<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of theSecurities
Exchange Act of 1934
For the period ended March 31, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of theSecurities
Exchange Act of 1934
Commission file number: 0-23391
XML-GLOBAL TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in itscharter)
Colorado 84-1434313
- ------------------------------- ------------------------
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
1038 Homer Street
Vancouver, BC, Canada V6B 2W9
----------------------------------------------------------------
(Address of principal executive offices, including zipcode)
Registrant's Telephone No., including area code: (800)201-1848
----------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of
1934 during the preceding 12 months (or for such shorter periodthat the
Registrant was required to file such reports), and (2) has beensubject to
such filing requirements for the past 90 days. Yes X No
---- ----
As of March 31, 2000, there were 21,280,000 shares of theissuer's Common
Stock outstanding.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Accountant's Review Report 4
Condensed Consolidated Balance Sheet - March 31, 2000
(unaudited) and June 30, 1999 5
Unaudited Condensed Consolidated Statement ofOperations -
Three and Nine Months Ended March 31, 2000 6
Unaudited Condensed Consolidated Statement of CashFlows -
Nine Months Ended March 31, 2000 7
Notes to Unaudited Condensed Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of FinancialCondition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports Filed on Form 8-K 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The March 31, 2000 condensed consolidated financialstatements
included in this filing on Form 10-QSB have been reviewed byMoss
Adams LLP, independent certified public accountants, inaccordance
with the established professional standards and proceduresfor such
review. The report of Moss Adams LLP commenting upon theirreview
accompanies the condensed financial statements included in Item 1 of
Part I.
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
XML-Global Technologies, Inc.
We have reviewed the consolidated condensed financial statements of XML-Global
Technologies, Inc. and Subsidiaries as of March 31, 2000 and for the three and
nine months then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of June 30, 1999 and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for the period May 18, 1999 (date of inception) to June 30, 1999 (not
presented herein), and in our report dated October 6, 1999 (except for Note 1,
as to which the date is November 8, 1999), we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of June
30, 1999 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/S/ MOSS ADAMS LLP
Bellingham, Washington
May 10, 2000
<PAGE>
<PAGE>
XML-GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
At March 31, 2000 (unaudited) and June 30, 1999
<TABLE>
<CAPTION>
March 31 2000 June 30 1999
------------ ------------
<S> <C> <C>
Assets
------
Current Assets
Cash and cash equivalents $2,353,812 $ 9,581
Trade accounts receivable 8,982 8,232
Other receivable 21,529 3,509
Deposits 22,005 4,658
Deferred income taxes 1,467 -
Deferred issue costs 70,519 -
------------ ------------
2,478,314 25,980
------------ ------------
Fixed assets
Computer hardware and software 121,955 50,685
Equipment 18,389 7,339
------------ ------------
140,344 58,024
Accumulated depreciation 25,001 3,086
------------ ------------
115,343 54,938
------------ ------------
Trademarks and patents 40,380 7,134
------------ ------------
Total Assets $2,634,037 $ 88,052
============ ============
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities $ 74,685 $ 55,182
Due to directors - 8,755
Note payable - 135,135
------------ ------------
74,685 199,072
------------ ------------
Total Liabilities 74,685 199,072
------------ ------------
Stockholders' Equity (Deficit)
Preferred stock, $0.01 par value,
100,000,000 shares authorized, none
issued and outstanding at March 31,
2000 and June 30, 1999 - -
Common stock, $.0001 par value,
500,000,000 shares authorized.
