SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------- ------------
Commission File No. 0-30430
INTERMOST CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0418721
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
38th Floor, Guomao Building, Renmin South Road
Shenzhen, China 518005
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
86 755 220 1941
---------------------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 May 1, 2000, 11,040,968 shares of Common Stock of the issuer were
outstanding.
<PAGE>
INTERMOST CORPORATION
INDEX
Page
Number
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - March
31, 2000 and June 30, 1999 ........................... 1
Consolidated Condensed Statements of Operations -
For the three months ended March 31, 2000 and 1999..... 2
Consolidated Condensed Statements of Operations -
For the nine months ended March 31, 2000 and 1999...... 3
Consolidated Condensed Statements of Cash Flows -
For the nine months ended March 31, 2000 and 1999 ..... 4
Notes to Consolidated Condensed Financial Statements... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............. 13
Item 6. Exhibits and Reports on Form 8-K....................... 14
SIGNATURES ........................................................... 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
June 30, 1999 March 31, 2000
--------------- ------------------------
RMB RMB US$
-------- ------- -------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents 4,376,907 26,981,804 3,258,672
Accounts receivable, net 63,996 500,322 60,427
Deferred compensation expense - 3,716,909 448,902
Deposits, prepayments and other receivables 946,951 6,389,082 771,628
Due from related companies 168,953 72,345 8,737
----------- ------------ -----------
Total current assets 5,556,807 37,660,462 4,548,366
----------- ------------ -----------
Machinery and equipment, net 820,730 4,238,320 511,874
Intangible assets 2,400,000 6,565,677 792,956
Due from a joint venture partner 243,291 - -
----------- ------------ -----------
Total assets 9,020,828 48,464,459 5,853,196
=========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accruals 1,168,482 2,629,585 317,583
Deposits from customers 158,901 206,525 24,943
Business tax payable 26,173 49,487 5,977
Other payables - 17,432 2,105
Due to a joint venture partner - 30,000 3,623
Due to directors 254,420 236,498 28,563
----------- ------------ -----------
Total current liabilities 1,607,976 3,169,527 382,794
----------- ------------ -----------
Minority interest - 4,254,613 513,842
----------- ------------ -----------
Shareholders' equity:
Common stock 81,318 90,811 10,968
Common stock subscribed - 6,624 800
Shares to be issued - 8,280,000 1,000,000
Less: subscription receivable - (3,270,600) (395,000)
Additional paid-in capital 9,278,162 45,289,262 5,469,718
Accumulated deficit (1,954,378) (9,354,392) (1,129,757)
Cumulative translation adjustments 7,750 (1,386) (169)
----------- ------------ -----------
Total shareholders' equity 7,412,852 41,040,319 4,956,560
----------- ------------ -----------
Total liabilities and shareholders'
equity 9,020,828 48,464,459 5,853,196
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
1
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended March 31,
---------------------------------------
1999 2000
------- -----------------------
RMB RMB US$
------- ------ ------
<S> <C> <C> <C>
Net sales 898,041 3,030,463 365,998
Cost of services 532,139 2,245,437 271,188
Gross Profit 365,902 785,026 94,810
Selling, general and administrative
expenses (794,300) (5,284,031) (638,168)
Gain on dilution of interest in subsidiary - 57,808 6,982
Other income, net 265 34,693 4,190
--------- ---------- ----------
Loss before income taxes
and minority interest (428,133) (4,406,504) (532,186)
Provision for income taxes - - -
--------- ---------- ----------
Loss before minority interest (428,133) (4,406,504) (532,186)
Minority interest - 157,579 19,031
--------- ---------- ----------
Net loss (428,133) (4,248,925) (513,155)
========= ========== ==========
Net loss
per common share - Basic (0.09) (0.40) (0.05)
========= ========== ==========
Weighted average number of
shares outstanding 4,970,000 10,715,311 10,715,311
========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
Nine Months Ended March 31,
----------------------------------------
1999 2000
--------- ----------------------
RMB RMB US$
--------- ------ ------
<S> <C> <C> <C>
Net sales 2,021,173 9,348,149 1,129,004
