<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
Commission File number 000-23547
E.COM INTERNATIONAL, INC.
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(Exact Name of Registrant as specified in its charter)
Oregon 91-1600822
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(State of Incorporation)(Federal I.R.S. No.)
7737 S.W. Cirrus Drive, Beaverton, Oregon 97008
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: 503-671-9900
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( ) No (X)
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As of May 12, 1998, the Registrant had 2,375,577 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
E.COM INTERNATIONAL, INC.
FINANCIAL STATEMENTS
INDEX
Balance Sheets as of March 31, 1998 and December 31, 1997. . . . . . . . 3
Statements of Operations for the Quarters Ended March 31, 1998
and March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the Quarters Ended March 31, 1998 and
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 7
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<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
-----------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents... . . . . . . . $ 1,050,238 $ 1,839,281
Accounts receivable. . . . . . . . . . . . 22,530 -
Inventories. . . . . . . . . . . . . . . . 350,323 315,023
Prepaid expenses and other assets. . . . . 24,313 19,156
----------- ----------
Total current assets. . . . . . . . . . . 1,447,404 2,173,460
----------- ----------
Property and equipment, net. . . . . . . . . 391,569 380,206
Intangible assets, net . . . . . . . . . . . 17,030 19,833
Prepaid software royalties, net. . . . . . . 39,079 40,750
----------- ----------
$ 1,895,082 $ 2,614,249
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . 159,269 237,245
Accrued liabilities. . . . . . . . . . . . 61,810 95,558
Notes payable to shareholder . . . . . . . - 195,000
Current portion of capital lease
obligations . . . . . . . . . . . . . . . 2,072 2,144
----------- ----------
Total current liabilities . . . . . . . . 223,151 529,947
----------- ----------
Capital lease obligations, less current
portion . . . . . . . . . . . . . . . . . 10,650 11,087
Commitments
Shareholders' equity:
Common stock, no par value, authorized
10,000,000 shares; 2,375,577 issued
and outstanding at March 31, 1998 and
December 31, 1997 . . . . . . . . . . . 3,326,585 3,386,025
Warrants outstanding . . . . . . . . . . . 1,268,146 1,268,146
Deficit accumulated during the
development stage . . . . . . . . . . . . (2,933,450) (2,580,956)
----------- ------------
Total shareholders' equity . . . . . . . 1,661,281 2,073,215
----------- ------------
$ 1,895,082 $ 2,614,249
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Period from
April 4, 1996
Three months ended Three months ended (date of inception) to
March 31, 1998 March 31, 1997 March 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . $ 22,530 $ -- $ 47,767
Cost of sales. . . . . . . . . . . . . . . . 8,132 -- 29,929
---------- ---------- -----------
Gross profit. . . . . . . . . . . . . . . 14,398 -- 17,838
---------- ---------- -----------
Operating expenses:
Research and development . . . . . . . . . 143,241 351,856 1,486,740
Sales and marketing. . . . . . . . . . . . 60,463 47,931 388,579
General and administrative . . . . . . . . 174,731 127,448 1,073,345
---------- ---------- -----------
378,435 527,235 2,938,664
---------- ---------- -----------
Loss from operations. . . . . . . . . . . (364,037) (527,235) (2,930,826)
Other income (expense):
Interest income. . . . . . . . . . . . . . 15,181 3,011 34,320
Interest expense . . . . . . . . . . . . . (3,638) (11,334) (36,944)
---------- ---------- -----------
Loss before provision for income taxes. . (352,494) (535,558) (2,933,450)
Provision for income taxes . . . . . . . . . -- -- --
---------- ---------- -----------
Net loss. . . . . . . . . . . . . . . . . $ (352,494) $ (535,558) $(2,933,450)
---------- ---------- -----------
---------- ---------- -----------
Basic loss per share . . . . . . . . . . . . $ (0.15) $ (0.50) $ (2.22)
---------- ---------- -----------
---------- ---------- -----------
Shares used in calculation . . . . . . . . . 2,375,577 1,074,087 1,320,197
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
E.COM INTERNATIONAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
April 4, 1996
Three months ended Three months ended (date of inception)
March 31, 1998 March 31, 1997 to March 31, 1998
------------------ ------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . $ (352,494) $ (535,558) $ (2,933,450)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization . . . . 18,339 1,126 145,420
Write off of acquired
products in development . . . . . . -- -- 39,098
Changes in operating assets and
liabilities:
Accounts receivable . . . . . . . . . (22,530) -- (22,530)
Inventories . . . . . . . . . . . . . (35,300) (128,187) (348,397)
