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 June 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
incorporation or organization) Identification No.)
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 August 9, 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 June 30, 2000
and December 31, 1999
Consolidated Statement of Operations for the
three and six months ended June 30, 2000 and 1999
Consolidated Statement of Stockholders' Equity
for the six months ended June 30, 2000
Consolidated Statement of Cash Flows
for the six months ended June 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
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Unaudited interim consolidated balance sheets
at June 30, 2000 and December 31, 1999
(Expressed in United States Dollars)
Note June 30, 2000 December 31, 1999
Assets
Current assets
Cash and cash equivalents $32,597,252 $11,099,606
Trade accounts receivable 223,630 --
Work in progress 70,725 --
Amounts due from stockholders -- 12,540
Prepaid financial advisory fees 168,839 672,022
Loan receivable 8 400,420 --
Prepaid expenses and other receivables 920,558 375,778
----------- -----------
Total current assets 34,381,424 12,159,946
Property and equipment 4 1,130,871 1,046,237
Goodwill 6 1,602,053 --
----------- -----------
Total assets $37,114,348 $13,206,183
=========== ===========
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Unaudited interim consolidated balance sheets)
At June 30, 2000 and December 31, 1999 (continued)
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Note June 30, 2000 December 31, 1999
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Short term loan $ -- $ 27,007
Finance lease obligation- current 9,457 1,624
Accounts payable and accrued liabilities 7 681,264 1,153,049
Deferred income 5,749 18,075
------------ ------------
Total current liabilities 696,470 1,199,755
Deferred rent 44,915 62,017
Finance lease obligation- long term 13,755 2,164
------------ ------------
Total liabilities 755,140 1,263,936
------------ ------------
Stockholders' equity
Common stock, $0.001 par value
Authorized
200,000,000 at June 30, 2000
and December 31, 1999
Issued and outstanding shares
as of June 30, 2000-
18,210,037 shares
as of December 31, 1999
14,956,667 shares 18,211 14,957
Additional paid-in capital 49,905,024 18,716,175
Deficit accumulated during the
development stage (13,564,027) (6,788,885)
------------ ------------
Total stockholders' equity 36,359,208 11,942,247
------------ ------------
Total liabilities and stockholders' equity $ 37,114,348 $ 13,206,183
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Unaudited interim consolidated statements of operations
for the three and six months ended June 30, 2000 and June 30, 1999
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Period from
September 16, 1998
(inception) to Three months ended June 30 Six months ended June 30
June 30, 2000 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C>
Revenue
Payment processing $ 13,166 $ 5,730 $ -- $ 10,532 $ --
System integration 404,701 404,701 -- 404,701 --
------------ ------------ ------------ ------------ ------------
Total revenue 417,867 410,431 -- 415,233 --
Direct costs 340,244 340,244 -- 340,244 --
------------ ------------ ------------ ------------ ------------
Gross profit 77,623 70,187 -- 74,989 --
------------ ------------ ------------ ------------ ------------
Operating expenses
Advertising and promotion 444,843 41,750 146,650 192,664 151,940
Amortization of goodwill 145,641 145,641 -- 145,641 --
Depreciation 520,023 139,320 28,277 269,641 28,277
Occupancy 539,303 135,429 42,577 262,872 47,187
Organizational costs 300,000 -- -- -- 300,000
Other operating expenses 1,067,645 179,431 67,095 429,029 72,323
Professional fees 3,056,042 685,650 132,452 1,197,297 216,770
Staff costs 4,057,515 1,420,076 232,760 2,332,324 343,083
Stock compensation costs 2,639,459 1,794,511 30,672 1,992,927 30,672
Traveling and entertainment 954,243 323,515 71,806 545,463 108,317
Write down of fixed and other
assets 134,318 -- -- 134,318 --
------------ ------------ ------------ ------------ ------------
Total expenses 13,859,032 4,865,323 752,289 7,502,176 1,298,569
------------ ------------ ------------ ------------ ------------
Operating loss (13,781,409) (4,795,136) (752,289) (7,427,187) (1,298,569)
Other income (expenses)
Interest income 690,454 474,090 7,082 653,693 12,827
Interest expense (473,072) (1,385) (57) (1,649) (57)
------------ ------------ ------------ ------------ ------------
217,381 472,705 7,025 652,044 12,770
------------ ------------ ------------ ------------ ------------
Net loss for the period $(13,564,027) $ (4,322,430) $ (745,264) $ (6,775,142) $ (1,285,799)
============ ============ ============ ============ ============
Basic and diluted loss per
share applicable to common
stockholders $ (0.24) $ (0.06) $ (0.40) $ (0.12)
Weighted average shares used in
computing per share amounts 18,210,037 12,540,000 17,038,265 11,164,556
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Unaudited interim consolidated statements of
stockholders' equity for the six months ended June 30, 2000
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Deficit
accumulated
Common Additional during the Total
---------------------------- paid-in development stock-holders'