Cost of services 763,466 7,193,926 868,832
Gross Profit 1,257,707 2,154,223 260,172
Selling, general and administrative
expenses (1,638,794) (9,840,531) (1,188,470)
Gain on dilution of interest in subsidiary - 57,808 6,982
Other income, net 861 70,907 8,564
----------- ----------- -----------
Loss before income taxes
and minority interest (380,226) (7,557,583) (912,752)
Provision for income taxes - - -
----------- ----------- -----------
Loss before minority interest (380,226) (7,557,583) (912,752)
Minority interest - 157,579 19,031
----------- ----------- -----------
Net loss (380,226) (7,400,014) (893,721)
=========== =========== ===========
Net loss
per common share - Basic (0.08) (0.73) (0.09)
=========== =========== ===========
Weighted average number of
shares outstanding 4,970,000 10,076,601 10,076,601
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months Ended March 31,
-------------------------------------
1999 2000
------- -------------------
RMB RMB US$
------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (380,226) (7,400,014) (893,721)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization - 1,360,519 164,314
Depreciation 18,845 318,494 38,465
Gain on dilution of interest in a subsidiary - (57,808) (6,982)
Minority interest - (157,579) (19,031)
Value of shares issued to employees
for past services - 1,701,954 205,550
Compensation expense - 1,253,501 151,389
(Increase) decrease in operating assets -
Accounts receivable, net (199,142) (436,326) (52,696)
Deposits, prepayments and other receivables (1,319,782) (5,436,128) (656,537)
Due from related companies - (56,830) (6,864)
Increase (decrease) in operating liabilities -
Accruals (861) (526,098) (63,538)
Deposits from customers - 47,624 5,752
Business tax payable - 23,314 2,816
Other payables 397,945 17,432 2,105
Due to a joint venture partner - 30,000 3,623
Due to directors - (17,922) (2,164)
------------- ------------ -----------
Net cash used in operating activities (1,483,221) (9,395,867) (1,127,519)
------------- ------------ -----------
Cash flows from investing activities:
Purchase of plant and equipment (276,279) (968,785) (117,003)
Advances to a related company - (856,003) (103,382)
Increase in due from a joint venture partner - (1,306,709) (157,815)
------------- ------------ -----------
Net cash used in investing activities (276,279) (3,131,497) (378,200)
------------- ------------ -----------
Cash flows from financing activities:
Cash received from joint venture partner - 4,470,000 539,855
Cash received from a subscriber - 5,009,400 605,000
Cash proceeds from issuance of capital stock 6,344,169 25,601,997 3,092,029
------------- ------------ -----------
Net cash provided by financial activities 6,344,169 35,081,397 4,236,884
------------- ------------ -----------
Effect of cumulative translation adjustment - (9,136) (1,104)
Net increase in cash and cash equivalents 4,584,669 22,604,897 2,730,060
Cash and cash equivalents, beginning of period - 4,376,907 528,612
------------- ------------ -----------
Cash and cash equivalents, end of period 4,584,669 26,981,804 3,258,672
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
Nine Months Ended March 31,
----------------------------
1999 2000
------ ----------------
RMB RMB US$
------
Supplemental Disclosure of Noncash
Investing Activities:
Acquired office premises in exchange for 77,200
shares of common stock and a receivable
from a related company of US$18,531 - 2,767,299 334,213
Acquired technological know-how from Shenzhen
Jiayin Investment Development Co., Ltd in
exchange for 75,512 shares of common stock as
part of consideration and Labtam Corporation for
69,700 shares of common stock - 5,526,196 667,415
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-QSB. These financial statements have
not been audited by independent accountants. The June 30, 1999 balance
sheet data was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting
principles. The interim financial statements and notes thereto should be
read in conjunction with the financial statements and notes included in the
Company's Form 10-SB. In the opinion of management, these interim financial
statements reflect all adjustments of a normal recurring nature necessary
for a fair statement of the results for the interim periods presented. The
current period results of operations are not necessarily indicative of
results which ultimately will be reported for the full year ending June 30,
2000.
