SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 0-27753
FIRST ECOM.COM, INC.
(exact name of registrant as specified in its charter)
Nevada 98-0206979
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
902 Henley Building
5 Queen's Road Central
Hong Kong SAR
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
011 (852) 2801 5181
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of October 25, 2000 the
Company had one class of Common Stock with $.0001 par value, of which 19,210,037
shares were issued and outstanding.
<PAGE>
FIRST ECOM.COM, INC.
INDEX
PART I
ITEM 1: Financial Information
Consolidated Balance Sheet as at September 30, 2000
and December 31, 1999
Consolidated Statement of Operations and
Comprehensive Loss for the three and nine
months ended September 30, 2000 and 1999
Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 2000
Consolidated Statement of Cash Flows
For the nine months ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II
ITEM 1: Legal Proceedings
ITEM 2: Changes in Securities and Use of Proceeds
ITEM 3: Defaults on Senior Securities
ITEM 4: Submission of Matters to a Vote of Security Holders
ITEM 5: Other Information
ITEM 6: Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
First Ecom.com, Inc.
(a development stage enterprise)
Unaudited interim consolidated balance sheets
at September 30, 2000 and December 31, 1999
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Note September 30, 2000 December 31, 1999
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 33,428,735 $11,099,606
Trade accounts receivable 116,716 --
Accrued interest 88,586
Marketable securities 4 1,816,200 --
Work in progress 43,866 --
Amounts due from stockholders -- 12,540
Prepaid financial advisory fees -- 672,022
Prepaid expenses and other receivables 850,690 375,778
-------------------------------------------------------
Total current assets 36,344,793 12,159,946
Property and equipment 5 1,120,070 1,046,237
Investment in affiliate 6 3,285,577 --
Goodwill 1,456,411 --
-------------------------------------------------------
Total assets $ 42,206,851 $ 13,206,183
=======================================================
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Unaudited interim consolidated balance sheets)
At September 30, 2000 and December 31, 1999 (continued)
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Note September 30, 2000 December 31, 1999
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Short term loan $ -- $ 27,007
Capital lease obligation 1,624 1,624
Accounts payable and accrued liabilities 7 747,774 1,153,049
Deferred income 17,233 18,075
---------------------------------------
Total current liabilities 766,631 1,199,755
Deferred rent 29,459 62,017
Capital lease obligation 946 2,164
---------------------------------------
Total liabilities 797,036 1,263,936
---------------------------------------
Stockholders' equity
Common stock, $0.001 par value
Authorized
200,000,000 at September 30, 2000
and December 31, 1999
Issued and outstanding shares
as of September 30, 2000-
19,210,037 shares
as of December 31, 1999
14,956,667 shares 19,211 14,957
Additional paid-in capital 58,761,891 18,716,175
Accumulated other comprehensive income (183,800) --
Deficit accumulated during the development stage (17,187,487) (6,788,885)
---------------------------------------
Total stockholders' equity 41,409,815 11,942,247
---------------------------------------
Total liabilities and stockholders' equity $ 42,206,851 $13,206,183
=======================================
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Unaudited interim consolidated statements of operations and comprehensive loss
for the three and nine months ended September 30, 2000 and 1999 and from
September 16,1998 (inception) to September 30, 2000
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Period from
Three months ended Nine months ended September 16, 1998
September 30 September 30 (inception) to
September 30,
2000 1999 2000 1999 2000
<S> <C> <C> <C> <C> <C>
Revenue
Payment processing $ 17,355 $ -- $ 27,887 $ -- $ 30,521
System integration 233,133 -- 637,834 -- 637,834
--------------------------------------------------------------------------------
Total revenue 250,489 -- 665,722 -- 668,356
Direct costs 269,279 -- 609,523 -- 609,523
--------------------------------------------------------------------------------
Gross profit loss (18,790) -- 56,199 -- 58,833
--------------------------------------------------------------------------------
Operating expenses
Advertising and promotion 38,502 34,730 231,166 186,670 483,345
Amortization of goodwill 145,641 -- 291,282 -- 291,282
Depreciation 149,625 106,030 419,266 134,307 669,648
Occupancy 195,731 113,155 458,603 160,342 735,034
Organizational costs -- -- -- 300,000 300,000
Other operating expenses 132,959 242,424 561,988 314,747 1,200,604
Professional fees 668,840 950,908 1,866,137 1,167,678 3,724,882
Staff compensation and benefits 1,333,969 558,671 3,666,293 901,754 5,391,484
