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 June 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 May 12,
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
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Item 1 - Financial Statements
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Review Report of Independent Accountants..................................................................... 3
Consolidated Balance Sheets at June 30, 2000 (Unaudited) and December 31, 1999............................... 4
Interim Consolidated Statements of Operations for the Three Months Ended June 30, 2000
and 1999 (Unaudited) and for the Six Months Ended June 30, 2000 and 1999 (Unaudited)..................... 5
Interim Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000
and 1999 (Unaudited) .................................................................................... 6
Notes to Interim Consolidated Financial Statements........................................................... 7
Item 2 - Management's Discussion and Analysis or Plan of Operations............................................... 9
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings........................................................................................ 13
Item 2 - Changes in Securities.................................................................................... 13
Item 3 - Default Upon Senior Securities........................................................................... 13
Item 4 - Submission of Matters to Vote of Security Holders........................................................ 13
Item 5 - Other Information........................................................................................ 13
Item 6 - Exhibits and Reports on Form 8-K......................................................................... 13
Signatures........................................................................................................ 14
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Item 1. Financial Statements
-----------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
EWRX Internet Systems Inc. and Subsidiaries
We have reviewed the accompanying balance sheets of EWRX Internet Systems Inc.
and Subsidiaries as of March 31, 2000 and the related statements of operations
and cash flows for the period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of analytical procedures applied to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of EWRX Internet Systems Inc. and Subsidiaries as
of December 31, 1999 and the related statements of earnings and cash flows for
the year then ended (not presented separately herein), and in our report dated
March 27, 2000 we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
balance sheet as of March 31, 2000 is fairly stated, in all material respects,
in relation to the balance sheet from which it has been derived.
/s/ Jacoson & Rhodes P.C.
Jackson & Rhodes P.C.
Dallas, Texas
May 10, 2000
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
------------- -------------
(Unaudited)
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Current assets:
Cash $ 41,548 $ 5,214
Receivables 70,803 37,422
Prepaids and other 3,372 2,636
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Total current assets 115,723 45,272
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Furniture and equipment:
Furniture and equipment 193,523 74,374
Accumulated depreciation (46,519) (29,395)
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Net furniture and equipment 147,004 44,979
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Other assets:
Goodwill, net of amortization of $436,028 1,560,317 1,759,953
Website development costs 363,055 254,855
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Total other assets 1,923,372 2,014,808
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$2,186,099 $2,105,059
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 606,657 $ 342,286
Due to related parties 257,202 138,700
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Total current liabilities 863,859 480,986
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Stockholders' equity:
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 5,888,315 4,555,614
Accumulated Deficit (4,571,476) (2,927,875)
Accumulated other comprehensive income (loss) (9,446) (17,218)
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$2,186,099 $2,105,059
========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
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Revenue $ 63,744 $ 4,993 $ 91,891 $ 4,993
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Expenses:
Salaries and benefits 325,293 309,392 637,588 314,740
Consulting, management and professional fees 214,614 58,081 325,990 107,518
Marketing and promotion 78,907 7,207 166,881 35,941
Depreciation and amortization 111,294 34,549 216,760 35,259
General and administrative 186,165 79,328 388,273 114,692
---------- ---------- ----------- ----------
Total expenses 916,273 488,557 1,735,492 608,150
---------- ---------- ----------- ----------
Net loss for the period $ (852,529) $ (483,564) $(1,643,601) $ (603,157)
========== ========== =========== ==========
Basic net loss per share $ (0.06) $ (0.04) $ (0.11) $ (0.05)
========== ========== =========== ==========
Weighted average common shares outstanding 14,847,080 12,653,356 14,634,147 12,836,345
========== ========== ========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
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Net loss $(1,643,601) $(603,157)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 216,760 35,259
Stock issued for domain name 17,500 -
Stock option compensation - 161,189
Changes in assets and liabilities:
Receivables (33,381) 1,093
Prepaid expenses (736) (3,662)
Accounts payable 264,371 33,572
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Net cash used in operating activities (1,179,087) (375,706)
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Cash flows from investing activities:
Acquisition of CCS and NFPG, net of cash acquired - (192,325)
Purchase of furniture and equipment (119,149) (7,815)
Website development costs (108,200) -
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Net cash used in investing activities (227,349) (200,140)
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Cash flows from financing activities:
Bank overdraft - (2,661)
Advances from related parties 118,502 14,167
Common stock sold for cash,
Net of finders' fees paid 1,146,508 690,659
Private placement subscriptions 169,988 -
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Net cash provided by financing activities 1,434,998 702,165
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Effect of exchange rate changes on cash 7,772 (13,461)
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Net increase (decrease) in cash 36,334 112,858
Cash at beginning of period 5,214 -
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Cash at end of period $ 41,548 $ 112,858
=========== =========
Noncash activities:
During the period ended June 30, 1999, the Company converted $199,202 of
debt into 664,010 shares of common stock.