2. CURRENCY PRESENTATION AND FOREIGN CURRENCY TRANSLATION
Translation of amounts from Renminbi ("Rmb") into United States dollars
("US$") is for the convenience of readers and has been made at the noon
buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York on
March 31, 2000 of US$1.00 = Rmb8.28. No representation is made that the
Renminbi amounts could have been, or could be, converted into United States
dollars at that rate or at any other rate.
3. INVESTMENT IN JIAYIN
In the quarter ended December 31, 1999, Jiayin E-Commerce Development
Company Ltd. ("Jiayin") was formed and registered. The Company contributed
US$423,000 for a 70% interest in Jiayin and Shenzhen Jiayin Investment
Development Co., Ltd. contributed US$181,000 for a 30% interest in Jiayin.
Jiayin paid US$544,000 to Shenzhen Jiayin Investment Development Co., Ltd.
for the technological know-how relating to cyber-cash and telephone payment
systems.
In March 2000, Jiayin restructured its equity structure. Pursuant to the
revised equity structure, the Company contributed an additional US$245,169
to Jiayin, Shenzhen Jiayin Investment Development Co., Ltd. transferred 98%
of its existing interest in Jiayin to ZLX Computer Technology Co., an
entity controlled by the principal shareholders of Shenzhen Jiayin
Investment Development Co., Ltd., and Yinlian (Bank Union) Computer
Technology Co. acquired shares of Jiayin and the remaining 2% interest in
Jiayin previously held by Shenzhen Jiayin Investment Development Co., Ltd.,
for US$3,623. Yinlian (Bank Union) also contributed an additional
US$358,696 of capital into Jiayin. As a result of the restructuring, the
name of Jiayin was changed to Shenzhen Jiayin Yinlian (Bank Union)
E-Commerce Co. Ltd. and ownership of Jiayin was held by the Company -
55.3%, Yinlian (Bank Union) - 30% and ZLX Computer Technology - 14.7%.
As a result of the decrease in the Company's interest in Jiayin following
the restructuring of Jiayin, the Company recognized a gain on dilution of
interest in subsidiary of US$6,982 for the three months ended March 31,
2000.
6
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
4. LETTER OF INTENT - DUNWELL COMPUTER (HONG KONG) LTD.
In January 2000, the Company signed a Letter of Intent to purchase Dunwell
Computer (Hong Kong) Ltd. Dunwell is a Hong Kong licensed Internet Service
Provider and e-commerce solutions provider. Pursuant to the terms of the
Letter of Intent, the Company will pay HK$2.8 million (equivalent to
approximately US$361,757) for 70% of the stock of Dunwell. The purchase
price is payable 50% in cash and 50% in stock at US$3.50 per share. Closing
of the purchase of Dunwell is subject to execution of definitive documents
and satisfaction of standard closing conditions.
5. MINORITY INTEREST
In connection with the formation of the Jiayin, the Company recorded a
minority interest of US$513,842 reflecting the portion of the Jiayin not
owned by the Company.
6. SHAREHOLDERS' EQUITY
During the nine months ended March 31, 2000, the Company received
subscription proceeds of US$605,000 from the offer of 484,000 shares of
common stock, out of a total of 800,000 shares offered, at US$1.25 per
share. The shares issuable in connection with the receipt of those proceeds
had not been issued at March 31, 2000. Subscriptions for the remaining
316,000 shares, purchasable for $395,000, had been received but
subscription proceeds had not been received at March 31, 2000.
In January 2000, the Company issued 75,512 restricted shares of common
stock to Shenzhen Jiayin Investment Development Co. Ltd. for $377,560 and
paid cash of $289,855 in the quarter ended December 31, 1999 pursuant to
the terms of the Jiayin Joint Venture agreement.
In January 2000, the Company entered into private placement agreements with
three investors pursuant to which those investors agreed to purchase a
total of 953,334 shares of restricted common stock in exchange for US$3
million. As of March 31, 2000, subscription proceeds of US$2.76 million,
net of commissions of US$0.24 million, had been deposited with the Company
in connection with the subscriptions.