Stock compensation costs 1,057,867 299,444 3,050,794 330,116 3,697,326
Traveling and entertainment 243,299 164,929 788,762 273,246 1,197,542
Write down of fixed and other assets -- -- 134,318 -- 134,318
--------------------------------------------------------------------------------
Total expenses 3,966,433 2,470,291 11,468,609 3,768,860 17,825,465
Operating loss (3,985,223) (2,470,291) (11,412,410) (3,768,860) (17,766,632)
Equity loss of affiliate (114,423) (114,423) (114,423)
Other income(expenses)
Interest income 476,273 1,246 1,129,966 14,073 1,166,727
Interest expense (85) (244,134) (1,734) (244,191) (473,158)
--------------------------------------------------------------------------------
476,188 (242,888) 1,128,232 (230,118) 693,569
--------------------------------------------------------------------------------
Net loss for the period (3,623,459) (2,713,179) (10,398,602) (3,998,978) (17,187,487)
--------------------------------------------------------------------------------
Other comprehensive income (loss):
Unrealized loss on marketable securities (183,800) (183,800) (183,800)
--------------------------------------------------------------------------------
Comprehensive loss for the period $ (3,807,259) $ (2,713,179) $(10,582,402) $ (3,998,978) $(17,371,287)
================================================================================
Basic and diluted loss per share
applicable to common stockholders $ (0.18) $ (0.22) $ (0.59) $ (0.34)
Weighted average shares used in
computing per share amounts 18,935,312 12,580,293 17,674,906 11,647,155
================================================================================
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Unaudited interim consolidated statements of
stockholders' equity for the nine months ended September 30, 2000
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Deficit
Common accumulated Accumulated
Additional during the other Total
paid-in development comprehensive stockholders'
Shares Amount capital stage income equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 14,956,667 $14,957 $18,716,175 $ (6,788,885) $ -- $11,942,247
Common stock and warrants
issued at $9.50 per unit 3,228,500 3,229 28,571,959 28,575,188
Stock-based compensation 3,050,794 3,050,794
Shares issued in business
combination 24,870 25 623,963 623,988
Shares issued on exercise of
Warrants 1,000,000 1,000 7,799,000 7,800,000
Net loss for the period (10,398,602) (183,800) (10,582,402)
---------------------------------------------------------------------------------------------
Balance at September 30, 2000 19,210,037 $19,211 $58,761,891 $ (17,187,487) $(183,800) $41,409,815
=============================================================================================
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Unaudited interim consolidated statements of cash flows
for the nine months ended September 30, 2000 and 1999 and from
September 16, 1998 (inception) to September 30, 2000
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Nine months Nine months Period from September
ended Sept. 30, ended Sept. 30, 16, 1998 (inception)
2000 1999 to Sept. 30, 2000
<S> <C> <C> <C>
Net loss for the period $(10,398,602) $ (3,998,978) $(17,187,487)
Equity loss in affiliate 114,423 -- 114,423
Organizational costs in excess of cash paid -- 300,000 300,000
Stock compensation costs 3,050,794 330,116 3,697,326
Depreciation of property and equipment 419,266 134,307 669,648
(Gain) loss on disposal of equipment (6,780) 3,804 (2,976)
Payment of financial advisory fee -- (1,500,000) (1,500,000)
Amortization of financial advisory fee 672,022 577,496 1,500,000
Amortization of goodwill 291,282 -- 291,282
Write-down of fixed and other assets 53,327 -- 53,327
Increase in trade accounts receivable (101,249) -- (101,249)
Increase in prepaid expenses and other receivables (455,308) (279,413) (831,086)
(Increase) decrease in amounts due -- -- --
(from) to stockholders and employees 12,540 (80,240) --
Increase in work in progress (43,867) -- (43,867)
Accretion of discount on loan -- 227,282 410,000
Increase (decrease) in accounts payable
and accrued liabilities 90,619 598,986 701,832
Increase (decrease) in deferred rent (32,558) 77,466 29,459
Increase in deferred income (842) -- 17,233
--------------------------------------------------------------------
Net cash used in operating activities (6,334,932) (3,609,174) (11,882,134)
--------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (507,463) (883,946) (1,706,635)
Proceeds from disposal of equipment 734 5,806 6,540
Effect of acquisition of subsidiary on cash (1,409,319) -- (1,409,319)
Investment in marketable securities (2,000,000) -- (2,000,000)
Investment in and loan to affiliate (3,400,000) -- (3,400,000)
--------------------------------------------------------------------
Net cash used in investing activities (7,316,048) (878,140) (8,509,414)
--------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of common stock 30,670,750 3,508,000 48,803,750
