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 January 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 South Highland Drive
Salt Lake City, Utah 84117
- -------------------- -----
(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 January 31, 2000, the number of shares outstanding of the
registrant's only class of common stock was 12,967,500.
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<PAGE>
Table of Contents
Page
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PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1 Condensed Financial Statements
Consolidated Balance Sheets for January 31, 2000
(unaudited) and October 31, 1999 ...................................3
Consolidated Statements of Operations for the First
Quarter Ended January 31, 2000 (unaudited) and
October 31, 1999 (unaudited) .......................................4
Consolidated Statements of Cash Flows for the First
Quarter ended January 31, 2000 (unaudited) and
1999 (unaudited) ...................................................5
Notes to Condensed Consolidated Financial Statements (unaudited) ...6
Item 2 Managements Discussion and Analysis of Results of Operations,
Cash Flow and Financial Condition ....................................9
PART II - OTHER INFORMATION
- ---------------------------
Item 6 Exhibits and Reports on Form 8-K ....................................11
Exhibit 27, Financial Data Schedule ..........................................12
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, October 31,
2000 1999
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(Unaudited)
CURRENT ASSETS
Cash $ 824,039 $ 430,803
Accounts receivable, no allowance deemed
necessary
Trade 236,303 244,358
Other 8,663 9,099
Receivable from shareholders 26,121 18,587
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Total current assets 1,095,126 702,847
EQUIPMENT, AT COST 29,613 27,535
Less accumulated depreciation (10,692) (7,083)
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18,921 20,452
DEPOSITS 118,731 203,731
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$1,232,778 $ 927,030
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 117,448 $ 177,891
Accrued liabilities 78,420 73,587
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Total current liabilities 195,868 251,478
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock to be issued - -
Shares paid for, but not issued 756,000 -
Common stock, $0.001 par value; 30,000,000
shares authorized, 12,967,500 and 12,967,500
shares issued and outstanding in 2000 and
1999, respectively 12,967 12,967
Additional paid-in capital 1,214,404 1,214,404
Accumulated deficit (946,461) (551,819)
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Total stockholders' equity 1,036,910 675,552
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$1,232,778 $ 927,030
========== ==========
See accompanying notes to condensed financial statements.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
January 31,
-------------------------------
2000 1999
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(Note C)
Revenues $ 33,706 $ -
Operating expenses
Salaries 112,496 -
Professional services 171,236 -
Travel 32,375 -
Licensing fees 15,338 -
Occupancy and telecommunications 18,922 -
Advertising 8,935 -
Depreciation and amortization 3,609 -
Website 3,287 -
Other 62,150 -
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428,348 -
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Loss before income taxes (394,642) -
Income taxes - -
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NET LOSS $ (394,642) $ -
============== ==============
Loss per common share
Basic $ (0.03) $ -
Diluted (0.03) -
Weighted-average common and dilutive
common equivalent shares outstanding
Basic 13,183,396 -
Diluted 13,183,396 -
See accompanying notes to condensed financial statements.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
January 31, October 31,
2000 1999
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(Note C)
Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (394,642) $ -
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 3,609 -
Changes in assets and liabilities
Accounts receivable 8,491 -
Receivable from shareholders (7,534) -
Deposits 85,000 -
Trade accounts payable (60,443) -
Accrued liabilities 4,833 -
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Total adjustments 33,956 -
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Net cash used in
operating activities (360,686) -
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Net cash flows used in investing activities -
purchase of equipment (2,078) -
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Net cash flows from financing activities
proceeds from issuance of common stock 756,000 -
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Net increase in cash 393,236 -
Cash and cash equivalents at beginning of period 430,803 -
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Cash and cash equivalents at end of period $ 824,039 $ -
============= =============
See accompanying notes to condensed financial statements.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000 and 1999
NOTE A - ACCOUNTING POLICIES
The consolidated financial statements for the interim period ended
January 31, 2000 has been prepared in accordance with the accounting
policies described in the Company's Form 10-K. Management believes 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 ended January 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 ended January 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 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 period ended January 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
(computed as under BEPS) 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 months ended January 31, 2000 and 1999.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000 and 1999
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:
Common shares outstanding during the entire period
12,985,833
Weighted-average shares paid for, but not issued
during the period 197,563
------------
Weighted-average number of common shares
used in basic EPS 13,183,396
Dilutive effect of options -
------------
Weighted-average number of common shares and dilutive
potential common stock used in diluted EPS 13,183,396
============
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 months ended January 31, 2000.
