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 September 30, 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)
43rd Floor, Shenfang Plaza, Renmin South Road
Shenzhen, China 518005
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
86 755 217 5656
---------------------------
(Issuer's telephone number)
38th Floor, Guomao Building, Renmin South Road, Shenzhen, China 518005
-------------------------------------------------------------------------
(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 November 1, 2000, 11,840,968 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 -- September
30, 2000 and June 30, 2000................................... 3
Consolidated Condensed Statements of Operations --
For the three months ended September 30, 2000 and 1999....... 4
Consolidated Condensed Statements of Cash Flows --
For the three months ended September 3, 2000 and 1999........ 5
Notes to Consolidated Condensed Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... 11
SIGNATURES............................................................ 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
June 30, 2000 September 30, 2000
RMB RMB US$
------------- ---------------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents 13,556,982 9,665,023 1,167,273
Accounts receivable, net 1,438,235 710,825 85,848
Deposits, prepayments and other receivables 5,438,095 5,973,670 721,458
Inventories 57,058 18,521 2,237
Due from a director 284,265 - -
Due from related companies 72,345 70,325 8,493
------------- ------------- -------------
Total current assets 20,846,980 16,438,364 1,985,309
------------- ------------- -------------
Investment in an associated company 4,638,796 3,533,273 429,954
Fixed Assets 13,291,366 13,908,100 1,679,722
Intangible assets 1,199,996 899,995 108,695
Deferred compensation costs, net 1,744,878 1,300,150 157,023
------------- ------------- -------------
Total assets 41,722,016 36,079,882 4,360,703
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accruals and other payables 2,442,236 961,967 116,179
Deposits from customers 856,549 1,221,058 147,471
Business tax payable 51,508 74,896 9,045
Due to directors 208,197 72,713 8,782
------------- ------------- -------------
Total current liabilities 3,558,490 2,330,634 281,477
------------- ------------- -------------
Minority interest 3,428,693 2,603,980 314,490
Shareholders' equity:
Common stock, par value US$ 0.001
authorized 100,000,000 shares
Common stock subscribed 90,840 97,464 11,771
Shares to be issued 6,624 - -
Less: subscription receivable (952,200) - -
Additional paid-in capital 52,233,737 52,233,737 6,308,422
Accumulated deficit (16,613,282) (21,155,046) (2,554,958)
Cumulative translation adjustments (30,886) (30,887) (499)
------------- ------------- -------------
Total shareholders' equity 34,734,833 31,145,268 3,764,736
------------- ------------- -------------
Total liabilities and shareholders'
equity 41,722,016 36,079,882 4,360,703
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended September 30,
------------------------------------------
1999 2000
------ --------------------------
RMB RMB US$
------ ----- -------
<S> <C> <C> <C>
Net sales 2,712,010 2,432,360 293,763
Cost of services 1,753,873 2,565,035 309,787
------------- ------------- -----------
Gross Profit 958,137 (132,675) (16,024)
Selling, general and administrative
expenses (1,229,109) (3,773,416) (455,727)
Other income, net 27,536 46,433 5,608
------------- ------------- -----------
Loss before income taxes
and minority interest (243,436) (3,859,658) (466,143)
Share of loss of an associated company - (1,506,819) (181,983)
------------- ------------- -----------
Loss before minority interest (243,436) (5,366,477) (648,126)
Minority interest - 824,713 99,603
------------- ------------- -----------
Net loss (243,436) (4,541,764) (548,523)
============= ============= ===========
Net loss
per common share - Basic (0.09) (0.38) (0.05)
============= ============= ===========
Weighted average number of
shares outstanding 4,970,000 11,840,968 11,840,968
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
Three Months Ended September 30,
--------------------------------------------
1999 2000
------- -------------------------
RMB RMB US$
------- ----- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (243,436) (4,541,764) (548,522)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization - 300,001 36,232
Depreciation 15,970 967,517 116,850
Cumulative translation adjustment (30,094) - -
Investment loss - 1,506,819 181,983
Minority interest - (824,713) (99,603)
Compensation expense - 444,727 53,711
(Increase) decrease in operating assets -
Inventory 38,537 4,654
Accounts receivable, net (308,111) 727,410 87,851
Deposits, prepayments and
other receivables (4,248,129) (215,154) (25,984)
Due from related companies (235,960) 2,020 244
Due from directors (284,265) (34,332)
Increase (decrease) in operating liabilities -
Accruals, Accounts payable and
Other payables 3,830,445 (1,480,269) (178,776)
Deposits from customers 143,665 364,509 44,023
Business tax payable 43,895 23,388 2,825
Due to directors - (135,484) (16,363)
------------- ------------- ------------
Net cash used in operating activities (1,031,755) (3,106,721) (375,207)
------------- ------------- ------------
Cash flows from investing activities:
Purchase of plant and equipment (70,090) (785,238) (94,836)
------------- ------------- ------------
Net cash used in investing activities (70,090) (785,238) (94,836)
------------- ------------- ------------
Net decrease in cash and cash equivalents (1,101,845) (3,891,959) (470,043)
Cash and cash equivalents, beginning of period 4,376,379 13,556,982 1,637,317
------------- ------------- ------------
Cash and cash equivalents, end of period 3,274,534 9,665,023 1,167,273
============= ============= ============
</TABLE>
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, 2000 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-KSB. 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, 2001.