21,280,000 and 17,500,000 shares
issued and outstanding at March 31,
2000 and June 30, 1999 respectively 2,128 1,750
Additional paid-in capital 3,807,360 8,079
Deferred compensation (12,209) -
Accumulated other comprehensive income (2,849) -
Accumulated deficit (1,235,078) (120,849)
------------- -------------
Total Stockholders' Equity (Deficit) 2,559,352 (111,020)
------------- -------------
Total Liabilities and Stockholders'
Equity (Deficit) $2,634,037 $ 88,052
============= =============
</TABLE>
See accompanying notes
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<PAGE>
XML-GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Operations
For the Three Months and for the Nine months Ended March 31, 2000
<TABLE>
<CAPTION>
Three Months Nine months
March 31, 2000 March 31, 2000
------------- -------------
<S> <C> <C>
Revenue $ 7,330 $ 30,989
------------- -------------
Operating expenses
Research and development 215,914 504,003
Marketing and selling 71,360 173,542
General and administrative 183,444 422,928
Fair value of options granted to
consultants 49,279 49,279
Depreciation and amortization 8,900 21,717
Total operating expenses 528,897 1,171,469
------------- -------------
Operating loss (521,567) (1,140,480)
Interest Income 24,051 26,251
------------- -------------
Net loss (497,516) (1,114,229)
Accumulated deficit, beginning of period (737,562) (120,849)
------------- -------------
Accumulated deficit, end of period $(1,235,078) $(1,235,078)
============= ============
Net loss per share - basic and diluted $ (0.02) $ (0.06)
Weighted average number of shares 20,809,670 19,662,764
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
XML-GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Cash Flow
For the Nine Months Ended March 31, 2000
<TABLE>
<CAPTION>
Nine months
March 31, 2000
------------
<S> <C>
Cash flows from operating activities
Net loss $(1,114,229)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation of fixed assets 21,717
Fair value of options granted to consultants 49,279
Changes in assets and liabilities
Accounts receivable (620)
Other receivable (16,824)
Deposits (17,016)
Accounts payable and accrued liabilities 14,725
Due to directors (8,815)
------------
Net cash used in operating activities (1,071,783)
------------
Cash flows from investing activities
Fixed assets purchases (80,264)
Trademarks and patents (32,811)
------------
Net cash used in investing activities (113,075)
------------
Cash flows from financing activities
Deferred issue costs (70,487)
Issuance of capital stock, net of issue costs 3,738,171
Repayment of note payable (135,135)
------------
Net cash provided by financing activities 3,532,549
------------
Effect of changes in exchange rates (3,460)
------------
Increase (decrease) in cash 2,344,231
Cash, beginning of period 9,581
------------
Cash and cash equivalents, end of period $ 2,353,812
============
</TABLE>
See accompanying notes.
<PAGE>
<PAGE>
XML-GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND CESSATION OF DEVELOPMENT STAGE OPERATIONS
Effective August 27, 1999, XML-Technologies, Inc. (XML-Technologies) and
International Capital Funding, Inc. (ICF) entered into an agreement and plan
of reorganization (the Agreement). In accordance with the Agreement, the
shareholders of XML-Technologies received 12.5 million shares of ICF stock in
exchange for the 12.5 million outstanding shares of XML-Technologies. The
shareholders of ICF retained 5 million shares in exchange for no assets and
the assumption of $2,671 of liabilities of ICF by XML-Technologies. The
transaction was accounted for as a recapitalization of XML-Technologies and
the accompanying consolidated financial statements present the financial
position, results of operations, and cash flows of XML-Technologies.
ICF was organized in 1991 for the purpose of consummating a merger or
acquisition with a private entity. Prior to entering into the Agreement, it
had no material amount of assets or liabilities and no operations. Subsequent
to completing the Agreement, ICF changed its name to XML-Global Technologies,
Inc. (XML-Global Technologies or the Company) and changed its year-end to June
30.
The capital structure in the accompanying consolidated financial statements
reflects a ten for one stock split of ICF shares authorized on August 3, 1999
in anticipation of entering into the Agreement. The activity of ICF for the
period July 1, 1999 and August 27, 1999 (date of the Agreement) was not
significant and is included in the Company's consolidated financial statements
for the nine months ended March 31, 2000.
XML-Technologies is a Nevada corporation organized May 18, 1999 to hold either
directly or indirectly all outstanding shares of XML-Global Research, Inc. and
Walkabout Website Designs, Ltd., both of which are British Columbia
corporations. The Company and its subsidiaries engage in the business of
developing Internet-based software applications using XML (Extensible Markup
Language). XML is an abbreviated version of SGML (Standard General Markup
Language), the international standard for defining descriptions of the
structure and content of electronic documents.
For the period May 18, 1999 through June 30, 1999, the Company and its
subsidiaries' efforts were devoted to legal formation; financial planning;
recruiting directors, advisors and employees; and raising additional
financing. Development stage operations during this period were financed with
a loan from a director of the Company. In July 1999, the Company commenced
selling its e-commerce software and accordingly is no longer a development
stage company.
2. BASIS OF PRESENTATION
These condensed consolidated financial statements are unaudited and reflect
all adjustments that, in the Company's opinion, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the current interim period are not necessarily indicative of results to be
expected for the current year or any other period.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements for the period May 18, 1999 (date of
inception) to June 30, 1999 and notes thereto included in our 8-K/A as filed
with the Securities and Exchange Commission on November 10, 1999. Comparative
statements of operations and cash flows are not available, as operations did
not commence until May 18, 1999.
