Commission File No. 0-30430
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Amendment No. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant Section 12(b) or (g) of the Securities Exchange Act of 1934
INTERMOST CORPORATION
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(Name of Small Business Issuer in its charter)
Utah 87-0418721
- ---------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
38 Floor, Guomao Building, Renmin South Road
Shenzhen, China 518005
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(Address of principal executive offices)(Zip code)
Issuer's telephone number, including area code: 86 755 220 1941
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
--------------------- -------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of class)
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The Company operates through its various subsidiaries, all of which are
located outside of the United States. Unless otherwise indicated or the context
otherwise requires, the term Company refers collectively to Intermost
Corporation and its subsidiaries. All references to China or the PRC are to the
People's Republic of China. The Company's financial statements are presented in
United States Dollars ("US$"). The Company's sales are principally in Hong Kong
Dollars ("HK$") and Renminbi ("Rmb"). At September 30, 1999, the prevailing
exchange rate of US$ into HK$ and Rmb was US$1.00 = HK$7.746 and US$1.00 = Rmb
8.279.
Item 1. Business.
General
Intermost Corporation (the "Company"), a Utah corporation, through its
subsidiaries, is an Internet provider of company and product information
designed to meet the needs of businesses doing business, or seeking to do
business, in China. The Company was a publicly traded "shell company" prior to
acquiring its Chinese operations and continues to be organized under the laws of
the State of Utah following the acquisition. We operate within what is commonly
referred to as the "business-to-business" segment of the Internet in which
products and services are offered principally to businesses as compared to the
"business-to-consumer" segment of the Internet in which products and services
are offered principally to consumers. Our web site, www.ChinaE.com, includes a
searchable database of Chinese products and companies. Visitors to our site use
our company and product database to gather and distribute information designed
to support and facilitate domestic and international trade. Chinese and
international businesses utilize our site to identify potential business
partners and needed products and services and to list their own product and
service offerings, both domestically and internationally. It is our objective to
establish our site as the recognized gateway for company and product information
searches in China. We attempt to provide potential advertisers and e-commerce
partners with a large, demographically desirable audience, who as a group, are
affluent, highly educated and willing to conduct business over the Internet.
In addition to the database services, and related advertising and
e-commerce services, offered via our web site, we offer Internet and Intranet
services to the Chinese market, including web site design, hosting and
maintenance, development and implementation of e-commerce strategies and
applications, and development and implementation of intranet strategies and
applications within companies.
Our operations are located entirely in China and Hong Kong.
History and Development of the Company
The Company was incorporated as La Med Tech, Inc. under the laws of the
State of Utah on March 6, 1985. The Company changed its name to Entertainment
Concepts International during 1987, to Lord & Lazarus, Inc. during 1988 and to
Utility Communication International, Inc. during 1996.
From inception through October of 1998, the Company's operations were
limited to efforts to identify and acquire, or merge with, one or more operating
businesses.
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In October 1998, the Company acquired all of the issued and outstanding
shares of Intermost Limited ("IML"), a British Virgin Islands Company, in
exchange (the "Exchange") for the issuance of 4,970,000 shares of the Company's
common stock, representing 58.7% of the outstanding shares of the Company
following the Exchange. IML was formed in January of 1998 to develop a
Chinese-language internet business portal and provide state-of-the-art internet
services with a view to becoming a leading provider of such services in China.
Following the Exchange, the Company changed its name to Intermost Corporation,
terminated all of its prior activities, adopted the business plan of IML and
appointed the officers and directors of IML to replace previous management. Our
principal offices are located at 38th Floor and 41st Floor, Guomao Building,
Renmein South Road, Shenzhen, China 518005, telephone number is 86-755-220-1941.
Organizational Structure
Our structure following the Exchange, reflecting our major subsidiaries
with their jurisdictions of organization as of October 15, 1999, was as follows:
Intermost Corporation
(Utah)
100%
Intermost Limited
(British Virgin Islands)
100%
IMOT Information China E. Com Information Intermost (Hong Kong)
Technology Technology Ltd. Limited
(Shenzhen) Ltd. (PRC) (Hong Kong)
(PRC)
70%
Shenzhen Jiayin
Electronic Commerce
(Information)
Technology Co., Ltd.
(PRC)
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The Intermost Approach
While company and product data is available from a variety of sources in
the United States, both in print and online, similar data regarding Chinese
companies and products is not as readily available. We believe this lack of
company and product data impedes the efficient operation and growth of companies
which are doing business, or seeking to do business, in China and presents an
opportunity for us to utilize our company and product database to become a
reliable and recognized source of such data.
We provide high-quality, cost-effective and useful business information,
products and services that are essential to businesspeople today to support
domestic and international trade in China and provide an attractive environment
for organizations seeking to establish advertising or e-commerce relationships.
Key elements to the Intermost approach are:
-- Comprehensive Reliable Content. Our staff of researchers, writers,
editors and online producers compile useful business information from reliable
sources on a wide variety of products and services and companies which offer
those products and services. We offer easy-to-read content in both English and
Chinese. Our editorial staff is constantly updating our database content to
ensure the quality and timeliness of information.
-- Focus on the Information Needs of Chinese Business. We understand and
focus on the information needs of companies seeking to do business in China. We
leverage our unique content to offer products and services that meet the
business needs of companies doing business, or planning to do business, in
China. For example, a visitor may learn quickly about product demand, product
availability, product sources and competition. Visitors may also promote their
companies and products by submitting information for inclusion in our database.
Additionally, users may access information from our site regarding Chinese trade
and investment regulations, current financial and economic news in China,
special product offerings included in our Trade Center section as well as
accessing multiple search engines and a domain name search engine.
-- Cost Effective Information Offerings. We presently offer, free of
charge, access to our database of approximately 300,000 enterprises and 300
product categories where visitors can view brief enterprise and product
overviews, which include the name, address, telephone and fax numbers, e-mail
address, web site and a brief description of the business and products offered
as well as more detailed company profiles, more in-depth product information and
the latest supply and demand information. It is our plan, market conditions
permitting, to continue to offer access to basic company and product information
free of charge and to offer the more detailed company information, product
information and supply and demand information on a subscriber or pay-per-view
basis pursuant to which it is expected that subscribers will pay a nominal
charge (presently expected to average $20 per month) for access to such data. We
have not, as yet, begun efforts to launch our subscriber or pay-per-view service
and have not set a date to begin such efforts. There is no assurance that we
will ever be able to launch our anticipated subscriber or pay-per-view service
or that such a service will be accepted by the market.
-- Efficient Internet Sales Channel. By deploying an Internet-based
distribution model, we are able to introduce our business information and
services at no cost to the visitor. We create direct relationships with
individuals within enterprises, which facilitates future enterprise wide sales.
Our mass audience allows us to offer business information on a more
cost-effective basis than traditional providers.
Our goal for our site is to attract a large, demographically desirable
audience of business users that makes us attractive to advertisers, sponsors and
businesses with which we may establish e-commerce relationships. We offer banner
and button advertisements on our web site, sponsorships for organizations who
want to integrate their advertisements or products with selected content on our
web site and e-commerce opportunities for organizations who want to sell their
products on our web site. Moreover, we offer combined arrangements that can
integrate components of advertisement, sponsorship and e-commerce.
-- Leverage Web Traffic to Promote Internet and Intranet Service Offerings.
By deploying an Internet-based distribution model and offering company and
product listings, we are able to establish name recognition and introduce our
internet and intranet service offerings at no cost to the visitor. Businesses
which list on our site are prime candidates for the sale of related internet and
intranet services necessary to design, implement, maintain and host web sites
and facilitate e-commerce activities.
Business Strategy
Our goals are to be one of the Internet destinations that businesses in the
Chinese market depend on daily to perform mission-oriented tasks and to
facilitate their business-related transactions as well as to offer advertisers,
sponsors and e-commerce relationships an attractive environment and to become a
leading provider of web design, maintenance and hosting services and intranet
design and implementation services in China. The key elements of our strategy
include:
-- Increasing Brand Awareness. We will continue to build ChinaE.com brand
awareness and reputation. We intend to build our internal marketing capabilities
through marketing, public relations campaigns and image advertising.
-- Enhancing and Expanding Core Content and Tools. We will continue to
build the depth and breadth of our coverage of companies, industries and
products by expanding our database and may license additional company and
industry information from third parties. We will seek to forge new and expanded
distribution and content relationships. In order to increase the frequency and
duration of our viewers' visits to our site, we intend to develop additional
services, tools and online resource centers tailored to the Chinese market that
businesspeople can use to perform mission-oriented tasks in areas such as
professional development, business travel and corporate operations. By enhancing
and expanding our core content and tools, we intend to make our site a
destination where businesspeople interested in the Chinese market can improve
their professional skills and resources and transact business multiple times a
day.
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-- Increasing the Number of Visitors. We intend to attract more visitors to
our web site through our marketing relationships, increasing our direct Internet
marketing and advertising on radio and in trade publications. We plan to expand
our relationships with frequently visited and well-known Web sites and establish
new relationships that allow us to introduce our content to a broader audience.
We also intend to create sponsor areas on popular web sites frequented by
businesspeople.
-- Establishing a Reputation as a Leading Provider of Internet and Intranet
Services. We intend to establish name recognition, customer loyalty and a
reputation for quality services through the operation of our company and product
database. We offer our full range of Internet and Intranet services on the
ChinaE.com site and at our company site. We intend to supplement the customers
who seek our Internet and Intranet services directly from our web sites with
targeted service offerings to companies which list their products and services
at our site. We believe those companies will have identified the need for an
Internet presence in their marketing and product sourcing and will be prime
candidates for a broad range of Internet and Intranet services.
Intermost Products and Services
Our principal product and service offerings include (1) content delivered
through our web site, www.ChinaE.com, (2) advertising, e-commerce and
sponsorships made available through our web site, and (3) internet and intranet
consulting services.
- -- ChinaE.com Portal Content
Our portal, www.ChinaE.com, which we refer to as "A Comprehensive China
Product and Business Portal", is designed to meet the information needs of
businesses in, or seeking access to, the Chinese market and to serve as a window
to international markets for Chinese businesses and a gateway to access China
product and company information for international companies. ChinaE.com, which
was launched in July 1998, is a bilingual (both Chinese and English) web site
which offers business content through our Chinese product and company database,
online business tools, Chinese financial and economic news, a product trade
center and search engines. This basic structure is expected to attract an
audience which, as a group, are affluent, highly educated and willing to conduct
business over the Internet, allowing our site to be an attractive host to online
advertisers, e-commerce partners and sponsors.
Traffic on our web site has increased steadily since inception with the
number of hits on our site growing from approximately 10,000 in January 1999 to
approximately 50,000 in September 1999.
-- Content Services. Our content services are tailored to meet the business
information needs of Chinese and international companies which are doing
business, or seeking to do business, in the Chinese market. At the heart of our
content services is our database of Chinese products and companies. At October
1, 1999, we had a database including product and company information for
approximately 1,000,000 products and 300,000 companies. Our database is
searchable in English or in Chinese by product or by company name. Additionally,
all products included in our database are categorized and users may access
information with respect to suppliers of products in each of the following
categories, and within subcategories underneath those categories:
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* Electrical & Electronic Equipment
* Machinery, Tools, Equipment
* Food, Beverage, Tobacco
* Textile, Garment, Leather
* Furniture, Wood Products, Paper
* Chemical
* Plastic, Rubber, Non-Metal
* Metal Smelting & Processing
* Import & Export, Wholesale, Retail
* Mining, Oil Exploitation
* Power, Gas & Water Supply
* Construction
* Transportation, Communication
* Financial, Insurance, Entertainment
Our database allows buyers and sellers to share information with the
business community, promote products and businesses, source products and
identify potential business partners. Basic product information and company
information, including web site information, is free to all users. More detailed
information, such as detailed company profiles, detailed product information and
updated supply and demand information is also available to users for free at
this time. We plan, market conditions permitting, to offer access to our more
detailed company, product and supply and demand information on a subscriber, or
pay-per-view, basis in the future at nominal charges (expected to average $20
per month). We have not, as yet, begun efforts to offer our subscriber or
pay-per-view service and have definitive time table on which we expect to began
offering such service.
At October 1, 1999, we had a staff of approximately 20 researchers,
writers, editors and Internet content producers. Our staff collects company and
product information from companies, governmental agencies, trade exhibitions and
publications, a variety of Internet-based and print resources and individual
gathering efforts. Companies are encouraged to submit product and company
information as a means of promoting their business and may submit information
directly to our editorial staff by e-mail or by fax. Our editorial staff
compiles and organizes the data and continuously manages and updates the
database to ensure the quality and timely of the information.
In addition to offering a broad amount of information from our company and
product database, we provide a variety of information and tools on our web site
to address the needs of companies doing business in China. Among the other
resources available at our web site are:
* Trading Center. Our trading center is a bulletin board service where
buyers and sellers can post specific information regarding products,
services and business opportunities.
* Financial and Economic News. The financial and economic news portion
of our web site provides headlines and text of selected news stories
pertaining to financial and economic matters of interest to companies
doing business in China.
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* Business Tools. Our web site includes links to a variety of business
tools designed to assist companies doing business in China, including
links to (1) a summary of Chinese trade regulations, (2) a summary of
Chinese investment regulations, (3) airlines providing service to
China, (4) hotels in China, and (5) delivery services.
* Search Engines. Our web site includes links to major search engines,
including Yahoo, Lycos, Excite, Infoseek, and AltaVista.
- -- Advertising, E-Commerce and Sponsorships
We are focused on providing our advertisers, sponsors and e-commerce
relationships with a large, demographically desirable audience. Through
demographic profiling and targeted marketing, ChinaE.com attempts to attracts
visitors who as a group are highly educated, professional, affluent and
comfortable transacting business over the Internet. We display advertisements
throughout ChinaE.com and sponsorship, advertising and e-commerce revenues
support the free portions of our Web site.