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
September 30, 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. AGREEMENT - SHENZHEN HUIFENG WEB SECURITY CO. LTD.
In May 2000, the Company signed a Letter of Intent to purchase Huifeng Web
Security, an Internet security and technology products developer
headquartered in Shenzhen. In October 2000, the Company entered into an
agreement, superceding the Letter of Intent, pursuant to which the Company
agreed to acquire shares representing 58.3% of J-R Technologies Ltd..a 90%
shareholder of Huifeng. The purchase price for the shares of Huifeng is
payable $176,470 in cash plus 510,300 shares of common stock. J-R
Technologies is required to use the cash portion of the purchase price to
fund operations of Huifeng. Huifeng specializes in the development and sale
of Internet and financial system security solutions. Huifeng focuses its
sales on financial, banking, telecom, and government markets in southern
China. Huifeng has been in operation since August 1999. As of November 13,
2000, due diligence was ongoing.
4. CHANGE OF PRINCIPAL BUSINESS ADDRESS
Our principal office has been recently moved to the newly-rented Shenfang
Plaza, 3005 Renmin South Road, Shenzhen, China 518005, covering 30,000
square feet of office space. Our previous office at 38th floor of Guomao
Building was acquired from an unrelated third party for 77,200 shares of
the company's common stock in November 1999. The office space had an
appraised value of $463,000 at the time of the transfer. The Guomao Office
is now rented out to an unrelated third party at market value of $2,000 per
month.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with
the Company's financial statements and notes thereto included elsewhere in this
Form 10-QSB. Except for the historical information contained herein, the
discussion in this Form 10-QSB contains certain forward looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Form 10-QSB should be read as being applicable to all related forward statements
wherever they appear in this Form 10-QSB. The Company's actual results could
differ materially from those discussed here. For a discussion of certain factors
that could cause actual results to be materially different, refer to the
Company's Form 10-KSB.
Material Changes in Results of Operations for the Three Months Ended September
30, 2000 as Compared to the Three Months Ended September 30, 1999.
Net Sales. Net sales are derived principally from e-commerce solutions and
web advertisement, referred to as "business portals and e-commerce solutions",
and from software design and general Internet solutions and business consulting
services, referred to as "software development and consulting commission
income".
The following table reflects the total net sales and percentage of net
sales represented by business portals and e-commerce solutions and by software
development and consulting services for the periods indicated:
<TABLE>
Total Net Sales Percent of Total Net Sales
-------------------------------- --------------------------------
Three Months Ended September 30, Three Months Ended September 30,
1999 2000 1999 2000
US$ US$ ------- ---------
-------- ---------
<S> <C> <C> <C> <C>
Business portals and
e-commerce solutions
- e-commerce solutions 254,604 279,731 77.7% 95.2%
- Web advertisement 35,073 14,032 10.7% 4.8%
---------- ---------- --------- ---------
289,677 293,763 88.4% 100.0%
Software development and consulting
- Software development 37,900 0 11.6% 0.0%
---------- ---------- --------- ---------
37,900 0 11.6% 0.0%
Total 327,577 293,763 100.0% 100.0%
========== ========== ========= =========
</TABLE>
Total net sales decreased 10.3% to $294,000 during the quarter ended
September 30, 2000 compared to $328,000 during the same quarter in 1999.