Prepaid expenses and other assets . . (3,486) (9,911) (93,870)
Accounts payable and accrued
liabilities. . . . . . . . . . . . . (111,724) 99,747 221,079
------------ ---------- -------------
Net cash used in operating activities . . (507,195) (572,783) (2,992,650)
------------ ---------- -------------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . (26,899) (45,116) (486,514)
Acquistion of EnBloc assets . . . . . . . -- -- (31,543)
------------ ---------- -------------
Net cash used in investing activities . . (26,899) (45,116) (518,057)
------------ ---------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock and
warrants, net . . . . . . . . . . . . . (59,440) 665,039 4,488,935
Proceeds from issuance of notes payable
to shareholders . . . . . . . . . . . . -- 125,000 420,000
Principal payments under capital lease
obligation. . . . . . . . . . . . . . . (509) -- (1,786)
Repayment of notes payable to
shareholders. . . . . . . . . . . . . . (195,000) -- (320,000)
Repayment of contract payable . . . . . . -- (32,000) (32,000)
Advance payment by shareholders for common
stock . . . . . . . . . . . . . . . . . -- 150,895 --
Payments received on subscriptions
receivable from sale of stock . . . . . -- 3,796 5,796
------------ ---------- -------------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . (254,949) 912,730 4,560,945
------------ ---------- -------------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . (789,043) 294,831 1,050,238
Cash and cash equivalents at beginning of
period. . . . . . . . . . . . . . . . . 1,839,281 16,190 --
------------ ---------- -------------
Cash and cash equivalents at end of period . $ 1,050,238 $ 311,021 1,050,238
------------ ---------- -------------
Supplemental disclosure of cash flow ------------ ---------- -------------
information:
Cash paid during the period for interest . $ 1,881 $ 15,516 $ 20,069
--------------- ------------- -------------
--------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Period from
April 4, 1996
Three months ended Three months ended (date inception)
March 31, 1998 March 31, 1997 to March 31, 1998
------------------ ------------------ -----------------
<S> <C> <C>
Supplemental schedule of noncash investing and
financing activities:
Effective May 1, 1996, the Company purchased certain
assets of EnBlae for $63,543. In conjunction with
the acquisition, a contract payable was incurred
as follows:
Fair value of assets acquired..................... -- -- 63,543
Cash consideration................................ -- -- 31,543
------------------ ------------------ -----------------
Contract payable incurred....................... $ -- -- $ 32,000
------------------ ------------------ -----------------
------------------ ------------------ -----------------
Sale of common stock for subscriptions receivable...... -- -- 5,796
Capital lease obligation incurred for purchase of
equipment............................................ -- -- 14,508
Warrants issued for partial compensation to selling
agent................................................ -- -- 53,241
Note payable to shareholder converted to common stock.. -- -- 100,000
</TABLE>
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<PAGE>
ITEM 1. NOTES TO FINANCIAL STATEMENTS
NOTE 1
The unaudited financial information furnished herein reflects all
adjustments that in the opinion of management are necessary to fairly state
the Company's financial position, the changes in its financial position and
the results of its operations for the periods presented. This report on Form
10-Q should be read in conjunction with the Company's financial statements
and notes thereto included on Form 10-K for the year ended December 31, 1997.
The Company assumes that users of the interim financial information herein
have read or have access to the audited financial statements for the
preceding fiscal year and that the adequacy of additional disclosure needed
for a fair presentation may be determined in that context. Accordingly,
footnote disclosure which would substantially duplicate the disclosure
contained in the Company's financial statements for the year ended December
31, 1997 has been omitted. The results of operations for the three month
period ended March 31, 1998 are not necessarily indicative of results for the
entire year ended December 31, 1998.
NOTE 2 - INVENTORIES
Inventories are comprised of the following as of March 31, 1998 and
December 31, 1997:
<TABLE>
1998 1997
----- ----
(Unaudited)
<S> <C> <C>
Raw Materials $335,423 $315,023
Work in Process 14,900 --
--------- ---------
$350,323 $315,023
--------- ---------
--------- ---------
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto included elsewhere in
this Form 10-Q. This Form 10-Q contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as
those discussed in the Company's annual report on Form 10-K filed with the
Securities and Exchange Commission.