7
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
7. COMPENSATION EXPENSE
Under a two-year employment contract, the Company has agreed to issue
15,000 shares of common stock to an employee after each six months of
employment commencing on November 15, 1999. In this connection, US$34,520
and US$51,780 has been recorded as compensation expense during the three
months and nine months ended March 31, 2000 by reference to the market
price of the Company's common stock on November 15, 1999, the day on which
the stock award was granted.
Pursuant to the aforementioned employment contract, the Company granted to
the employee stock options to purchase (i) 250,000 shares of common stock
of the Company at US$3.50 per share exercisable after November 2000, and
(ii) 250,000 shares of common stock of the Company at US$4.00 per share
exercisable after November 2001. In this connection, compensation cost of
US$66,406 and US$99,609 has been recorded during the three months and nine
months ended March 31, 2000.
In January 2000, the Company's board authorized the issuance of 41,110
restricted shares of common stocks to selected non-executive key employees
with over one year employment as a one-time bonus recognizing their
contribution in the company start-up stage. In this connection,
compensation cost of US$205,550 has been recorded during the three months
ended March 31, 2000.
8. ACQUISITION OF OFFICE SPACE
During the nine months ended March 31, 2000, the Company agreed to acquire
from an unrelated third party the premises in which the Company's executive
offices are located. Under the terms of the agreement, we issued 77,200
shares of common stock as payment in full for the property rights with
respect to Rooms 3805 - 3809 of the Guamao Building in Shenzhen, China.
8
<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-QSB. Except for the historical information contained herein, the
discussion in this Form 10-QSB contains certain forward looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Form 10-QSB should be read as being applicable to all related forward statements
wherever they appear in this Form 10-QSB. The Company's actual results could
differ materially from those discussed here. For a discussion of certain factors
that could cause actual results to be materially different, refer to the
Company's Form 10-SB.
Material Changes in Results of Operations for the Nine Months Ended March 31,
2000 as Compared to the Nine Months Ended March 31, 1999.
Net sales are derived principally from web advertisement, web site design,
information fees, systems integration and e-commerce solutions, referred to as
"business portals and e-commerce solutions", and from software design and
general internet solutions and business consulting services, referred to as
"software development and consulting commission income".
The following table reflects the total net sales and percentage of net
sales represented by business portals and e-commerce solutions and by software
development and consulting services, and percent change in each of those
categories, for the periods indicated:
<TABLE>
Total Net Sales Percent of Total Net Sales Percent
--------------------------------- -------------------------------- Change from
nine months
Nine Months Ended March 31, Nine Months Ended March 31, ended March
--------------------------------- -------------------------------- 31, 1999 to
1999 2000 nine months
US$ US$ 1999 2000 ended March
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Business portals and
e-commerce solutions
- - Web site design and development 112,697 317,240 46.2% 28.1% 181.5%
- - Web advertisement 71,679 85,170 29.4% 7.5% 18.8%
- - Systems sales and integration 0 517,865 0.0% 45.9% n.m.
- - Web hosting 5,727 41,577 2.3% 3.7% 626.0%
- - Telephone payment systems 0 221 0.0% 0.0% n.m.
--------------- --------------- -------------- --------------
190,103 962,073 77.9% 85.2% 406.1%
Software development and consulting
- - Software development 0 166,931 0.0% 14.8% n.m.
- - Consulting 54,000 0 22.1% 0.0% n.m.
--------------- --------------- -------------- --------------
54,000 166,931 22.1% 14.8% 209.1%
--------------- --------------- -------------- --------------
Total 244,103 1,129,004 100.0% 100.0% 362.5%
=============== =============== ============== ==============
</TABLE>
9
<PAGE>
The increase in each category of revenues during the nine months ended
March 31, 2000 was primarily attributable to marketing efforts, increased name
brand awareness in connection with those efforts and the operation of our
www.ChinaE.com site. Nominal revenues were received during the quarter and nine
months ended March 31, 2000 from the commencement of telephone payment systems
by the Jiayin Joint Venture.
Cost of Services. Cost of services consist principally of salary for
computer network technicians, costs of systems sales and integration,
subcontract fees, depreciation and amortization, and other costs associated with
the same, including travel, welfare, office and related expenses allocable to
the engineering and technician staff. Additionally, other cost of services
includes certain other costs associated with the offering of special promotional
packages, which package included participation in a seminar, lodging and
advertisement.
