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 July 31, 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 August 7, 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 as of July 31, 2000 (unaudited) and October 31, 1999 3
Statements of Operations for the Three Months and Nine Months Ended
July 31, 2000 (unaudited) and 1999 (unaudited) 4
Statements of Cash Flows for the Nine Months ended July 31, 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
July 31, October 31,
2000 1999
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(Unaudited)
CURRENT ASSETS
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Cash $ 11,857 $ 430,803
Receivables (net of allowance for doubtful accounts of $22,233
and $0 at July 31, 2000 and October 31, 1999 respectively)
Trade 39,286 244,358
Other 52,972 9,099
Shareholders 36,218 18,587
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Total current assets 140,333 702,847
FURNITURE, FIXTURES, AND EQUIPMENT, AT COST 54,298 27,535
Less accumulated depreciation (14,904) (7,083)
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39,394 20,452
SECURITY DEPOSITS AND NON-MARKETABLE SECURITIES 308,731 203,731
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$ 488,458 $ 927,030
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 212,840 $ 177,891
Accrued liabilities 77,731 73,587
Notes payable and other borrowings 300,000 -
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Total current liabilities 590,571 251,478
COMMITMENTS AND CONTINGENCIES (Note H) - -
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 30,000,000 shares
authorized, 13,271,079 and 12,967,500 shares issued
and outstanding in 2000 and 1999, respectively 13,271 12,967
Additional paid-in capital 1,970,100 1,214,404
Accumulated deficit (2,085,484) (551,819)
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Total stockholders' equity (102,113) 675,552
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$ 488,458 $ 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 Nine months ended
July 31, July 31,
-------------------------------- -------------------------------
2000 1999 2000 1999
(Note C) (Note C)
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Revenues $ 35,072 $ - $ 113,428 $ -
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Operating expenses
Salaries 391,710 - 718,984 -
Professional services 39,761 - 466,453 -
Travel 37,260 - 154,794 -
Occupancy and telecommunications 39,353 - 84,163 -
Advertising 10,000 - 33,436 -
Depreciation and amortization 6,162 - 14,969 -
Other 17,242 - 174,294 -
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541,488 - 1,647,093 -
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Loss before income taxes (506,416) - (1,533,665) -
Income taxes - - - -
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NET LOSS $ (506,416) $ - $ (1,533,665) $ -
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Loss per common share
Basic $ (0.04) $ - $ (0.12) $ -
Diluted (0.04) - (0.12) -
Weighted-average common and dilutive
common equivalent shares outstanding
Basic 13,271,079 - 13,245,661 -
Diluted 13,271,079 - 13,245,661 -
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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)
Nine Months Nine Months
ended ended
July 31, July 31,
2000 1999
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(Note C)
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Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (1,533,665) $ -
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 14,969 -
Loss on disposal of equipment 5,309 -
Changes in assets and liabilities
Receivables 143,568 -
Security deposits and non-marketable securities (105,000) -
Trade accounts payable 34,949 -
Accrued liabilities 4,144 -
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Total adjustments 97,939 -
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Net cash used in operating activities (1,435,726) -
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Net cash flows used in investing activities
Purchase of equipment (39,220) -
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Net cash flows from financing activities
Proceeds from issuance of common stock 756,000 -
Proceeds from notes payable and other borrowings 313,514 -
Repayment of notes payable and other borrowings (13,514) -
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Net cash provided by financing activities 1,056,000 -
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Net decrease in cash (418,946) -
Cash at beginning of period 430,803 -
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Cash at end of period $ 11,857 $ -
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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
July 31, 2000
NOTE A - ACCOUNTING POLICIES
The consolidated financial statements for the interim period ended July
31, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated 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 nine months ended July
31, 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 nine months ended July 31,
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 was inactive from October 31, 1991 through June 15,
1999. On June 15, 1999 the Company acquired Digital Commerce Inc.
However, there was no activity for the quarter or the nine months ended
July 31, 1999. Therefore, no information is presented for the comparative
three month and nine month periods ended July 31, 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 nine months ended July 31, 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 Nine Months
ended ended
July 31, 2000 July 31, 2000
Common shares outstanding during the
entire period 13,271,079 12,967,500
Net weighted average common shares
issued during the period - 278,161
Weighted-average number of common
shares used in basic EPS 13,271,079 13,245,661
Dilutive effect of options - -
Weighted-average number of common
shares and dilutive potential
common stock used in diluted EPS 13,271,079 13,245,661
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Note E - BUSINESS SEGMENTS
The Company had two reportable segments for the three months and the nine
months ended July 31, 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.