OVERVIEW
Since its formation, the Company has been in the development stage with
its principal activities consisting of assembling a qualified technical and
executive management team, continuing the development of its products,
commencing pre-introduction marketing activities and raising capital. The
Company operates in a rapidly changing market and technology. The Company
has generated no significant revenues and has incurred substantial losses
since its inception. The Company expects to continue to incur significant
losses in 1998.
The Company expects revenues to be derived primarily from the sale of
its wireless mobile computing products. The Company does not expect to have
any significant revenues until the second quarter of 1998 at the earliest.
Sales are expected to be through purchase order contracts with each customer
and will vary in profitability.
The Company's primary product is the Discovery I-TM-, a fully integrated
smart handheld device for wireless data communications. The Company
commenced commercial production and shipment of the Discovery I-TM- late in
the first quarter of 1998. The Company purchased certain manufacturing,
tooling and test equipment to support its move to commercial production. In
addition, the Company expects to add to its engineering, marketing and sales
staff to support its shift into commercial product sales. During 1998, the
Company expects to invest in continuing development of enhancements, upgrades
and software for its current products as well as limited development of
additional new products, including both applications software, wireless
gateway servers, and other network interfaces for the Discovery I-TM-,
subject to the amount and timing of the Company's achieving additional new
funding or significant revenues.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
REVENUES
The Company had revenues of approximately $22,000 in the first quarter
of 1998, compared to no revenues in the first quarter of 1997. Revenues were
derived from sales of commercial units of the Company's Discovery I-TM-.
Sales were made to two (2) customers which
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<PAGE>
the Company believes are evaluating the Discovery I-TM- product. Operating
expenses decreased by 28% to $378,435 in the first quarter of 1998 from
$527,235 in the first quarter of 1997, primarily reflecting the Company's
shift from research and development efforts for the Discovery I-TM- product
to sustaining engineering.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses since inception have consisted
primarily of payments to engineering consultants, payments of salaries and
fringe benefits of employees and purchase of engineering parts and materials.
To date, the Company has expensed all such costs. Engineering consulting
projects have for the most part been completed, and payments to such
consultants have been greatly reduced to $3,022 in the first quarter of 1998,
compared with $190,175 in the first quarter of 1997, with most sustaining
engineering work now being performed by employees of the Company. The
Company expects product development expenses associated with the Discovery
I-TM- to decline in the near-term, but this decline will be partially offset
by higher costs incurred to provide production support as the Company begins
commercial manufacturing of its initial products. Moreover, the Company
anticipates that it will devote substantial resources to application support,
application software development and development of E.Com's planned back-end
wireless gateway server, as well as very limited hiring of additional
personnel.
SALES, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Sales, marketing, general and administrative expenses include payroll
and related costs for the Company's administrative and executive personnel,
costs related to the Company's marketing and promotional efforts, office
lease expenses and other overhead costs, and legal and accounting costs and
fees of consultants and professionals. Sales, marketing, general and
administrative expenses for the first quarter of 1998 were $235,194,
compared with $175,379 in the first quarter of 1997, reflecting primarily
increased introduction activities for the Discovery I-TM-. The Company
expects sales, marketing, general and administrative expenses to increase
substantially in future periods as the Company invests in marketing
activities to promote its products. In addition, the Company incurred
significant increases in accounting and legal expenses associated with the
registration of its securities for public trading on the OTC Bulletin Board
as required by the terms of the most recent private offering. Ongoing legal
and accounting expenses will decline over the next period since registration
of the Company's securities has been completed, but recurring expenses
associated with normal quarterly reporting will continue.
NET LOSS
Net cumulative loss through March 31, 1998 was approximately $2.9
million, and increased by approximately $352,000 through the first quarter of
1998, primarily reflecting ongoing operating expenses prior to establishment
of a significant revenue stream.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through
private placements of common stock. At December 31, 1997, the Company had
shareholders' equity of approximately $2.1 million, although from inception
through December 31, 1997, the Company had incurred an accumulated deficit of
approximately $2.6 million. The Company had cash and cash equivalents of
$1.8 million at December 31, 1997. As of March 31, 1998, the Company had
shareholders' equity of approximately $1.6 million and cash and cash
equivalents of $1.05 million.
