UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DIGITAL COMMERCE INTERNATIONAL, INC.
For the quarter ended April 30, 2000 Commission file number 0-011228
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Delaware 02-0337028
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(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
4049 Highland Drive
Salt Lake City, Utah 84124--1667
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(Address of Principal Executive Offices) (Zip Code)
(888) 505-5688
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(Registrant's telephone number)
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 proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
As of June 12, 2000, the number of shares outstanding of the
registrant's only class of common stock was 13,271,079. ----------
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Table of Contents
Page
PART I - FINANCIAL INFORMATION
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Item 1 Condensed Consolidated Financial Statements
Balance Sheets for April 30, 2000 (unaudited) and October 31, 1999 3
Statements of Operations for the Three Months and Six Months Ended
April 30, 2000 (unaudited) and 1999 (unaudited) 4
Statements of Cash Flows for the Six Months ended April 30, 2000
(unaudited) and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2 Managements Discussion and Analysis of Financial Condition and Results of
Operation 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 27 Financial Data Schedule 14
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2
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Digital Commerce International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
April 30, October 31,
2000 1999
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(Unaudited)
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CURRENT ASSETS
Cash $ 144,984 $ 430,803
Restricted cash 401,708 -
Accounts receivable (net of provision for doubtful accounts of $3,000 and $0 at
April 30, 2000 and October 31, 1999 respectively)
Trade 58,600 244,358
Other 59,407 9,099
Receivable from shareholders 38,876 18,587
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Total current assets 703,575 702,847
FURNITURE, fIXTURES, AND EQUIPMENT, AT COST 66,980 27,535
Less accumulated depreciation (15,286) (7,083)
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51,694 20,452
SECURITY DEPOSITS & NON-MARKETABLE SECURITIES 308,731 203,731
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$ 1,064,000 $ 927,030
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 163,086 $ 177,891
Accrued liabilities 94,903 73,587
Non-interest bearing deposits 401,708 -
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Total current liabilities 659,697 251,478
COMMITMENTS AND CONTINGENCIES (Note H) - -
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 30,000,000 shares
authorized, 13,271,079 and 12,967,500 shares issued
and outstanding in 2000 and 1999, respectively 13,271 12,967
Additional paid-in capital 1,970,100 1,214,404
Accumulated deficit (1,579,068) (551,819)
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Total stockholders' equity 404,303 675,552
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$ 1,064,000 $ 927,030
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See accompanying notes to condensed financial statements.
3
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Digital Commerce International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
April 30, April 30,
2000 1999 2000 1999
(Note C) (Note C)
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Revenues $ 44,650 $ - $ 78,356 $ -
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Operating expenses
Salaries 152,778 - 265,274 -
Professional services 317,456 - 488,692 -
Travel 85,158 - 117,533 -
Occupancy and telecommunications 25,888 - 44,810 -
Advertising 14,501 - 23,436 -
Depreciation and amortization 5,198 - 8,826 -
Other 76,278 - 157,034 -
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677,257 - 1,105,605 -
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Loss before income taxes (632,607) - (1,027,249) -
Income taxes - - - -
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NET LOSS $ (632,607) $ - $ (1,027,249) $ -
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Loss per common share
Basic $ (0.05) $ - $ (0.08) $ -
Diluted (0.05) - (0.08) -
Weighted-average common and dilutive
common equivalent shares outstanding
Basic 13,271,079 - 13,232,812 -
Diluted 13,271,079 - 13,232,812 -
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See accompanying notes to condensed financial statements.
4
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Digital Commerce International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months ended Six Months ended
April 30, April 30,
2000 1999
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(Note C)
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Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (1,027,249) $ -
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 8,826 -
Loss on disposal of equipment 444 -
Provision for doubtful accounts 3,000 -
Changes in assets and liabilities
Restricted cash (401,708) -
Accounts receivable 112,161 -
Security deposits and non-marketable securities (105,000) -
Trade accounts payable (14,805) -
Accrued liabilities 21,316 -
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Total adjustments (375,766) -
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Net cash used in operating activities (1,403,015) -
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Net cash flows used in investing activities
Purchase of equipment (40,512) -
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Net cash flows from financing activities
Proceeds from issuance of common stock 756,000 -
Net increase in non-interest bearing deposits 401,708 -
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Net cash provided by financing activities 1,157,708 -
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Net decrease in cash (285,819) -
Cash at beginning of period 430,803 -
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Cash at end of period $ 144,984 $ -
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See accompanying notes to condensed financial statements.
5
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Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
NOTE A - ACCOUNTING POLICIES
The consolidated financial statements for the interim period ended April
30, 2000 have been prepared in accordance with the accounting policies
described in the Company's Form 10-K. Management believes that the
statements include all adjustments of a normal recurring nature necessary
to present fairly the financial position and results of operations for
the interim period.
