UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(AMENDMENT NO. 2)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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.)
#301-543 Granville Street
Vancouver, BC Canada V6C 1X8
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (604) 669-6079
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 December
15, 1999 was 13,551,980 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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Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and December 31, 1998....................... 3
Interim Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998 (Unaudited).................................................................. 4
Consolidated Interim Statements of Changes in Stockholders' Equity (Deficit) For the
Nine Months Ended September 30, 1999 (Unaudited), the Year Ended December 31, 1998
and the Period from June 25, 1997 (Date of Inception) to December 31, 1997.............................. 5
Interim Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited).................................................................. 6
Notes to Interim Consolidated Financial Statements for September 30, 1999 (Unaudited)........................ 7
Item 2 - Management's Discussion and Analysis or Plan of Operations............................................... 13
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings........................................................................................ 22
Item 2 - Changes in Securities.................................................................................... 22
Item 3 - Default Upon Senior Securities........................................................................... 22
Item 4 - Submission of Matters to Vote of Security Holders........................................................ 22
Item 5 - Other Information........................................................................................ 22
Item 6 - Exhibits and Reports on Form 8-K......................................................................... 22
Signatures........................................................................................................ 23
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Item 1. Financial Statements
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
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Current assets:
Cash $ 329,190 $ -
Receivables 23,312 6,264
Prepaids and other 9,614 1,815
----------- -----------
Total current assets 362,116 8,079
----------- -----------
Furniture and equipment:
Furniture and equipment 46,301 18,772
Accumulated depreciation (25,180) (4,948)
----------- -----------
Net furniture and equipment 21,121 13,824
----------- -----------
Other assets:
Goodwill, net of amortization of $136,568 (Note 2) 1,859,777 -
Website development costs 61,240 -
----------- -----------
Total other assets 1,921,017 -
----------- -----------
$ 2,304,254 $ 21,903
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT
Current liabilities:
Bank overdraft $ - $ 2,661
Accounts payable 178,386 93,731
Due to related parties 109,330 203,241
----------- -----------
Total current liabilities 287,716 299,633
----------- -----------
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,
13,416,980 and 11,949,366 shares issued and outstanding 13,416 11,949
Additional paid-in capital 4,454,508 1,008,051
Accumulated Deficit (2,445,742) (1,307,478)
Accumulated other comprehensive income (loss) (5,644) 9,748
----------- -----------
Total stockholders' equity (deficit) 2,016,538 (277,730)
----------- -----------
$ 2,304,254 $ 21,903
=========== ===========
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- ----------
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Revenue $ 43,493 $ - $ 48,486 $ -
---------- ---------- ----------- ----------
Expenses:
Loss from write-off of investment - 90,978 - 362,532
Salaries and benefits 156,554 2,392 452,361 49,219
Consulting, management and professional fees 112,868 64,269 218,766 120,652
Depreciation and amortization 102,529 864 137,788 2,593
General and administrative 284,964 21,160 377,835 232,382
---------- ---------- ----------- ----------
Total expenses 656,915 179,663 1,186,750 767,378
---------- ---------- ----------- ----------
Net loss for the period $ (613,422) $ (179,663) $(1,138,264) $ (767,378)
========== ========== =========== ==========
Basic net loss per share $ (0.05) $ (0.02) $ (0.09) $ (0.06)
========== ========== =========== ==========
Weighted average common shares outstanding 12,876,786 11,949,366 12,849,825 11,825,299
========== ========== =========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Nine Month Period Ended September 30, 1999 (Unaudited), the Year Ended
December 31, 1998 and the Period From June 25, 1997 (Date of Inception) to December 31, 1997
Accumulated
Additional Other
Common Stock Paid-In Accumulated Comprehensive
Shares Amount Capital Deficit Income Total
------------ --------- ------------ ------------- --------------- -------------
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Sale of common stock for cash 9,719,999 $ 9,720 $ 646,229 $ - $ - $ 655,949
Issuance of common stock for
investment (Note 3) 2,000,000 2,000 18,000 - - 20,000