For the three months ended July 31, 2000:
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Processing Financial Consolidated
services services Corporate balance
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Revenues $ 34,520 $ - $ 552 $ 35,072
Operating expenses (17,543) (64,387) (459,558) (541,488)
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Net earnings (loss) $ 16,977 $ (64,387) $ (459,006) $ (506,416)
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Note E - BUSINESS SEGMENTS - CONTINUED
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For the nine months ended July 31, 2000:
Processing Financial Consolidated
services services Corporate balance
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Revenues $ 103,807 $ 6,548 $ 3,073 $ 113,428
Operating expenses (95,100) (178,954) (1,373,039) (1,647,093)
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$ 8,707 $ (172,406) $(1,369,966) $ (1,533,665)
Net earnings (loss) ================= ============== ============= ===============
Identifiable assets
Processing Financial Consolidated
services services Corporate balance
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Current assets $ 1,107 $ 40,625 $ 98,601 $ 140,333
Non-current assets 206,348 103,731 38,046 348,125
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Total assets $ 207,455 $ 144,356 $ 136,647 $ 488,458
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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.
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NOTE G - COMMON STOCK & ADDITIONAL PAID IN CAPITAL
During the nine months ended July 31, 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 the Company 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 a
public offering of the Company's common stock 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 of July 31, 2000 the
potential deferred salary is $307,000.
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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. Since
June 15, 1999, the Company has focused its capital resources on the
development of its electronic payment processing technologies and the
hiring of key personnel. With this technology, the Company expects to
deliver an array of payment processing and integrated financial services.
The Company was incorporated in July 1982 as Systems Assurance
Corporation. From October 31, 1991 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 Digital
Commerce International, Inc.
Since June 15, 1999, 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 July 31, 2000, the majority of our revenues
resulted from commissions received in our capacity as a sales agent for
an independent sales organization engaged in credit card transaction
processing for international merchants. Revenues totaled $35,072 while
the net loss incurred was $506,416. Our accumulated deficit was
$2,085,484 as at July 31, 2000.
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Results of Operations
Revenue. Revenue for the three months ended July 31, 2000 was $35,072.
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 July 31, 2000 totaled $541,488. General and
administrative expenses for the three months were comprised primarily of
compensation for a staff complement of 13, fees for outside professionals
including attorneys and accountants and other overhead costs, including
travel and entertainment expenses. During the quarter the Company made
several changes to reduce general and administrative expenses including
reducing headcount and consulting expenses. The benefit of these changes
will be evident in the fourth quarter of the year ending October 31,
2000. 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.
However the Company has implemented procedures to ensure that this growth
occurs in a controlled manner.
Liquidity and Capital Resources
Since June 1999, the Company has financed its operations primarily
through private placements of its common stock. At July 31, 2000, the
Company had $11,857 in cash.
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 nine months ended July
31, 2000 was $1,435,726. The Company's principal uses of cash were to
fund its net loss from operations and to finance the increases in
security deposits and non-marketable securities.
Net cash used in investing activities consisted of $39,220 paid
principally for acquisition of equipment.
Net cash provided by financing activities was $1,056,000 of which
$756,000 was derived from private placements of restricted common stock.
The remainder was derived from other notes payable and borrowings from
stockholders.
The Company's future success is dependant upon the Company securing
additional capital to fund operations. The Company may sell additional
common stock through purchase plan, 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: XXXXXX, 2000
/s/ Michael Y. H. Kang
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Michael Y. H. Kang
Chairman, President and CEO