Share issue cost paid (2,460,458) -- (2,779,208)
Short term loans (27,007) 1,000,000 --
Proceeds from exercise of warrants 7,800,000 -- 7,800,000
Principal payments under capital lease obligations (3,176) (677) (4,259)
--------------------------------------------------------------------
Net cash provided by financing activities 35,980,109 4,507,323 53,820,283
--------------------------------------------------------------------
Net increase in cash and cash equivalents 22,329,129 20,009 33,428,735
Cash and cash equivalents at beginning of period 11,099,606 -- --
--------------------------------------------------------------------
Cash and cash equivalents at end of period $ 33,428,735 $ 20,009 $ 33,428,735
====================================================================
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Unaudited interim consolidated statements of cash flows for the nine months
ended September 30, 2000 and 1999
(Expressed in United States Dollars)
The Company paid $1,734 for interest for the nine months ended September 30,
2000 (1999: $244,191)
Major non-cash transactions
Nine months ended September 30, 2000:
(a) During the nine months ended September 30, 2000, $3,050,794 in compensation
expense was recorded for options and warrants granted.
(b) As part of the consideration paid for acquiring a 100% interest in the
issued share capital of Asia Internet Limited ("AIL") 24,870 shares of the
Company's common stock were issued (Note 8).
The fair values of assets and liabilities of AIL acquired are as follows:
Bank overdraft, net $(187,607)
Accounts receivable 104,053
Prepaid expenses 19,604
Property and equipment 53,846
Obligations under capital lease (22,194)
Accounts payable and accrued expenses (157,751)
---------
Deficiency in assets acquired $(190,049)
=========
Cash outflow from acquisition of subsidiary is made up of:
Cash consideration paid $1,200,000
Bank overdraft, net 187,607
Closing costs 21,712
----------
$1,409,319
==========
(c) In connection with the issue of 3,228,500 units on March 6, 2000 by the
Company, warrants to purchase 250,848 shares of the Company's common stock
were granted to an investment bank, in addition to cash commission. (Note
7(b))
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999
(Expressed in United States Dollars)
1 Background and nature of business
First Ecom.com, Inc. ("the Company") was established to facilitate
electronic payment processing of e-commerce transactions for merchants and
banks across the Internet. The Company has developed an electronic gateway
to convert consumers' credit card information collected by merchants on the
Internet into a format that can be processed by banks. The Company acts as
an intermediary payment system service provider between on-line merchants,
consumers and banks. The principal geographic area in which the Company
initially intends to provide its services is throughout Asia.
Since its inception, the Company has been in the development stage. The
Company is in the process of acquiring and developing its software and
hardware, training its personnel, performing research and development
activities, and developing its markets. Through September 30, 2000, the
Company had insignificant revenues from payment processing operations.
During the second and third quarters the Company earned systems integration
revenue through its wholly-owned subsidiary, Asia Internet Limited which
was acquired on March 31, 2000 (Note 8). In April, 2000 the Company decided
to gradually terminate its direct relationship with merchants. The Company
is now focusing on establishing and providing services to banks. The
Company charges banks service fees to process transactions through its
gateway, in addition to set up and other basic charges. The Company's
ability to emerge from development stage is ultimately dependent upon the
successful start-up of operations, including the development of sufficient
markets.
2 Basis of Preparation
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The results of operations
reflect interim adjustments, all of which are of a normal recurring nature
and which, in the opinion of management, are necessary for a fair
presentation of the results for such interim period. The results reported
in these interim consolidated financial statements should not be regarded
as necessarily indicative of results that may be expected for the entire
year. Certain information and note disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. These unaudited
interim consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
3 Summary of significant accounting policies
(a) Principles of consolidation
The accompanying interim consolidated financial statements include the
financial statements of the Company and its subsidiaries. All companies in
which the parent has a controlling financial interest through direct or
indirect ownership of a majority voting interest are consolidated. All
significant inter-company balances and transactions have been eliminated on
consolidation.