Net loss for the period - - - (404,609) - (404,609)
---------- -------- ---------- ----------- -------- -----------
Balance, December 31, 1997 (restated) 11,719,999 11,720 664,229 (404,609) - 271,340
Sale of common stock for cash 229,367 229 343,822 - - 344,051
Net loss - - - (902,869) - (902,869)
Currency translation adjustment - - - - 9,748 9,748
-----------
Comprehensive income (loss) - - - - - (893,121)
---------- -------- ---------- ----------- -------- -----------
Balance, December 31, 1998 11,949,366 11,949 1,008,051 (1,307,478) 9,748 (277,730)
Sale of common stock for cash 1,863,313 1,863 688,796 - - 690,659
(inclusive of 64,286 shares
issued as finder's fee)
Stock issued for finders'
fees (Note 6) 130,000 130 (130) - - -
Stock issued on settlement of debt 664,010 664 198,538 - - 199,202
Stock options issued as compensation - - 161,189 - - 161,189
Reacquisition of shares (3,600,000) (3,600) 3,600 - - -
Acquisition of CCS and NFPG (Note 3) 1,600,000 1,600 1,758,400 - - 1,760,000
Sale of common stock for cash 810,291 810 636,064 636,874
Currency translation adjustment - - - - (15,392) (15,392)
Net loss - - - (1,138,264) - (1,138,264)
-----------
Comprehensive income (loss) - - - - - (1,153,656)
---------- -------- ---------- ----------- -------- -----------
Balance, September 30, 1999
(Unaudited) 13,416,980 $ 13,416 $4,454,508 $(2,445,742) $ (5,644) $ 2,016,538
========== ======== ========== =========== ======== ===========
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
Nine Months Ended
September 30,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
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Net loss $(1,138,264) $ (767,378)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 137,788 2,593
Write-off of investment in joint venture - 362,532
Stock options compensation 161,189 -
Changes in assets and liabilities:
Receivables (5,282) (5,451)
Prepaid expenses (7,799) 4,223
Incorporation costs - 3,876
Accounts payable 64,586 (12,260)
----------- ----------
Net cash used in operating activities (787,782) (411,865)
----------- ----------
Cash flows from investing activities:
Investment in and advances to joint venture - (406,532)
Acquisition of CCS and NFPG, net of cash
acquired (Note 2) (192,325) -
Purchase of furniture and equipment (6,505) (3,833)
Website development costs (61,240) -
----------- ----------
Net cash used in investing activities (260,070) (410,365)
----------- ----------
Cash flows from financing activities:
Bank overdraft (2,661) -
Advances from related parties 67,562 172,231
Common stock sold for cash 1,327,533 344,051
----------- ----------
Net cash provided by financing activities 1,392,434 516,282
----------- ----------
Effect of exchange rate changes on cash (15,392) 8,407
----------- ----------
Net increase (decrease) in cash 329,190 (297,541)
Cash at beginning of period - 302,982
----------- ----------
Cash at end of period $ 329,190 $ 5,441
=========== ==========
Noncash activities:
During the period ended September 30, 1999, the Company settled
$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, 1999, the Company issued 1,600,000
shares as partial consideration for the acquisition of CCS and NFPG
(see Note 2).
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
September 30, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
In 1999, the Company changed its name from Europa Resources, Inc. to EWRX
Internet Systems Inc.
UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements of EWRX Internet Systems Inc.
contained herein are unaudited and reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
financial position of the Company as at September 30, 1999 and the results
of its operations for the nine month periods ended September 30, 1999 and
1998. These financial statements should be read in conjunction with the
Company's audited financial statements as at December 31, 1998 and the year
then ended contained in the Company's August 31, 1999 filing on Form 10-SB
as amended on November 9, 1999 and December 8, 1999. The results of
operations for the three and nine month periods ended September 30, 1999
are not necessarily indicative of the results to be expected for the year
ended December 31, 1999.
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 is reporting cumulative net losses
since inception of $2,445,742 as of September 30, 1999.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
September 30, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN (Continued)
The following is a summary of management's plan to raise capital and
generate additional operating funds.
Management has filed a Form 10-SB with the Securities and Exchange
Commission ("SEC") in the third quarter of 1999. Management intends to sell
common shares by way of private placement to raise up to $3,000,000. The
funds raised through the private placements are intended to be used for
development of the various aspects of the CCS and NFPG businesses and to be
used for general and administrative expenses for the balance of 1999 and in
the first quarter of 2000. Management intends to secure additional funding
in 2000 through a secondary offering. The amount of that offering will be
dependent upon working capital requirements of the Company for the years
2000-2002 and as developed by management in the fourth quarter 1999.