Shares Amount capital stage equity
<S> <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 -- 1,992,927 -- 1,992,927
Shares issued in business combination 24,870 25 623,963 -- 623,988
Net loss for the period -- -- -- (6,775,142) (6,775,142)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 18,210,037 $ 18,211 $ 49,905,024 $(13,564,027) $ 36,359,208
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Unaudited interim consolidated statements of cash flows
for the six months ended June 30, 2000 and June 30, 1999
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Period from
September 16, Six months
1998 (inception) Six months ended ended June
to June 30, 2000 June 30, 2000 30, 1999
<S> <C> <C> <C>
Net loss for the period $(13,564,027) $ (6,775,142) $ (1,285,799)
Organizational costs in excess of cash paid 300,000 -- 300,000
Stock compensation costs 2,639,459 1,992,927 30,672
Depreciation of property and equipment 520,023 269,641 28,277
Loss (gain) on disposal of equipment 3,695 (109) --
Payment of financial advisory fee (1,500,000) -- --
Amortization of financial advisory fee 1,331,161 503,184 --
Amortization of goodwill 145,641 145,641 --
Write-down of fixed and other assets 53,327 53,327 --
Increase in trade accounts receivable (119,577) (119,577) --
Increase in prepaid expenses and other receivables (900,954) (525,176) (380,931)
Increase in work in progress (70,725) (70,725) --
Accretion of discount on loan 410,000 -- --
Increase in accounts payable
and accrued liabilities 728,105 141,361 153,859
Increase (decrease) in deferred rent 44,915 (17,102) 37,223
Increase (decrease) in deferred income 5,749 (12,326) --
------------ ------------ ------------
Net cash used in operating activities (9,973,208) (4,414,076) (1,116,699)
------------ ------------ ------------
Cash flows from investing activities
Purchase of property and equipment (1,647,031) (459,788) (546,849)
Proceeds from disposal of equipment 6,540 734 --
Effect of acquisition of subsidiary on cash (1,409,319) (1,409,319) --
Increase in loans receivable (400,420) (400,420) --
------------ ------------ ------------
Net cash used in investing activities (3,450,230) (2,268,793) (546,849)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock 48,803,750 30,670,750 2,008,000
Share issue costs paid (2,779,207) (2,460,458) --
Repayment of short term loans -- (27,007) --
Principal payments under capital lease obligations (3,853) (2,770) (271)
------------ ------------ ------------
Net cash provided by financing activities 46,020,690 28,180,515 2,007,729
------------ ------------ ------------
Net increase in cash and cash equivalents 32,597,252 21,497,646 344,181
Cash and cash equivalents at beginning of year/period -- 11,099,606 --
------------ ------------ ------------
Cash and cash equivalents at end of year/period $ 32,597,252 $ 32,597,252 $ 344,181
============ ============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Unaudited interim consolidated statements of cash flows
for the six months ended June 30, 2000 and June 30, 1999
(Expressed in United States Dollars)
The Group paid $1,384 and $57 for interest for the six months ended June 30,
2000 and June 30, 1999 respectively.
Major non-cash transactions
Six months ended June 30, 2000:
(a) During the six months ended June 30, 2000, $1,992,927 in compensation
expense was recorded for options and warrants granted.
(b) 24,870 shares of the Company's common stock were issued on March 31, 2000
as part of the consideration paid for acquiring a 100% interest in the
issued share capital of Asia Internet Limited ("AIL").
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 shares on March 6, 2000, warrants to
purchase 250,848 shares of the Company's common stock were issued to an
investment bank in addition to cash commission. (see note 5(b))
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30, 1999
(Expressed in United States Dollars)
1 Background and nature of business
First Ecom.com, Inc. and subsidiaries (together "the Group") was established to
facilitate electronic payment processing of e-commerce transactions for
merchants and banks across the Internet. The Group 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 Group acts as an
intermediary payment system service provider between on-line merchants,
consumers and banks. The principal geographic area in which the Group initially
intends to provide its services is throughout Asia.
Since its inception the Group has been in the development stage. The Group 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 June 30, 2000, the Group had insignificant revenues from
payment processing operations. During the second quarter the Group earned
systems integration revenue through its new subsidiary, Asia Internet Limited
which was acquired on March 31, 2000 (Note 6). In April, the Group decided to
gradually terminate its direct relationship with merchants. The Group is now
focusing on establishing and providing services to banks. The Group intends to
charge banks service fees to process transactions through its gateway. The
Group's ability to emerge from development stage is ultimately dependent upon
the successful start-up of operations, including placing in service the Group's
operating software and hardware as well as developing sufficient markets.