(b) Business combinations
Business combinations have been accounted for under the purchase method of
accounting. The results of operations of the acquired business from the
date of acquisition are included in the results of the Company. Net assets
of the companies acquired are recorded at their fair value to the Company
as at the effective date of acquisition.
(c) Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that reflect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(d) Revenue recognition
The Company has two revenue sources which are i) payment processing and ii)
systems integration. Payment processing revenue consists of set up fees,
certain basic charges and processing fees which are based on monthly
transactions. Systems integration revenue relates primarily to specific
contracts and is recognized using the percentage of completion method.
(e) Marketable securities
The Company considers all marketable securities as available-for-sale. All
securities are carried at fair value. Unrealized gains and losses on
marketable securities are reported as a component of comprehensive income
and classified as accumulated other comprehensive income (loss) in
shareholders' equity.
(f) Investments
The Company accounts for its investments in entities where it does not have
majority voting or management control on the equity basis. The gains
(losses) from equity investments are reported as a component of income
(loss).
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
4 Marketable securities
Marketable securities comprise of 735,295 shares of uniView Technologies
Corporation a public company traded on the NASDAQ - Small Capital Market.
5 Property and equipment
Details of the Company's property and equipment are as follows:
September 30, December 31,
2000 1999
Leasehold improvements $ 318,227 $ 318,227
Computer equipment and processing system 1,234,635 835,752
Furniture, fixtures and office equipment 279,149 141,819
----------- -----------
1,832,011 1,295,798
Less accumulated depreciation (711,941) (249,561)
----------- -----------
$ 1,120,070 $ 1,046,237
=========== ===========
Depreciation expense charged to results of operations was $419,266 for the
nine months ended September 30, 2000 (1999: $134,307). Additionally,
$53,327 was included in write-down of fixed and other assets.
6 Investment in affiliate
The Company acquired a 50% interest in First Ecommerce Data Services
Limited ("FEDS"), a joint venture operation with the Bank of Bermuda a
principal shareholder of the Company, from the Bank of Bermuda for $3
million plus 500,000 options of the Company exercisable at $12.00 per
share. In addition, the Company has advanced FEDS an unsecured,
non-interest bearing demand loan of $400,000.
Investment comprises
Cost of investment $ 3,000,000
Share of losses (114,423)
-----------
2,885,577
Demand loan 400,000
-----------
$ 3,285,577
===========
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
7 Stock options and warrants
(a) Stock options
The Board of Directors have approved the following grants of share options
under the 1999 Stock Option Plan to employees, directors and consultants.
All vested options lapse within three months of termination of employment.
On February 1, 2000, grants to employees for the purchase of up to 787,500
shares of the Company's common stock at a price of $9.90 per share.
Further, a director was granted options to purchase 15,000 shares of the
Company's common stock at a price of $9.90 per share on February 24, 2000.
The fair value of the shares at the dates of grant was $10.13 per share and
$30.00 per share respectively. 50% of these options are exercisable on or
after February 1, 2001 and the remaining 50% are exercisable on or after
February 1, 2002. All of these options, if remaining unexercised, will
expire on February 1, 2005.
On March 1, 2000, an employee was granted options to purchase up to 50,000
shares of the Company's common stock at a price of $9.90 per share. The
fair value of the shares at the date of grant was $30.44 per share. 50% of
these options are exercisable on or after February 1, 2001 and the
remaining 50% are exercisable on or after February 1, 2002. All of these
options, if remaining unexercised, will expire on February 1, 2005.
On April 1, 2000, employees were granted options to purchase up to 315,000
shares of the Company's common stock at a price of $9.90 per share. The
fair value of the shares at the date of grant was $25.09 per share. 50% of
these options are exercisable on or after February 1, 2001 and the
remaining 50% are exercisable on or after February 1, 2002. All of these
options, if remaining unexercised, will expire on February 1, 2005.
On April 17, 2000, employees were granted options to purchase up to 95,000
shares of the Company's common stock at a price of $13.50 per share. The
fair value of the shares at the dates of grant was $14.00 per share. 50% of
these options are exercisable on or after April 17, 2001 and the remaining
50% are exercisable on or after April 17, 2002. All of these options, if
remaining unexercised, will expire on April 17, 2005.