3. STOCK ISSUANCES AND REDEMPTION
Subsequent to the merger of XML-Technologies and ICF on August 27, 1999
described in Note 1 and the issuance of the units described in Note 6 on that
same date, the Company issued additional common shares and stock purchase
warrants, as described below. With the exception of costs associated with the
subsequent Westminster Securities offering, costs associated with the
issuances were not material. All issuances are exempt from registration in
reliance on Rule 506 of Regulation D or Section 4(2) of the Securities Act of
1933.
Effective January 13, 2000, the Company entered into a Securities Purchase
Agreement (the Agreement) with XMLFund LLC (XMLFund). Under the Agreement,
XMLFund agreed to purchase 500,000 units at a price of $2.00 per unit for
total proceeds of $1 million. Each unit consists of two shares of common
stock, one Class A warrant and one Class A-1 warrant. Each Class A warrant
entitles XMLFund to purchase one additional share of common stock at a price
of $2.00 per share, and each Class A-1 warrant entitles XMLFund to purchase
one additional share of common stock at a price of $0.07 per share. The term
of the $2.00 warrants is three years and the term of the $0.07 warrants is 60
days. The $0.07 warrants were exercised in March 2000 and the Company received
gross proceeds of $35,000. If within one year of the sale of the units (or
once all warrants are exercised, if earlier) the Company proposes to register
any of its common stock under the Securities Act of 1993 in connection with a
public offering, the Company agrees to use its best efforts to register also
the shares held by XMLFund. In the event the Company proposes to offer for
sale any new common shares or securities convertible into common shares, or
any other class of capital stock, the Company has granted XMLFund the
preemptive right to purchase additional shares necessary to maintain its
percentage interest in the Company.
On February 24, 2000, one of the Company's founding stockholders left the
employee of the Company. The employee and the Company agreed that he would
return 600,000 of the 800,000 shares originally issued to him, at no cost to
the Company.
Effective February 22, February 29, and April 7, 2000, the Company entered
into agreements to issue a total of 1,050,000 units at a price of $1.00 per
unit for total proceeds of $1,050,000. Each unit consists of one share of
common stock and one warrant. Each warrant entitles holders to purchase one
additional share of common stock at a price of $4.00 per share. The warrants
expire on December 31, 2000. If within one year of the sale of the units the
Company proposes to register any of its common stock under the Securities Act
of 1933 in connection with a public offering, the Company agrees to use its
best efforts to register also the shares issued in these private placements.
The company placed 550,000 of these units prior to March 31, 2000 for gross
proceeds of $550,000.
4. RELATED PARTY TRANSACTIONS
During the nine months ended March 31, 2000, we repaid the note payable due to
a director of $135,135. We paid $32,500 and $130,000 in the three and nine
months ended March 31, 2000 respectively in management fees to directors of
XML-Global and its subsidiaries and companies controlled by directors.
5. SHARE PURCHASE WARRANTS
Concurrent with the Agreement discussed in Note 1, the Company issued
2,330,000 units to investors at $1.00 per unit for total proceeds of
$2,330,000. Units issued consist of one share of common stock and a purchase
warrant entitling the holder to acquire one share of common stock at an
exercise price of $4.00 within the first six months following the issue date,
or $6.00 within the second six months following the issue date. The terms of
the warrant were subsequently amended to extend the $4.00 exercise price until
December 31, 2000. Approximately $175,000 in costs were incurred in
association with the issuance of these units and have been offset against the
gross proceeds received.
In October 1999 the Company issued a share purchase warrant to purchase up to
200,000 shares of common stock at a price of $5.00 per share. The share
purchase warrant was issued in exchange for corporate finance and business
development assistance. The warrant is exercisable up to August 31, 2004.
In connection with the $1,050,000 financing discussed in note 4, we issued
share purchase warrants each entitling the holder to acquire one share of
common stock at an exercise price of $4.00 until December 31, 2000.