-- Advertising. The Internet has become a new means of communication,
marketing and distribution for the advertising industry. Currently, advertising
on the Internet consists primarily of:
* Banner ads. Banners are small, usually rectangular graphics that
appear on most Web sites. Like roadside billboards the messages are
usually static and appear at the top of a Web page.
* Button ads. Buttons are small, squarish ads that are usually at the
bottom of a Web page and contain only a corporate name or brand.
Clicking on the button takes the online viewer directly to the
corporate Web site which allows advertisers to directly interact with
the online viewer.
* Sponsorship or co-branded ads. Sponsorships are strategically placed
corporate or brand names ads, possibly including a banner or button,
which attempt to integrate a company's brand or products with the
content on targeted Web sites. The goal of sponsorships is to cause
users to strongly identify the advertiser with the mission, or
content, of the Web site.
We enter into agreements with advertisers pursuant to which advertisements
are placed on our Web site and we guarantee a minimum number of impressions for
a fixed fee. Our list price for advertising currently ranges from $25 to $30 for
each 1,000 impressions generated. Actual ad rates depend upon a variety of
factors, including the duration of the advertising contract, whether the ads are
targeted to a particular audience or are "run-of-site" advertisements, and the
number of impressions purchased, and are often negotiated on a case-by-case
basis.
We utilize third-party ad-services technology to support our advertisers to
assure proper placement, delivery and targeting of advertisements on our site
and accurate collection of data to measure the effectiveness of advertising,
including number of impressions, viewing time, viewer demographics and
click-through rates.
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As of October 1, 1999, our advertising sales staff consisted of 23
representatives. Representative organizations which advertised on our site
during 1999, and their industries, include:
XinFei Electric Electric Appliance
Galanz Electroinics Electronic Appliance
AnHui Huangshan Tourism/Travel
Wuliangye Group Beverage/Liquor
Jiangxi Phenix Optical
Instrument Co. Optical Instrument
-- E-Commerce. E-Commerce refers to financial transactions carried out over
the Internet. E-Commerce is not currently developed in China to the extent it is
in the United States. This is due to, among other reasons, the difficulty in
securing online payment since credit cards are not commonly accepted, used or
available in China. E-Commerce revenues are typically derived from per
transaction fees or percentage of sales fees directly generated by the placement
of links on a Web site to an online merchant site or online store.
As of September 30, 1999, we had generated minimal revenues from e-commerce
transactions. As the e-commerce market develops and matures in China, we are
forming strategic relationships to capitalize on opportunities in e-commerce,
including the formation of joint ventures with name brand manufacturers to sell
products directly from our Web site, such as:
* Yiwen Book Store. Our initial efforts in establishing e-commerce joint
ventures produced an agreement, in April 1999, with Yiwen Book Import
and Export Company to establish an online bookstores of Chinese
titles. Yiwen is a state-owned business affiliated with New China Book
Stores with over 120,000 titles in inventory. Under the terms of the
agreement with Yiwen, we will design and manage the bookselling site
and provide e-commerce consulting services. Yinwen will provide
warehouse space, access to its product inventory and product delivery
services. At October 15, 1999, we had completed design of the
bookselling site as well as establishing all required interfaces and
online payment systems and a database with book covers, book
information, book reviews and commentaries was being compiled. We are
performing a market study to fine-tune the site operations and plan to
conduct a promotional campaign in advance of the site launch. Launch
of the bookselling Web site is expected to occur during the first half
of 2000.
* Jiayin Cyber-Cash Joint Venture. In June of 1999, we entered into a
joint venture to develop an Internet payment system and telephone
payment system to address the relative lack of credit card usage in
China. At October 15, 1999, our partner had completed development of
the telephone payment system and the system was operational. At
December 15, 1999, initial development and testing of the Internet
payment system, or "cyber-cash" system, was complete and the system
was capable of accepting credit card payments on foreign banks and
debit card payments on Chinese banks. Implementation of the cyber-cash
system is subject to approval of the system by the Central Bank. See
"Strategic Alliances and Acquisitions."
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- -- Internet and Intranet Consulting Services
Our network solutions services offer a range of Internet and Intranet
solutions designed to improve the implementation of Internet and Intranet
technology in marketing, business development, communications and operations of
Chinese companies. Our services include strategy consulting, analysis and
design, technology development, implementation and integration, audience
development and maintenance. Our network solutions services are closely tied to
and integrated with our Web site operations, allowing us to translate our
services into additional content, traffic, advertising and e-commerce
opportunities on our Web site while our Web site operations generate additional
network service opportunities.
-- Internet Solutions. We provide our clients with a wide range of Internet
solutions that are tailored to their individual needs. Our Internet solutions
services include:
* Web Site Design. We provide our clients with Web site design services
in order to create visually appealing and easily navigable Web sites
based on the strategic objectives, targeted audience and marketing
objectives of our clients.
* Web Site Hosting and Maintenance. We provide our clients with complete
Web site hosting and maintenance services utilizing our network
facilities and dedicated, leased line connections supported by our
technical staff. We provide turnkey access solutions which are
scalable to every customer's size, applications, utilization rates and
growth plans.
* Strategic Consulting. We provide our clients with complete consulting
services designed to maximize the client's return on its Internet
investment. We provide services to develop a focused strategy, plan
for implementation and operation of our client's e-commerce business,
and deliver a stable maintainable business application. We study our
client's business objectives, business models and Internet budget and
provide our clients with the methodologies and content solutions
needed to build a successful Internet application.
* Technology Consulting, Integration and Testing. We provide our clients
with complete consulting services designed to select, integrate and
test all hardware and software necessary to meet the client's Internet
objectives. Technology services offered range from project management,
architectural planning, hardware and software selection, coding, and
pre-operation testing to audits following implementation to assure
that the system and all applications are fully tested and fulfill the
client's requirements.
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-- Intranet Solutions. Intranets are mini-versions of the Internet designed
for the exclusive use of a company, its employees and its business partners.
Intranets can span an enterprise, connecting local area networks, or LANs,
computer systems and users throughout an organization, both local and remote,
into a highly reliable, secure private environment for electronic business
communication, computing and database operations. Intraneting can allow an
organization to collect data from within and outside of the organization,
eliminating the cost of replicating data and re-engineering existing systems,
allowing users secure access to critical data in the system and to the Internet.
We provide our clients with a wide range of Intranet solutions that are tailored
to their individual needs. Our Intranet solutions services include:
* System Design and Implementation. We provide our clients with complete
consulting services designed to meet our client's enterprise computing
and communications needs applying a scalable development methodology
that is highly adaptable to a client's project needs and to existing
project management process. We develop a complete needs assessment and
requirements definition for each client's project, then map the
business processes and data flows. We quickly create a model that
shows exactly how the finished site will look and work. We work
closely with each client in selecting, installing and integrating
hardware and software, testing the system and training the client's
staff to assure that the system meets the client's needs.
* Database Integration and Management. We provide our clients with
complete consulting services designed to meet our client's database
operations needs. We work with clients to gather the initial data to
be used in the project, then maintain an ongoing relationship with
end-users and information technology units to keep the application
up-to-date. We seamlessly integrate existing database management
systems with external and internal sites providing users easy access
to existing data, including inventory, market research, human
resources and product information.
* Web Enabling. We provide our clients with complete consulting services
designed to fully integrate the client's Intranet and database systems
with the Internet.
Technology Infrastructure
Our technology infrastructure consists of multiple UNIX and Windows NT
servers and backup server systems located in our Shenzhen office. Our servers
are connected to the primary government owned Internet Service Provider ("ISP")
in China, ChinaNet, through multiple T3 connections. Each of our servers is
designed for ease of capacity expansion and replication.
We also lease servers and equipment in the United States which mirrors our
Web site and is used to improve access to our Web site in the United States.
This mirroring operation is provided by n-vision from its facilities in
Allentown, Pennsylvania. N-vision provides multiple DS3 connections to the
Internet and regularly provides mirroring operations.
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Our technology infrastructure is administered and maintained by our
in-house technology staff with all facilities and servers being monitored 24
hours per day, 7 days per week. All facilities and technologies are protected by
security measures and by multiple uninterruptible power supplies.
Our technology infrastructure has been designed, and is built, to ensure
quality of service, as measured by performance, reliability, security and
availability, quality of information, as measured by data storage and backup,
scalability, bandwidth administration, and administration, statistical
monitoring and analysis and operations.
Operation of our technology infrastructure in China is substantially
dependent upon the Chinese telecommunications infrastructure. The
telecommunications infrastructure in China is not well developed in comparison
to the United States. In addition to reliance on the basic telecommunications
infrastructure in China, our ability to access the internet in China is
dependent upon the "backbone", or series of interconnecting networks, owned and
operated by the Chinese government. This network connects with international
gateways to the internet and, under Chinese regulations, is the only channel
through with Chinese internet networks can connect to the international
internet. (See "Regulation") While we have experienced no difficulties to date
as a result of our reliance on the Chinese telecommunications infrastructure and
backbone, there is no assurance that such infrastructure and backbone will be
adequate to support our operations as the number of internet users in China
grows. If the necessary infrastructure standards or protocols or complementary
products, services or facilities are not adopted, developed, implemented or
upgraded by the Chinese government to meet the demands of internet users in
China, our business could be materially adversely effected.
A Chinese firm does not benefit simply because the Internet exists in
China. All firms must still create and install their own Intranet capability in
order to benefit from the Internet. Currently in Greater China, the process of
widespread creation of Intranet systems continues. Intermost can benefit from
the expanding prevalence of Chinese intranet systems in the following regards:
* Intermost can make more efficient use of its technical and human
resources in that it can more easily serve a greater number of clients
in a greater number of ways once more firms achieve Intranet
capability.
* As more firms acquire Intranet capability, the demand for more
products and services designed to enhance and expand Intranet
capability is expected to increase. Many such products and services
are created, marketed and sold by Intermost in anticipation of
business need for such products.
The Chinese government currently observes certain restrictions. These
include issues relating to pornographic material and related web site links,
news, and links to politically sensitive issues. Markets served by Intermost do
not involve any of the above, as Intermost focuses on the needs of businesses.
Except for regulations prohibiting certain content, the Chinese government
has not established any web page requirements. See "Regulation."
Strategic Alliances and Acquisitions
We have entered into selected strategic alliances and acquisitions, and
expect to be continually involved in negotiations to enter into strategic
alliances and acquisitions in the future. These alliances and acquisitions are
intended to enhance ChinaE.com, increase traffic, attract new users and service
clients, provide additional revenue streams and secure access to advertising,
technology and services on favorable terms.
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- -- Content and E-Commerce Alliances and Acquisitions
Our initial efforts in establishing strategic alliances and making
acquisitions to enhance our content, e-commerce capabilities and revenues has
resulted in the formation of the following joint ventures:
-- Yiwen Book Store. Our initial efforts in establishing e-commerce joint
ventures produced an agreement, in April 1999, with Yiwen Book Import and Export
Company to establish an online bookstores of Chinese titles. Yiwen is a
state-owned business affiliated with New China Book Stores with over 120,000
titles in inventory. Under the terms of the agreement with Yiwen, we will design
and manage the bookselling site and provide e-commerce consulting services.
Yinwen will provide warehouse space, access to its product inventory and product
delivery services. At October 15, 1999, we had completed design of the
bookselling site as well as establishing all required interfaces and online
payment systems and a database with book covers, book information, book reviews
and commentaries was being compiled. We are performing a market study to
fine-tune the site operations and plan to conduct a promotional campaign in
advance of the site launch. Launch of the bookselling Web site is expected to
occur during the first half of 2000.
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-- Jiayin Cyber-Cash Joint Venture. In June of 1999, we entered into a
joint venture to develop an Internet payment system and telephone payment system
to address the relative lack of credit card usage in China. Under the terms of
the joint venture agreement, we agreed with Shenzhen Jiayin Investment
Development Co., Ltd. ("Shenzhen Jiayin") to form Shenzhen Jiayin Electronic
Commerce (Information) Technology Co., Ltd. ("Jiayin Joint Venture"). We agreed
to contribute approximately $423,000 to Jiayin Joint Venture for a 70% interest
in the joint venture and Shenzhen Jiayin agreed to contribute approximately
$181,000 to Jiayin Joint Venture for a 30% interest in the joint venture. Jiayin
Joint Venture, in turn, agreed to acquire certain technological know-how of
Shenzhen Jiayin for approximately $544,000, payable over a four month period
from the issuance of a business license to Jiayin Joint Venture. Shenzhen Jiayin
is, in turn, obligated to utilize approximately $266,000 to purchase stock of
Intermost.
Shenzhen Jiayin is a privately-owned company formed in China to develop
"cyber-cash" as an e-commerce electronic payment system for the Chinese banking
system. Prior to forming Jiayin Joint Venture, Shenzhen Jiayin was working with
the Shenzhen Financial Electronic Settlement Center, a government agency under
China's Central Banking System, in its efforts to develop a cyber-cash system.
The cyber-cash system being created will allow banks and e-commerce companies to
bypass the current limited access to credit cards with a national debt system
that works within government mandates. Jiayin Joint Venture has an exclusive
agreement with Shenzhen Financial Settlement Center, a branch of People's Bank
of China (the Central Bank of China), to provide electronic payment services in
Shenzhen.
At October 15, 1999, we had filed the necessary documents to register and
form Jiayin Joint Venture but the company had not yet been formed and no assets
had been transferred. Pending completion of formation of Jiayin Joint Venture,
as of October 15, 1999, we had advanced to Shenzhen Jiayin approximately
$217,000 to fund completion of development of the telephone payment system and
the system was operational. Shenzhen Jiayin has entered into an Agreement with
Shenzhen Financial Settlement Center, which Agreement will be transferred to
Jiayin Joint Venture, allowing us to provide telephone payment system to the
public through twelve commercial banks in Shenzhen province.
At December 15, 1999, initial development and testing of the Internet
payment system, or cyber-cash system, was complete and the system was capable of
accepting credit card payments on foreign banks and debit card payments on
Chinese banks. Implementation of the cyber-cash system is subject to
finalization of government policies permitting and regulating online banking.