On May 12, 2000, employees were granted options to purchase up to 10,000
shares of the Company's common stock at a price of $14.00 per share. The
fair value of the shares at the date of grant was $14.03 per share. 50% of
these options are exercisable on or after May 12, 2001 and the remaining
50% are exercisable on or after May 12, 2002. All of these options, if
remaining unexercised, will expire on May 12, 2005.
On June 19, 2000,an employee was granted an option to purchase up to 50,000
shares of the Company's common stock at a price of $9.90 per share. The
fair value of the shares at the date of grant was $11.25 per share. 50% of
these options are exercisable on or after June 19, 2001 and the remaining
50% are exercisable on or after June 19, 2002. All of these options, if
remaining unexercised, will expire on June 19, 2005.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
(a) Stock options (continued)
On August 29, 2000 the Board of Directors approved the granting of new
options to employees providing the employees first rescinded their existing
grants, with a new exercise price of $5.05 per share. Holders of 1,145,750
stock options elected to rescind their grants and these were replaced with
a like number of new grants. The fair value of the shares at the date of
the replacement grants was $5.91 per share. 50% of these options are
exercisable on or after August 29, 2001 and the remaining 50% are
exercisable on or after August 29, 2002. All of these options, if remaining
unexercised, will expire on August 29, 2005. The modified grants were
accounted for using variable accounting according to FASB Interpretation
No. 44 that the unrecognised cost carried forward together with the excess
intrinsic value will be amortized over the new vesting periods.
On August 29, 2000, employees were granted options to purchase up to
285,000 shares of the Company's common stock at a price of $5.05 per share.
The fair value of the shares at the dates of grant was $5.91 per share. 50%
of these options are exercisable on or after August 29, 2001 and the
remaining 50% are exercisable on or after August 29, 2002. All of these
options, if remaining unexercised, will expire on August 29, 2005.
As of September 30, 2000, the Company has made commitments to issue 10,000
stock options to new employees of the Company.
(b) Warrants.
On March 6, 2000 the Company sold a total of 3,228,500 units at $9.50 per
unit. Each unit consists of one share of common stock and one warrant. The
warrants, which are exercisable through March 6, 2004, entitle the holder
to purchase one-third of a share of common stock at $11.40 per share. Costs
associated with issuing these units amounted to $2,460,458.
In connection with the unit issue, warrants to purchase 26,923 shares at
$7.80 per share, and 223,925 shares at $11.40 per share, of the Company's
common stock were granted to an investment bank in addition to the above
issue costs. These warrants will be exercisable for a period of five years
from the date of issue.
On June 30, 2000,pursuant to a termination agreement, the Company issued
50,000 warrants to a former employee to purchase 50,000 shares of the
Company's common stock at $8.55 per share. The market value of the
company's shares at the date of issue was $9.84 per share. These warrants
will be exercisable through June 29, 2002.
On July 26, 2000, the holder of a warrant for one million shares of the
Company exercised its right to acquire one million shares at a price of
$7.80 per share.
Details of the Company's previous common stock offerings are described in
the Company's Form 10-K for the year ended December 31, 1999, filed on
March 29, 2000 with the Securities and Exchange Commission.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements for the nine months
ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
8 Acquisition
On March 31, 2000, the Company acquired all the issued shares of Asia
Internet Limited ("AIL") for $1,200,000 cash and 24,870 shares of the
Company's common stock with a then fair market value of $623,988. The
Company also incurred direct costs of $21,712 in respect of the
acquisition.
AIL is a Hong Kong based Internet Service Provider and is engaged in the
provision of Internet dial-up access, information systems consulting and
other related services.
The acquisition has been accounted for using purchase accounting, and
accordingly, the results of operations of AIL have been included in the
Company's consolidated financial statements from April 1, 2000 onward. The
excess of the purchase price and direct costs over the fair value of the
identifiable net assets acquired of $1,747,693 has been recorded as
goodwill and is being amortized on a straight-line basis over 3 years.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and AIL as if the acquisition
had occurred as of the beginning of 2000 and 1999, after giving effect to
certain adjustments, including amortization of goodwill. The unaudited pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and AIL constituted a
single entity during such periods.