As part of the XMLFund financing the Company issued a share purchase warrant
to purchase up to 1,000,000 shares of common stock. The Company issued 500,000
Class A warrants and 500,000 Class A-1 warrants. Each Class A warrant
entitles XMLFund to purchase one additional share of common stock at a price
of $2.00 per share, and each Class A-1 warrant in each unit entitles XMLFund
to purchase one additional share of common stock at a price of $0.07 per
share. The term of the $2.00 warrants is three years and the term of the
$0.07 warrants is 60 days. The $0.07 warrants were exercised in March 2000 and
the Company received gross proceeds of $35,000.
6. 1999 EQUITY INCENTIVE PLAN
On October 19, 1999, the Company adopted the 1999 Equity Incentive Plan (the
"1999 Plan") to provide incentives to employees, directors and consultants.
Under the 1999 Plan, the Company has reserved a total of 4,000,000 shares of
Common Stock for issuance with the maximum term of options being ten years.
The Board of Directors has the exclusive power over the granting of options
and their vesting provisions. During the three months ended March 31, 2000,
the Company granted 1,165,000 options to employees, directors and consultants
at an exercise price of $1.00 per share. The options have a seven year term.
A summary of the status of the 1999 Plan during fiscal 2000 is as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Options Exercise Price
------------ ----------
<S> <C> <C>
Options outstanding at June 30, 1999 - $ -
Granted 1,165,000 1.00
Exercised - -
Forfeited - 1.00
------------ ----------
Options outstanding at March 31, 2000 1,165,000 $ 1.00
------------ ----------
Options exercisable at March 31, 2000 1,055,000 $ 1.00
------------ ----------
</TABLE>
A summary of stock options outstanding at September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Out- Contractual Exercise Exer- Exercise
Prices standing Life Price cisable Price
- -------- -------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$1.00 1,165,000 4.7 years $1.00 1,055,000 $1.00
</TABLE>
The Company applies the provision of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations to account for its stock-
based awards. Accordingly, costs for employee stock options or issuance of
shares is measured as the excess, if any, of the fair value of the Company's
common stock at the measurement date over the amount the employee must pay to
acquire the stock. The cost for the issuance of options to non-employees is
based on the fair value of the options granted at the date the services were
performed using the Black-Scholes option pricing model. Compensation expense
for the three and nine months ended March 31, 2000 was $49,279.
SFAS No. 123, Accounting for Stock-Based Compensation, requires disclosure of
the pro forma effect of applying the fair value method of accounting for stock
options. For disclosure purposes, the Company uses the Black-Scholes option-
pricing model to compute estimated fair value, based on the following
assumptions:
<TABLE>
<CAPTION>
2000
----
<S> <C>
Risk-free interest rate 6.0%
Dividend yield rate -%
Price volatility 20%
Weighted average expected life of
options 3 years
</TABLE>
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation. FASB Interpretation No. 44 clarifies that non-employee members
of an entity's Board of Directors do not meet the definition of an employee,
in which case the requirements of SFAS No. 123 must be applied. However, an
exception is made to require the application of APB Opinion No. 25 to stock
compensation granted to a non-employee director for services provided as a
director if the director was (a) elected by stockholders or (b) appointed to a
board position that will be filled by stockholder election when the existing
term expires.
Through March 31, 2000, the Company had recognized $49,279 of compensation for
options granted to non-employees. The pro forma effect of applying the fair
value method of accounting for options issued to employees results in a
$248,300 increase in net loss and a $0.01 increase in net loss per share for
the nine months ended March 31, 2000.
7. COMMITMENTS
In March 2000, the Company entered into a lease agreement for a new operating
facility in Vancouver, British Columbia. Prior to entering into this
agreement, the Company had been renting its existing facility on a short-term
basis. The lease commences on June 1, 2000 and runs for five years. During
the first two years, monthly lease payments are $4,700. However, the facility
is provided at no charge for the first five months of each of the first two
years. During the following three years, monthly lease payments are $5,500.
The lease agreement also requires that the Company pay its proportional share
of operating costs and property taxes.
Future minimum lease payments required under the lease, excluding the
Company's share of operating costs and property taxes, are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30
-----------
<S> <C>
2001 $ 28,000
2002 38,200
2003 65,500
2004 65,500
2005 54,500
---------
$251,700
</TABLE>
The effect of the scheduled rent increase and "rent holidays" will be
recognized on a straight-line basis over the five-year term of the lease.