Online payment systems have not yet officially been approved by the Chinese
Central Banking Authority. In order to begin offering online payment systems, we
must secure government approval. Further, as a foreign-owned entity, we must
partner with one or more Chinese banks or financial institutions. If, and when,
approval of online payment systems is granted by the Central Banking Authority,
we intend to roll out a broad marketing plan for our cyber-cash system. Pending
such approval, we will continue to market our telephone payment system. Even if
government approval of online payment systems is granted and Chinese partners
are secured, our ability to successfully offer these services will be subject to
the satisfactory performance of our Chinese partners and our ability to maintain
satisfactory technology. Maintaining state-of-the-art technology may require
significant financial investments which may be beyond our resources in the
future. If online payment systems are not approved by the Chinese government, or
if we are unable to maintain relations with satisfactory Chinese partners or
maintain state-of-the-art payment system technology, we may be unable to provide
online payment systems services, or may not be able to attract and retain
customers for those services, in which case our business, financial conditions
and results of operations may be materially adversely effected. See
"Regulation."
13
<PAGE>
Currently in China there exists a broad, well-publicized awareness of the
existence of and need for online payment systems. The notion that the Chinese
Internet industry is greatly limited by the current lack of an acceptable online
payment system, is discussed widely in Chinese media. The course Intermost will
take in allowing for its greatest chance of approval of its online payment
system is as follows:
* Establish a working relationship with the Central Banking Authority
locally, as a first step in obtaining a license that will allow
Intermost to pilot test our online payment system with a local bank.
This stage is complete, since the Intermost-controlled Joint Venture,
Jiayin Electronic Payment System, has contracted with the
government-owned People's bank. The People's Bank openly supports and
promotes aggressive development and use of the online payment system.
* Locate a local testing site. In this stage, one of the member banks of
the Shenzhen Financial Settlement Center (members total twelve out of
fourteen banks present in the city of Shenzhen) will offer Intermost
open interface with which to run simple tests of online banking
functions.
The Central Banking Authority operates similar to most other governmental
bodies in that policy follows business development. Chinese governmental banking
policy comes from the Central Banking Authority office in Beijing. As of this
writing, Central Banking Authority-Beijing has yet to set a policy, preferring
to take a wait-and-see approach. In the opinion of Intermost management, China
will eventually see full governmental support of online payments systems, since
the Chinese government has been quite vocal in its public support of the
Internet. This open support, in combination with Intermost's current contractual
alliance with a key department of the federal government, builds confidence in
our view that online payment systems will receive approval. The speed at which
the Chinese government will move to approve such systems depends on the speed of
the growth of the Internet commerce industry in China. Based on similar
circumstances in the telecommunications industry, this process can take between
6 and 18 months.
14
<PAGE>
- -- Internet and Intranet Solutions Alliances and Acquisitions
Our initial efforts in establishing strategic alliances and making
acquisitions to enhance our Internet and Intranet solutions business and
revenues has resulted in the following acquisition:
-- Labtam Corporation Systems Integration Contracts. In June 1999, we
entered into an agreement with Labtam Corporation Limited to acquire selected
system integration contracts, including certain contracts acquired by Labtam
pursuant to a joint venture with Sundy Computer Network Ltd. The purchase price
for those contracts was approximately $145,000 payable by the issuance of shares
of our common stock at an agreed value equal to the average market price over
the five trading days prior to the agreement and converted to Renminbi based on
50% of the exchange rate announced by the State Foreign Exchange Bureau of
China. The shares were issuable within four months after the date of the
agreement.
As of December 20, 1999, we had completed the acquisition of the system
integration contracts from Labtam, had issued the 69,700 shares payable to
Labtam and had begun providing services on those contracts. The contracts
include services on network design, installation, integration and maintenance.
Marketing
Our marketing efforts center around our ChinaE.com and Intermost.com web
sites. We advertise and promote our full range of services and products on each
of our web sites. Internet marketing strategies include advertising and
hyperlinks at other sites through partnerships with as many sites as possible to
trade ads and links. We will also market in business directories and through its
comprehensive database of corporate companies.
Our marketing efforts are conducted under the direction of our senior
management personnel. In addition to the marketing efforts of management, we
have a staff of approximately 23 persons involved in marketing of our services.
15
<PAGE>
Competition
The market for Internet advertising, e-commerce and Internet and Intranet
professional services is relatively new, intensely competitive, rapidly evolving
and subject to rapid technological change. We expect competition to persist,
intensify and increase in the future. We are aware of several Internet sites
which promote Chinese trade and products and which may compete with us for
Internet advertising and e-commerce customers including Alibaba and Asian Source
and numerous minor regional web site operators. We also compete indirectly for
advertisers and e-commerce customers with a large number of other Internet
sites, including sites which cater to the Chinese market, such as China.com, and
sites which promote international trade, and with traditional advertising and
media agencies and formats. In the Internet and Intranet services arena, we
compete with a wide variety of consulting firms which provide information
technology consulting services. We are not aware of any available market share
data regarding the markets in which we compete nor are we aware of any trends or
innovations which would substantially alter our current market share.
Our market share and that of our competitors may be materially effected by
regulatory, technological and financial developments in the future. With the
pending admission of China to the World Trade Organization, certain trade and
regulatory barriers which have limited foreign competition within China may be
removed resulting in a potential shift in market share to large foreign
competitors which may enter the Internet market in China. Likewise, rapid
changes in technology may allow certain competitors to offer better service at a
lower cost and access to financing may allow certain competitors to grow their
businesses rapidly through acquisitions, increased marketing and investments in
personnel and advanced technologies. Any of these factors could adversely effect
our potential market share.
There are relatively low barriers to enter the markets in which we compete.
We have no patented technology to preclude competitors from entering our
markets; instead as a professional service firm, we rely on the skill of our
personnel. Our services will be compared based upon performance, price,
creativity and reliability. Many of our competitors offer comprehensive Internet
technology solutions, and have longer operating histories, larger installed
customer bases; longer relationships with clients, and significantly greater
financial, technical and public relations resources than do we. There can be no
assurance that we can successfully compete with existing competitors or with new
competitors which may enter one or more of our markets.
Intellectual Property and Proprietary Rights
We regard copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. While we do not presently hold
any copyrights, service marks or trademarks, we expect to rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with employees, customers, partners and others to protect
intellectual property rights. We have applied for trademark protection for
"ChinaE.com" in China and anticipate approval of our application by early 2000.
There is no assurance, however, that such application will be approved. At
December 1999 our intellectual property counsel was involved in a comprehensive
review of our intellectual property protection policies to insure all reasonable
protective measures are taken. Pursuant to that review, we are implementing a
policy requiring all key technical and managerial personnel to enter into
employment agreements and/or non-disclosure, non-compete agreements containing
provisions preventing the unauthorized use or disclosure of intellectual
property. We intend to review our intellectual property protection policies with
intellectual property counsel on a periodic basis in the future to assure
appropriate protective measures continue to be in place.
16
<PAGE>
Despite precautions which are being taken, it may be possible for third
parties to obtain and use intellectual property without authorization.
Furthermore, the validity, enforceability and scope of protection of
intellectual property in Internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States. Specifically,
in China, laws protecting intellectual property rights continue to evolve.
Beginning with the execution of a Memorandum of Understanding on the Protection
of Intellectual Property between China and the United States in 1992, China has
adopted a series of changes to its intellectual property laws designed to bring
those laws into conformity with international conventions. With the adoption of
those changes, the laws governing intellectual property protection in China are
substantially similar to those of the United States. However, because those laws
are relatively new in China as compared to the United States, the level of
enforcement that can be expected from the Chinese government remains subject to
some uncertainty.
We intend to pursue the registration of trademarks in the United States and
internationally in China and other Asian countries. We may not, however, be able
to secure adequate protection for such trademarks in the United States and other
countries. Effective trademark protection may not be available in all the
countries in which we conduct business. Policing unauthorized use of marks is
also difficult and expensive. In addition, it is possible that competitors will
adopt product or service names similar to our's, thereby impeding our ability to
build brand identity and possibly leading to customer confusion.
In order to protect its marks against similar and confusing marks of third
parties, we intend to using a watch service which identifies applications to
register trademarks, filing oppositions to third parties' applications for
trademarks which are similar or confusing, and bringing lawsuits against
infringers.
Many parties are actively developing chat, homepage, search and related Web
technologies. Developers of such technologies can be expected to take steps to
protect these technologies, including seeking patent protection. There may be
patents issued or pending that are held by others and that cover significant
parts of our technology, business methods or services. Disputes over rights to
these technologies may arise in the future. We cannot be certain that our
products and services do not or will not infringe valid patents, copyrights or
other intellectual property rights held by third parties. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. In the event that we
determine that licensing this intellectual property is appropriate, we may not
be able to obtain a license on reasonable terms or at all. We may also incur
substantial expenses in defending against third-party infringement claims,
regardless of the merit of these claims. Successful infringement claims against
us may result in substantial monetary liability or may prevent us from
conducting all or a part of our business.
We also intend to continue to license technology from third parties,
including Web-server and encryption technology. The market is evolving and we
may need to license additional technologies to remain competitive. We may not be
able to license these technologies on commercially reasonable terms or at all.
In addition, it is possible that licensed technologies may not be successfully
integrated into our services. The inability to obtain any of these licenses
could delay product and service development until alternative technologies can
be identified, licensed and integrated.
17
<PAGE>
Regulation
We are subject to and affected by Chinese laws, regulations, administrative
determinations, court decisions and similar constraints regarding operation in
China, Internet usage and e-commerce.
Investment and operation in China are governed by various rules regulating
permissible forms of foreign investment. We have obtained government approval to
operate in China, and do operate, as a wholly foreign owned enterprise and, as
such, are not required to maintain Chinese government or private ownership in
our company.
China has enacted other regulations governing Internet connection and the
distribution of information via the Internet. Pursuant to Article 6 of the
Revised Provisional Regulations Governing the Management of Chinese Computer
Information Networks Connected to International Networks, individuals or
entities operating computer networks within China which are connected to the
Internet and conduct international information exchange must use the
international access channels provided by the Ministry of Post and
Telecommunications ("MPT") and obtain various licenses and approvals. We have
secured the necessary licenses and approvals and access the Internet through
ChinaNet, an approved channel of the MPT.
In addition to the regulations relating to connection to the Internet,
China has adopted regulations governing permissible content on the Chinese
Internet infrastructure. The Computer Information Network and Internet Security,
Protection and Management Regulations set forth a comprehensive set of
regulations governing content which are designed to prevent breaches of public
security and socially destabilizing content. Those regulations, which are
supervised by the Ministry of Public Security, prohibit use of the Internet to:
* harm national security;
* disclose state secrets;
* harm the interests of the State, of society or of a group, or the
legal rights of citizens; or
* take part in criminal activities.
Additionally, the regulations prohibit use of the Internet to create,
replicate, retrieve or transmit content that:
* incites violations of the Chinese Constitution, laws or administrative
regulations;
* incites overthrow of the government or the socialist system;
* incites national division harming national unification;
* incites hatred or discrimination among nationalities;
* promotes falsehoods, distorts the truth, spreads rumors or destroys
social order;
* promotes feudal superstition, sexually suggestive material, gambling,
violence or murder;
* promotes terrorism or incites others to criminal activity or openly
insults other people or distorts the truth to slander people;
18
<PAGE>
* injures the reputation of State organs; or
* incites activities that violate the Constitution, laws or
administrative regulations.
The operation of our Web site is subject to the foregoing regulations and
to supervision by the Ministry of Public Security. We must cooperate with and
assist the Ministry of Public Security in discovering and handling possible
violations of the Chinese content regulations. If the content appearing on our
site is determined to violate the regulations imposed by the Chinese government,
our site could be disconnected from MPT channels to the Internet or blocked and,
in the case of serious breaches we may be subject to fines and criminal
proceedings.
We intend to work diligently to assure compliance with all applicable
regulations which may impact our business, including cooperating with the MPT
and the Ministry of Public Security. There can be no assurance, however, that we
will be successful in our efforts to assure full compliance with Chinese
regulations affecting our operations or that additional regulations will not be
enacted which might adversely impact our operations.
With regard to the development and deployment of our cyber-cash system,
Chinese law does not presently permit online banking services. It is presently
anticipated that the government of Shenzhen will adopt laws permitting and
regulating online banking. However, there can be no assurance that online
banking will ever be permitted under Chinese law or that, if online banking is
permitted, the regulations governing online banking operations will be conducive
to profitable operations. Accordingly, there is no assurance that we will ever
be able to utilize our cyber-cash system in China.
Employees
As of October 15, 1999, we had 83 full-time employees, (7 management
executives, 23 engineering/technical staff, 10 administrative and clerical, 20
Internet content research writing and editing and 23 sales persons). We
anticipate the need to hire additional computer programmer/systems specialists
to support our expansion plans. None of our employees is a member of any labor
union, and we have never experienced any business interruption as a result of
any labor disputes. We do not provide any special benefit or incentive programs
for our employees.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
The following discussion should be read in conjunction with the financial
statements appearing elsewhere herein.
Prior to October of 1998, we were engaged in limited operations relating to
efforts to identify and acquire, or merge with, one or more operating
businesses. In October 1998, we acquired Intermost Limited and adopted the
business plan of IML. The acquisition of IML has been accounted for using the
purchase method of accounting with the transaction being accounted for as a
"reverse acquisition." We do not consider the operations prior to the
acquisition of IML to be material to an understanding of our company.
Accordingly, this discussion relates to the operations of IML for all periods
presented, excluding our former operations prior to the acquisition of IML.
19
<PAGE>
IML was formed in January of 1998 to establish a position as a leading
provider of Internet technologies and services, business information services,
value-added network consulting services and other related products and services
in China. Revenues are generated through a combination of consulting service
fees, advertising fees, web site design, hosting and maintenance fees and
information fees. We expect that future revenues will include E-commerce fees.
Following the Exchange, we changed our year end to June 30 to conform with
the fiscal year of IML. From inception (January 1998) to June 30, 1998, we were
involved in limited organizational activities and had no operating revenues. We
began revenue producing activities in the first quarter of fiscal 1999 (ended
September 30, 1998).
