UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File No. 0-27195
EWRX Internet Systems, Inc.
(Exact name of Registrant as specified in its charter)
State of Nevada 98-0117139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#440-755 Burrard Street
Vancouver, BC Canada V6Z 1X6
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (604) 669-6079
#301-543 Granville Street
Vancouver, BC Canada V6C 1X8
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock as of
November 10, 2000 was 14,847,080 shares.
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EWRX INTERNET SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
-----------------------------
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999........................................... 3
Interim Consolidated Statements of Operations for the Three
Months Ended September 30, 2000 and 1999 (Unaudited)
and for the Nine Months Ended September 30, 2000 and 1999
(Unaudited)..................................................... 4
Interim Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2000 and 1999 (Unaudited) ....................... 5-6
Notes to Interim Consolidated Financial Statements................. 7
Item 2 - Management's Discussion and Analysis or Plan of Operations... 10
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings............................................ 10
Item 2 - Changes in Securities........................................ 10
Item 3 - Default Upon Senior Securities............................... 10
Item 4 - Submission of Matters to Vote of Security Holders............ 11
Item 5 - Other Information............................................ 11
Item 6 - Exhibits and Reports on Form 8-K............................. 11
Signatures........................................................... 12
2
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<TABLE>
<CAPTION>
EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ - $ 5,214
Receivables 40,943 37,422
Prepaids and other 5,812 2,636
------------- -------------
Total current assets 46,755 45,272
Furniture and equipment:
Furniture and equipment 194,579 74,374
Accumulated depreciation (57,118) (29,395)
Net furniture and equipment 137,461 44,979
Other assets:
Goodwill, net of amortization of $230,692 1,460,499 1,759,953
Website development costs 378,295 254,855
------------- -------------
Total other assets 1,838,794 2,014,808
------------- -------------
$ 2,023,010 $ 2,105,059
============= =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Bank overdraft $ 20,133 $ -
Accounts payable 680,056 342,286
Loans payable 15,515 -
Due to related parties 291,441 138,700
------------- -------------
Total current liabilities 1,007,145 480,986
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 500,000 shares
authorized, none issued and outstanding
Common stock, $.001 par value, 100,000,000
shares authorized, 14,847,080 and 13,551,980
shares issued and outstanding 14,847 13,552
Additional paid-in capital 6,135,638 4,555,614
Accumulated Deficit (5,143,070) (2,927,875)
Accumulated other comprehensive income (loss) 8,450 (17,218)
------------- -------------
Total stockholders' equity (deficit) 1,015,865 1,624,073
------------- -------------
$ 2,023,010 $ 2,105,059
============= =============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
3
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<TABLE>
<CAPTION>
EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 28,569 $ 43,493 $ 120,460 $ 48,486
----------- ----------- ------------- ------------
Expenses:
Salaries and benefits 226,246 137,621 863,834 452,361
Consulting, management and professional fees 72,015 111,248 398,005 218,766
Marketing and promotion 26,795 115,835 193,676 151,776
Depreciation and amortization 110,417 102,519 327,177 137,788
General and administrative 164,690 111,377 552,963 226,059
----------- ----------- ------------- ------------
Total expenses 600,163 578,600 2,335,655 1,186,750
----------- ----------- ------------- ------------
Net loss for the period $ (571,594) $ (535,107) $ (2,215,195) $(1,138,264)
=========== =========== ============= ============
Basic net loss per share $ (0.04) $ (0.04) $ (0.15) $ (0.09)
=========== =========== ============= ============
Weighted average common shares outstanding 14,847,080 12,876,786 14,705,124 12,849,825
=========== =========== ============= ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
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<TABLE>
<CAPTION>
EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net loss $ (2,215,195) $ (1,138,264)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 327,177 137,788
Stock issued for domain name 17,500 -
Stock option compensation - 161,189
Changes in assets and liabilities:
Receivables (3,521) (5,282)
Prepaid expenses (3,176) (7,799)
Accounts payable 362,770 64,586
------------ ------------
Net cash used in operating activities (1,514,445) (787,782)
------------ ------------
Cash flows from investing activities:
Acquisition of CCS and NFPG, net of cash acquired - (192,325)
Purchase of furniture and equipment (120,205) (6,505)
Website development costs (123,440) (61,240)
------------ ------------
Net cash used in investing activities (243,645) (260,070)
------------ ------------
Cash flows from financing activities:
Bank overdraft 20,133 (2,661)
Loan advances 15,515 -
Advances from related parties 152,741 67,562
Common stock sold for cash,
Net of finders' fees paid 1,121,508 1,327,533
Private placement subscriptions, net 417,311 -
------------ ------------
Net cash provided by financing activities 1,727,208 1,392,434
------------ ------------
Effect of exchange rate changes on cash 25,668 (15,392)
------------ ------------
Net increase (decrease) in cash (5,214) 329,190
Cash at beginning of period 5,214 -
------------ ------------
Cash at end of period $ - $ 329,190
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
5
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Noncash activities:
During the period ended September 30, 1999, the Company converted
$199,202 of debt into 664,010 shares of common stock.
During the period ended September 30, 1999, the Company reacquired a
total of 3,600,000 shares of common stock and returned them to
authorized and unissued common stock.
During the period ended September 30, 2000, the Company issued 17,500
shares of common stock to purchase an internet domain name
See accompanying notes to unaudited interim consolidated financial statements.