8. SUBSEQUENT EVENTS
Effective April 7, 2000, the Company entered into agreements to issue 500,000
units at a price of $1.00 per unit for total proceeds of $500,000. Each unit
consists of one share of common stock and one warrant. Each warrant entitles
holders to purchase one additional share of common stock at a price of $4.00
per share. The warrants expire on December 31, 2000. If within one year of
the sale of the units the Company proposes to register any of its common stock
under the Securities Act of 1933 in connection with a public offering, the
Company agrees to use its best efforts to register also the shares issued in
these private placements.
Effective April 5, 2000, the Company entered into a second Securities Purchase
Agreement (the Agreement) with XMLFund. Under this Agreement, XMLFund agreed
to purchase 100,000 units at a price of $1.00 per unit for total proceeds of
$100,000. Each unit consists of one share of common stock and one warrant.
Each warrant entitles XMLFund to purchase one additional share of common stock
at a price of $4.00 per share. The warrants expire on December 31, 2000. If,
within one year of the sale of the units, the Company proposes to register any
of its common stock under the Securities Act of 1933 in connection with a
public offering, the Company agrees to use its best efforts to register also
the shares held by XMLFund.
Effective March 3, 2000, the Company engaged Westminster Securities
Corporation (Westminster) to serve as its placement agent for the purpose of
offering up to 105 units at a price of $75,000 per unit for total maximum
proceeds of $7,875,000. The Company will pay Westminster 7% of the gross sales
price of all units sold, and Westminster will have the right to purchase up to
10% of the units sold.
Each unit consists of 50,000 shares of common stock and 50,000 redeemable
warrants. During the first six months of the 18 month term of the warrants,
each warrant entitles holders to purchase one additional share of common stock
at a price of $4.00 per share. During the following twelve months, holders
are entitled to purchase additional common shares at a price of $6.00 per
share. The warrants are redeemable by the Company at $0.01 per warrant in the
event the Company (i) registers the shares to honor the warrants, (ii) the
shares are listed on a national exchange, Nasdaq, or the Over-the-Counter
Bulletin Board, (iii) the closing bid price of such shares for the 20 trading
days prior to redemption is 200% of the exercise price of the warrants, and
(iv) no lockup provisions restrict the resale of the shares. In connection
with the offering, the Company intends to register up to 5.25 million common
shares and 5.25 million warrants in various states where such securities may
be sold.
In April 2000, the Company received paid subscriptions for 92.5 units for
gross proceeds of $6,937,500.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless otherwise noted, references to "we," "our," and "us" refer to XML-
Global Technologies, Inc. and its subsidiaries.
OPERATIONS
Effective August 27, 1999, XML-Technologies, Inc. and International Capital
Funding, Inc. (ICF) entered into an agreement and plan of reorganization (the
Agreement). In accordance with the Agreement, the shareholders of XML-
Technologies, Inc. received 12.5 million shares of ICF stock in exchange for
the 12.5 million outstanding shares of XML-Technologies, Inc. The shareholders
of ICF retained 5 million shares in exchange for no assets and the assumption
of $2,671 of liabilities of ICF by XML-Technologies, Inc. The transaction was
accounted for as a recapitalization of XML-Technologies, Inc.
The founders of the Company began working with Extensible Markup Language
("XML") in early 1998 and began to develop software as a group in the fall of
1998. The Company was formed in May 1999 to develop commercial applications
using the founders' XML expertise. In July 1999, we commenced sales of
Cartnetwork, our proprietary e-commerce software and in September 1999, we
announced goxml, which we believe is the world's first XML search engine. On
September 29, 1999, we filed an application with the United States Patent
Office in respect of our goxml search engine under the title "Authoring,
altering, indexing, storing and retrieving electronic documents embedded with
contextual markup".
We continue to develop proprietary XML-based solutions for the Internet-based
economy with a focus on e-commerce and the conversion of data from legacy
formats to XML. As an adjunct to our e-commerce business, we develop web sites
for our clients. Our main sources of revenue are currently from the
development of web sites and the licensing of our e-commerce software.
1999 EQUITY INCENTIVE PLAN
On October 19, 1999 the shareholders approved the 1999 Equity Incentive Plan
(the "1999 Plan") which provides for the grant of (1) both incentive and
nonstatutory stock options, (2) stock bonuses, (3) rights to purchase
restricted stock and (4) stock appreciation rights. The 1999 Plan was adopted
by the Board of Directors on September 15, 1999 and provides a means by which
selected officers and employees of and consultants to the Company and its
affiliates may be given an opportunity to purchase stock in the Company, to
assist in attracting and retaining employees holding key positions and to
provide incentives for such persons to exert maximum efforts. The 1999 Plan is
administered by the Board of Directors of the Company, which has exclusive
power over the granting of options and their vesting provisions. The Company
has reserved a total of 4,000,000 shares of Common Stock for issuance under
the 1999 Plan of which 1,165,000 options have been granted to employees,
directors and consultants at an exercise price of $1.00 per share.