Plan of Operation
We launched our web site, www.ChinaE.com, in July 1998 and, simultaneous
therewith, began assembling our company and product database, assembling a staff
of information technology and internet professionals and marketing our services.
Since that time, we have grown our database and professional staff and provided
services to a growing base of clients, formed a joint venture to develop online
payment systems for the Chinese market and acquired certain systems integration
accounts.
During the twelve month period beginning October 1, 1999, we plan to
continue to grow our database, professional staff and client base, establish a
growing base of strategic relationships with online advertisers, sponsors and
e-commerce partners and complete the development of a cyber-cash payment system
being developed through our interest in the Jiayin Joint Venture. Our goals are
(1) to establish our web site as a recognized and preferred destination for
companies seeking to establish relationships and source products in the Chinese
market and, as a result thereof, to create an attractive environment for online
advertisers, sponsors and e-commerce partners, (2) to become a leading provider
of web design, maintenance and hosting services, e-commerce solutions and
intranet design and implementation services in China, and (3) to complete
development and begin offering the cyber-cash system of the Jiayin Joint
Venture.
Our cash requirements for the twelve month period beginning October 1, 1999
are expected to relate primarily to the following: (1) support for existing
operations, (2) growth initiatives to increase our online database, establish
additional online advertising and e-commerce relationships, and grow our base of
internet and intranet solutions clients, and (3) funding of the Jiayin Joint
Venture.
Cash requirements to support our growth initiatives are scalable in that
operation of our www.ChinaE.com site, combined with our existing marketing
efforts, is expected to create internal growth at little or no marginal cost
while additional initiatives to supplement internal growth may be undertaken
through increased marketing efforts and acquisitions the cost of which
initiatives may vary from minimal amounts from our existing resources to
millions of dollars which would require us to raise additional capital over the
next twelve months.
20
<PAGE>
Growth in our database, strategic relationships and services client base
are expected to be driven by the operation of our www.ChinaE.com site at little
or no marginal cost. We believe that the ability of companies to include company
and product data in our online database at no cost, and the ability of companies
to access that database at little or no cost will attract many participants in
the Chinese market creating growth in our database, growth in site traffic and
growth in online advertising and e-commerce relationships. We believe that the
operation of www.ChinaE.com will also create growing awareness of our Internet
and intranet solutions services which are marketed through the site resulting in
growth in our client base.
If we rely on existing operations to grow our business, which is our
present plan, we do not expect to make any substantial expenditures over the
following twelve months for research and development or for plant and equipment
purchases. Likewise, we do not anticipate any substantial additional hiring over
the next twelve months with employee headcount expected to rise from
approximately 80 at September 30, 1999 to approximately 150 at September 30,
2000. If internal growth is exceptional or if we undertake substantial growth
initiatives to supplement our internal growth rate, we may be required to
purchase additional servers and related computer and telecommunications
equipment and hire substantial additional personnel to support such growth in
which case we may be required to raise additional capital over the next twelve
months. Additionally, if we pursue acquisitions of complementary business
operations or assets to supplement our growth, we may be required to raise
additional capital or, in the alternative, may issue stock to pay for such
acquisitions similar to our acquisition of certain systems integration contracts
from Labtam Corporation during fiscal 1999.
We plan to evaluate and, where appropriate, acquire complementary
businesses or assets from time to time in the future. Future acquisitions are
expected to focus on one or more of the following, (1) significant technology
relating to online or telephone payment systems, (2) significant banking
relationships that may supplement or accelerate our market growth, (3) addition
of technical personnel that may assist in our development of online payment
systems, (4) established revenue streams from payment system products and
services, and (5) complementary regional business-to-business internet companies
in China. Our future acquisition plans and objectives may vary from time to time
in the future in light of developments in the market. We were not engaged in any
potential acquisition discussions as of December 15, 1999. There can be no
assurance that we will be successful in identifying acquisition candidates in
the future or completing acquisitions where opportunities arise.
Cash requirements to support completion of the development and
implementation of the cyber-cash payment system by the Jiayin Joint Venture are
expected to relate primarily to our capital contribution under the joint venture
agreement. We are obligated to contribute approximately $423,000 to Jiayin Joint
Venture. At October 15, 1999, a business license had not been issued and we had
made no contributions to the capital of Jiayin Joint Venture. However, we had
advanced approximately $217,000 to Shenzhen Jiayin toward development of the
cyber-cash system. The cyber-cash system is expected to be operational before
the end of 1999, subject to government approvals.
21
<PAGE>
Results of Operations
Following is summary financial information reflecting the operations for
the periods indicated.
<TABLE>
Period from January Three Months Ended September 30,
2, 1998 (Inception) Year Ended June
to June 30, 1998 30, 1999 -------------------------------
1998 1999
----------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ $ 388,080 $ 66,108 $ 327,577
0
Cost of services 0 185,385 13,861 211,846
----------------- --------------- -------------- --------------
Gross profit 0 202,695 52,247 115,731
Selling, general and
administrative 6,579 436,120 37,130 148,461
Amortization of
intangible assets - - - 36,320
----------------- --------------- -------------- ---------------
Operating income (loss) (6,579) (233,425) 15,117 (69,050)
Other income, net 0 3,969 0 3,326
----------------- --------------- -------------- --------------
Net income (loss) $ $ (229,456) $ 15,117 $ (65,724)
(6,579)
================= =============== ============== ==============
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998 and Year Ended June 30, 1999
Prior to June 30, 1998, our activities were limited to organizational
activities associated with the launch of our web site and commencement of
operations. Therefore, large variances exist in each category of sales and
expense by virtue of our status as a start up company and no clear pattern
exists for meaningul analysis.
Net Sales. Net sales for the quarter ended September 30, 1999 increased to
$327,577, or 396%, from $66,108 for the quarter ended September 30, 1998. Net
sales for the year ended June 30, 1999 totaled $388,080. We had no revenues for
the period from January 2, 1998 (inception of IML) to June 30, 1998.
Net sales for the quarter, and from inception, have been 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".
From October 1998 to January 1999, we offered special promotional packages
to the top 100 listed companies in China in order to establish name identity and
relationships with large companies. Those promotional packages included one or
more of the following components, as selected by the client: (1) an
informational seminar and lodging, (2) advertising promoting the name and
services of participating clients, and (3) web site design. The packages were
sold for between $1,500 and $3,000 depending on the features selected. A total
of 20 packages were sold during the year ended June 30, 1999, producing revenues
of $57,949.
22
<PAGE>
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>
Percent
Change from
Total Net Sales Percent of Total Net Sales three months
----------------------------------------------- ----------------------------------- ended
Three Months Ended September Three Months Ended September 30, 1998
Year Ended 30, Year Ended September 30, to three months
June 30, June 30, 1999 ended
1999 ------------------------- --------------------- September 30, 1999
1998 1999 1998 1999
------------- ---------- ------- ------------- -------- ------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Business portals and e-commerce
solutions
- - Web site design
and
development $131,629 $40,098 $105,694 33.9% 60.7% 32.3% 163.6%
- - Web
advertisement 132,897 20,966 35,073 34.3% 31.7% 10.7% 67.3%
- - Systems
sales and
integration 5,176 0 142,715 1.3% 0.0% 43.5% n.m.
- - Web hosting 5,727 5,044 6,195 1.5% 7.6% 1.9% 22.8%
------------- ----------- ------------ ---------- ----------- ---------- ----------
275,429 66,108 289,677 71.0% 100.0% 88.4% 338.2%
Software development and
consulting
- - Software
development 58,651 0 37,900 15.1% 0.0% 11.6% n.m.
- - Consulting 54,000 0 0 13.9% 0.0% 0.0% n.m.
------------- ----------- ------------ ---------- ----------- ---------- ----------
112,651 0 37,900 29.0% 0.0% 11.6% n.m.
------------- ----------- ------------ ---------- ----------- ---------- ----------
Total $ 388,080 $ 66,108 $ 327,577 100.0% 100.0% 100.0% 395.5%
============= =========== ============ ========== =========== ========== ==========
</TABLE>
We began earning revenues in July of 1998 and had an engineering/technical
staff of 7 persons at September 30, 1998, which staff had increased to 23
persons at September 30, 1999.
The increase in each category of revenues during the current quarter was
primarily attributable to marketing efforts and increased name brand awareness
in connection with those efforts and the operation of our www.ChinaE.com site.
22
<PAGE>
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>
Percent
Change from
Total Cost of Services Percent of Total Net Sales three months
--------------------------------------- --------------------------------------- ended
Three Months Ended September Three Months Ended September 30, 1998
Year Ended 30, Year Ended September 30, to three months
June 30, June 30, 1999 ended
1999 --------------------------- ---------------------- September 30, 1999
1998 1999 1998 1999
---------- -------- -------- ------------- -------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Engineer/
Technician
salaries $ 77,001 $ 4,979 $ 29,761 19.8% 7.5% 9.1% 497.7%
Subcontract fees
45,000 - 26,500 11.6% 0.0% 8.1% n.m.
Cost of system
sales and
integration - - 131,400 0.0% 0.0% 40.1% n.m.
Depreciation 2,106 405 1,929 0.5% 0.6% 0.6% 376.3%
Other 61,278 8,477 22,256 15.9% 12.9% 6.8% 162.5%
------------ --------- ------------ ----------- ----------- ----------- -----------
Total $ 185,385 $ 13,861 $ 211,846 47.8% 21.0% 64.7% 1,428.4%
============ ========= ============ =========== =========== =========== ===========
</TABLE>
For the three months ended September 30, 1999, costs of services increased
1428%, to $211,846, or 64.7% of net sales, compared to $13,861, or 21% of net
sales, for the three months ended September 30, 1998.
The principal components of cost of services during the three months ended
September 30, 1999 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.
23
<PAGE>
Cost of services for the year ended June 30, 1999 totaled $185,385, or
47.8% of net sales.
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 7 at September 30, 1998 to 23 at September
30, 1999 and the sale of certain hardware during the current quarter. 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 and the costs associated with offering special promotional
packages to selected customers.
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, and (3) corporate overhead.
The following table reflects the principal components of SG&A and
percentage of net sales represented by each component for the periods indicated:
<TABLE>
Percent
Change from
three months
Total SG&A Percent of Total Net Sales ended
----------------------------------------------- ------------------------------------- September 30, 1998
Three Months Ended September Three Months Ended to three months
Year Ended 30, Year Ended September 30, ended
June 30, June 30, 1999 September 30, 1999
1999 ------------------------------ ----------------------
1998 1999 1998 1999
------------- ------------- ------------- ------------ -------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and
marketing
salaries and
commissions $ 56,390 $ 4,336 $ 25,132 14.5% 6.5% 7.7% 479.6%
Other sales and
marketing expenses
89,455 9,820 38,557 23.1% 14.9% 11.8% 292.6%
Administrative
salaries 62,886 7,854 19,394 16.2% 11.9% 5.9% 146.9%
Other corporate 227,389 15,120 65,378 58.6% 22.9% 19.9% 332.4%
----------- ------------- ------------- ----------- ----------- ----------- ----------
Total $ 436,120 $ 37,130 $ 148,461 112.4% 56.2% 45.3% 299.8%
=========== ============= ============= =========== =========== =========== ==========
</TABLE>
For the three months ended September 30, 1999, SG&A increased 300%, to
$148,461, or 45.3% of net sales, compared to $37,130, or 56.2% of net sales, for
the three months ended September 30, 1998.
SG&A totaled $436,120, or 112.4% of net sales, for the year ended June 30,
1999.
24
<PAGE>
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, and (2) an increase in administrative support staff and
corporate overhead to support anticipated growth in revenues.
The principal components of SG&A during the three months ended September
30, 1999 were sales and marketing salaries and commissions; other marketing
expenditures; administrative salaries and benefits; and other corporate expense,
which includes occupancy expense, general office expenses travel, general staff
welfare expense and consulting fees, among others.
The principal components of SG&A during the year ended June 30, 1999 were
sales and marketing salaries and commissions which accounted for $56,390, other
marketing expenditures which accounted for $89,455, administrative salaries and
benefits which accounted for $62,886 and other corporate expense which accounted
for $227,389.
Amortization of Intangible Assets. In June 1999, we acquired a total of
eighty systems integration contracts from Labtam Corporation. At the time of the
acquisition, five of those contracts were active and seventy-five contracts were
inactive and are viewed as the purchase of a customer list.
In accordance with the terms of the agreement, we issued 69,700 shares of
common stock to Labtam as payment in full of the purchase price of the
contracts. The market value of those shares, approximately $290,000, was
recorded as an intangible asset.
The intangible asset is being amortized over a 24 month period,
representing the life of the contracts. During the quarter ended September 30,
1999, we recorded a charge for amortization of the contracts of $36,320. We will
incur amortization expenses in a like amount for each quarter through June 30,
2001.
Other Income. Other income consists principally of interest income. For the
three months ended September 30, 1999 other income totaled $3,326 compared to $0
of other income for the three months ended September 30, 1998. The increase in
other income was attributable to increased balances of cash held in interest
bearing accounts.
Liquidity and Capital Resources
At September 30, 1999 we had cash and cash equivalents of $395,523 and
working capital of $611,647 as compared to $528,612 of cash and cash equivalents
and 651,223 of working capital at June 30, 1999.
Our primary sources of financing has been cash from the sale of common
stock and, to a lesser degree, cash provided by operating activities and various
loans from shareholders and directors.
Operations used $124,623 of cash during the three months ended September
30, 1999 and $167,786 of cash during the year ended June 30, 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 an increase in trade payables.
Investing activities used $8,466 during the three months ended September
30, 1999 and $140,087 during the year ended June 30, 1999. Funds used in
investing activities consist of purchases of equipment to support operations
amounts due from our joint venture partner, Jiayin Investment Company Limited.
25
<PAGE>
Financing activities provided $0 of cash during the three months ended
September 30, 1999 and $835,549 during the year ended June 30, 1999. The cash
provided by financing activities was attributable to the receipt of proceeds
from the sale of common stock during the periods.