e-commerce solutions revenues increased 9.9% to $280,000 in the 2000 quarter as
compared to $255,000 during the 1999 quarter. Web advertisement revenues
decreased 60% to $14,000 for the 2000 quarter as compared to $35,000 during the
1999 quarter. The Company had no software development revenues during the
September 30, 2000 quarter compared to $38,000 of software development revenues
during the quarter ended September 30, 1999.
The decline in total net sales, the flat performance in e-commerce
solutions and the decline in software development revenues were primarily
attributable to the transition of the Company's business associated with a
refinement of the Company's business plan in June 2000. Under the refined
business plan, the Company will focus on providing Internet based e-commerce
solutions to Chinese companies in two to five industries. The Company's
technical resources have been shifted to focus on the in-house development of
Supply-Chain-Management ("SCM") and Customer-Relation-Management ("CRM")
solutions. The Company's SCM software is presently scheduled for release in the
first quarter of 2001with portions of the CRM software also scheduled to be
complete in the first quarter of 2001.
7
<PAGE>
With the narrowing of the Company's focus, revenues historically generated
by traditional web hosting and web design operations, both of which were
experiencing declining margins, began to decline during the September 2000
quarter and are expected to continue to decline as those offerings are phased
out. Until our SCM and CRM products are completed, revenues are expected to
continue to be flat or declining although we are engaged in efforts to act as a
re-seller of software of other vendors which may offset declines in revenues
pending the introduction of our software products.
Upon introduction of our SCM and CRM software, the Company expects revenue
growth to resume as we integrate our software into e-commerce solution systems.
Further, the Company plans to develop its ChinaE.com web site into an e-commerce
platform that will be shared by medium and small businesses in China.
Advertisement revenue for the web site are not expected to reflect any
meaningful increase until the Company finishes such transition in later part of
2001.
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
-------------------------------- -------------------------------
Three Months Ended September 30, Three Months Ended September 30,
-------------------------------- -------------------------------
1999 2000 1999 2000
US$ US$ ----------- ----------
----------- ----------
<S> <C> <C> <C> <C>
Engineering/technician salaries 29,761 92,784 9.0% 31.6%
Subcontract fees 26,500 0 8.1% 0.0%
Cost of system sales and integration 131,400 134,841 40.1% 45.9%
Depreciation 1,929 2,199 0.6% 0.8%
Other 22,256 79,963 6.8% 27.2%
---------- --------- ------- --------
Total 211,846 309,787 64.7% 105.4%
========== ========= ======= ========
</TABLE>
Compared to the same period of 1999, the costs of services increased 46.2%,
to US$310,000, or 105.4% of net sales.
The principal components of cost of services during the three months ended
September, 2000 were engineer/technician salaries; subcontract fees; cost of
hardware; other costs associated with support on the engineering/technician
staff; and depreciation of equipment utilized in connection with services.
The increase in costs of services was principally attributable to
expenditures to support the shift in the Company's strategy, including an
increase in engineering/technician headcount from 20 at September 30, 1999 to 60
at September 30, 2000. The increase in costs of services as a percentage of
revenues was primarily attributable to the increase in product development costs
while revenues declined.
Selling, General and Administrative Expense. Selling, general and
administrative expense ("SG&A") consists principally of (1) sales commissions,
advertising, trade show and seminar expenses, and direct-field sales expense,
(2) salary for administrative and sales staff, (3) corporate overhead and (4)
amortization of intangibles.