RESULTS OF OPERATIONS
REVENUE. Revenue consists of fees received from the sale of e-commerce
solutions, the design and Web site development, implementation and support.
Revenue was $7,300 for the three months ended March 31, 2000, (down from
$14,400 for the previous fiscal quarter), and $31,000 for the nine-month
period ended March 31, 2000. The decline was due to our emphasis on sales of
our goXML search engine and while we had three installations under way at
March 31, 2000, we had not invoiced these sales.
RESEARCH AND DEVELOPMENT EXPENSES. Product and content development costs
include expenses we incur to develop our technology and our clients' web
sites. These costs consist primarily of salaries and fees paid to employees
and consultants to develop and maintain software and web sites. For the three
and nine months ended March 31, 2000, these costs were $215,900 and $504,000
respectively. The increased expenditures in the quarter just ended, which
compare to $166,700 for the previous quarter, reflect increased staffing
levels.
SALES AND MARKETING EXPENSES. Marketing, sales and client services costs
include expenses we incur to obtain and maintain client relationships. These
costs include fees paid to contractors and consultants, related travel and
incidental costs and occupancy costs for our Seattle sales office. For the
three months ended March 31, 2000, sales and marketing expenses were $71,400
and are largely unchanged from the $69,200 recorded in the previous quarter.
Total sales and marketing expenses for the nine months ended March 31, 2000
were $173,500.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries, contractor fees and related costs for general
corporate functions, including travel, finance, accounting and legal expenses.
For the three and nine months ended March 31, 2000, general and administrative
expenses were $183,400 (up from $143,300 in the three months ended September
30, 1999) and $422,900 respectively. The increase in the last quarter
reflected professional fees associated with licensing our products and
defending our intellectual property and travel costs. In the previous quarter,
we treated $33,600 in professional costs as deferred issue costs associated
with a financing that we were pursuing, however that financing did not
complete and we expensed this amount in the current quarter. We incurred a
further $70,500 in professional costs which we treated as deferred issue costs
and accordingly did not recognize such costs in the statement of operations.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation expense reflects
depreciation of computer hardware, software and equipment over their estimated
useful lives of between two and three years. Depreciation expense was $8,700
and $21,600 respectively for the three and nine months ended March 31, 2000.
The company recorded only nominal amortization expense in regard to trademarks
and patents as these costs largely relate to applications that had not been
granted at March 31, 2000.
FAIR VALUE OF STOCK OPTIONS. The Company reports the financial impact of stock
options using APB-25. Accordingly, we record the fair value of stock options
granted to non-employees as an operating expense based on the fair value of
the options at the date the services were performed. During the three months
ended March 31, 2000 we granted 275,000 options to non-employees at an
exercise price of $1.00. We estimate that the fair value of each of these
options was approximately $0.22. We have recorded an expense of $49,300 in
respect of options that have vested and a deferred compensation amount of
$12,200 in regard to the remaining options that vest in May and June 2000.
INTEREST INCOME. During the three and nine months ended March 31, 2000, the
company earned interest income of $24,100 and $26,300 respectively on funds
received by way of the issuance of securities. Interest income has increased
over prior periods since funds received from private equity placements have
greatly exceeded operating expenditures with the result that cash and cash
equivalents increased in the period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
placement of equity securities and advances from our principal stockholder. In
the three months ended March 31, 2000, we received net proceeds of
approximately $1,585,000 from a private offering of equity securities. Issue
costs associated with these offerings, which have been offset against the net
proceeds of the offering, were not material. In aggregate, we have raised net
proceeds of $3,738,000 through the placement of equity securities. As of March
31, 2000 we had $2,353,800 in cash and cash equivalents.
We have incurred costs to design, develop and implement search engine and
electronic commerce applications and to grow our business. As a result, we
have incurred operating losses and negative cash flows from operations in each
quarter since we commenced operations. As of March 31, 2000, we had an
accumulated deficit of $1,235,000. These losses have been primarily funded
through private placement of equity securities.
To date, we have experienced negative cash flows from operating activities.