We had no long term debt at September 30, 1999 or June 30, 1999.
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.
Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize a date using 00 as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
We began operations in mid-1998 and acquired computers, equipment and
software which are certified by the manufacturers to be Year 2000 compliant.
Further, we have trained specialists with expertise in Year 2000 remediation who
have run multiple systems tests for Year 2000 problems utilizing Intellifix 2000
testing software. Accordingly, we believe that Year 2000 compliance will have no
material impact on our company, our financial position or results of operations.
As of September 30, 1999, we had communicated with all of the vendors and
suppliers with whom we do significant business to determine their Year 2000
Compliance readiness and the extent to which we are vulnerable to any third
party Year 2000 issues. All of the vendors and suppliers have either provided
adequate assurances of their Year 2000 compliance or have been replaced with
other vendors or suppliers which are Year 2000 compliant. All new vendors and
suppliers will be required to provide assurances of Year 2000 compliance.
However, there can be no guarantee that the systems of other companies on which
our systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with our system, would not
have a material adverse effect on our company, financial position and operating
results.
It should be noted that our web site and our business are substantially
dependent upon our ability, and the ability of our clients, to connect to the
Internet through approved channels maintained by the Chinese government. We are
unable to verify that the network "backbone" operated by the Chinese government,
through which we connect to the Internet, is Year 2000 compliant. Because of the
recent advent of the Internet, particularly in China, we believe that the
systems operated by the Chinese government should be Year 2000 compliant.
However, we have no means of verify such. If the systems operated by the Chinese
government, through which we and our clients access the Internet, fail as a
result of Year 2000 issues, our operations and financial condition could be
materially adversely affected and we could, for a time, be unable to operate our
network in China. While we operate a mirror site in the United States which
could continue to support our site, our ability to operate our site would be
materially impaired if we cannot access the Internet from China.
26
<PAGE>
In conjunction with the development of our web site and analysis of Year
2000 issues, we have developed contingency plans to address potential Year 2000
related failures. Among the measures and plans implemented to address Year 2000
failures are:
* Regular periodic backup of our database
* Maintenance of mirror servers in the United States, China and Hong
Kong
* Regular backup of all servers
The foregoing measures allow us to preserve and restore our database and
route users through our mirror servers to assure uninterrupted service. In the
event of simultaneous failure of our servers in the United States, China and
Hong Kong, we would experience an interruption in service which could have a
material adverse effect on our business, financial condition and results of
operations.
Factors That May Affect Future 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.
With the entry of new competitors in our markets, we expect prices for our
e-commerce services to come under mild price pressure. We expect this price
pressure to be moderated by growth in demand for those services. If we do not
realize the anticipated growth in demand for internet services in China, we may
experience more substantial pricing pressure. To date, we have experienced no
substantial price pressure.
Our cost of services are expected to benefit from continuing advancements
in technology which is expected to allow us to deliver our services at lower
cost.
In addition to the general factors noted above, our future operating
results are expected to be impacted by our acquisition of certain systems
integration contracts from third parties in June 1999. Those contracts, were
acquired for 69,700 shares of common stock, value at $290,000. $18,160 of the
services to rendered under those contracts were performed during the three
months ended September 30, 1999 and we anticipate that approximately $131,000 of
the services to be rendered under those contracts will be performed during the
final nine months of the year ending June 30, 2000.
27
<PAGE>
In June 1999, we formed the Jiayin Joint Venture to develop a cyber-cash
system. Pursuant to the terms of the joint venture, we are required to
contribute approximately $423,000 to the joint venture in exchange for a 70%
interest in the joint venture and our joint venture partner was required to
contribute approximately $181,000 to the joint venture in exchange for a 30%
interest in the joint venture. The joint venture, in turn, agreed to acquire
certain assets, technological know-how and the client base of our joint venture
partner for approximately $544,000. The payment to be made to Shenzhen Jiayin is
payable over a four month period from the issuance of a business license to
Jiayin Joint Venture. Shenzhen Jiayin is, in turn, obligated to utilize
approximately $266,000 of the proceeds received to purchase stock of Intermost
at a price equal to 50% of the average closing price of our common stock over
the five days prior to the date of the joint venture agreement.
At December 15, 1999, the joint venture had not yet received a business
license, no capital contributions had been made and no assets transferred. At
December 15, 1999, we had advanced approximately $217,000 to Shenzhen Jiayin for
development of a telephone payment system and the system was operational. At
December 15, 1999, initial development and testing of the cyber-cash system was
complete and the system was capable of accepting credit card payments on foreign
banks and debit card payments on Chinese banks. We expect to begin realizing
commissions revenues, subject to receipt of necessary government approvals, from
the cyber-cash system in 2000.
Other than our initial contributions to capital, we have no commitments or
obligations to provide additional funding to Jiayin Joint Venture. However, if
Jiayin Joint Venture undertakes future development with respect to its payment
systems to maintain the competitiveness of its technology or to meet the demands
of its customers, for which the joint venture lacks adequate financial resources
to carry out, we may be required to provide additional funding to the joint
venture. Given the fact that the telephone payment system is fully developed,
while the online payment system has passed the testing and development stage, we
anticipate that the capital contribution to the joint venture will be adequate
to fund future development activities. We define "future development activities"
as the creation of payment system technologies, and the costs associated with
those creations. For the coming 12 months beginning January 1, 2000, our
business plan indicates a developmental cash usage of approximately $10,000 per
month (we are able to keep these costs low in part because of the low prevailing
salary rates and over head found in Shenzhen). As such, we have budgeted
$150,000 for these developmental costs. However, should the joint venture
require additional capital to fund development in the future, we will be
required to provide such funding or risk the possibility of our payment systems
becoming obsolete or failing to meet the needs of our customers. If we are
unwilling or unable to provide funding for future development activities of the
joint venture, our business, financial position and future operating results may
be materially adversely effected.
Additionally, our operations may be impacted by various factors associated
with doing business in China, including, but not limited to, uncertainty
regarding the application or enforcement of various regulations relating to
business generally, and the Internet specifically, and potential changes in such
regulations, political or economic conditions, methods and rates of taxation,
and other factors. We may be impacted by the ongoing Asian financial crisis.
Countries in the Asia Pacific region have recently experienced weaknesses in
their currency, banking and equity markets. These weaknesses could adversely
affect, among other things, consumer demand for discretionary goods in the
region (perhaps including our products and services which may be considered
expenditures by consumers), and the U.S. dollar value of our foreign currency
denominated sales (e.g., to the extent sales are denominated in Renminbi or Hong
Kong dollars). In addition, our interest income and expense may be sensitive to
fluctuations in the general level of Hong Kong and Chinese interest rates.
However, as we conduct substantially all of our operations, including
substantially all of our sales and expenses, in Renminbi or Hong Kong dollars,
management does not believe we are exposed to undue risk arising from
fluctuations of the exchange rates between those currencies and the U.S. dollar.
28
<PAGE>
Our future operating results will reflect increased compensation expense
relating to the hiring of additional personnel. In particular, in November 1999,
we hired Mark Williamson as Vice President of Business Development. Pursuant to
the terms of Mr. Williamson's employment, Mr. Williamson is entitled to receive
15,000 shares of common stock after each six months of employment, subject to
the restriction that such shares may not be sold prior to one year from the date
of issue. We expect to incur compensation expense, commencing as early as May
2000, in connection with the issuance of shares to Mr. Williamson. The exact
amount of such future compensation expense cannot be predicted at this time.
However, such expense will generally be computed based on the market value of
the shares issued. Such charges may substantially adversely affect our future
operating results.
Future results will also reflect amortization of the systems integration
contracts purchased by the Company in June 1999. The estimated amortization
expense associated with those contracts is $36,320 per quarter, or $145,000 per
year, through June 30, 2001.
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.
Inflation
Inflation has historically not had a material effect on our operations.
When the price of products and services increases, we believe that we will be
able to pass those higher prices on to the customer. Accordingly, we believe
inflation will not have a material effect on our future operations.
Item 3. Properties.
The Company's executive offices are located in 6,500-square feet of office
space on the 38th and 41st Floor, Guomao Building, Renmin South Road, Shenzhen,
China. The facilities are leased from a third party pursuant to two leases which
expire in April 2000 and July 2001 and provide for aggregate monthly rental
payments of $5,750.
The Company also maintains an office in Hong Kong. The Hong Kong office is
provided on a rent free basis by a company controlled by Shim Yang and Sai Chung
Chan, directors of Intermost. The current use of the Hong Kong office is
temporary and we intend to rent separate offices in Hong Kong in early 2000.
Management believes that the Company's facilities are adequate to support
operations for the foreseeable future.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Common Stock
The following table is furnished as of November 12, 1999, to indicate
beneficial ownership of shares of the Company's Common Stock by (1) each
shareholder of the Company who is known by the Company to be a beneficial owner
of more than 5% of the Company's Common Stock, (2) each director and named
officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information set out in the following table was supplied
by such persons.
29
<PAGE>
Name and Address of Number of Shares
Beneficial Owner (1) Beneficially Owned Percent
- -------------------- ------------------ -------
Allied Point Limited (2)(3)....................... 3,218,653 33.0%
Jun LIANG (3)..................................... 3,218,653 (2) 33.0%
Andy LIN (3)...................................... 3,218,653 (2) 33.0%
Shim YANG......................................... 750,000 7.7%
Wai Ho LI......................................... 600,000 6.2%
Sai Keung CHAN.................................... 350,000 3.6%
All officers and directors as a group (5 persons). 4,918,653 50.4%
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to the shares shown opposite the
name of such person or group.
(2) Allied Point Limited is a corporation organized under the laws of the
British Virgin Islands and is owned 50% by Jun Liang and 50% by Andy Lin.
Therefore, Mr. Liang and Mr. Lin may be deemed to be the beneficial owners
of those shares.
(3) Address is 38th Floor, Guomao Building, Renmin South Road, Shenzhen, China.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Identification of Directors, Executive Officers and Certain Significant
Employees
The following table sets forth certain information regarding the directors
and executive officers of the Company.
Name Age Position
- ------- -------- ---------------
Jun LIANG................... 37 President and Director
Andy LIN.................... 52 Executive Vice President and Director
Mark Williamson............. 38 Vice President, Business Development
Sai Keung CHAN.............. 44 Secretary and Director
Wai Ho LI................... 43 Director
Shim YANG................... 42 Director
Terms of Office
The directors named above will serve until the first annual meeting of the
Company's shareholders. Thereafter, directors will be elected for one-year terms
at the annual shareholders' meeting. Officers will hold their positions at the
pleasure of the Board of Directors, absent any employment agreement, of which
none currently exist or are contemplated.
30
<PAGE>
Business Experience
Jun LIANG co-founded the Company's predecessor, IML, in January 1998 and
has served as its President and a Director since inception and as President and
a Director of the Company since the Exchange in October 1998. Prior to forming
IML, from 1994 to 1998, Mr. Liang was the president of China Business Resources,
a privately-owned Hong Kong company specializing in providing companies
directories, business directory services and other business information in
print, CD-ROM and electronic format. During the period of Mr. Liang's service
with China Business Resources, annual revenues averaged approximately $500,000.
Mr. Liang graduated from Beijing Shijou University in 1982 with a Bachelor of
Science degree in Chemical Engineering and from Stanford University in 1986 with
a Master of Science degree in Chemical Engineering.
Andy LIN co-founded the Company's predecessor, IML, in January 1998 and has
served as its Vice President and a Director since inception and as Vice
President and a Director of the Company since the Exchange in October 1998.
Prior to forming IML, he was the vice president of China Business Resources from
1994 to 1998. Mr. Lin graduated from Tsinghua University in 1970 with a Bachelor
degree and from the Chinese Academy of Sciences in 1981 with a Master of Science
degree in computer science.
Mark Williamson joined the Company in November 1999 as Vice President,
Business Development. Prior to joining the Company, Mr. Williamson was a Senior
Business Analyst with Electronic Data Systems from October 1998 to October 1999.
Previously, from 1994 to 1998, Mr. Williamson was a founder and Managing
Director of Williamson, Fournier & Company, an import-export company based in
Budapest, Hungary.
Sai Keung CHAN joined the Company's predecessor, IML, as Secretary and a
Director in January 1998 and assumed the same positions with the Company
following the Exchange in October 1998. Mr. Chan received a law degree from the
University of Southampton, U.K. and since 1986 has been a partner in the law
firm of Liau, Ho & Chan in Hong Kong.
Wai Ho LI joined the Company's predecessor, IML, as a Director in January
1998 and assumed the same positions with the Company following the Exchange in
October 1998. Since 1983, Mr. Li has been a director of Pado Contracting Co.,
Ltd., a privately-held company in Hong Kong specializing in interior design and
decoration work, where he is responsible for business development and strategic
planning.
Shim YANG joined the Company's predecessor, IML, as a Director in January
1998 and was appointed a Director of the Company following the Exchange in
October 1998. Since December 1997, Mr. Yang has been a Managing Director of
Corporate Finance International Ltd., a privately-held investment consulting and
business brokerage company in Hong Kong specializing in corporate finance and
business restructuring consulting, where he is responsible for corporate
development and strategic management. From January 1997 to December 1997, Mr.
Yang served as Managing Director of CEC (HK) Ltd., a privately-held company in
Hong Kong specializing in securing financing for start-up internet companies in
Hong Kong and China. From 1993 to 1996, Mr. Yang served as Managing Director of
Eagle Gain Ltd., a privately-held company in Hong Kong specializing in securing
financing for real estate development in China. Mr. Yang received a Bachelors
degree in Economics from the University of Foreign Trade, China in 1982.
31
<PAGE>
Item 6. Executive Compensation
Neither the Company nor IML has paid compensation to any officer in excess
of $100,000 for any fiscal year, or portion of a fiscal year. During the period
from inception to June 30, 1998, IML paid no compensation to Jun Liang, the
Company's chief executive officer. During the nine months ended March 31, 1999,
the Company and IML paid $15,384 of compensation to Jun Liang.