During the period ended June 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 June 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.
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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 six months ended June 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 $4,571,476 to June 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 quarter ended March 31,2000, $1,158,508
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 quarter ended June 30, 2000 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 June 30, 2000 the Company had
received $169,988 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 $64,400 of
finders' fees, in the amount of $1,136,508 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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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PLAN OF OPERATIONS
In the first half of 2000 the Company completed the following objectives:
1. Became a fully reporting Company under the Securities Exchange Act of
1934;
2. Closed $1.2 million interim financing;
3. ClassicCar.com awarded AMRO (a division of SEMA) Associate Company of
the year;
4. Signed 3-year sponsorship deal with Walker Racing;
5. Launched Motorwrxmall.com, 17 stores with over 5,000 automotive
products;
6. Launched Award winning racing and performance website - Speedwrx.com;
7. Launched "the Walker Racing Garage", a component of Speedwrx.com; and
8. Initiated pre-launch websites for Truckwrx.com and Motorwrx.com
The consolidation of the "dot.com world" and stock markets in general in the
second and third quarters of 2000 has forced management of the Company to
re-evaluate its primary objectives and segments of its business plan. This
market consolidation has been positive for EWRX and its family of Websites as
its commitment and success in building content and community based websites is
proving to be a valuable commodity in the "new" dot com world. As e-tailors
scramble to affiliate themselves with large community based web companies, EWRX
is establishing a major "web-sponsorship" initative to facilitate this "new"
demand. Although EWRX has not completed its evaluation of this new revenue
model, EWRX is positioned to take advantage of the opportunity by utilizing its
family of on-and-off-line products.
EWRX's primary business objective during the next 12 months is to develop and
operate websites that facilitate commercial transactions in the specialty
automotive aftermarket.
For the second half of 2000, the Company will be focused on 9 primary
objectives.
1. Completing the necessary financing to realize the Company business
plan;
2. Continue to upgrade existing websites with new software capabilities
and content including: ClassicCar.com, Classictruckshop.com,
Speedwrx.com, Motorwrx.com and Motorwrxmall.com;
3. Complete and launch Truckwrx.com, Motorwrx.com and phase one of
Bigbadcatalogue.com;
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4. Implement a strategic investor relations and public relations campaign
to expand the Company's shareholder base;
5. Continue to enhance and develop the Company's association with Walker
Racing and expand into other levels of racing as part of the Company's
marketing campaign;
6. Initiate a listing on a Junior European Exchange;
7. Complete a full registration of the Company's securities with the
Securities and Exchange Commission to facilitate financing;
8. Initiate a revenue-producing web sponsorship program utilizing the
Company's off-line racing products, its websites with special events
such as Classic Car, Truck Shows and Auctions and Races; and
9. Expand the Company's brands on-and-off line by way of co-sponsorship
programs with other specialty automotive aftermarket companies.
REVENUES AND FINANCING
Through June 30, 2000 the Company has realized minimal revenue from banner
advertising and website consulting services, principally because the acquisition
of Classic Car and North Fork was completed only in late June 1999 and
development of the Company's existing and new websites was slowed due to
insufficient financing. EWRX intends to derive a substantial portion of its
revenues from this development.
The Company anticipates that Internet and related e-commerce will continue to
become more accessible and that the market opportunities for the Company will
expand in North America and internationally. The Company intends to expand the
content and to improve the services on its websites, and where appropriate, to
add new websites that are compatible with its existing websites related to the
Specialty Automotive Aftermarket. Additional capital, as described in "Capital
Resources" below, will be required for significant expansion on Website
capabilities and other Company activities.
The Company's principal source of funds has come from sales of Common Shares by
way of private placement and from advances made by officers and directors to
June 30, 2000. Approximately $1.32 million has been raised from sales of Common
Stock since September 1999. At June 30, 2000 there were net advances from
officers and directors amounting to $257,202 ($138,700 at December 31, 1999).