2 Basis of Preparation
The accompanying unaudited condensed 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. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30, 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 (the "Group"). 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 Group. Net assets of the
companies acquired are recorded at their fair value to the Group as at the 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) Income recognition
The Group has two revenue sources i) payment processing and ii) systems
integration. Payment processing revenue consists of set up fees, which are
recognized monthly over the first 12 months after the set up, 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.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30,1999 (continued)
(Expressed in United States Dollars)
4 Property and equipment
Details of the Group's property and equipment are as follows:
June 30, December 31,
2000 1999
Leasehold improvements $ 318,227 $ 318,227
Computer equipment and processing system 1,089,927 835,752
Furniture, fixtures and office equipment 270,149 141,819
Motor vehicle 31,333 --
----------- -----------
1,709,636 1,295,798
Less accumulated depreciation (578,765) (249,561)
----------- -----------
$ 1,130,871 $ 1,046,237
=========== ===========
Depreciation expense charged to results of operations was $269,641 for the six
months ended June 30, 2000 (1999: $28,277). Additionally, $53,327 was included
in write-down of fixed and other assets.
5 Stock options and warrants
(a) Stock options
On February 1, 2000 the board of directors approved the granting of share
options to a further group of employees of the Group. Under this stock option
plan, the grantees are allowed to purchase 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 24 February 2000. The fair value of the shares at the dates
of grant was $10.13 and $30.0 respectively. 50% of these options are exercisable
on and after February 1, 2001 and the remaining 50% are exercisable on and after
February 1, 2002. All of these options, if remaining unexercised, will expire on
February 1, 2005.
On March 1, 2000 an employee of the Group 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. 50% of these options
are exercisable on and after February 1, 2001 and the remaining 50% are
exercisable on and after February 1, 2002. All of these options, if remaining
unexercised, will expire on February 1, 2005.
On April 1, 2000, a further group of employee 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. 50% of these
options are exercisable on and after February 1, 2001 and the remaining 50% are
exercisable on and after February 1, 2002. All of these options, if remaining
unexercised, will expire on February 1, 2005.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30,1999 (continued)
(Expressed in United States Dollars)
(a) Stock options (continued)
On April 17, 2000 the board of directors approved the granting of share options
to a further group of employees of the Group. Under this grant, the employees
are allowed 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. 50% of these options are exercisable on and after April 17, 2001 and
the remaining 50% are exercisable on and after April 17, 2002. All of these
options, if remaining unexercised, will expire on April 17, 2005.
On May 12, 2000 the board of directors approved the granting of share options to
a further group of employees of the Group. Under this grant, the employees are
allowed 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 dates of grant was
$14.03. 50% of these options are exercisable on and after May 12, 2001 and the
remaining 50% are exercisable on and after May 12, 2002. All of these options,
if remaining unexercised, will expire on May 12, 2005.
As at June 30, 2000, the Company has commitments to issue 50,000 stock options
to new employees of the Company.
(b) Warrants
On March 6, 2000 the Company issued a total of 3,228,500 units, each comprising
of one share of common stock and one warrant at a price of $9.50 each. The
warrants, which are exercisable at any time up to March 6, 2004, entitle the
holder to purchase one-third of a share of common stock at the price of $11.40
per whole share. Costs associated with issuing these units amounted to
$2,460,458.
In connection with the share 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 issued 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, 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. These
warrants will be exercisable for a period of two years from the date of issue.
Subsequent to June 30, 2000, the holder of a warrant for 1 million shares of the
Company exercised their right to acquire 1 million shares at a price of $7.80
per share.
Details of the Company's previous common stock offerings are set out in the Form
10-K for the year ended December 31, 1999.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30, 1999 (continued)
(Expressed in United States Dollars)
6 Acquisition
On March 31, 2000, the Company completed the acquisition of 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 fair value of $623,988, less extinguishments
of amount payable to AIL of $288,056. 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 has 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 has 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.