Nine months ended September 30
2000 1999
Pro forma revenue $ 793,819 $ 378,605
============ ===========
Pro forma loss for the period $(10,718,231) $(4,594,877)
============ ===========
Basic pro forma loss per share $ (0.61) $ (0.39)
============ ===========
The basic pro forma loss per share amounts are based on the pro forma loss
for the respective periods and the weighted average number of outstanding
shares of 17,683,105 and 11,668,130 respectively.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
9 Related party transactions
For the three and nine months ended September 30, 2000
(a) AIL was considered a related party to the Company because a 30%
shareholder of AIL is also a director and stockholder of the Company.
AIL has provided technical support, system maintenance and other
professional services to the Company and purchased computer and office
equipment on behalf of the Company. During the three months and nine
months ended September 30, 2000 (excluding those amounts after March
31, 2000, the date of acquisition of AIL by the Company), the Company
paid $Nil and $91,871 to AIL for the above services respectively
(1999: $66,105 and $154,543 respectively). During the nine months
ended September 30, 2000, the amounts charged by AIL to the Company
for technical support, system maintenance and other professional
services and purchase of computer and office equipment on the
Company's behalf were $283,157 for services and $15,290 for purchases,
respectively (1999: $183,276 for services and $114,580 for purchases,
respectively).
On March 31, 2000, the Company completed the acquisition of AIL and
AIL's assets and liabilities have been consolidated into the Company's
financial statements as of that date.
(b) A director and shareholder of the Company, Mr. Ermanno Pascutto, was a
partner in a law firm (the "firm") to which the Company has paid legal
fees in the ordinary course of its business. The amount paid by the
Company to the firm during the three and nine months ended September
30, 2000 was $20,490 and $373,497 respectively (1999: $69,541 and
$131,170 respectively) and the amount charged by the firm was $44,397
and $303,872 respectively (1999: $68,563 and $130,192 respectively).
As at September 30, 2000, the Company owed the firm $10,683 (as at
December 31, 1999: $80,308). Effective June 15, 2000, the director
resigned from the firm and entered into a consultancy agreement
directly with the Company with a monthly fee of $16,129. As of
September 30, 2000, $57,766 has been paid to this director.
<PAGE>
First Ecom.com, Inc.
(a development stage enterprise)
Notes to unaudited interim consolidated financial statements
for the nine months ended September 30, 2000 and 1999 (continued)
(Expressed in United States Dollars)
10 Segment information
The Company's operations involve the implementing and processing of
electronic payments as well as systems integration services. Summarized
financial information by segment for the three and nine month periods ended
September 30, 2000 and 1999, and as of September 30, 2000 as taken from the
internal management reports, is as follows:
Revenue
<TABLE>
<CAPTION>
Three months ended September 30 Nine months ended September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Segments
Payment processing $ 17,355 $ -- $ 27,887 $ --
Systems integration 233,134 -- 637,835 --
---------------------------------------- --------------------------------------
$ 250,489 $ -- $665,722 $ --
---------------------------------------- --------------------------------------
<CAPTION>
Profit and Loss
Three months ended September 30 Nine months ended September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Segments
Payment processing $(3,483,797) $(2,713,179) $(10,214,424) $(3,998,978)
Systems integration (139,662) -- (184,178) --
---------------------------------------- --------------------------------------
$(3,623,459) $(2,713,179) $(10,398,602) $(3,998,978)
---------------------------------------- --------------------------------------
<CAPTION>
Assets
September 30, 2000
<S> <C>
Segments
Payment processing $40,590,099
Systems integration 160,341
---------------------
40,750,440
Goodwill on consolidation 1,456,411
---------------------
$42,206,851
---------------------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements for the nine-month periods ended
September 30, 2000 and 1999 and the Form 10-K for the fiscal year ended December
31, 1999.
Special Note Regarding Forward-Looking Statements
Certain statements in this report and elsewhere (such as in other filings by the
Company with the Securities and Exchange Commission ("SEC"), press releases,
presentations by the Company of its management and oral statements) may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects",
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended to
identify these forward-looking statements. The Company's actual results could
differ materially form those anticipated in these forward-looking statements.