The following table reflects the principal components of SG&A and
percentage of net sales represented by each component for the periods indicated:
<TABLE>
Total SG&A Percent of Total Net Sales
--------------------------------- --------------------------------
Three Months Ended September 30, Three Months Ended September 30,
--------------------------------- --------------------------------
1999 2000 1999 2000
US$ US$ ------ -------
--------- ----------
<S> <C> <C> <C> <C>
Sales and marketing salaries and
commissions 25,132 64,148 7.7% 21.9%
Other sales and marketing expenses 38,557 44,458 11.8% 15.1%
Rentals 0 13,051 0.0% 4.4%
Administrative salaries 19,394 105,560 6.0% 36.0%
Other corporate 65,378 192,278 20.0% 65.4%
Amortization of intangibles 0 36,232 0.0% 12.3%
---------- ----------- -------- ---------
Total 148,461 455,727 45.3% 142.8%
========== =========== ======== =========
</TABLE>
For the three months ended September 30, 2000, SG&A increased 207%, to
US$455,727, or 142.8% of net sales, compared to US$148,461, or 45.3% of net
sales, for the three months ended September 30, 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, (3) amortization
of intangible assets and compensation charges associated with the issuance of
shares and options to employees, and (4) costs associated with relocation to new
offices.
The principal components of SG&A during the three months ended September
30, 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.
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.
Minority Interest. Minority interest of US$99,603 was reported during the
current 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 September 30, 2000 we had cash and cash equivalents of US$1,167,273 and
working capital of US$1,860,855 as compared to US$1,637,317 of cash and cash
equivalents and US$2,087,982 of working capital at June 30, 2000.
Operations used US$470,044 of cash during the three months ended September
30, 2000. Funds used in operations primarily relate to the losses incurred
during the period, increases in trade and other receivables and increases in
accrual, accounts payable and amortization of intangible assets.
Investing activities used US$94,836 during the three months ended September
30, 2000. Funds used in investing activities consist of purchases of equipment
to support.
8
<PAGE>
The Company had no long term debt at September 30, 2000.
The Company signed an agreement in June 2000, to acquire a 70% interest in
Dunwell Computer (H.K.) Limited, a developer and provider of Internet technology
and e-commerce solutions. Pursuant to the terms of the agreement, the Company
will pay approximately $362,000, 50% in cash and 50% in equity of Intermost at
US$3.50 per share. At September 30, 2000, the Company had deposited the cash
portion of the purchase price and had advanced additional funds to Dunwell. The
Company has hired an independent auditing firm to conduct the due diligence
work.
In June 2000, the Company formed Shenzhen Sino-E E-commerce Company Limited
("Sino-E"), a joint-venture company with Midea Group to develop an exchange
platform system for procurement among Chinese home appliance manufacturers.
Midea Group is a leading home appliance manufacturer in China, and is publicly
traded on China's Shenzhen Stock Exchange. Intermost contributed $724,637
(RMB6,000,00) to hold 40% of Sino-E, while Midea contributed $1,086,956
(RMB9,000,000) to hold 60% of Sino-E. Intermost's interest in Sino-E may be
further transferred to a third party when appropriate. In August and September
2000, NEU-Alpine Software Corporation, one of the largest publicly traded IT
companies in China, contributed $120,772 (RMB1,000,000) to Sino-E. Intermost is
now engaged in developing Sino-E's exchange platform.
In May 2000, the Company signed a Letter of Intent to purchase Huifeng Web
Security, an Internet security and technology products developer headquartered
in Shenzhen. In October 2000, the Company entered into an agreement, superceding
the Letter of Intent, pursuant to which the Company agreed to acquire shares
representing 58.3% of J-R Technologies Ltd..a 90% shareholder of Huifeng. The
purchase price for the shares of Huifeng is payable $176,470 in cash plus
510,300 shares of common stock. J-R Technologies is required to use the cash
portion of the purchase price to fund operations of Huifeng. Huifeng specializes
in the development and sale of Internet and financial system security solutions.
Huifeng focuses its sales on financial, banking, telecom, and government markets
in southern China. Huifeng has been in operation since August 1999. As of
November 13, 2000, due diligence was ongoing.
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-KSB.
Future revenues and operating results may also be effected by the
operations of Dunwell Computer (Hong Kong) Ltd. and Huifeng Web Security if we
consummate the acquisitions of Dunwell and Huifeng pursuant to existing letters
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.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
10
<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: November 17, 2000 By: /s/ Jun Liang
-------------------------------
Jun Liang, President and C.E.O.
By: /s/ Oliver Li
-------------------------------
Oliver Li, Financial Controller