For the nine months ended March 31, 2000, the net cash used in operating
activities was primarily attributable to our net operating loss of $1,114,200.
The net loss for the quarter was partially offset by non-cash depreciation and
amortization of $21,700, the fair value of options granted to employees of
$49,300 and a net cash outflow of $28,500 with respect to working capital
changes. For the nine months ended March 31, 2000, net cash used in operating
activities was therefore $1,071,800.
For the nine months ended March 31, 2000, net cash used in investing
activities was $113,100. We spent $80,300 on computer hardware, software and
equipment and $32,800 on patent and trademark applications. The computer
hardware and software purchases related to server upgrades and computers used
by programmers.
For the nine months ended March 31, 2000, net cash provided by financing
activities was $3,532,549 attributable to the private placements of equity
securities, offset by related issue costs, repayment of the note payable and
the deferred issue costs related to a proposed financing.
Changes in exchange rates had a net effect of decreasing our cash balance by
$3,500.
As of March 31, 2000, we had no contractual capital commitments outstanding,
although we expect that our Vancouver office relocation and expansion will
cost about $50,000.
Our ability to generate significant revenue is uncertain. We incurred net
losses of approximately $497,000 for the quarter ended March 31, 2000. We
expect losses from operations and negative cash flow to continue for the
foreseeable future, at least through the year 2000, as a result of our
expansion plans and our expectation that operating expenses will increase
significantly in the next several years. The rate at which these losses will
be incurred are likely to increase from current levels. Although we have
experienced revenue growth, revenues have been substantially less than
expenses and may not increase in the future. If our revenue does not increase
and if our spending levels are not adjusted accordingly, we may not generate
sufficient revenue to achieve profitability, which would have a materially
adverse effect on our business, financial condition and results of operations.
Even if we achieve profitability, we may not sustain or increase profitability
on a quarterly or annual basis in the future.
Our working capital requirements depend on numerous factors. We have
experienced increased expenditures since inception, consistent with growth in
our operations and staffing, and expect that this trend will continue for the
foreseeable future. We anticipate incurring additional expenses to increase
our marketing and sales efforts, for software and infrastructure development.
Additionally, we will continue to evaluate possible investments in businesses,
products and technologies, the expansion of our marketing and sales programs
and brand promotions. If we experience a shortfall in revenue in relation to
expenses, or if our expenses precede increased revenue, our business,
financial condition and results of operations could be materially and
adversely affected.
We currently estimate that available cash resources at March 31, 2000 in
conjunction with funds raised in April 2000 will be sufficient to meet our
anticipated needs for working capital and capital expenditures through June
2001. We may need to raise additional funds, however, in order to fund more
rapid expansion, to develop new or enhance existing services or products, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. There can be no assurance that any required
additional financing will be available on terms favorable to us, or at all. If
additional funds are raised by the issuance of equity securities, stockholders
may experience dilution of their ownership interest and these securities may
have rights senior to those of the holders of the common stock. If additional
funds are raised by the issuance of debt, we may be subject to certain
limitations on our operations, including limitations on the payment of
dividends. If adequate funds are not available or are not available on
acceptable terms, we may be unable to fund our expansion, successfully promote
our brand name, take advantage of acquisition opportunities, develop or
enhance services or respond to competitive pressures, any of which could have
a materially adverse effect on our business, financial condition and results
of operations.
Some of our revenues and a substantial portion of our payroll is paid outside
the United States in currencies other than US dollars. Because our financial
results are reported in US dollars, they are affected by changes in the value
of the various foreign currencies in which we make payments in relation to the
US dollar. We do not cover known or anticipated currency fluctuation exposures
through foreign currency exchange option or forward contracts. The primary
currency for which we have foreign currency exchange rate exposure is the
Canadian dollar. Our financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities are carried at cost which
approximates their fair value because of the short-term maturity of these
instruments.
YEAR 2000
Some computers, software and other equipment include programming code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are commonly referred to as the year 2000 problem. We have not
incurred and nor do we expect to suffer any Year 2000 problems.
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-QSB, in documents incorporated
herein and elsewhere by us from time to time, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements concerning our business operations, economic
performance and financial condition, including in particular, our business
strategy and means to implement the strategy, our objectives, the amount of
future capital expenditures required, the likelihood of our success in
developing and introducing new products and expanding the business, and the
timing of the introduction of new and modified products or services. These
forward looking statements are based on a number of assumptions and estimates
which are inherently subject to significant risks and uncertainties, many of
which are beyond our control and reflect future business decisions which are
subject to change.