To September 30, 1999 a total of $636,874 has been raised under this
private placement. Refer to Note 4.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments, with an original maturity of
three months or less when purchased, to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed
principally by the straight-line method based on the estimated useful lives
of five to seven years.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
September 30, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOODWILL
The company amortizes goodwill on a straight-line basis over five years.
WEBSITE DEVELOPMENT COSTS
The company capitalizes all direct costs relating to the development of new
websites in accordance with SOP 98-1. Ongoing costs for maintenance and
enhancement are expensed as incurred. Capitalized costs will be amortized
on a straight-line basis over five years commencing upon substantial
completion and commercialization of the website.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," foreign denominated monetary assets and
liabilities are translated to their United States dollar equivalents using
foreign exchange rates which prevailed at the balance sheet date. Revenue
and expenses are translated at average rates of exchange during the year.
Related translation adjustments are reported as a separate component of
stockholders' equity, whereas gains or losses resulting from foreign
currency transactions are included in results of operations.
NET LOSS PER COMMON SHARE
The company currently reports only basic loss per share, as all of the
Company's potential dilutive securities are antidilutive.
STOCK-BASED COMPENSATION
The Company has granted stock options to certain directors, officers, key
employees and consultants. Compensation costs arising from such options
will be recorded as an expense. The measurement date for determining
compensation costs is the date of the grant of the option. Compensation
cost is the excess, if any, of the market value of the stock at date of
grant over the amount the optionee must pay to acquire the stock. The
Company measures compensation costs using the intrinsic value based method
of accounting for stock issued to employees.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
September 30, 1999
(Unaudited)
2. ACQUISITIONS
The Company entered into an agreement dated April 11, 1999, to acquire all
the issued and outstanding shares of CCS and NFPG. CCS is a privately held,
state of Washington-based company which owns two websites, Classicar.com
and Classictruckshop.com, both of which are destination class websites on
the Internet. NFPG is an affiliated, privately held, state of
Washington-based company which provides website design and Internet
consulting services. The Company paid $133,333 cash plus 1,000,000
restricted common shares for CCS and $66,667 cash plus 450,000 restricted
common shares for NFPG and 150,000 common shares as a finder's fee. The
above transactions closed on June 15, 1999.
The transaction was accounted for as a purchase. Accordingly, the Company's
financial statements for the nine months ended September 30, 1999 include
the operations of CCS and NFPG from the date of acquisition (June 15,
1999). Under purchase accounting, the total purchase price was allocated to
the tangible and intangible assets and liabilities of the acquirees based
upon their respective estimated fair values as of the closing date. The
excess purchase price over the identifiable assets and liabilities has been
allocated entirely to goodwill as the Company was unable to obtain
meaningful valuations for other intangible assets. The estimated purchase
price and adjustments to the historical book value of the acquirees was as
follows:
Purchase Price, based on value
Of common stock issued plus cash paid $1,960,000
Fair value of net liabilities acquired 17,345
----------
Purchase price in excess of net liabilities acquired $1,977,345
==========
Goodwill $1,977,345
==========
Goodwill is being amortized over five years. Amortization amounted to
$131,824 for the nine month period ended September 30, 1999 and $98,868 for
the three month period ended September 30, 1999.
The common stock issued was valued based on the market price of the
securities over a reasonable period of time before and after the companies
reached an agreement on the purchase price and the proposed transaction was
announced in June 1999. The market price was discounted by 20% due to the
restrictions (Rule 144) on the securities and their thin market.
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
September 30, 1999
(Unaudited)
2. ACQUISITIONS (Continued)
The following unaudited pro forma consolidated information for the nine
months ended September 30, 1999 and the year ended December 31, 1998 gives
effect to the transaction as if it had occurred at the beginning of each
period. The unaudited pro forma consolidated information is presented for
informational purposes only and is not necessarily indicative of the
results of operations that would have been achieved had the transaction
been completed as of the beginning of that year, nor are they indicative of
the Company's future results of operations.