NOTE B - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial reporting and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information
and footnote disclosures normally included in financial statements
prepared under generally accepted accounting principles have been
condensed or omitted pursuant to such regulations. This report on Form
10-Q for the three months and six months ended April 30, 2000 and 1999
should be read in conjunction with the Company's annual report on Form
10-K for the fiscal year ended October 31, 1999. The results of
operations for the three months and six months ended April 30, 2000 may
not be indicative of the results that may be expected for the year ending
October 31, 2000.
NOTE C - BUSINESS ACTIVITY
Digital Commerce International, Inc. (the Company) is a Delaware
corporation that has been inactive from October 31, 1991 through June
15, 1999. On June 15, 1999 the Company acquired Digital Commerce Inc.
and began operations. Therefore, no information is presented for the
comparative three month and six periods ended April 30, 1999.
Note D - NET EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share (BEPS) is based on the
weighted-average number of common shares outstanding during each period.
Diluted earnings (loss) per common share are based on shares outstanding
and dilutive potential common shares. Shares from the exercise of the
outstanding options were not included in the computation of diluted loss
per share because their inclusion would have been antidilutive for the
three and six months ended April 30, 2000 computed as under BEPS.
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Note D - NET EARNINGS (LOSS) PER SHARE - CONTINUED
The following data show the shares used in computing loss per common
share including dilutive potential common stock:
Three Months Six Months
ended ended
April 30, 2000 April 30, 2000
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Common shares outstanding during the
entire period 13,271,079 12,967,500
Net weighted average common shares paid
for / issued during the period - 265,312
Weighted-average number of common
shares used in basic EPS 13,271,079 13,232,812
Dilutive effect of options - -
Weighted-average number of common
shares and dilutive potential common 13,271,079 13,232,812
stock used in diluted EPS
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Note E - BUSINESS SEGMENTS
The Company had two reportable segments for the three months and the six
months ended April 30, 2000, namely processing services and financial
services. The Company evaluates performance of each segment based on
earnings or loss from operations. Identifiable assets by segment are
reported below. The Company allocates certain general and administrative
expenses, consisting primarily of management and utilities.
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For the three months ended April 30, 2000:
Processing Financial Consolidated
services services Corporate balance
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Revenues $ 35,581 $ 6,548 $ 2,521 $ 44,650
Operating expenses (41,990) (85,468) (549,799) (677,257)
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Net loss $ (6,409) $ (78,920) $ (547,278) $ (632,607)
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Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
Note E - BUSINESS SEGMENTS - CONTINUED
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For the six months ended April 30, 2000:
Processing Financial Consolidated
services services Corporate balance
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Revenues $ 69,287 $ 6,548 $ 2,521 $ 78,356
Operating expenses (77,557) (114,567) (913,481) (1,105,605)
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Net loss $ (8,270) $ (108,019) $ (910,960) $ (1,027,249)
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Identifiable assets
Processing Financial Consolidated
services services Corporate balance
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Current assets $ 4,265 $ 476,393 $ 222,917 $ 703,575
Non-current assets 211,086 103,731 45,608 360,425
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Total assets $ 215,351 $ 580,124 $ 268,525 $ 1,064,000
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NOTE F - RECAPITALIZATION
On June 15, 1999 the Company acquired Digital Commerce Inc. (DCI), a
Nevis Corporation based in Vancouver, Canada. DCI was acquired through
the issuance of 5,000,000 shares of the Company's common stock and the
contemplated issuance of 500,000 shares of the Company's preferred stock
to the shareholders of DCI in exchange for all of the outstanding common
stock of DCI. The designation of the rights and preferences of the
preferred stock had been approved by the board of directors and
shareholders, but the Company had not amended its Certificate of
Incorporation to reflect such designations and rights. On February 25,
2000, the Company's board of directors, with the approval of the former
shareholders of DCI, decided not to issue the preferred shares.
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Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
NOTE G - COMMON STOCK & ADDITIONAL PAID IN CAPITAL
During the six months ended April 30, 2000, the Company completed two
private placements of common stock. One private placement consisted of
200,000 shares for total proceeds of $500,000. Another private placement
consisted of 83,666 shares raising a total of $256,000. In connection
with each of these isolated issuances of our securities, each purchaser
of those securities represented and warranted to us that it (i) was aware
that the securities had not been registered under federal securities
laws; (ii) acquired the securities for its own account for investment
purposes and not with a view to or for resale in connection with any
distribution for purposes of the federal securities laws; (iii)
understood that the securities would need to be indefinitely held unless
registered or an exemption from registration applied to a proposed
disposition; (iv) was aware that the certificate representing the
securities would bear a legend restricting their transfer; and (v) was
aware that there was no public market for the securities. Management
believes that, in light of the foregoing, and in light of the
sophisticated nature of each of the acquirers, the sale of such
securities to the respective acquirers did not constitute the sale of an
unregistered security in violation of the federal securities laws and
regulations by reason of the exemption provided under Section 4(2) and
Regulation S of the Securities Act, and the rules and regulations
promulgated thereunder.