Six months ended June 30
2000 1999
Pro forma revenue $ 543,330 $ 161,427
=========== ===========
Pro forma loss for the period $(7,094,772) $(1,694,280)
=========== ===========
Basic pro forma loss per share $ (0.42) $ (0.15)
=========== ===========
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
17,050,631 and 11,189,426 respectively.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30, 1999 (continued)
(Expressed in United States Dollars)
7 Related party transactions
For the three and six months ended June 30, 2000
(a) Asia Internet Limited ("AIL") was considered a related party to the Group
by virtue of a 30% shareholder of AIL being a director and stockholder of
the Group. AIL provided technical support, system maintenance and other
professional services to the Group and purchased computer and office
equipment on behalf of the Group. During the three and six months ended
June 30, 2000 (excluding those amounts after March 31, 2000, the date of
acquisition of AIL by the Group), the Group paid $Nil and $91,871 to AIL
for the above services respectively (1999: $65,082 and $88,438
respectively). During the six months ended June 30, 2000, the amounts
charged by AIL to the Group for technical support, system maintenance and
other professional services and purchase of computer and office equipment
on the Group's behalf were $283,157 and $15,290 respectively (1999: $23,989
and $33,565 respectively).
On March 31, 2000, the Group completed the acquisition of AIL and its
assets and liabilities have been consolidated into the Group's accounts as
of that date.
(b) A director and shareholder of the Group was a partner in a firm of
solicitors to which the Group has paid legal fees in the ordinary course of
its business. The amount paid by the Group to the firm during the three and
six months ended June 30, 2000 was $151,774 and $326,702 respectively
(1999: $58,710 and $61,629 respectively) and the amount charged by the firm
was $100,851 and $259,618 respectively (1999: $38,446 and $38,446
respectively). As at June 30, 2000, the Group owed the firm $13,224 (as at
December 31, 1999: $80,308). Effective June 15, 2000, the director resigned
from the firm of solicitors and entered into a consultancy agreement
directly with the Company with a monthly fee of $16,129. $8,602 was accrued
at June 30, 2000
8 Commitments
On February 1, 2000, amended on May 26, 2000 the Company and the Bank of Bermuda
("BOB") signed a shareholder and share purchase agreement concerning the
formation of First Ecommerce Data Services Limited ("FEDS"), a joint venture
operation to house the Company's payment gateway and BOB's credit card switch
business. The Company committed to purchase a 50% interest in FEDS for a cash
consideration of $3,000,000 and the grant to BOB, for use of BOB or FEDS
employees, options to purchase 500,000 the Company's shares for $12.00 per share
upon BOB obtaining government approval. The Company has also agreed to fund 50%
of FEDS expenditures. To date, the Company has advanced an unsecured,
non-interest bearing demand loan of $400,420 with no set terms of repayment.
<PAGE>
First Ecom.com, Inc. and subsidiaries
(a group of companies in development stage)
Notes to unaudited interim consolidated financial statements
for the six months ended June 30, 2000 and June 30, 1999 (continued)
(Expressed in United States Dollars)
9 Subsequent event
Subsequent to June 30, 2000, the holder of a warrant for 1 million shares of the
Company exercised their right to acquire 1 million shares for total cash
consideration of $7.8 million.
10 Segment information
The Group's operations involve the implementation and processing of electronic
payments as well as systems integration services. Summarized financial
information by segment for the three and six months periods ended June 30, 2000
and 1999, and as of June 30, 2000 as taken from the internal management reports,
is as follows:
<TABLE>
<CAPTION>
REVENUE
Three Months Ended Six Months Ended
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Segments
Payment processing $ 5,730 $ -- $ 10,532 $ --
Systems integration 404,701 -- 404,701 --
----------- ----------- ----------- -----------
$ 410,431 $ -- $ 415,233 $ --
----------- ----------- ----------- -----------
<CAPTION>
NET LOSS
Three Months Ended Six Months Ended
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Segments
Payment processing $(4,277,914) $ (745,264) $(6,730,626) $(1,285,799)
Systems integration (44,516) -- (44,516) --
----------- ----------- ----------- -----------
$(4,322,430) $ (745,264) $(6,775,142) $(1,285,799)
----------- ----------- ----------- -----------
<CAPTION>
ASSETS
30-Jun-00
<S> <C>
Segments
Payment processing $34,957,528
Systems integration 554,767
-----------
35,512,295
-----------
Goodwill 1,602,053
-----------
$37,114,348
-----------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the accompanying
interim consolidated financial statements for the six-month periods ended June
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 six months ended June 30, 2000 with the three
months and six months ended June 30, 1999
The Company generated processing income and set up fee income of $5,730 from
merchant customers for the three months ended June 30, 2000 and $10,532 for the
six months ended June 30, 2000 through its "master merchant" arrangement with
the Bank of Bermuda. The Company did not start to acquire merchants until the
second quarter of 1999 and so there were no revenues for both the three months
and six months ended June 30, 1999.