Period Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
Revenues $ 118,269 $ 241,184
Net loss $(1,459,781) $(1,440,743)
Net loss per common share $ (0.10) $ (0.11)
3. RELATED PARTY TRANSACTIONS
As at December 31, 1998 $203,241 had been advanced to the Company by
certain directors and shareholders. During the period ended September 30,
1999 $136,310 was advanced to the Company, $64,425 was repaid by the
Company and an additional $165,796 which was settled by the issuance of
common shares (Refer to Note 4). As at September 30, 1999 $109,330 is due
to these directors and shareholders and is currently non-interest bearing
and has no specific terms of repayment.
The following amounts were paid to directors and former directors of the
Company.
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Three months Three months Nine months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
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Management fees and salaries $ 82,410 $ 12,659 $169,622 $ 39,400
Consulting fees 15,671 850 51,521 20,350
Expense reimbursements 936 6,484 26,249 15,660
======== ======== ======== ========
$ 99,017 $ 19,993 $247,392 $ 75,410
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EWRX INTERNET SYSTEMS INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
September 30, 1999
(Unaudited)
4. CAPITAL STOCK
During the period ended September 30, 1999, 2,000,000 shares issued in
connection with the acquisition of certain mineral interests in the Ukraine
were reacquired by the Company. An additional 1,600,000 shares issued to
individuals in 1997 for cash ($.01 per share) were also reacquired by the
Company in the period. All of these shares were acquired at no cost to the
Company and returned to authorized and unissued common stock.
During the period ended September 30, 1999, the Company issued 130,000
common shares to two individuals for their assistance in raising funds in a
private placement of shares.
As of October 19, 1999, the Company completed a private placement for
945,291 units at a price of $0.85 per unit, each unit consisting of one
common share and a non-transferble warrant exercisable at $1.00 for two
years, for total proceeds of $803,497. As at September 30, 1999 the Company
had received proceeds of $636,874 net of finders' fees of $51,875. Since
the Company had accepted subscriptions for these proceeds, the Company has
been advised by counsel that they are issued and outstanding shares under
Nevada law. The shares are treated as issued and outstanding shares in
these financial statements even though the certificates evidencing
ownership of such shares were delivered after September 30, 1999.
The Company has issued compensatory stock options to certain directors,
officers, key employees and consultants. At September 30, 1999, there were
1,600,000 options outstanding with a weighted average exercise price of
$0.47 per share.
During the period ended September 30, 1999 the Company also completed the
following financings:
299,999 common shares at a price of $0.30 per share for total
proceeds of $90,000,
281,428 common shares at a price of $0.70 per share for total
proceeds of $197,000,
1,281,886 common shares (including 64,286 shares issued as a finders'
fee) at a price of $0.35 per share for total proceeds of $403,659,
and
664,010 common shares at $0.30 per share on settlement of debts
(including 552,653 shares issued to related parties).
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Item 2. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements made by or on behalf of the Company. From
time-to-time, the Company and its representatives may make written or verbal
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and other reports to
shareholders.
The words "expect, "anticipate," "intend," "plan," "believe," "seek," and
"estimate" or similar expressions are intended to identify such forward-looking
statements within the meaning of the Act. This Form 10-QSB also contains other
forward-looking statements. Forward-looking statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions which could cause the Company's future results and stock values to
differ materially from those expressed in any forward-looking statement made by
or on behalf of the Company. Many such factors are beyond the company's ability
to control or predict. Readers are cautioned not to put undue reliance on
forward-looking statements. Actual future results may differ materially from
historical results or those anticipated depending on a variety of factors,
including but not limited to: the ability of the Company to adequately fund its
planned operating activities on reasonable commercial terms, competition, the
ability of the Company to penetrate the Specialty Automotive Aftermarket,
effectiveness of advertising and marketing programs, dependence upon key
customers, suppliers and strategic relationships, changes in technology, changes
in laws and regulations including taxation matters, fluctuations in costs and
the Company's ability to replace, modify or upgrade computer programs in ways
that adequately address the Year 2000 issue.
The Company disclaims any intent or obligation to update publicly any and all
forward-looking statements, whether as result of new information, future events
or otherwise.