The following table reflects the principal components of cost of services
and percentage of net sales represented by each component for the periods
indicated:
<TABLE>
Total Cost of Services Percent of Total Net Sales Percent
--------------------------------- -------------------------------- Change from
nine months
Nine Months Ended March 31, Nine Months Ended March 31, ended March
--------------------------------- -------------------------------- 31, 1999 to
1999 2000 nine months
US$ US$ 1999 2000 ended March
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Engineering/technician salaries 40,969 109,393 16.8% 9.7% 167.0%
Subcontract fees 0 153,622 0.0% 13.6% n.m.
Cost of system sales and integration 0 477,594 0.0% 42.3% n.m.
Depreciation 2,276 15,222 0.9% 1.3% 568.8%
Other 48,961 113,001 20.1% 10.0% 130.8%
--------------- --------------- -------------- --------------
Total 92,206 868,832 37.8% 76.9% 842.3%
=============== =============== ============== ==============
</TABLE>
For the nine months ended March 31, 2000, costs of services increased
842.3%, to US$868,832, or 76.9% of net sales, compared to US$92,206, or 37.8% of
net sales, for the nine months ended March 31, 1999.
The principal components of cost of services during the nine months ended
March 31, 2000 were engineer/technician salaries; subcontract fees; cost of
hardware; other costs associated with support on the engineering/technician
staff; and depreciation of equipment utilized in connection with services.
The increase in costs of services was principally attributable to
expenditures to support the increase in net sales, including an increase in
engineering/technician headcount from 15 at March 31, 1999 to 40 at March 31,
2000 and the sale of certain hardware during the current period. The increase in
costs of services as a percentage of revenues was primarily attributable to the
sale of hardware which has a lower profit margin than service revenues.
10
<PAGE>
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") consists principally of (1) sales commissions,
advertising, trade show and seminar expenses, and direct-field sales expense,
(2) salary for administrative and sales staff, (3) corporate overhead and (4)
amortization of intangibles.
The following table reflects the principal components of SG&A and
percentage of net sales represented by each component for the periods indicated:
<TABLE>
Total SG&A Percent of Total Net Sales Percent
--------------------------------- -------------------------------- Change from
nine months
Nine Months Ended March 31, Nine Months Ended March 31, ended March
--------------------------------- -------------------------------- 31, 1999 to
1999 2000 nine months
US$ US$ 1999 2000 ended March
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Sales and marketing salaries and
commissions 34,935 76,798 14.3% 6.8% 119.8%
Other sales and marketing expenses 24,372 155,988 10.0% 13.8% 540.0%
Rentals 15,311 21,853 6.3% 1.9% 42.7%
Administrative salaries 43,576 63,591 17.8% 5.6% 45.9%
Other corporate 79,728 705,926 32.7% 62.5% 785.4%
Amortization of intangibles 0 164,314 0.0% 14.6% n.m.
--------------- --------------- -------------- --------------
Total 197,922 1,188,470 81.1% 105.2% 500.5%
=============== =============== ============== ==============
</TABLE>
For the nine months ended March 31, 2000, SG&A increased 500.5%, to
US$1,188,470, or 105.2% of net sales, compared to US$197,922, or 81.1% of net
sales, for the nine months ended March 31, 1999.
The increase in SG&A has been principally attributable to a combination of
(1) aggressive marketing efforts associated with the commencement and growth of
revenue producing operations, including costs associated with sales commissions,
attendance at international trade conferences, industry journal advertising and
other related expenses, (2) an increase in administrative support staff and
corporate overhead to support anticipated growth in revenues, including non-cash
charges totaling US$151,389 associated with the Company's agreement to issue
certain shares and options to an officer, and (3) amortization of intangibles.
The principal components of SG&A during the nine months ended March 31,
2000 were sales and marketing salaries and commissions; other marketing
expenditures; administrative salaries and benefits; other corporate expense,
which includes occupancy expense, general office expenses travel, general staff
welfare expense and consulting fees, among others; and amortization of
intangibles.