6
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
1. Organization
Description of Business
The Company was incorporated on June 25, 1997 in the State of Nevada. The
consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, EWRX Internet Systems (Canada), Inc., a
company incorporated in British Columbia, Classic Car Source,
Incorporated ("CCS") and North Fork Publishing Group, Inc. ("NFPG") (Note
3). Until its acquisition of CCS and NFPG in June 1999, the Company was
in the development stage of its existence, devoting its efforts primarily
to raising capital, developing an industrial mineral project in Ukraine,
exploring investment opportunities, and administrative functions. CCS was
established to create a source of on-line publishing of information and
entertainment for classic vehicle collectors. NFPG was established to
provide Internet marketing, design and internet database services on a
contract basis to selected clients.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. They do not include all information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been
no material change in the information disclosed in the notes to the
financial statements for the year ended December 31, 1999 included in the
Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The interim unaudited financial statements should be
read in conjunction with those financial statements included in the Form
10-KSB. In the opinion of Management, all adjustments considered
necessary for a fair presentation, consisting solely of normal recurring
adjustments, have been made. Operating results for the Nine months ended
September 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000.
Going Concern
The Company's financial statements have been presented on the basis that
it is a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. The Company has reported cumulative
net losses since inception of $5,158,310 to September 30, 2000.
The Company has been and remains dependent upon its ability to raise
capital by selling equity securities to finance its operations and
development activities. During the first quarter $1,121,508, net of
finders' fees, was raised by way of a private placement.
7
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
1. Organization
Going Concern (Continued)
During the second quarter the Company arranged a private placement of
2,000,000 units at a price of $0.75 per unit for gross proceeds of
$1,500,000. Each unit consists of one common share and one share purchase
warrant providing the right to acquire an additional common share at
$0.75 per share for two years. At September 30, 2000 the Company had
received $417,311, net of finders' fees, towards this financing.
The Company is dependent upon the proceeds of its proposed offering of
Common Stock or other securities to implement its business plan and to
finance its working capital requirements. Should the Company's plans or
its assumptions change or prove to be inaccurate or offering proceeds are
insufficient to fund the Company's operations, the Company would be
required to seek additional financing sooner than anticipated. The
Company may determine, depending upon available opportunities, to seek
debt or additional equity financing to fund the cost of continuing
expansion or other acquisitions. To the extent that the Company incurs
indebtedness or issues debt securities, it will be subject to risks
associated with such indebtedness, including interest rate fluctuations,
collateral arrangements and the possibility that cash flows may prove
inadequate to repay such indebtedness. The Company has no current
arrangements with respect to, or sources of, additional financing.
There can be no assurances given that the Company will be successful in
generating sufficient revenues from its planned activities or that it can
raise sufficient capital to allow it to continue as a going concern which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.
2. Capital Stock
As of February 29, 2000, the Company completed a private placement of
1,277,600 units, each unit consisting of one common share and one
non-transferable warrant exercisable at $1.00 for two years from the date
of the subscription. The Company realized cash proceeds, net of $76,400
of finders' fees, in the amount of $1,121,508 and was relieved from
$25,000 of liabilities as a result of this private placement. Of the
total units issued, 54,600 units were issued to various broker/dealers as
payment for commissions payable in connection with this financing. The
private placement increased the number of fully diluted common shares by
1,277,600 shares.
8
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
3. Contract
In August 2000, the Company entered into a contract with a capital
management consultant to assist the Company in expanding its
investment opportunities in foreign markets. In connection with the
contract, the Company will be required to issue options to the consultant
to acquire common shares of the Company which vest as follows:
Number of Exercise Vesting
Options Price Date
--------- -------- -------
100,000 $ 0.75 September 30, 2000
100,000 $ 2.00 October 31, 2000
100,000 $ 4.00 November 30, 2000
100,000 $ 6.00 December 31, 2000
100,000 $ 8.00 January 30, 2001
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------
The consolidation of the technology and Internet sectors continued throughout
the third quarter of 2000. EWRX management responded by examining all aspects of
company operations and reducing corporate overhead 61 percent. This was
accomplished via downsizing and trimming variable expenses. EWRX restructured
key staff and management positions to maximize productivity and continue to
support the growth in audience size and frequency of use of the company's online
web communities, as well as continue to prepare B2B and B2C initiatives for
2001. The focused use of limited financial and human resources produced growth
records in all of our e-Communities, month-over-month, throughout the third
quarter, including total site traffic, users sessions, and advertising response
rates. ClassicCar.com, ClassicTruckShop.com, and SpeedWRX.com were awarded
honors by Lycos, Netscape, Yahoo and several other industry reviewers/analysts
for their content, navigational ease, and/or the superior quality of their look
and feel.
Restructuring and cost cutting delayed two company initiatives: A shelf
registration of the Company's stock with the SEC and the launch of BigBadCatalog
to our e-Communities. Both these initiatives are moving forward in the fourth
quarter but progress is slower than originally forecasted. Entering the fourth
quarter, management has already taken decisive action and established a more
determined and focused attitude in preparation for its early 2001 e-commerce
initiatives. This new lean-and-mean approach will ensure the launch of the
specialty automotive aftermarket's first integrated portal--MotorWRX.com in Q4
2000.
Looking to the future, EWRX has experienced revenue increases in banner
advertising revenue, web sponsorship revenue and increase in revenue through
purchases in the MotorWRXMall.com. These increases are expected to continue
throughout the fourth quarter and throughout 2001.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
10
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EWRX INTERNET SYSTEMS, INC.
(Registrant)
November 13, 2000 By: /s/ Ronald C. Davis
-------------------------------------
Ronald C. Davis
President and Chief Executive Officer
November 13, 2000 By: /s/ Richard P. Ott
-------------------------------------
Richard P. Ott
Treasurer and Chief Accounting Officer
12