Plan of Operations
- ------------------
EWRX's primary business objective during the next twelve months is to develop
and operate websites that facilitate commercial transactions in the Specialty
Automotive Aftermarket (defined below). By using proprietary information
management software and by using the Internet as an e-commerce marketplace, the
Company believes that it can provide participants with enhanced selection and
pricing for automotive products and services. In return, the Company plans to
charge a fee, on a transaction-by-transaction basis for all business conducted
by third parties using the Company's websites. The Company also expects to
generate additional revenues from its websites by selling advertising to third
parties. Further, the Company expects its wholly owned subsidiary, North Fork
WebWrx, to earn increased service revenues by continuing to provide custom
software and website design services, Internet database services and custom
e-commerce software solutions to a variety of businesses seeking to maximize the
use of the Internet.
The Specialty Automotive Aftermarket is defined as the market consisting of
automotive products added to a vehicle by choice and not need. This market
includes products to enhance the appearance, performance and enjoyment of
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vehicles and excludes other products such as oil filters, sparkplugs and other
maintenance and repair items. There are sub-markets within the specialty
automotive aftermarket. They include classic cars, light trucks, rod and custom,
off-road vehicles, racing, and street performance.
When evaluating the Specialty Automotive Aftermarket, EWRX found a growing but
fragmented industry made up of a large number of smaller markets that together
service millions of people who have a high degree of interest in the products
and services within this market. This market is estimated to approximate $20
billion per year according to SEMA (Specialty Automotive Equipment Marketing
Association, the largest automotive trade association in the world), herein
after referred to as "1998 SEMA Market Report".
To achieve its primary objective, over the next twelve months and through the
year 2000, EWRX anticipates that it will:
1) Raise up to $3 million through the private placement sale of common shares.
Proceeds will be used for general corporate purposes and to fund planned
website development activities as outlined below. Refer to the discussion
under "Capital Resources" below.
2) Complete the re-development and re-programming of the Classicar.com and
Classictruckshop.com websites. This work will be accomplished in
conjunction with a contract with Xceed, Inc. who will provide the Company
with certain developmental and programming services. Both websites will
then be fully capable of conducting planned e-commerce operating
activities. Through September 1999, the Company has completed a portion of
this work and related costs have been capitalized as Website Development
Costs.
3) Develop the Company's MotorWrx.com website. MotorWrx.com provides a single
gateway on the Internet to the EWRX group of websites and ultimately will
provide links to other websites related to the Specialty Automotive
Aftermarket. EWRX intends MotorWrx.com to be an important destination site
for the Specialty Automotive Aftermarket on the Internet and it is planned
to provide a single point entry for automotive enthusiasts.
4) Development of BigBadCatalog.com, an electronic catalog for the Specialty
Automotive Aftermarket. Development of this new website will be undertaken
in part under the contract with Xceed, Inc. referred to previously in (2)
above. EWRX plans to integrate digitized standard printed catalogs for
automobile parts manufacturers and distributors into BigBadCatalog.com.
This will create a centralized point of sale on the Internet where auto
enthusiasts can purchase automotive parts directly from participating
manufacturers and distributors.
5) Increase brand awareness for the Motorwrx.com, ClassicCar.com,
Classictruckshop.com and related websites and brands. The Company has
initiated a program to significantly increase overall brand awareness of
the various EWRX websites through a national advertising program in
conjunction with certain co-sponsors.
6) Expand services provided to third parties by North Fork WebWrx. North Fork
Webwrx is a Internet solutions provider serving the Specialty Automotive
Aftermarket providing high-end website design services, Internet database
programming, custom e-commerce applications and strategic Internet
marketing consulting. With public acceptance of the Internet surging, and
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business-to-business commerce changing the traditional distribution
systems, EWRX believes that North Fork WebWrx can expand its market share
in the following areas:
WEBSITE DEVELOPMENT. Design, development, and maintenance of a wide range
of business-to-business commerce sites, Intranet (internal business
communications) and large-scale consumer sites.
ONLINE ADVERTISING. Banner ad development, banner placements and other
online advertising projects for third parties.
MARKET CONSULTING. Providing market consulting services, such as Internet
launch strategies, site development analysis and Internet marketing plans.
WEBSITE HOSTING. North Fork WebWrx currently hosts over 70 websites for
classic car and classic truck related businesses and organizations.
SPECIAL PROJECTS. Developing proprietary software for resale.