NOTE H - CONTINGENCIES
The Company has employment agreements with certain officers of the
Company. Total salaries covered by these agreements increase from
$250,000 in the first year to $450,000 annually over five years. The
agreements are exclusive of bonuses, benefits, and other compensation.
The compensation contemplated by these agreements is subject to the
satisfaction of certain conditions, including the effective date of an
offering of the Company pursuant to which the Company receives funds
totaling $20,000,000 or the attainment of a Company market capitalization
of $150,000,000. Until the satisfaction of either of these two
conditions, the modified salary for each officer is $10,000 per month
with a deferral of the remaining balance until the underwriting or market
capitalization occur. As at April 30, 2000 the potential deferred salary
is $217,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. Certain statements in this report and
elsewhere (such as in our other filings with the Securities and Exchange
Commission ("SEC"), press releases, presentations by our 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 from
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 the banking, merchant services
and electronic commerce industries, constantly changing technology and
market acceptance of our products and services. The Company does not
undertake any obligation to publicly release the result 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.
Overview
The Company is engaged in the business of transaction processing for
e-commerce merchants and the provision of other e-commerce enabling
solutions, with an emphasis on Internet-based financial services. The
Company was incorporated in July 1982 as Systems Assurance Corporation.
From October 31, 1999 through June 15, 1999, the Company did not conduct
any active business operations, but pursued business opportunities to
merge with or acquire other businesses. On June 15, 1999, the Company
entered into an agreement for the acquisition of all the outstanding
capital securities of Digital Commerce Inc., a banking and financial
services organization. As a result of the acquisition, Digital Commerce
Inc. became the Company's wholly-owned subsidiary and the former
shareholders of Digital Commerce Inc. became the Company's majority
shareholders. At that time, the Company was renamed from Systems
Assurance Corporation to Digital Commerce International, Inc.
Since June 15, 1999, all of the Company's revenue has been primarily
derived from fees and commissions charged on the establishment and setup
of new merchant accounts and the transaction processing volume generated
by these merchants.
For the quarter ended April 30, 2000, the majority of our revenues
resulted from commissions received in our capacity as a sales agent for
an organization engaged in credit card transaction processing. Revenues
totaled $44,650 while the net loss incurred was $632,607. Our accumulated
deficit was $1,579,068 as at April 30, 2000.
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Results of Operations
Revenue. Revenue for the three months ended April 30, 2000 was $44,650.
These revenues can be attributed to commissions earned from our role as a
sales agent for an independent sales organization engaged in the
processing of credit card transactions for international merchants.
General and Administrative Expenses. General and administrative expenses
for the three months ended April 30, 2000 totaled $677,257. General and
administrative expenses for the three months were comprised primarily of
compensation for a staff complement of 13, fees for outside professionals
including lawyers and accountants and other overhead costs, including
travel and entertainment expenses. The Company's general and
administrative have increased in each quarter since the Company's
acquisition of Digital Commerce Inc. in June 1999. The Company believes
that it's general and administrative and operating expenses will continue
to increase in the future as the company continues to develop, implement,
and deploy its services and operations.
Liquidity and Capital Resources
Since June 1999, the Company financed its operations primarily through
private placements of its common stock. At April 30, 2000, the Company
had $144,984 in cash, excluding deposits held in customer accounts. The
Company has no debt facilities.
The Company has no material commitments, other than those employment
agreements described in Note H to the consolidated financial statements
and an operating lease of premises that commenced May 1, 2000 for a term
of five years with an annual commitment of approximately $80,000. The
Company hopes to realize an increase in its working capital, and
anticipates a substantial increase in its capital expenditures due to the
anticipated expansion of its business units, in fiscal year 2000.
Net cash used in operating activities during the quarter ended April 30,
2000 was $1,403,015. The Company's principal uses of cash were to fund
its net loss from operations and to finance the increases in receivables.
Net cash used in investing activities consisted of $40,512 paid
principally for acquisition of capital assets.
Net cash provided by financing activities was $1,157,708 of which
$756,000 derived from private placements of restricted common stock.
The Company's future success is dependant upon the Company securing
additional capital to fund operations. The Company may sell additional
equity, issue debt, or obtain credit facilities through financial
institutions. Any sale of additional equity securities will result in
dilution to the Company's stockholders. There can be no assurance that
additional financing will be available to the Company in amounts or on
terms acceptable to us.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At present our operations are limited to North America and the Caribbean
and hence our exposure to currency fluctuations is limited. The Company
does not have any hedges against either currency or interest rate
fluctuations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL COMMERCE INTERNATIONAL,INC.
Date: June 14, 2000
/s/ Michael Y. H. Kang
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Michael Y. H. Kang
Chairman, President and CEO
Date: June 14, 2000
/s/ Michael Greenberg,
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Michael Greenberg
Senior Vice President and CFO