Amortization expense related to the acquisition of eighty system
integration contracts from Labtam Corporation in July 1999 for 69,700 shares of
common stock of the Company and technological know-how from Shenzhen Jiayin
Investment Development Co., Ltd. for approximately US$289,855 and 75,512 shares
of common stock of the Company. At the time of the acquisition of the contracts
from Labtam Corporation, five of those contracts were active and seventy-five
contracts were inactive and are viewed as the purchase of a customer list.
11
<PAGE>
The intangible assets are being amortized over a 24-month period,
representing the life of the contracts and the expected useful life of the
technological know-how. During the nine months ended March 31, 2000, we recorded
a charge for amortization of the intangible assets of US$164,314. We will incur
amortization expense quarterly of approximately US$36,000 for the system
integration contracts through June 30, 2001 and US$83,000 for the technological
know-how through March 31, 2002.
Other Income and Gain on Dilution of Interest in Subsidiary. Other income
consists principally of interest income and a gain from the reduction in our
interest in the Jiayin Joint Venture. For the nine months ended March 31, 2000
other income totaled US$15,546 compared to US$104 of other income for the nine
months ended March 31, 1999. The increase in other income was attributable to
increased balances of cash held in interest bearing accounts (US$4,190) and a
gain from the reduction in our interest in Jiayin Joint Venture (US$6,982).
Minority Interest. Minority interest of US$19,031 was reported during the
current period. No minority interest was reported during the prior year period.
Minority interest reflects the proportionate interest in the earnings/(loss) of
Jiayin Joint Venture not attributable to the Company.
Material Changes in Financial Condition, Liquidity and Capital Resources.
At March 31, 2000 we had cash and cash equivalents of US$3,258,672 and
working capital of US$4,105,572 as compared to US$528,612 of cash and cash
equivalents and US$476,912 of working capital at June 30, 1999.
Operations used US$1,127,519 of cash during the nine months ended March 31,
2000 and used US$179,133 of cash during the nine months ended March 31, 1999.
Funds used in operations primarily relate to the losses incurred during the
period, increases in trade and other receivables and increases in other current
and non-current assets, all relating to the start-up and growth of operations,
which were partially offset by non-cash charges relating to the issuance of
shares and options for services and amortization of intangible assets.
Investing activities used US$378,200 during the nine months ended March 31,
2000 and US$33,367 during the nine months ended March 31, 1999. Funds used in
investing activities consist of purchases of equipment to support operations
(US$117,003), amounts due from our joint venture partner, Jiayin Investment
Company Limited (US$157,815), and amounts loaned to Dunwell Computer (Hong Kong)
Ltd (US$103,382).
Financing activities provided US$4,236,884 of cash during the nine months
ended March 31, 2000 and US$766,204 during the nine months ended March 31, 1999.
The cash provided by financing activities was attributable to the receipt of
subscription proceeds totaling US$3,092,029 relating to the sale of 1,147,156
shares of common stock and the receipt of $539,855 of cash from our joint
venture partner during the current period and the receipt of proceeds from the
sale of common stock during the prior year period.
We had no long term debt at March 31, 2000 or June 30, 1999.
In January 2000, we signed a Letter of Intent to purchase Dunwell Computer
(Hong Kong) Ltd. Dunwell is a Hong Kong licensed Internet Service Provider and
e-commerce solutions provider. Pursuant to the terms of the Letter of Intent, we
will pay HK$2.8 million, approximately US$361,757 for 70% of the stock of
Dunwell. The purchase price is payable 50% in cash and 50% in stock at US$3.50
per share. Closing of the purchase of Dunwell is subject to execution of
definitive documents and satisfaction of standard closing conditions.
12
<PAGE>
During the nine months ended March 31, 2000, the Company agreed to acquire
from an unrelated third party the premises in which the Company's executive
offices are located. Under the terms of the agreement, we issued 77,200 shares
of common stock as payment in full for the property rights with respect to Rooms
3805 - 3809 of the Guamao Building in Shenzhen, China.
Depending upon the rate of growth and the growth initiatives undertaken, we
may seek additional capital in the future to support expansion of operations and
acquisitions. We are presently involved in discussions with various financing
sources with respect to providing equity financing.