7) As appropriate opportunities arise and provided that sufficient funding is
available, complete additional acquisitions or form joint ventures and/or
strategic alliances with other website-related companies servicing the
Specialty Automotive Aftermarket.
Subject to availability of financing (refer to "Capital Resources" below), the
Company intends to complete the re-design of its current websites, increase
banner advertising and other sales programs, and to develop its electronic
catalog all during the first half of 2000. The on-going re-design of the
Company's websites was initiated in July 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 below 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 website
capabilities and other planned Company activities such as development or
acquisition of additional websites.
In connection with its website developmental activities as set out above, the
Company estimates that it will incur the following website development costs
during the next twelve months:
15
<PAGE>
Estimated Costs Through Year 2000
Anticipated Date of --------------------------------------------------
Improvement Graphic Redevelopment Programming Total
- ------------------- --------------------- ----------- --------
Classicar.com $65,000 $ 30,000 $ 95,000
March 2000
Classictruckshop.com $45,000 $ 25,000 $ 70,000
April 2000
BigBadCatalog.com $75,000 $200,000 $275,000
June 2000
MotorWrx.com $10,000 $ - $ 10,000
February 2000
Other Proposed
Internet Sites $65,000 $ 85,000 $150,000
June 2000
--------
$600,000
========
* May change based on market conditions and the Company's ability to obtain
financing for these projects.
Revenues and Financing
- ----------------------
Through September, 1999, the Company realized minimal revenues from banner
advertising and website consulting services, principally because the acquisition
of Classic Car and North Fork was completed only in late June 1999. EWRX intends
to derive its future revenues from these same sources, from the electronic
catalog, BigBadCatalog, and from other e-commerce programs on its websites. It
is anticipated that the 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.
During 1999 and 1998, the Company's principal source of funds has come from
sales of common shares by way of private placement and from advances made by an
officer/shareholder. Over this two year period, approximately $1.67 million
($1.3 million in 1999) has been raised from sales of common shares and $240,000
($67,000 in 1999) from related party advances. 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. Prior to
1999, the Company also incurred costs and made cash advances to a now defunct
mineral joint venture located in the Ukraine. See discussion under "Financial
Condition and Results of Operations" below. The Company is continuing to
investigate and solicit funding primarily through private placements of its
securities.
Capital Resources
- -----------------
The shares of the Common Stock of the Company traded on the OTC Bulletin Board
("OTCBB")under the trading symbol "EWRX" until October 18, 1999 when they traded
under the symbol "EWRXE". The "E" was added by the National Association of
16
<PAGE>
Securities Dealers, Inc. ("NASD") to reflect the Company's possible inability to
meet new NASD requirements for listing on the OTCBB. On November 17, 1999, the
NASD removed the Company's stock from listing on the OTCBB due to its inability
to secure clearance by the Securities and Exchange Commission ("SEC) of its
disclosures in a registration statement on Form-10SB. The Company's stock
currently trades on the "pink sheets" (an informal stock quotation service)
under the symbol "EWRX". The Company intends to seek re-listing of its shares on
OTCBB as soon as practicable following clearance of its registration statement
on Form-10SB. No assurance can be given that it will be successful in such
re-listing.
As of October 19, 1999, the Company completed a private placement of 945,291
units, $0.85 per unit, each unit consisting of one common share and a
non-transferable warrant exercisable at $1.00 for two years from the date of the
subscription. Net proceeds of approximately $803,000 were raised in this
placement. The private placement increased the number of fully diluted common
shares by 945,291 shares. This placement was not subject to the terms of the
agreement with Harmonic (discussed below) although Harmonic arranged for the
sale of a portion of the offering.
The Company has had preliminary discussions with third parties to raise up to
$3,000,000 using a combination of shares and warrants at the market price at the
time of subscription. Proceeds from the proposed sale of Common Stock will be
used to pay offering costs and to expand the brand recognition of the Company's
websites through advertising and marketing and to fund website redesign that
will in turn enhance the commercial value of Websites as previously discussed.
Proceeds will also be used for general working capital, and general and
administrative purposes.
The Company's monthly general and administrative costs (e.g. salaries, rent,
corporate expenses) are approximately $100,000. The Company anticipates, subject
to adequate financing, that by mid-2001, there will be sufficient revenue from
the operations of its websites to pay for these costs and related sales and
marketing costs.