Beginning January 1, 1999, until the Company acquires sufficient revenues
through the operation of its business, the Company pays each of its executive
officers approximately $2,600 per month. The Company currently pays its
non-employee directors approximately $650 per meeting attended with compensation
limited to $650 in a month regardless of the number of meetings attended. The
Company reimburses its officers and directors for any out-of-pocket expenses
incurred on behalf of the Company. The Company does not have any pension,
profit-sharing, stock bonus, or other benefit plans. The Company expects to
enter into employment agreements with key employees, to implement comprehensive
compensation arrangements with its officers and directors and to adopt benefit
plans in the future at the discretion of the Board of Directors. The Board plans
to adopt a stock option plan under which 2,000,000 shares of common stock would
be reserved for issuance pursuant to options to be granted to key employees.
In November 1999, the Company hired, and entered into an employment
agreement with, Mark Williamson. Pursuant to the employment, Mr. Williamson
serves as Vice President of Business Development for a term of two years ending
November 14, 2001. Mr. Williamson receives an annual salary of $45,000 plus
reimbursement of Chinese taxes. Mr. Williamson's employment agreement also
provides for (1) the issuance of 15,000 shares of common stock after each six
months of employment, (2) options to acquire 250,000 shares of common stock at
$3.50 per share exercisable commencing on the first anniversary of his
employment, (3) options to acquire 250,000 shares of common stock at $4.00 per
share exercisable commencing on the second anniversary of his employment, (4)
participation in any retirement or employment benefit plans adopted by the
Company, (5) reimbursement of $5,000 of expenses of relocation to China, (6)
fifteen days paid vacation annually and (7) round-trip airfare once annually to
the United States. All options granted under the employment agreement become
immediately exercisable in the event of a change in control of the Company.
Item 7. Certain Relationships and Related Transactions.
None.
Item 8. Description of Securities.
At December 20, 1999, the Company's authorized capital stock consisted of
100,000,000 shares of common stock, $.001 par value, of which 9,824,112 shares
were issued and outstanding, and 5,000,000 shares of preferred stock, $.001 par
value, of which no shares were issued and outstanding.
32
<PAGE>
Common Stock
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive out of funds legally available therefor dividends as our
Board of Directors may declare from time to time. Upon a liquidation,
dissolution or winding up of the Company, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
Under the Certificate of Incorporation, as amended and restated, the Board
of Directors will have the authority, without further action by stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the rights, preferences, privileges, qualifications and restrictions granted to
or imposed upon such preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preference
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and reduce the likelihood that such
holders will receive dividend payments and payments upon liquidation. Such
issuance could have the effect of decreasing the market price of the common
stock. The issuance of preferred stock could have the effect of delaying,
deterring or preventing a change in control of the Company. We have no present
plans to issue any shares of preferred stock.
Anti-Takeover Provisions
Except as described above regarding the Company's authorized preferred
stock, there are no provisions in the Company's Certificate of Incorporation or
Bylaws which would, or could, have the effect of delaying, deferring or
preventing a change in control of the Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's common stock is OTC
Stock Transfer, Inc., P.O. Box 65665, Salt Lake City, Utah 84165.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Information
There is no established public trading market for the Company's Common
Stock. The Common Stock trades on a sporadic basis under the symbol IMOT on the
OTC Bulletin Board. There is no assurance that an established trading market
will develop in the Company's shares or that any such market which may develop
will be sustained.
33
<PAGE>
Holders
At December 20, 1999, there were approximately 455 record holders of the
Company's Common Stock.
Dividends
The Company has not paid any dividends to date, and has no plans to do so
in the immediate future.
Shares Issuable Pursuant to Warrants and Options or Eligible for Resale Under
Rule 144 or Pursuant to Registration Rights
At December 20, 1999, there were no warrants, options or convertible
securities outstanding and exercisable to purchase, or convertible into, common
stock of the Company.
As of December 20, 1999, the Company had outstanding 9,824,112 shares of
common stock. Of these shares, 4,661,561 shares are freely tradable without
restriction or registration under the Securities Act by persons other than
"affiliates," as defined by Rule 144 promulgated under the Securities Act. The
remaining 5,162,551 shares are "restricted shares" as that term is defined by
Rule 144. 5,092,851 of the restricted shares presently outstanding are presently
eligible for resale under Rule 144. 4,918,653 of the restricted shares are held
by affiliates of the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of common stock then outstanding or the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above.
The Company cannot predict the effect, if any, that the sales of common
stock or the availability of such shares for sale in the public market will have
on the market price for the Company's common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market
after the restrictions described above lapse could adversely affect prevailing
market prices for the common stock and impair the Company's ability to raise
capital through an offering of equity securities in the future.
At December 20, 1999, the Company had no obligation to register shares
under the Securities Act of 1933 for sale by any persons.
34
<PAGE>
Item 2. Legal Proceedings.
The Company is from time to time a party to lawsuits incidental to its
business. The Company and its management are not presently aware of any pending
or threatened proceedings which, individually or in the aggregate, are believed
to be material.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
In July 1999, the Company's Board of Directors selected Arthur Andersen &
Co. to serve as its new independent accountants and dismissed Andersen, Andersen
& Strong, L.C., Certified Public Accountants, of Salt Lake City, Utah which
previously served as the independent accountants for the Company.
Andersen, Andersen & Strong's reports on the financial statements of the
Company for the fiscal years ended December 31, 1995, 1996 and 1997 contain no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty (other than uncertainty as to the company's continuing as a going
concern), audit scope, or accounting principles. In connection with its audits
for fiscal years 1995, 1996 and 1997 and through the date of their dismissal,
there were no disagreements with Andersen, Andersen & Strong, L.C. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Andersen, Andersen & Strong, L.C. would have caused them to make
reference thereto in its reports on the financial statements for such years.
Item 4. Recent Sales of Unregistered Securities.
In October 1998, the Company issued 4,970,000 shares of common stock in
exchange for all of the issued and outstanding shares of Intermost Limited
("IML"), a British Virgin Islands Company. The shares were issued to the
shareholders of IML, Jun Liang and Andy Lin, through Allied Point Limited, Shim
Yang, Wai Ho Li and Sai Keung Chan. The transaction was carried out without the
use of an underwriter, without any general advertising, solicitation or public
offering and without the payment of commissions pursuant to the exemption set
forth in Section 4(2) of the Securities Act of 1933, as amended.
In April 1999, the Company completed an offering of 1,298,706 shares of
common stock for $999,999 in cash. The shares were sold without the use of an
underwriter to 42 accredited investors. Commissions totaling $29,160 were paid
in connection with the offering. The offering and sale was made pursuant to the
exemption set forth in Regulation D, Rule 504 of the Securities Act of 1933, as
amended which exemption was based on the following facts: (1) the Company was
not subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act; (2) the Company was not an investment company; (3) the Company was not a
development stage company with no specific business plan or with a business plan
to engage in a merger or acquisition of an unidentified company; and (4) the
aggregate offering price did not exceed $1,000,000.
35
<PAGE>
In December 1999, the Company issued 69,700 shares of common stock to
Labtam Corporation as payment for the purchase of certain systems integration
contracts. The transaction was carried out without the use of an underwriter,
without any general advertising, solicitation or public offering and without the
payment of commissions pursuant to the exemption set forth in Section 4(2) of
the Securities Act of 1933, as amended.
Item 5. Indemnification and Exclusion of Liability of Directors and Officers
So far as permitted by the Utah Business Corporation Act, the Company's
Articles of Incorporation provide that the Company will indemnify its directors
and officers against expenses and liabilities they incur to defend, settle or
satisfy any civil or criminal action brought against them on account of their
being or having been Company directors or officers unless, in any such action,
they are adjudged to have acted with gross negligence or to have engaged in
willful misconduct. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, (collectively, the "Acts") may be permitted to directors, officers or
controlling persons pursuant to forgoing provisions, the Company has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Acts and is,
therefore, unenforceable.
PART F/S
Index to Financial Statements
Intermost Corporation and Subsidiaries
Page
-----
Independent Auditors' Report.............................................. F-1
Consolidated Balance Sheets as of June 30, 1998 and 1999.................. F-2
Consolidated Statements of Operations for the Period from
January 2, 1998 to June 30, 1998 and the Year Ended June 30, 1999......... F-3
Consolidated Statements of Cash Flows for the Period from January 2, 1998
to June 30, 1998 and the Year Ended June 30, 1999........................ F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
for the Period from January 2, 1998 to June 30, 1998 and the Year
Ended June 30, 1999 ..................................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Consolidated Balance Sheet as of September 30, 1999....................... F-20
Consolidated Statements of Operations for the Three Months Ended
September 30, 1998 and 1999.............................................. F-21
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1998 and 1999.............................................. F-22
Notes to Consolidated Financial Statements................................ F-23
36
<PAGE>
PART III
Item 1. Index to Exhibits.
2.1* Articles of Incorporation
2.2* Bylaws
6.1* Joint Venture Agreement re: Tech 2020
6.2* Supply Agreement for Online Bookstore
6.3* Cooperative Agreement re: formation of Jiayin E-Commerce joint venture
6.4* Agreement re: acquisition of customer accounts from Labtam Corporation
6.5* Subscription Agreement re: sale of common stock
6.6* Employment Agreement with Mark Williamson
8.1* Exchange Agreement with Shareholders of Intermost Limited
27.1** Financial Data Schedule
* Previously filed
** Amended
36
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
INTERMOST CORPORATION
Date: January 14, 2000 /s/ Jun Liang
------------------------
By: Jun Liang, President
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Intermost Corporation:
We have audited the accompanying consolidated balance sheets of Intermost
Corporation (a company incorporated in the State of Utah, United States of
America; formerly known as Utility Communications International, Inc.; "the
Company") and Subsidiaries ("the Group") as of June 30, 1998 and 1999, and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity for the period from January 2, 1998 (inception) to June 30,
1998 and for the year ended June 30, 1999. These financial statements give
retroactive effect to the acquisition of Intermost Limited as a reverse
acquisition as described in Note 2 to the accompanying financial statements.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Intermost Corporation and Subsidiaries as of June 30, 1998 and 1999
and the results of their operations and their cash flows for the period from
January 2, 1998 (inception) to June 30, 1998 and for the year ended June 30,
1999, after giving retroactive effect to the acquisition of Intermost Limited as
a reverse acquisition as described in Note 2 to the accompanying financial
statements, in conformity with generally accepted accounting principles in the
United States of America.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
January 3, 2000.
F-1
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1999
<TABLE>
Note 1 9 9 8 1999
----- --------- --------------------
Rmb Rmb US$
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and bank deposits - 4,376,906 528,612
Accounts receivable, net 5 - 63,997 7,729
Deposits, prepayments and other
receivables 6 - 946,948 114,366
Due from related companies 15 - 168,952 20,405
Due from directors 15 17 - -
--------- ---------- ---------
Total current assets 17 5,556,803 671,112
Machinery and equipment, net 7 - 820,731 99,122
Intangible assets 8 - 2,400,000 289,855
Due from a joint venture partner 15 - 243,292 29,383
--------- ---------- ---------
Total assets 17 9,020,826 1,089,472
========= ========== =========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accruals 9 13,359 1,168,472 141,121
Deposits from customers - 158,900 19,191
Business tax payable - 26,177 3,161
Due to directors 15 - 254,420 30,727
--------- ---------- ---------
Total current liabilities 13,359 1,607,969 194,200
--------- ---------- ---------
Shareholders' equity (deficit):
Common stock, par value US$0.001:
- authorized - 100,000,000 shares as of
June 30, 1998 and 1999;
- outstanding and fully paid - 4,970,000
and 9,754,412 shares as of June 30, 1998
and 1999, respectively 41,137 80,742 9,751
- reserved and to be issued - Nil and
69,700 as of June 30, 1998 and 1999,
respectively - 576 70
Preferred stock, par value of US$0.001;
authorized - 5,000,000 shares as of June
30, 1998 and 1999; outstanding and
fully paid - Nil as of June 30, 1998 and
1999 - - -
Additional paid-in capital - 9,278,166 1,120,551
Accumulated deficit (54,479) (1,954,380) (236,036)
Cumulative translation adjustments - 7,753 936
--------- ---------- ---------
Total shareholders' equity (deficit) (13,342) 7,412,857 895,272
--------- ---------- ---------
Total liabilities and
shareholders' equity (deficit) 17 9,020,826 1,089,472
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
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 June 30, 1999 of US$1.00 =
Rmb8.28. No representation is made that the Renminbi amounts could have been, or
could be, converted into United States dollars at that rate or at any other
rate.
F-2
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 2, 1998 (INCEPTION) TO JUNE 30, 1998
AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
Note 1998 1999
------ -------- -------------------
Rmb Rmb US$
<S> <C> <C> <C> <C>
Net sales 16 - 3,213,299 388,080
Cost of services - (1,534,985) (185,385)
--------- ---------- ---------
Gross profit - 1,678,314 202,695
Selling, general and administrative
expenses (54,479) (3,611,074) (436,120)
Other income, net - 32,859 3,969
--------- ---------- ---------
Loss before income taxes 16 (54,479) (1,899,901) (229,456)
Provision for income taxes 10 - - -
--------- ---------- ----------
Net loss (54,479) (1,899,901) (229,456)
========= =========== ==========
Net loss per common share Rmb(0.01) Rmb(0.21) US$(0.03)
========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Translation of amounts from Renminbi ("Rmb") into United States dollars ("US$")
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 June 30, 1999 of US$1.00 =
Rmb8.28. No representation is made that the Renminbi amounts could have been, or
could be, converted into United States dollars at that rate or at any other
rate.
