" referral program through support
materials provided to motivated customers.
* Continuing to sponsor a professional bike racing team.
* Publishing bi-monthly brochures and mailing to customer base.
* Continuing with sales force training programs to enhance telephone
customer service.
* Enter new markets via new online storefronts.
To be successful, the Company will have to develop marketing, brand
development and sales on a rapidly expanding basis. There is no guarantee
that the Company will be successful in managing such a complex strategy of
marketing and sales or that the Company will be able to do so soon enough
to be successful.
The Company intends to derive substantially all of its revenues from
the sale of goods using the Internet as the chief instrument of
transaction. The Company's ability to generate revenues will depend upon,
among other factors, consumers' acceptance of the Web as an attractive and
sustainable medium, and development of a large base of repeat customers
for the Company's products. In addition, there is intense competition in
the sale of goods and services on the Internet, which makes it difficult to
project the future levels of Internet revenues that will be realized
generally or by any specific company
To be successful, the Company plans to continue entering into
strategic partnerships with other local, national and international
businesses to help in a focused marketing effort and to provide operational
support. The Company cannot guarantee that it will be able to find
strategic partners who will be available and who are suitable for the
Company's needs, or if enough strategic partners can be found to market
the Company's products and support its operations. The success of the
Company cannot be guaranteed or accurately predicted. There is no
assurance that the Company will be able to operate profitably. Such
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered in the establishment of new product
lines and retail sales outlets in an emerging e-commerce market.
There is no assurance that the Company will be able to operate and
manage on a profitable basis or that cash flow from operations will be
sufficient to pay the operating costs of the Company. The Company
anticipates that it will need to raise additional capital to finance growth
of its operations. The Company may seek additional financing through debt
or equity financings. There is no assurance that additional financing will
be available to the Company, or that, if available, the financing will be
on terms acceptable to the Company. There is no assurance that the
Company's estimate of its reasonably anticipated liquidity needs is
accurate or that new business developments or other unforeseen events will
not occur that will result in the need to raise additional funds. In the
event that the Company cannot raise needed capital, it will have a
material adverse effect on the Company.
Although the Company has based its web site upon commercially
available software and hardware, the Company will need to do substantial
additional development in order to offer the goods, services and
user-friendly interfaces the Company believes are needed to attract and
retain customers.
The Company may incur significant operating losses and generate
negative cash flow from operating activities during the next several years
while it develops its web sites and services, and builds a customer and
subscriber base. There is no assurance that the Company will achieve or
sustain profitability or positive cash flow from operating activities in
the future or that it will generate sufficient cash flow to service any
debt requirements.
To the extent that any financing involves the sale of the Company's
equity securities, the interests of the Company's then-existing
shareholders could be substantially diluted.
The Company's future success is dependent upon continued growth in the
use of the Internet. Rapid growth in the use of and interest in the
Internet is a recent phenomenon. There is no assurance that commerce over
the Internet will become widespread or that extensive content will continue
to be provided over the Internet. In addition, to the extent that the
Internet continues to experience significant growth in the number of users
and level of use, there is no assurance that the Internet infrastructure
will continue to be able to support the demands placed upon it by such
potential growth. If use of the Internet does not continue to grow, or if
the Internet infrastructure does not effectively support growth that may
occur, the Company's business, results of operations and financial
condition would be materially and adversely affected.
As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services
are subject to a high level of uncertainty and risk. The Company does not
know the extent to which additional customers will use its products and
services. It is difficult to predict the future growth rate, if any, and
size of this market via Internet sales. In order to sustain rapid growth
rates, the Company will need to continue increasing its share of the
bicycle and other sporting goods markets. There is no assurance either
that the market for the Company's products and services will grow or that
the Company can successfully and rapidly expand its market share. If the
market fails to grow, grows more slowly than expected, or becomes saturated
with competitors, or if the Company's products and services do not achieve
or sustain market acceptance and expanded market share, the Company's
business, results of operations and financial condition will be materially
and adversely affected.
The Company will rely on a combination of common law, copyright and
trademark law, and nondisclosure agreements to establish and protect its
proprietary rights in its products and the content of its web sites.
Others, however, might successfully challenge these protections.
The Company has applied for trademark protection in Canada for the
brand name "Airbomb", and anticipates filing for trademark protection in
the United States for the same brand name. The Company is the owner of
the web site domain names airbomb.com and
sunbomb.com and maintenance fees for the domain names have been
paid and are up to date. The Company may file applications for trademark
protection of other intellectual property. No assurance can be given that
such trademark applications will be accepted for registration.
Furthermore, the possibility exists that the Company could be found to
infringe on patents, service marks, trademarks or copyrights held by
others. The Company's use of trademarks, service marks, trade names,
slogans, phrases and other expressions in the course of its business may
be the subject of dispute and possible litigation. Given the growth of
business being conducted on the Internet, electronic commerce and the use
of domain names, there can be no assurance that the Company will be able
to continue to use its current trade name, domain name and Internet and
business identification. Such changes could result in confusion to
potential customers and negatively affect the Company's business.
Tel: 1-604-689-1659 Airbomb.com Inc.
Fax: 1-604-689-1722
Email: airbomb@senategroup.com
Website: Airbomb.com
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