The Company is dependent upon the proceeds of its proposed offering 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 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 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
17
<PAGE>
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 website visitors, the
principal means of revenue generation for the Company's Internet markets.
On July 15, 1999, the Company entered into an agreement with Harmonic Research,
Inc.(Harmonic), an investment fund management company, to sell by way of private
placement units consisting of common shares and warrants on behalf of the
Company. The initial term of the agreement was for 90 days and is extended in
90-day increments. To date, Harmonic has not placed any securities on behalf of
the Company under the terms of this agreement. The Company did not extend the
agreement in October 1999. Under the initial agreement terms, Harmonic provided
financial advisory services and was paid $15,000. Upon signing the initial
agreement, the Company also granted Harmonic a warrant to purchase 150,000
shares of the Company's common stock at $1.00 per share for three years. In
addition, Harmonic is also entitled to receive certain fees should the Company
enter into a merger, consolidation, reorganization, business combination or
acquire another company where Harmonic is the finder. No such transaction is
under consideration by the Company at this time.
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 and stockholders' deficit.
During 1997, 1998 and for 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 for the
three and nine month periods ended September 30, 1999 were derived primarily
from banner advertising on Company websites.
Expenses, other than the loss from write-off of investment in joint venture as
discussed below, have been for salaries, including consultants, professional
fees and general office expenses. Such expenses increased during the three and
nine month periods ended September 30, 1999 when compared to the same periods in
1998 due to commencement of operating activities subsequent to acquiring Classic
Car Source and North Fork in June 1999. Other increases relate to costs incurred
in connection with the filing of the Company's Form-10SB registration statement.
As operations expand in the future, general and administrative expenses are
expected to increase significantly from the current level of approximately
$100,000 per month. The amount of such increases is not presently determinable
and will vary depending on the level of increased business activity that the
Company is able to finance. Refer to "Capital Resources."
From inception through December 1998, the Company's sole business was in the
resource sector and the Company, through a joint venture, held certain mineral
interests in the Ukraine. Through 1998, the Company made payments and advances
to the seller and to the joint venture that aggregated $662,532. Such payments
were principally funded by sales of common stock from inception through 1998.
Due to poor market conditions and the uncertainty of financing the development
of mineral properties located in Ukraine, the Company elected to abandon these
mineral interests in the fourth quarter of 1998, which represented substantially
all of the Company's assets at that time. As a result, the Company wrote off its
entire unrecovered investment in, and advances to, the joint venture during the
fiscal years ended December 31, 1997 and December 31, 1998.
18
<PAGE>
Increases in depreciation and amortization in 1999 when compared to 1998 relate
primarily 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 does not expect to incur
any liability related to income taxes in 1999.
Effects of Year 2000 Compliance
- -------------------------------
The Company's business is integrally linked to computers, computer software and
the Internet. As such, its future development and business is subject to all of
the risks and costs associated with Year 2000 compliance. The Company does not
anticipate expenditure of substantial sums to achieve Year 2000 compliance.
The Company is dependent on the operation of numerous systems that may be
adversely affected by the Year 2000 problem as described below, including:
- EWRX's internal systems; and
- Equipment, software and content supplied to the Company by third-party
vendors that may not be Year 2000 compliant, including outside
providers of Web-hosting services on which the Company is currently
dependent.
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
twenty-first century dates from twentieth century dates. To function properly,
these date-code fields must distinguish twenty-first century dates from
twentieth century dates and, as a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with such "Year
2000" requirements.
The Company's future business depends on the successful operation of the
Internet following the commencement of the year 2000. If the Internet is
inaccessible for an appreciable period of time, or if customers and users are
unable to access the Company's sites, its business and revenues could be
materially adversely affected. The Company is also subject to external forces
that might generally affect industry and commerce, such as telecommunications,
utility or transportation company Year 2000 compliance failures, related service
interruptions and the economic impact that such failures have on the Company's
customers and advertisers.