Certain Factors Affecting Future Operating Results
Our operating results have been, and will continue to be, affected by a
wide variety of factors that could have a material adverse effect on revenues
and profitability during any particular period, including the level and rate of
acceptance of our products and services by the Chinese people, continued growth
in use of the Internet in China, entry of new competition (including established
companies from outside of China and companies with substantially greater
resources), fluctuations in the level of orders for services which are received
and can be delivered in a quarter, rescheduling or cancellation of orders by
customers, competitive pressures on selling prices, changes in product, service
or customer mix, rapid changes in technology, dependence upon certain key
employees, availability and cost of computer technicians, loss of any strategic
relationships, our ability to introduce new products and services on a timely
basis, new product and service introductions by our competitors, requirements
for additional capital to support future growth and acquisitions, fluctuations
in exchange rates, and general economic conditions, among others. Various
factors which effect our future operating results are discussed in our Form
10-SB.
Future revenues and operating results may also be effected by the
operations of Dunwell Computer (Hong Kong ) Ltd. if we consummate the
acquisition of Dunwell pursuant to an existing letter of intent.
Except as noted above, we are not aware of any trends, events or
uncertainties which have had, or are reasonably likely to have, a material
impact on our operations or our short-term or long-term liquidity.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) In January and February, 2000, the Company received subscriptions and
subscription proceeds with respect to the offer and sale of 653,334 shares of
common stock. The securities were offered without the use of an underwriter or
placement agent and were sold to a total of 3 accredited investors. The
securities were offered for aggregate consideration of $3,000,000. No
underwriting discounts or commissions were paid.
In the first quarter of 2000, the Company issued 77,200 shares of common
stock to one entity for the transfer to the Company of office space with an
appraised value of $463,000.
13
<PAGE>
In the first quarter of 2000, the Company issued 75,512 shares of common
stock to the shareholders of Jiayin in exchange for the transfer of
technological know-how.
In the first quarter of 2000, the Company issued 41,110 shares of common
stock to employees of the Company as compensation for services.
The offer and sale of the above described securities was made in reliance
on the exemption set out in Section 4(2) of the Securities Act of 1933. The
shares were offered without general solicitation or advertising to a limited
group of accredited investors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
------------- --------------
10.1 Agreement Regarding Transfer of Properties on 38th Floor,
Guomao Building
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
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.
INTERMOST CORPORATION
Dated: May 15, 2000 By: /s/ Jun Liang
---------------------------------------
Jun Liang, President and C.E.O,
Principal Accounting and Financial
Officer
15
Agreement Regarding Transfer of Properties
on 38th Floor, Guomao Building
Parties: Super Concord Ltd. (Party A)
ChinaE.com Information Technology Co. Ltd. (Party B)
It is hereby agreed by both parties that Party A will transfer its property
(Room 3805- Room 3809, totaling 387.5 square meters) to ChinaE.com Information
Technology Co. Ltd., a subsidiary of Intermost Corporation; and Party B agrees
to exchange such property with restricted Intermost Corporation OTCBB listed
stocks (IMOT).
1. The details of exchange should be based on the following factors:
(a) the property is appraised at RMB3.85 million, US dollar -RMB
conversion rate is 8.3, the property is valued at US$463,200;
(b) the Party B will issue stocks based on US$347,400, discount factor is
set at 0.25;
(c) Intermost stock price is set at US$4.5 per share;
(d) The total number of stock will be issued to Party A is 77,200 shares.
2. It is further agreed that Party B will continue to its rent to Party A or
its appointees until Party A receives the above mentioned stock in full and
in its name. Such payment begins on November 1999, with RMB 15,180 per
month.
(a) Rent rate continues as agreed in previous lease agreement;
(b) Net rent of RMB 15,180 is payable to Party A, other expenses
(utilities, management fee) is payable to Property Management Company;
(c) Such payment will be terminated once Party A receives the stocks.
3. The agreement is effective upon the signing of both parties.
4. The agreement has tow copies, with each party holds one each.
Signed by:
Super Concord Ltd.
ChinaE.com Information Technology Ltd. Co.
Dated November 30, 1999
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