Factors that might cause or contribute to such differences include, among
others, competitive pressures, the growth rate of electronic commerce,
constantly changing technology and market acceptance of the Company's products
and services. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements, which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Results of Operations
Comparison of the three months and nine months ended September 30, 2000 with the
three months and nine months ended September 30, 1999
The Company generated processing income and set up fee income of $17,355 from
merchant customers for the three months ended September 30, 2000 and $27,887 for
the nine months ended September 30, 2000. The Company did not start to acquire
merchants as customers until the second quarter of 1999 and there were no
revenues for both the three months and nine months ended September 30, 1999.
The Company's wholly-owned subsidiary, Asia Internet Limited, which was acquired
on March 31, 2000, contributed systems integration revenue of $233,133 and
$637,834 for the three months and nine months, respectively ended September 30,
2000. There were no comparable revenues for both the three months and nine
months ended September 30,1999.
The Company stated in its Form 10-K filing on March 29, 2000 that it is now
focusing its services on the needs of banks in Asia. During the second and third
quarters of 2000 it started to refer to those banks all merchants currently
enjoying the "master merchant" relationship. The Company is continuing to
transfer the remaining merchants to banks which have a working relationship with
the Company. As a result, the Company may not generate processing fee and set up
fee income from the "master merchant" arrangement with the Bank of Bermuda in
the longer term. Upon completion of its internal User Acceptance Testing, the
Company has migrated to full production platform. As of September 30, 2000 the
Company has two banks in active production mode including Bank of Bermuda and
Wing Hang Bank.
Operating expenses for the three months ended September 30, 2000 increased 60.5%
over the comparable period in 1999 and for the nine months ended September 30,
2000 increased204% over the comparable period in 1999. This reflects the more
mature stage of the Company's development. The change in operating expenses
included a decrease of 29.6% for the three
<PAGE>
months ended September 30, 2000 and an increase of 59.8% for the nine months
ended September 30, 2000 of legal and professional fees over the respective
periods of 1999. This was due to the more mature stage of the Company and using
more in-house resources.
The Company had a total of 69 full time employees as of September 30, 2000 as
compared to 44 full time employees at September 30, 1999. This significant
increase in employees is the main reason that staff compensation and benefits
have increased 2.4 times for the three months ended September 30, 2000 and 4.1
times for the nine months ended September 30, 2000 over the comparable periods
in 1999. The Company did not grant stock options to employees until June 22,
1999 thus there is only a small amount of stock compensation expense in the nine
months ended September 30, 1999, as compared to the nine months ended September
30, 2000. The organization costs incurred in the nine months ended June 30, 1999
are not a recurring item and so there is no comparable item in the nine months
ended June 30, 2000. The significant increase in occupancy costs in respect of
properties is due to the Company starting to lease premises in late March 1999
and expanding the offices in July 1999. The Company did not purchase fixed
assets until the end of March 1999 and depreciation charges did not commence
until that time. Interest income has been generated from the fixed deposits with
banks. The balance of a short-term loan arrangement was fully repaid in early
January, 2000.
Liquidity and Capital Resources
As of September 30, 2000, the Company's current assets stood at $36.3 million as
compared to $12.1 million at December 31, 1999. As of September 30, 2000, the
Company's current liabilities were $766,631 as compared to $1,199,755 at
December 31,1999. Net cash used in operating activities increased from
$3,609,174 for the nine months ended September 30, 1999 to $6,334,932 for the
nine months ended September 30, 2000, mainly due to the significant increase in
operating costs in the first nine months of 2000 as compared to the first nine
months of 1999.
Net cash used in investing activities increased to $7,316,048, of which
$1,409,319 was due to the acquisition of Asia Internet Limited, $2,000,000 to
the acquisition of shares of uniView Technologies Corporation and $3,000,000 to
acquire a 50% interest in First Ecommerce Data Services Limited. The balance was
due to the purchase of property and equipment and a loan of $400,000 to First
Ecommerce Data Services Limited.
Net cash of $35,980,109 provided by financing activities during the nine months
ended September 30, 2000 consists mainly of proceeds from a private placement
that closed on March 6, 2000 and $7,800,000 from the exercise of options on July
26, 2000 as compared to net cash of $4,507,323 during the comparable nine months
ended September 30, 1999. The placement closed in the nine months ended
September 30, 1999 included initial seed capital investments into the Company of
$2,008,000.