A variety of factors could cause actual results to differ materially from
those anticipated in our forward-looking statements, including the following
factors: (a) our products and services may not be accepted in the market
place; (b) XML may be adopted by the Internet community more slowly than
projected; (c) our products may not be appropriately positioned within market
segments; (d) the market which we serve is subject to rapid technological
change and quick product obsolescence; (e) we are dependent on a limited
number of products; (f) there are, and competitors may develop, functionally
similar competitive products; (g) there is extreme competition in the software
industry; and (h) those set forth from time to time in our press releases and
reports and other filings made with the Securities and Exchange Commission. We
caution that such factors are not exclusive. Consequently, all of the forward-
looking statements made in this document are qualified by these cautionary
statements and readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Quarterly
Report on Form 10-QSB. We undertake no obligation to publicly release the
results of any revisions of such forward-looking statements that may be made
to reflect events or circumstances after the date hereof, or thereof, as the
case may be, or to reflect the occurrence of unanticipated events.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Subsequent to the merger of XML-Technologies and ICF on August 27, 1999 and
the issuance of the units described in Notes 1 and 8 on that same date, the
Company issued additional common shares and stock purchase warrants, as
described below. Any costs associated with the issuances were not material.
All issuances are exempt from registration in reliance on Rule 506 of
Regulation D or Section 4(2) of the Securities Act of 1933.
Effective January 13, 2000, the Company entered into a Securities Purchase
Agreement (the Agreement) with XMLFund LLC (XMLFund). Under the Agreement,
XMLFund agreed to purchase 500,000 units at a price of $2.00 per unit for
total proceeds of $1 million. Each unit consists of two shares of common
stock, one Class A warrant and one Class A-1 warrant. Each Class A warrant
entitles XMLFund to purchase one additional share of common stock at a price
of $2.00 per share, and each Class A-1 warrant entitles XMLFund to purchase
one additional share of common stock at a price of $0.07 per share. The term
of the $2.00 warrants is three years and the term of the $0.07 warrants is 60
days. The $0.07 warrants were exercised in March 2000 from which the Company
received gross proceeds of $35,000. If within one year of the sale of the
units (or once all warrants are exercised, if earlier) the Company proposes to
register any of its common stock under the Securities Act of 1993 in
connection with a public offering, the Company agrees to use its best efforts
to register also the shares held by XMLFund. In the event the Company
proposes to offer for sale any new common shares or securities convertible
into common shares, or any other class of capital stock, the Company has
granted XMLFund the preemptive right to purchase additional shares necessary
to maintain its percentage interest in the Company.
Effective February 22 and February 29 the Company entered into agreements to
issue a total of 550,000 units at a price of $1.00 per unit for total proceeds
of $550,000. Each unit consists of one share of common stock and one warrant.
Each warrant entitles holders to purchase one additional share of common stock
at a price of $4.00 per share. The warrants expire on December 31, 2000. If
within one year of the sale of the units the Company proposes to register any
of its common stock under the Securities Act of 1933 in connection with a
public offering, the Company agrees to use its best efforts to register also
the shares issued in these private placements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the quarter
ended March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
There are no Exhibits filed with this current report on Form 10-QSB.
<PAGE>
<PAGE>
SIGNATURES
XML-Global Technologies, Inc.
Date: May 19, 2000 By: /s/ Peter Shandro
--------------------------------
Peter Shandro, Chairman of the Board and
Chief Executive Officer
Date: May 19, 2000 By: /s/ Simon Anderson
--------------------------------
Simon Anderson, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 4 AND 5 OF THE COMPANY'S FORM 10-QSB FOR THE NINE MONTHS ENDED MARCH 31,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,353,812
<SECURITIES> 0
<RECEIVABLES> 8,982
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,478,314
<PP&E> 140,344
<DEPRECIATION> 25,001
<TOTAL-ASSETS> 2,634,037
<CURRENT-LIABILITIES> 74,685
<BONDS> 0
0
0
<COMMON> 2,128
<OTHER-SE> 2,557,224
<TOTAL-LIABILITY-AND-EQUITY> 2,634,037
<SALES> 30,989
<TOTAL-REVENUES> 30,989
<CGS> 0
<TOTAL-COSTS> 1,171,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,114,229)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,114,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,114,229)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