F-3
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 2, 1998 (INCEPTION) TO JUNE 30, 1998
AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
1 9 9 8 1 9 9 9
--------- -----------------------------
Rmb Rmb US$
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (54,479) (1,899,901) (229,456)
Adjustments to reconcile net loss to net cash used
in operating activities -
Depreciation of machinery and equipment - 95,899 11,582
(Increase) Decrease in operating assets -
Accounts receivable, net - (63,997) (7,729)
Deposits, prepayments and other receivables - (946,948) (114,366)
Due from related companies - (168,952) (20,405)
Due from directors (17) 17 2
Increase (Decrease) in operating liabilities -
Accruals 13,359 1,155,113 139,507
Deposits from customers - 158,900 19,191
Business tax payable - 26,177 3,161
Due to directors - 254,420 30,727
-------- ----------- ---------
Net cash used in operating activities (41,137) (1,389,272) (167,786)
-------- ----------- ---------
Cash flows from investing activities:
Additions of machinery and equipment - (916,630) (110,704)
Increase in due from a joint venture partner - (243,292) (29,383)
-------- ----------- ---------
Net cash used in investing activities - (1,159,922) (140,087)
-------- ----------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock - 6,918,347 835,549
Effect of exchange reorganization 41,137 - -
-------- ----------- ---------
Net cash provided by financing activities 41,137 6,918,347 835,549
-------- ----------- ---------
Effect of exchange rate changes on cash and bank deposits - 7,753 936
-------- ----------- ---------
Net increase in cash and bank deposits - 4,376,906 528,612
Cash and bank deposits, beginning of period/year - - -
-------- ----------- ---------
Cash and bank deposits, end of period/year - 4,376,906 528,612
======== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 June 30, 1999 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.
F-4
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 2, 1998 (INCEPTION)
TO JUNE 30, 1998 AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
Accumulated
other
comprehensive
Common Stock income-
Issued Reserved and to be issued cumulative
----------------------- -------------------------
Number of Number of Additional Accumulated translation
shares Amount shares Amount paid-in-capital deficit adjustments
---------- --------- ----------- --------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 2, 1998 4,970,000 41,137 - - - - -
Net loss - - - - - (54,479) -
----------- -------- -------- ------ ----------- ----------- -------
Balance as of June 30, 1998 4,970,000 41,137 - - - (54,479) -
Effect of exchange reorganization 3,485,706 28,853 - - (28,853) - -
Proceeds on issuance of common stock 1,298,706 10,752 - - 8,266,281 - -
Common stock issuance costs - - - - (1,358,686) - -
Acquisition of contracts
and a customer list (Note 8) - - 69,700 576 2,399,424
Net loss - - - - - (1,899,901) -
Translation adjustments - - - - - - 7,753
----------- -------- -------- ------ ----------- ----------- -------
Balance as of June 30, 1999 9,754,412 80,742 69,700 576 9,278,166 (1,954,380) 7,753
=========== ======== ======== ====== =========== =========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTERMOST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
-------------------------------------
Intermost Corporation ("the Company") was incorporated in the State of Utah,
United States of America on March 6, 1985. With effect from October 23, 1998,
the Company changed its name from Utility Communications International, Inc. to
Intermost Corporation, the present one.
During the period from January 2, 1998 (inception) to June 30, 1998 (the
earliest period covered by these financial statements), the Company was
inactive.
On October 23, 1998, the Company acquired 100% interest in Intermost Limited
("IL"; a company incorporated in the British Virgin Islands) by issuing
4,970,000 shares of common stock of par value of US$0.001 each (after the
redenomination of par value and the stock split as described in Note 12) to Mr.
Jun Liang and Mr. Andy Lin, directors and shareholders of IL. IL was equally
owned by Mr. Jun Liang and Mr. Andy Lin. IL and its subsidiaries ("the IL
Group") are principally engaged in the provision of business portals and
e-commerce solutions, the development of software and the provision of
consultation services in Hong Kong and the People's Republic of China ("the
PRC").
2. BASIS OF PRESENTATION AND CHANGE OF ACCOUNTING YEAR END
-------------------------------------------------------
The acquisition of IL by the Company on October 23, 1998 has been treated as a
reverse acquisition since IL is the continuing entity as a result of the
exchange reorganization. On this basis, the historical financial statements
prior to October 23, 1998 represented the consolidated financial statements of
IL, which was incorporated on January 2, 1998. The shareholders' equity accounts
of the Company as of January 2, 1998 have been retroactively restated to reflect
the issuance of 4,970,000 shares of common stock (after the effect of the
redenomination of par value and the stock split as described in Note 12).
The Company formerly had its accounting year end on December 31. Subsequent to
the acquisition of IL, it changed its accounting year end to June 30 to coincide
with that of IL.
F-6
<PAGE>
3. SUBSIDIARIES
------------
Details of the Company's subsidiaries (which together with the Company are
collectively referred to as "the Group") as of June 30, 1999 were as follows:
Percentage of
equity interest
Place of attributable to
Name incorporation the Group Principal activities
- --------------- -------------- ---------------- -----------------------
Intermost Limited The British 100% Investment holding and
("IL") Virgin Islands development of software
China E. Com The People's 100% Provision of business
Information Republic of portals and
Technology Ltd. China e-commerce solutions
("CECITL") *
IMOT Information The People's 100% Inactive
Technology Republic of
(Shenzhen) Ltd. China
("IITSL") *
Intermost (Hong Hong Kong 100% Inactive
Kong) Limited
("IHKL")
* CECITL and IITSL are wholly foreign owned enterprises established in the
PRC to be operated for a period of 10 years until 2008.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intra-group balances and transactions
have been eliminated on consolidation.
F-7
<PAGE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
b. Machinery and equipment
-----------------------
Machinery and equipment are recorded at cost. Gains or losses on disposals
are reflected in current operations. Depreciation for financial reporting
purposes is provided using the straight-line method over the estimated
useful lives of the assets as follows: furniture and office equipment - 5
years, motor vehicle - 5 years, computer equipment - 3 years and leasehold
improvements - 1 to 3 years (over the lease terms). Major expenditures for
betterments and renewals are capitalized. All ordinary repair and
maintenance costs are expensed as incurred.
The Group recognizes an impairment loss on machinery and equipment when
evidence, such as the sum of expected future cash flows (undiscounted and
without interest charges) indicates that future operations will not produce
sufficient revenue to cover the related future costs, including
depreciation. Measurement of the impairment loss is based on the fair value
of the assets.
c. Intangible assets
-----------------
Intangible assets represent system integration contracts and a customer
list acquired from an independent third party and are amortized on a
straight-line basis over a period of 24 months.
d. Net sales
---------
Net sales represent (i) the invoiced value of business portal and
e-commerce solution fees and software development fees and are recognized
when the services are rendered, net of business tax, and (ii) commission
income, which is recognized when the services are rendered.
Deposits or advance payments from customers prior to provision of services
are recorded as deposits from customers.
e. Research and development expenditures
-------------------------------------
Research and development expenses are charged to expenses as incurred.
f. Income taxes
------------
Income taxes are provided under the provisions of Statement of Financial
Accounting Standards No. 109, which requires recognition of deferred tax
assets and liabilities for expected future tax consequences of events that
have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
F-8
<PAGE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
g. Operating leases
----------------
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the
lessors. Rental payments under operating leases are charged to expense on
the straight-line basis over the period of the relevant leases.
h. Comprehensive income
--------------------
The Group has adopted Statement of Financial Accounting Standards No. 130,
which requires the Group to report all changes in equity during a period,
except for those resulting from investment by shareholders and distribution
to shareholders, in financial statements for the period in which they are
recognized. The Group has disclosed comprehensive income, which encompasses
net income and currency translation adjustments, in the consolidated
statements of changes in shareholders' equity and Note 11.
i. Foreign currency translation
----------------------------
The Company considers Renminbi as its functional currency as a substantial
portion of the Group's business activities are based in Renminbi.
The translation of the financial statements into Renminbi is performed for
balance sheet accounts using closing exchange rates in effect at the
balance sheet date and for revenue and expense accounts using an average
exchange rate during each reporting period. The gains or losses resulting
from translation are included in shareholders' equity separately as
cumulative translation adjustments.
Aggregate gains from foreign currency transactions included in the
consolidated results of operations for the period from January 2, 1998 to
June 30, 1998 and the year ended June 30, 1999 were approximately Nil and
Rmb10,000 respectively.
j. Net loss per common share
-------------------------
Net loss per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, by dividing net loss for each
period or year by the weighted average number of shares of common stock
outstanding during the period or year, as if the common stock issued for
the acquisition of IL (see Note 1) had been consummated prior to the period
or year presented.
F-9
<PAGE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
------------------------------------------
j. Net loss per common share (Cont'd)
-------------------------
The computation of diluted loss per common share is similar to basic loss
per common share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if all
dilutive securities outstanding during the period or year were exercised.
The denominator is based on the following weighted average number of common
shares:
1 9 9 8 1 9 9 9
--------- ----------
Basic 4,970,000 8,980,666
Diluted 4,970,000 8,984,867
No diluted loss per common share was presented in the consolidated
statements of operations as the dilutive securities were anti-dilutive.
k. Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
l. Fair value of financial instruments
-----------------------------------
All financial instruments are carried at cost, which approximate their fair
values.
5. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable comprised:
1 9 9 8 1 9 9 9
Rmb Rmb US$
Accounts receivable - 150,997 18,236
Less: Allowance for doubtful
accounts - (87,000) (10,507)
------- --------- ---------
Accounts receivable, net - 63,997 7,729
======= ========= =========
F-10
<PAGE>
6. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES
Deposits, prepayments and other receivables comprised:
1 9 9 8 1 9 9 9
--------- ------------------
Rmb Rmb US$
Prepaid legal fees* - 646,384 78,066
Rental and utility deposits - 121,450 14,668
Other deposits - 95,670 11,554
Other receivables - 41,843 5,054
Other prepayments - 41,601 5,024
------ -------- --------
- 946,948 114,366
====== ======== ========
* Prepaid legal fees represented the balance of the proceeds from selling of
common stock in December 1998 (see Note 12), which was not yet remitted to
the Company.
7. MACHINERY AND EQUIPMENT
-----------------------
Machinery and equipment comprised:
1 9 9 8 1 9 9 9
------- ---------------
Rmb Rmb US$
Furniture and office equipment - 142,284 17,184
Motor vehicle - 130,155 15,719
Computer equipment - 518,701 62,645
Leasehold improvements - 125,490 15,156
------- -------- -------
Cost - 916,630 110,704
Less: Accumulated depreciation - (95,899) (11,582)
------- -------- --------
Machinery and equipment, net - 820,731 99,122
======= ======== ========
8. INTANGIBLE ASSETS
-----------------
On June 8, 1999, the Group entered into an agreement with an independent
third party to acquire certain system integration contracts and a customer
list, to be satisfied by 69,700 shares of common stock of the Company,
valued at Rmb 2,400,000. Pursuant to the agreement, transfer of stock
should not be later than October 8, 1999. As of June 30, 1999, no such
stock were issued and the stock were issued subsequent to June 30, 1999.
F-11
<PAGE>
9. ACCRUALS
--------
Accruals comprised:
1 9 9 8 1 9 9 9
--------- --------------------
Rmb Rmb US$
Accrued wages and bonus - 141,891 17,137
Accrued sub-contracting fees - 374,412 45,219
Accrued professional fees 5,344 547,191 66,086
Others 8,015 104,978 12,679
------- --------- ---------
13,359 1,168,472 141,121
======= ========= =========
10. INCOME TAXES
------------
The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which
they operate.
The Company is subject to the United States federal tax at a rate of 35%.
IL was incorporated under the International Business Companies Act of the
British Virgin Islands and, accordingly, is exempted from payment of the
British Virgin Islands income taxes. The wholly foreign owned enterprises
established in the PRC (IITSL and CECITL) are subject to PRC income taxes
at a rate of 18% (15% state income tax and 3% local income tax). IHKL is
subject to Hong Kong profits tax at a rate of 16%. As of June 30, 1999, all
group companies are in a tax loss position.
The reconciliation of the United States federal income tax rate to the
effective income tax rate based on loss before income taxes stated in the
consolidated statements of operations is as follows:
1 9 9 8 1 9 9 9
United States federal income tax rate 35% 35%
Effect of different tax rates in foreign jurisdictions (17%) (17%)
Effect of tax loss (18%) (18%)
-------- --------
Effective income tax rate - -
-------- --------
F-12
<PAGE>
10. INCOME TAXES (Cont'd)
------------
Deferred taxation comprised:
1 9 9 8 1 9 9 9
--------- ------------------------
Rmb Rmb US$
Temporary difference arising
from:
- net operating loss
carryforwards 2,139 380,615 45,968
- provision for doubtful
accounts - 15,660 1,891
-------- --------- ---------
Deferred tax assets, gross 2,139 396,275 47,859
Valuation allowance (2,139) (396,275) (47,859)
-------- --------- ---------
Deferred tax assets, net - - -
======== ========= =========
The change in valuation allowance from June 30, 1998 to June 30, 1999 is
primarily related to the tax effects of the net operating loss of approximately
Rmb1,783,000 and provision for doubtful accounts of approximately Rmb87,000.
Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets as reduced by the valuation allowance.
11. COMPREHENSIVE LOSS
------------------
Comprehensive loss and its components, net of tax, comprised:
1 9 9 8 1 9 9 9
--------- ---------------------------
Rmb Rmb US$
Net loss (54,479) (1,899,901) (229,456)
Other comprehensive income -
Translation adjustments - 7,753 936
-------- ----------- ---------
Comprehensive loss (54,479) (1,892,148) (228,520)
======== =========== =========
F-13
<PAGE>
12. SHARE CAPITAL
-------------
During the period from January 2, 1998 (the earliest date covered by these
financial statements) to October 22, 1998, the Company had authorized share
capital of 100,000,000 shares of common stock, par value US$0.001 each, and
5,000,000 shares of preferred stock, par value US$0.001 each; and outstanding
share capital of 1,742,853 shares of common stock, par value US$0.001 each. On
October 23, 1998, the Company effected a redenomination of par value, resulting
in 50,000,000 shares of common stock, par value US$0.002 each, authorized, and
1,742,853 shares of common stock, par value US$0.002 each, outstanding. On the
same day, the Company effected a two-for-one stock split, resulting in
100,000,000 shares of common stock, par value US$0.001 each, authorized, and
3,485,706 shares of common stock, par value US$0.001 each, outstanding. Also, on
October 23, 1998, the Company issued 4,970,000 shares of common stock (after the
redenomination of par value and stock split described above), par value US$0.001
each, in connection with its acquisition of IL as described in Note 2.