Proceeds have primarily been used to acquire Classic Car and North Fork,
initiate work for website re-design as discussed previously and for corporate
administrative and sales costs.
The Company is continuing to investigate and solicit funding primarily through
private placement of its securities.
10
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CAPITAL RESOURCES
As of February 29, 2000, the Company completed a private placement of 1,277,600
units, including issuance of 54,600 units for commissions, at $1.00 per unit.
Each unit consisted of one common share and one non-transferable warrant
exercisable at $1.00 for two years from the date of the subscription. Net
proceeds of approximately $1.198 million was raised in cash. The private
placement increased the number of fully diluted common shares by 1,277,600
shares. This placement was not subject to an underwriting agreement, although
broker-dealers were paid commissions.
The Company's monthly general and administrative costs (e.g. salaries, rent,
corporate expenses) are approximately $250,000. The Company anticipates, subject
to adequate financing, that by mid-2002, there will be sufficient revenue from
the operations of its websites from providing other Internet related services to
pay for these costs and related sales and marketing costs However, due to the
uncertainty of the timing and availability of financing, the Company will be
taking immediate steps to consolidate human resources and corporate overhead
expenses.
The Company is dependent upon the proceeds from the sale of Common Stock 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 risk 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 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 going concern which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. These factors can affect the ability of the Company to implement
its general business plan including specific plans to re-design websites, to
develop an on-line Specialty Automotive Aftermarket equipment catalog, to
implement other sales programs for its websites visitors, the principal means of
revenue generation for the Company's Internet markets.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Until recently, the Company was a development stage enterprise. Its principal
assets today are its investments in Classic Car and North Fork. From inception
to date, the Company has incurred significant operating losses resulting in its
working capital deficit. From its formation in 1997 through the first half of
1999, the Company did not generate any significant operating revenues. Beginning
in the third quarter of 1999 and upon completion of the purchase of Classic Car
and North Fork discussed previously, the Company has entered the e-commerce
marketplace. Revenues in 2000 were derived primarily from banner advertising on
Company websites.
Salaries and benefits increased in 2000 when compared to 1999 primarily as a
result of increases in personnel in the second half of 1999 in connection with
commencing e-commerce operating activities as a result of acquisition of Classic
Car Source and North Fork completed in June 1999.
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Consulting, management and professional fees are primarily accounting and legal
expenses. Increases in these expenses in 2000 when compared to 1999 are a result
of costs incurred relating to the acquisition of Classic Car Source and North
Fork and completion of the Company's registration of securities under the
Securities Exchange Act of 1934.
Marketing and promotion cost in 2000 pertain to creating brand awareness within
the Internet community of the Company's websites and its related products and
services. All such costs were incurred subsequent to the acquisition of Classic
Car and North Fork.
Overall during 2000, general and administrative expenses increased when compared
to 1999 as a result of commencing operating activities subsequent to the
acquisition of Classic Car and North Fork. Higher costs resulted from increased
staff, enlarging office facilities to include two locations, and other
administrative expenses. Such increases occurred primarily in the third and
fourth quarters of 1999 and are expected to be reduced from the rate of
approximately $250,000 per month.
Increases in depreciation and amortization in 2000 when compared to 1999 relate
primary to amortization of goodwill recorded in connection with the acquisition
of Classic Car and North Fork. Such amortization commenced in July 1999.
Due to operating losses since inception, the Company has not incurred any
liability related to income taxes.
Subject to availability of financing (see "Capital Resources" above), the
Company intends to complete the re-design of its current websites, increase
banner advertising and other sales programs, and continue to develop its
electronic catalog, all during the second half of 2000. The on-going redesign of
the Company's websites was initiated in June 1999, and when completed, a variety
of e-commerce revenue streams will begin. These activities are expected to be
the principal sources of future revenues for the Company. The Company believes
that revenues to be earned during the next twelve months, together with planned
sales of Common Shares as described above under "Capital Resources", will
provide sufficient funding for operations during that twelve-month period.
However, no assurance can be given that the types of revenues projected by the
Company or that the financing contemplated by the Company will occur. Additional
capital will be required for significant expansion of websites capabilities and
other planned Company activities such as development or acquisition of
additional websites.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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
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SIGNAURES
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)
August 11, 2000 By /s/ Ronald C. Davis
-------------------------------------
Ronald C. Davis
President and Chief Executive Officer
August 11, 2000 By /s/ Richard P. Ott
-------------------------------------
Richard P. Ott
Treasurer and Chief Accounting Officer
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