Unlike other businesses, EWRX does not have an installed base of legacy systems
dating back many years. Nonetheless, in order to reduce the risks of the Year
2000 compliance problem, EWRX has undertaken a two-phase process of analyzing
the impact of the Year 2000 problem. First, it has completed an initial
assessment of its primary internal systems and, based on such assessment and
knowledge of the specific software and systems, EWRX currently believes that its
systems are Year 2000 compliant in all material respects or can readily be
brought into compliance with the application of corrective software
modifications. In many cases, the Company expects these modifications to be
provided by the vendors of the computer and software products we have installed.
EWRX has not incurred material costs to date in this informal phase of the
assessment process, and currently does not believe that the cost of additional
actions will have a material effect on its results of operations or financial
condition.
Second, EWRX is in the process of performing a further assessment of both its
internal systems and the vendor-supplied items and services it employs to
determine how the Year 2000 problem will affect all aspects of its operations.
EWRX will complete this second phase of its assessment by the end of the fourth
quarter 1999.
19
<PAGE>
The further assessment review of the following EWRX systems:
- hardware systems, including servers and systems used for date storage;
- software systems, including applications, development tools and
proprietary code;
- infrastructure systems, including routers, hubs and networks;
- facility systems, including general building functions, security, HVAC
and related operations; and
- the systems of our business partners, including content providers and
internet service providers ("ISP's").
EWRX is conducting its formal assessment of Year 2000 compliance by gathering
information on each aspect of EWRX's systems, reviewing each component or
application for date usage, and examining date representations. As to EWRX's
systems, the results to date of this formal assessment are consistent with the
results of its informal assessment.
With respect to vendor-supplied items and services, EWRX is conducting a review
of product compliance information on such items and services available online,
in vendor literature and through trade group information resources, contacting
its vendors for compliance information, and maintaining documentation of
assessments that have been performed by such vendors or outside sources. To
date, EWRX has received assurances from its third party vendors, Data Return
(Web server), Fairmarket (auction software) and Critical Path (e-mail software)
that their products and services are Year 2000 compliant. Further, such vendors
have received similar assurances regarding Year 2000 compliance from their
vendors. Finally, EWRX has already developed some contingency plans to cover
failure of third party supplier systems. The Company believes that a failure of
Critical Path and Fairmarket systems would not materially affect its operations.
The failure of Data Return's Web server could have an adverse impact on the
Company's operations, but EWRX has both the hardware/software and staff
expertise to service its Website; however, it may take some time for conversion
to the Company's systems during which time the website may be inoperable.
The further assessment will lead to the creation of a remediation and
contingency plan for achieving Year 2000 compliance. EWRX does not anticipate,
however, undertaking an assessment of the Year 2000 compliance of the Internet
or its underlying telecommunications infrastructure, and will therefore be
unable to predict the impact of Year 2000 issues that might affect the broader
Internet business community, including EWRX.
20
<PAGE>
Based on the completed initial assessment and progress on the further
assessment, EWRX currently believes that its internal systems are or can readily
be made Year 2000 compliant in all material respects. However, it is possible
that these current internal systems contain undetected errors or defects with
Year 2000 date functions. In addition, although the Company does not anticipate
problems, vendor- supplied items and services could contain undetected errors or
defects which, if not corrected, could result in serious unanticipated negative
consequences, including significant downtime for one or more EWRX Internet
properties.
Although EWRX is not aware of any material operational issues or costs
associated with preparing its internal systems for the year 2000, and although
it has not incurred material costs to date with respect to the Year 2000
compliance of these internal systems, the occurrence of any of the following
events could materially and adversely affect EWRX's business, results of
operations and financial condition:
- errors and defects are detected after the formal assessment process is
completed;
- third-party equipment, software or content fails to operate properly
with regard to the Year 2000; or
- Web advertisers expend significant resources to correct their current
systems for Year 2000 compliance, resulting in reduced funds available
for Web advertising or sponsorship of Web services.
21
<PAGE>
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.
22
<PAGE>
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)
January 14, 2000 By /s/ Ronald C. Davis
-------------------------------------
Ronald C. Davis
President and Chief Executive Officer
January 14, 2000 By /s/ Richard P. Ott
-------------------------------------
Richard P. Ott
Treasurer and Chief Accounting Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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0
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<COMMON> 13,416
<OTHER-SE> 2,003,932
<TOTAL-LIABILITY-AND-EQUITY> 2,304,254
<SALES> 43,493
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