The effects of the redenomination of par value and the stock split have been
reflected retroactively in the financial statements and all loss per share
computations.
On December 16, 1998, the Company sold 1,298,706 shares of common stock for cash
at US$0.77 per share through a private placement. The net proceeds amounted to
approximately Rmb6,918,000 (equivalent of US$836,000).
On June 8, 1999, the Company reserved to issue 69,700 shares of common stock,
par value US$0.001 each, in connection with its acquisition of system
integration contracts (see Note 8).
13. OPERATING LEASES
----------------
The Group has operating lease agreements for office premises and staff quarters,
which extend through June 2000. Rental expenses for the period from January 2,
1998 to June 30, 1998 and the year ended June 30, 1999 were approximately Nil
and Rmb201,000, respectively. Future minimum rental payments as of June 30,
1999, under agreements classified as operating leases with non-cancellable
terms, are as follows:
1 9 9 8 1 9 9 9
----------- ---------------------
Rmb Rmb US$
Payable within one year - 428,803 51,788
======== ========= ========
F-14
<PAGE>
14. RETIREMENT PLAN AND POST-EMPLOYMENT BENEFITS
--------------------------------------------
The Group has no retirement plan or post-employment benefits for its employees.
15. RELATED PARTY TRANSACTIONS
--------------------------
Name and relationship of related parties:
Name of related parties Existing relationship with the Group
--------------------------- ------------------------------------
Chuangshengxin Corporate Conventions Subsidiary of a company with common
(Shenzhen) Company Limited director
Corporate Conventions International Subsidiary of a company with common
Limited director
Jiayin Investment Company Limited A joint venture partner
Summary of related party balances is as follows:
1 9 9 8 1 9 9 9
--------- ----------------------
Rmb Rmb US$
Due from related companies
(Note a)
- Chuangshengxin Corporate
Conventions (Shenzhen)
Company Limited - 83,000 10,025
- Corporate Conventions
International Limited - 72,122 8,710
- Jiayin Investment Company
Limited - 13,830 1,670
------- ---------- -------
- 168,952 20,405
======= ========== ========
Due from directors
- Mr. Jun Liang 9 - -
- Mr. Andy Lin 8 - -
------- ---------- -------
17 - -
======= ========== ========
Due from a joint venture partner
(Note b) - 243,292 29,383
======= ========== ========
Due to directors (Note a)
- Mr. Jun Liang - 156,023 18,843
- Mr. Andy Lin - 98,397 11,884
------- ---------- -------
- 254,420 30,727
======= ========== =======
F-15
<PAGE>
15. RELATED PARTY TRANSACTIONS (Cont'd)
--------------------------
Summary of related party transactions is as follows:
1 9 9 8 1 9 9 9
------- ----------------------
Rmb Rmb US$
Commission income received
from Corporate Conventions
International Limited - 483,640 58,411
Commission expense paid to
Corporate Conventions
International Limited - 436,132 52,673
Office rentals and utility
expenses charged to
Chuangshengxin Corporate
Conventions (Shenzhen)
Company Limited - 116,156 14,029
======== ========= =========
Notes -
a. The outstanding balances with related companies and directors were
unsecured, non-interest bearing and without pre-determined repayment terms.
b. The amount due from a joint venture partner represented investment in a
joint venture which was yet to be formed.
16. SEGMENTAL INFORMATION
---------------------
a. Net sales
---------
Net sales comprised:
1 9 9 8 1 9 9 9
------- ---------------------
Rmb Rmb US$
Business portals and
e-commerce solutions - 2,280,547 275,429
Software development and
consulting commission
income - 932,752 112,651
------- ----------- ---------
- 3,213,299 388,080
======= =========== =========
Substantially all of the Group's sales are provided in the PRC.
F-16
<PAGE>
16. SEGMENTAL INFORMATION (Cont'd)
---------------------
b. Loss before income taxes
------------------------
Loss before income taxes comprised:
1 9 9 8 1 9 9 9
--------- ------------------------
Rmb Rmb US$
Business portals and
e-commerce solutions - (404,803) (48,888)
Software development and
consulting commission
income - (961,721) (116,150)
Loss of inactive companies (54,479) (533,377) (64,418)
--------- ---------- ----------
(54,479) (1,899,901) (229,456)
========= ========== ===========
c. Assets
------
Substantially all of the Group's identifiable assets are located in the
PRC.
d. Major customers
---------------
Details of individual customers accounting for more than 5% of the Group's
sales are as follows:
1 9 9 8 1 9 9 9
Corporate Conventions International Limited - 15%
Good Prominent Technology Company Limited - 14%
======= ========
e. Major suppliers
---------------
Details of individual suppliers accounting for more than 5% of the Group's
purchases are as follows:
1 9 9 8 1 9 9 9
--------- ---------
Sysway Networks - 39%
Shenzhen Yiyuda Trade Development Limited - 11%
Shenzhen FirstNet System Corporation - 10%
Guangdong Xiaotong Computer Network
Technology Limited - 8%
JOS (Guangzhou) Technology Product Limited - 6%
Shenzhen Delitai Industry Limited - 6%
====== =======
F-17
<PAGE>
17. OPERATING RISK
--------------
a. Country risk
------------
The Group's operations are conducted in Hong Kong and the PRC. Accordingly,
the Group's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in Hong Kong
and the PRC, and by the general state of the Hong Kong and the PRC
economies.
Effective from July 1, 1997, sovereignty over Hong Kong was transferred
from the United Kingdom to the PRC, and Hong Kong became a Special
Administrative Region of the PRC ("the Hong Kong SAR"). As provided in the
Basic Law of the Hong Kong SAR of the PRC, the Hong Kong SAR will have full
economic autonomy and its own legislative, legal and judicial systems for
50 years. The Group's management does not believe that the transfer of
sovereignty over Hong Kong has had an adverse impact on the Company's
financial and operating environment. There can be no assurance, however,
that changes in political or other conditions will not result in such an
adverse impact.
The Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange.
The Group's results may be adversely affected by changes in the political
and social conditions in the PRC, and by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among
other things.
b. Concentration of credit risk
----------------------------
Concentration of accounts receivable as of June 30, 1998 and 1999 is as
follows:
1 9 9 8 1 9 9 9
-------- --------
Five largest accounts receivable - 90%
========= ========
The Group performs ongoing credit evaluation of each customer's financial
condition. It maintains reserves for potential credit losses and such
losses in the aggregate have not exceeded management's projections.
F-18
<PAGE>
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
Cash paid for interest and income taxes:
1 9 9 8 1 9 9 9
---------- -----------------------
Rmb Rmb US$
Interest - - -
Income taxes - - -
========= ======== =========
19. OTHER SUPPLEMENTAL INFORMATION
------------------------------
The following items were included in the consolidated statements of operations:
1 9 9 8 1 9 9 9
---------- -------------------
Rmb Rmb US$
Depreciation of machinery and
equipment - 95,899 11,582
Operating lease rentals for
office premises and staff
quarters - 200,698 24,239
Salary and employee benefits - 1,225,341 147,988
Allowance for doubtful accounts - 87,000 10,507
Foreign exchange gain, net - 10,344 1,249
Research and development
expenditures - 193,282 23,343
======== ========= ==========
20. Subsequent Events
-----------------
Employment agreement and stock options
--------------------------------------
In November 1999, the Company entered into a two-year employment agreement
with an employee. Pursuant to the employment agreement, 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,
(ii) 250,000 shares of common stock of the Company at US$4.00 per share
exercisable after November 2001. In addition, the employee is also entitled
to receive 15,000 shares of common stock of the Company after each six
months of employment.
F-19
<PAGE>
INTERMOST CORPORATION
BALANCE SHEET
September 30, 1999
(Unaudited)
<TABLE>
RMB US$
----- --------
<S> <C> <C>
ASSETS
Current assets
Cash 3,267,020 395,523
Accounts receivable, net 371,246 44,945
Deposits, prepayments and other receivables 5,183,043 627,487
Due from related companies 646,667 78,289
---------- -----------
Total current assets 9,467,975 1,146,244
---------- -----------
Machinery and equipment, net 872,743 105,659
Intangible assets 2,100,000 254,237
---------- -----------
12,440,718 1,506,140
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 4,724,158 571,932
Other payables 263,155 31,859
Deposits from customers 301,853 36,544
Due to directors 253,805 30,727
Business tax payable 69,904 8,463
---------- -----------
Total current liabilities 5,612,877 679,525
---------- -----------
Stockholders' Equity
Preferred Stock
5,000,000 shares authorized, $.001 par value;
none issued - -
Common Stock
100,000,000 shares authorized, $.001 par value;
9,824,112 shares issued 80,543 9,751
69,700 shares reserved for issuance 578 70
Capital in excess of par value 9,278,166 1,123,265
Accumulated deficit (2,497,257) (302,331)
Cumulative translation adjustments (34,187) (4,140)
---------- -----------
Total stockholders' equity 6,827,843 826,615
---------- -----------
12,440,718 1,506,140
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
INTERMOST CORPORATION
STATEMENT OF OPERATIONS
Three Months Ended September 30, 1999 and 1998
(Unaudited)
For the Three Months Ended
September 30,
------------------------------------------
1998 1999
------ ---------------------------
RMB RMB US$
------ ------- ------
Net sales 551,737 2,705,786 327,577
Cost of services 115,684 1,749,848 211,846
------- --------- -------
Gross profit 436,053 955,938 115,731
Selling, general and
administrative expense (309,887) (1,226,288) (148,461)
Other income, net 0 27,473 3,326
Amortization of intangible
assets 0 (300,000) (36,320)
-------- ---------- --------
Income (loss) before
income taxes 126,166 (542,877) (65,724)
Provision for income taxes - - -
---------- ----------- ----------
Net income (loss) 126,166 (542,877) (65,724)
---------- ----------- ----------
---------- ----------- ----------
Net income (loss)
per common share
Basic 0.01 (0.06) (0.01)
========== =========== ===========
Weighted average
shares outstanding 9,824,112 9,824,112 9,824,112
========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
INTERMOST CORPORATION
STATEMENT OF CASH FLOWS
Three Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
For the Three Months Ended
September 30,
----------------------------------------
1998 1999
------ ----------------------
RMB RMB US$
------ -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 126,166 (542,877) (65,724)
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation 3,353 15,934 1,929
Amortization of intangable assets 0 300,000 36,320
Cumulative translation
adjustment 0 (30,025) (3,635)
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (118,156) (307,404) (37,216)
Deposits, prepayments
and other receivables (249,634) (4,238,379) (513,121)
Due from related companies 0 (235,418) (28,501)
Increase (decrease) in:
Accounts payable 42,857 3,558,499 430,811
Deposits from customers 0 143,336 17,353
Other payables 600,896 263,155 31,859
Business taxes payable 24,351 43,794 5,302
-------- ---------- ---------
Net cash used in operations 428,838 (1,029,386) (124,623)
-------- ---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of plant and equipment (159,440) (69,929) (8,466)
-------- ---------- ---------
Net cash used in investing activities (159,440) (69,929) (8,466)
-------- ---------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock 14,415 0 0
-------- ---------- ---------
Net cash from financing activities 14,415 0 0
-------- ---------- ---------
Net increase (decrease) in cash 283,814 (1,099,315) (133,089)
Cash at beginning of period 0 4,366,335 528,612
-------- ---------- ---------
Cash at end of period 283,814 3,267,020 395,523
======== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
INTERMOST CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-QSB. The interim financial statements and notes
thereto should be read in conjunction with the financial statements and
notes included elsewhere herein at and for the year ended June 30, 1999. In
the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
the results for the interim period presented.
2. TRANSLATION OF AMOUNTS
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, 1999 of US$1.00=Rmb8.26. 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. SUBSEQUENT EVENTS
Issuance of shares
------------------
Pursuant to the terms of the acquisition of certain systems integration
contracts, the Company issued 69,700 shares of common stock as payment in
full for those contracts subsequent to September 30, 1999.
Employment agreement and stock options
--------------------------------------
In November 1999, the Company entered into a two year employment agreement
with Mark Williamson to serve as Vice President of Business Development.
Pursuant to the terms of the employment agreement with Mark Williamson, the
Company granted stock options to purchase (1) 250,000 shares of common
stock at $3.50 per share exercisable commencing on the first anniversary of
the employment agreement and (2) 250,000 shares of common stock at $4.00
per share exercisable commencing on the second anniversary of the
employment agreement. Mr. Williamson is also entitled to receive 15,000
shares of common stock of the Company after each six months of employment.
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 528,612
<SECURITIES> 0
<RECEIVABLES> 18,236
<ALLOWANCES> 10,507
<INVENTORY> 0
<CURRENT-ASSETS> 671,112
<PP&E> 110,704
<DEPRECIATION> 11,582
<TOTAL-ASSETS> 1,089,472
<CURRENT-LIABILITIES> 194,200
<BONDS> 0
0
0
<COMMON> 9,821
<OTHER-SE> 885,451
<TOTAL-LIABILITY-AND-EQUITY> 1,089,477
<SALES> 388,080
<TOTAL-REVENUES> 388,080
<CGS> 185,385
<TOTAL-COSTS> 185,385
<OTHER-EXPENSES> 436,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (229,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (229,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (229,456)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 395,523
<SECURITIES> 0
<RECEIVABLES> 44,945
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,146,244
<PP&E> 105,659
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,506,140
<CURRENT-LIABILITIES> 679,525
<BONDS> 0
0
0
<COMMON> 9,821
<OTHER-SE> 816,794
<TOTAL-LIABILITY-AND-EQUITY> 1,506,140
<SALES> 327,577
<TOTAL-REVENUES> 327,577
<CGS> 211,846
<TOTAL-COSTS> 211,846
<OTHER-EXPENSES> 184,781
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (65,724)
<INCOME-TAX> 0
<INCOME-CONTINUING> (65,724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (65,724)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