Note E - BUSINESS SEGMENTS
The Company has two reportable segments for the three months ended
January 31, 2000, namely processing services and banking 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.
Processing Banking Consolidated
services services balance
------------- ------------ --------------
Revenues $ 33,706 $ - $ 33,706
Operating loss (35,567) (29,099) (64,666)
Administration expenses - - (363,682)
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Net loss $ (394,642)
==============
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000 and 1999
Note E - BUSINESS SEGMENTS - CONTINUED
Identifiable assets
Processing Banking Consolidated
services services Corporate balance
------------ ----------- ----------- -------------
Current assets $ 648,798 $ 64,422 $ 381,906 $ 1,095,126
Non-current assets 15,000 03,731 118,731
Capital assets 8,491 - 10,430 18,921
------------ ----------- ----------- -------------
Total assets $ 672,289 $168,153 $ 392,336 $ 1,232,778
============ =========== =========== =============
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
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
preferred stock had been approved by the board of directors and
shareholders, but the Company had not amended its Articles of
Incorporation and the preferred shares had not been created and
registered with the State of Delaware. 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.
NOTE G - PRIVATE PLACEMENTS
During the quarter ended January 31, 2000, the Company completed private
placements of common stock. One private placement consisted of 200,000
shares for total proceeds of $500,000. Another private placement
consisted of 85,333 shares raising a total of $256,000.
<PAGE>
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 engaged is 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 1992 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 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 ending January 31, 2000, all 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 $33,706 while the net loss incurred was $394,642. Our accumulated
deficit was $946,461.
<PAGE>
Results of Operations
Revenue. Revenue for the three months ended January 31, 2000 was $33,706.
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 January 31, 2000 totaled $428,348. General and
administrative expenses for the three months were comprised primarily of
compensation for personnel, fees for outside professionals,
telecommunications, occupancy, bank licensing fees 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 their operations primarily through
private placements of their common stock, which provided net proceeds of
approximately $756,000. At January 31, 2000, the Company had
approximately $824,000 in cash. The Company has no debt facilities.
The Company has no material commitments, other than those employment
agreements described in the 10-K. 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 the year 2000.
Net cash used by operating activities during the quarter ended January
31, 2000 was $360,686. 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 by investing activities consisted of $2,078 paid
principally for acquisition of capital assets.
Net cash provided by financing activities was $756,000 derived from
private placements of restricted common stock.
<PAGE>
Liquidity and Capital Resources - continued
- -------------------------------------------
Management believes that the combination of revenues and capital
contributions will be sufficient to fund operations for the current
fiscal year. To the extent that the Company requires additional funds to
support its operations or the expansion of its business, 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, if required, will be available to
the Company in amounts or on terms acceptable to us.
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) A report on Form 8-K was filed on January 13, 2000, with
respect to the dismissal of the accounting firm of Crouch
Bierwolf & Chisholm and the appointment of Grant Thornton LLP
as the registrant's independent public 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.
DIGITAL COMMERCE INTERNATIONAL,INC.
Date: March 15, 2000
/s/ Michael Y. H. Kang
----------------------
Michael Y. H. Kang
Chairman, President and CEO
Date: March 15, 2000
/s/ Alvin Tan,
----------------------
Alvin Tan
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000705581
<NAME> DIGITAL COMMERCE INTERNATIONAL, INC.
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<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
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</TABLE>