The Company expects current cash balances, cash equivalents and investments to
meet its working capital and capital expenditure needs for the whole of the
current year. Because the Company is not currently generating sufficient cash to
fund its operations, the Company may need to rely on external financing to meet
future capital and operating requirements. Any projections of future cash needs
and cash flows are subject to substantial uncertainty. The Company's capital
requirements depend upon several factors, including the rate of market
acceptance, its ability to expand its customer base and increase revenues, its
level of expenditures for marketing and sales, purchases of equipment, and other
factors. If the Company's capital requirements vary materially from those
currently planned, the Company may require additional financing sooner than
anticipated. The Company can make no assurance that financing will be
<PAGE>
available in amounts or on terms acceptable to the Company, if at all. Further,
if the Company issues equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock, and debt financing, if
available, may involve restrictive covenants which could restrict the Company's
operations or finances. If the Company cannot raise funds, if needed, on
acceptable terms, the Company may not be able to continue its operations, grow
market share, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements which could negatively impact the
Company's business, operating results and financial condition.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which, in its opinion, after
consultation with legal counsel, could have a material adverse effect on the
Company. However, the Company is involved in ordinary routine litigation
incidental to its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 6, 2000 the Company issued 3,228,500 units, each unit consisting of one
share of common stock and a five-year warrant to purchase one third of a share
of common stock for $11.40 per whole share through March 6, 2004, in a private
placement to certain non-US persons outside the United States for $9.50 per unit
for a total of $30,670,750 in gross proceeds. This issuance was exempt from
registration pursuant to Regulation S of the Securities Act of 1933, as
amended..
On July 26, 2000, the holder of warrants for one million shares, exercisable at
$7.80 per share, exercised its option for a total of $7,800,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Since the Company's inception, the main focus of the business has been to
develop a unique, functional, secure payment gateway, and complementary
reporting systems, for the processing of ecommerce credit card transactions. To
this effect the Company has
<PAGE>
developed a leading-edge payment gateway and on August 29, 2000 filed a patent
application with the United States Patent and Trade Mark Office.
Among the unique features of the Company's payment gateway is that it has been
developed to assist banks to provide ecommerce solutions to their merchant
customers. It is in this market that the Company has chosen to market its
products. To date the there are three banks transacting business through the
Company's payment gateway.
The Company's payment gateway has been fully integrated through Windows NT to
support different third party web technology, and the Company has signed
alliance agreements with various firms, including ASP, ColdFusion, Lotus Domino,
Microsoft Site Server Commerce Edition, Perl and Sybase Application Server that
provide connectivity to the Company's payment gateway. There are a number of
merchants currently transacting ecommerce business through the Company's payment
gateway using a third party environment.
The Company has developed, and successfully tested, a working model utilizing
wireless application protocol ("WAP"), which allows ecommerce transactions to be
conducted through a mobile/wireless telephone and other wireless devices. The
production version of this product is presently being completed.
Currently, all of the Company's client's ecommerce transactions are processed
through the Bank of Bermuda, a principal shareholder of the Company. The Company
has acquired a 50% interest in First Ecommerce Data Services Limited ("FEDS")
from the Bank of Bermuda for the sum of $3 million plus an obligation to issue
500,000 options exercisable at $12.00 per share. FEDS is in the business of
electronic payment processing and the Bank of Bermuda has agreed to install an
electronic payment processing switch in FEDS such that not only will the
ecommerce transactions of the Company's client's be processed through FEDS but
also the ecommerce transactions of the Bank of Bermuda's clients.
The Company has also acquired all of the outstanding shares of Asia Internet
Limited ("AIL") for $1.2 million in cash and 24,870 shares of the Company. AIL
previously developed the Company's payment gateway and other applications under
contract to the Company. AIL is currently providing systems integration services
to third party customers located in Hong Kong and the surrounding region.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K Filed on January 10, 2000 in Regard to Private Placement Made in
December, 1999
Form 8-K Filed on March 17, 2000 in Regard to Private Placement Completed on
March 6, 2000
Form 8-K Filed on September 25, 2000 in Regard to a change of the Company's
Independent Accountants
<PAGE>
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.
Date: November 10, 2000 FIRST ECOM.COM, INC.
-------------------------------------
Gregory M. Pek
President and Chief Executive Officer
-------------------------------------
Kenneth G.C. Telford
Secretary and Chief Financial Officer