The Company applied the proceeds from the most recent private offering
to payment of outstanding accounts payable, tooling costs, retirement of a
shareholder loan, and salaries, benefits and other regular monthly expenses.
The Company also expects that its operating costs will increase as the
Company hires additional staff to expand its marketing, engineering support
and production capabilities. If and when higher volume sales of the
Company's products occur, working capital needs will also increase to finance
inventory and accounts receivable.
The Company's future expenditures and capital requirements will depend
on numerous factors, including the progress of its product development,
manufacturing, sales and marketing programs and sales growth. The Company
expects its cash requirements to increase significantly each year as it
expands its activities and operations to finance increased personnel costs,
inventory and accounts receivable. The Company currently expects that its
cash and cash equivalents will satisfy its working capital needs for
approximately six months, assuming that the Company generates no revenues and
makes no acquisitions of assets or companies during such period. The Company
anticipates needing to raise additional capital, debt or equity, in public or
private offerings or loan transactions to finance its continued growth.
There is no guarantee that additional funding will occur in the required time
frame. Failure of the Company to obtain additional financing could have a
material adverse impact on the Company, including its ability to continue as
a going concern. The Company intends to call the Warrants and require the
exercise thereof promptly after (if ever) the call provisions are satisfied.
-9-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6(a). EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
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<S> <C> <C>
3.1+ Articles of Incorporation of the Company
3.2+ Bylaws of the Company
4.1+ Form of Warrant Number One for Purchase of Common Stock
4.2+ Form of Warrant Number Two for Purchase of Common Stock
4.3+ Warrant Agreement including Form of Warrant
4.4+ Form of Warrant for Purchase of Units
10.1+ Employment Agreement between the Company and William F. Stephens
10.2+ Employment Agreement between the Company and Jonathan D. Birck
10.3+ Contract between Company and Motorola Wireless Data Group
10.4+ Agreement between Company and L.G. Zangani, Inc.
10.5+ 1997 Incentive Compensation Plan
10.6+ Lease with Gateway Columbia Properties
27 Financial Data Schedule
</TABLE>
- ----------------------
+ Filed previously with the Company's Registration Statement on Form 10
(No. 000-23547) filed with the Securities and Exchange Commission on
December 24, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
By /s/ William F. Stephens Date: May 14, 1998
-------------------------------- ----------------------
William F. Stephens
Principal Executive Officer and
Principal Financial Officer
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<PAGE>
EXHIBIT INDEX
FROM 10-Q
E.COM INTERNATIONAL, INC.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------------------------------------------------------------- ------
<S> <C> <C>
3.1+ Articles of Incorporation of the Company
3.2+ Bylaws of the Company
4.1+ Form of Warrant Number One for Purchase of Common Stock
4.2+ Form of Warrant Number Two for Purchase of Common Stock
4.3+ Warrant Agreement including Form of Warrant
4.4+ Form of Warrant for Purchase of Units
10.1+ Employment Agreement between the Company and William F. Stephens
10.2+ Employment Agreement between the Company and Jonathan D. Birck
10.3+ Contract between Company and Motorola Wireless Data Group
10.4+ Agreement between Company and L.G. Zangani, Inc.
10.5+ 1997 Incentive Compensation Plan
10.6+ Lease with Gateway Columbia Properties
27 Financial Data Schedule
</TABLE>
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+ Filed previously with the Company's Registration Statement on Form 10
(No. 000-23547) filed with the Securities and Exchange Commission on
December 24, 1997.
(i)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF E.COM INTERNATIONAL, INC AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,050,238
<SECURITIES> 0
<RECEIVABLES> 22,530
<ALLOWANCES> 0
<INVENTORY> 350,323
<CURRENT-ASSETS> 1,447,404
<PP&E> 523,541
<DEPRECIATION> 131,972
<TOTAL-ASSETS> 1,895,082
<CURRENT-LIABILITIES> 223,151
<BONDS> 0
0
0
<COMMON> 3,326,585
<OTHER-SE> 1,268,146
<TOTAL-LIABILITY-AND-EQUITY> 1,895,082
<SALES> 22,530
<TOTAL-REVENUES> 14,398
<CGS> 8,132
<TOTAL-COSTS> 378,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,638)
<INCOME-PRETAX> (352,494)
<INCOME-TAX> 0
<INCOME-CONTINUING> (364,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (352,494)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