The Company's subsidiary, Asia Internet Limited, which was acquired on March 31,
2000, contributed systems integration revenue of $404,701 for the three months
and six months ended June 30, 2000. There were no comparable revenues for both
the three months and six months ended June 30,1999.
The Company announced in its Form 10-K filing on March 29 that it is now
focusing its services on the needs of banks in Asia. During the second quarter
of 2000 it started to refer to those banks merchants currently enjoying the
"master merchant" relationship. This transfer is expected to be completed during
the third quarter of 2000. 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. The Company has completed its internal User
Acceptance Testing of the systems it plans to provide to banks, but as of the
date of this document has not yet begun to provide these services.
Operating expenses for the three months ended June 30, 2000 were 547% higher
than for the comparable period in 1999 and for the six months ended June 30,
2000 were 477% higher than for the comparable period in 1999. This reflects the
more mature stage of the Company's development. The increase in operating
expenses included an increase in legal and professional
<PAGE>
fees of 417% for the three months ended June 30, 2000 and 452% for the six
months ended June 30, 2000 over the respective periods of 1999, principally in
respect of the engagement of professional services associated with this more
mature stage, such as software development services from Asia Internet (prior to
March 31,2000), legal fees associated with the Company's ordinary course of
business and investor relations services.
The Company had a total of 76 full time employees as at June 30, 2000 as
compared to 25 full time employees as at June 30, 1999. This significant
increase in employees is the main reason that staff costs have increased 5 times
for the three months ended June 30, 2000 and 5.78 times for the six months ended
June 30, 2000 over the comparable periods in 1999. The Company did not grant
stock options to employees until June 22, 1999 and so there only a small amount
of stock compensation expense in the six months ended June 30, 1999 as compared
to the six months ended June 30, 2000. The organization costs incurred in the
six months ended June 30, 1999 are not a recurrent item and so there is no
comparable item in six months ended June 30, 2000. The significant increase in
occupancy costs in respect of properties is due firstly to the Company starting
to rent the premises in late March 1999 and secondly due to the expansion of the
office in July 1999. The Company did not purchase fixed assets until the end of
March 1999 and depreciation charges did not commence until the three months
ended June 30, 1999. Interest income has been generated from the fixed deposit
monies raised from the recent private placement exercise. The balance of a
short-term loan arrangement was fully repaid in early January, 2000.
Liquidity and Capital Resources
As of June 30, 2000 the Company's net current assets stood at $33.7 million
(December 31, 1999: $11.0 million). Net cash used in operating activities
increased from $1,116,699 for the six months ended June 30, 1999 to $4,414,076
for the six months ended June 30, 2000, mainly due to the significant increase
in operating costs in the first six months of 2000 as compared to the first six
months of 1999.
Net cash used in investing activities increased to $2,268,793, of which
$1,409,319 was due to the acquisition of Asia Internet Limited. The balance was
due to the purchase of property and equipment and a loan to First Ecommerce Data
Services Limited.
Net cash of $28,180,515 provided by financing activities during the six months
ended June 30, 2000 consists mainly of a major private placement closed on March
6, 2000 as compared to net cash of $2,007,729 during the comparable six months
ended June 30, 1999. The placing closed in the six months ended June 30, 1999
included initial seed capital investments into the Company of $2,008,000.
According to the Company's business plan and forecasts, operating cash flow is
not expected to turn positive until well into 2001. However, on the basis of
current and expected levels of operational expenditure, the Company's cash
resources are regarded as sufficient to fund the Company's operations for the
whole of the current year, even if no significant revenues are generated.
<PAGE>
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 of which consists 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, in a private placement to
certain investors outside the United States for $9.50 per unit. This issuance
was exempt from registration pursuant to Regulation S.
On July 26, 2000 a the holder of warrants for 1 million shares, exercisable at
$7.80 per share, exercised its option and deposited the sum of $7,800,000 with
the company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On March 16, 2000 the Company signed an agreement with the owners of Asia
Internet Limited to purchase the entire issued share capital of Asia Internet
Limited for a consideration of $1.2 million in cash and 24,870 shares in the
Company. The purchase was completed on March 31, 2000. Asia Internet Limited, of
which Mr. Daswani is a director and shareholder, provided technical support,
system maintenance and other professional services to the Company during the
year ended December 31, 1999 and in the period ended March 31, 2000. Asia
Internet Limited developed the Company's payment gateway under contract prior to
March 31, 2000.
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
<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: August 10, 2000 FIRST ECOM.COM, INC.
/s/ Harold L. Hutton
-------------------------------------
Harold L. Hutton
President and Chief Executive Officer
/s/ Kenneth G.C. Telford
-------------------------------------
Kenneth G.C. Telford
Secretary and Chief Financial Officer
