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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 2000 Commission File No. 33-23430-D
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NETCOMMERCE, INC.
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(Exact name of registrant as specified in its charter)
Nevada 84-1091271
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1900 Westridge Drive, Irving, Texas 75038
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(Address of principal executive offices) (Zip Code)
(972) 465-5900
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(Registrant's telephone number, including area code)
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 preceding 12 months (or for 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 19, 2000, there were 32,831,187 shares of the Registrant's $.001
par value common stock issued and outstanding. There were also outstanding
warrants to purchase up to 668,014 shares of the Registrant's common stock.
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NETCOMMERCE, INC.
INDEX
Page
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PART I
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Item 1. Financial Statements
Consolidated Balance Sheet - August 31, 2000..........................3
Consolidated Statements of Operations - Three Months and Three Months
Ended August 31, 2000 and August 31, 1999...........................4
Consolidated Statements of Cash Flows - Three Months Ended
August 31, 2000 and August 31, 1999.................................5
Notes to Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................7
PART II
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Item 1. Legal Proceedings.....................................................9
Item 2. Changes In Securities.................................................9
Item 3. Defaults Upon Senior Securities.......................................9
Item 4. Submission of Matters to a Vote of Security Holders...................9
Item 5. Other Information.....................................................9
Item 6. Exhibits and Reports on Form 8-K......................................9
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Part I
NetCommerce, Inc.
Consolidated Balance Sheet
August 31, 2000
ASSETS
Cash $ 293,455
Marketable securities 285,715
Accounts receivable 33,500
Other current assets 87,888
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Total current assets 700,558
Investments at cost 313,200
Property and equipment, net of accumulated
depreciation of $277,457 484,952
Goodwill, net of accumulated amortization
of $341,523 977,051
Client lists, net of accumulated amortization
of $109,633 143,367
Other assets 114,285
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Total assets $ 2,733,413
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LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 256,250
Notes payable to related parties 339,217
Accounts payable 293,418
Accrued sales tax 151,517
Other current liabilities 379,563
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Total current liabilities 1,419,965
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Stockholders' equity:
Common stock, par value $0.001; 75,000,000 shares
authorized, 29,521,937 shares issued and outstanding 310,219
Additional paid-in capital 9,905,622
Unrealized gain 228,572
Accumulated deficit (9,130,965)
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Total stockholders' equity 1,313,448
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Total liabilities and stockholders' equity $ 2,733,413
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NetCommerce, Inc.
Consolidated Statements of Operations
Three months ended
August 31,
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2000 1999
NET REVENUES 270,161 206,159
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OPEPATING EXPENSES
Development and services 533,640 230,979
Sales and marketing 653,474 293,406
General and administrative 418,694 99,883
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TOTAL OPERATING EXPENSES 1,605,808 624,268
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LOSS FROM OPERATIONS (1,335,647) (418,109)
OTHER INCOME (EXPENSE)
Interest expense (9,785) (111,172)
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LOSS BEFORE INCOME TAXES (1,345,432) (380,241)
Income Taxes - 1,600
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NET LOSS $(1,345,432) $ (530,881)
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BASIC AND DILUTED NET LOSS PER SHARE $ (0.05) $ (0.03)
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BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 28,532,839 15,929,372
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NetCommerce, Inc.
Consolidated Statements of Cash Flows
Three months ended
August 31,
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2000 1999
Cash Flows From Operating Activities:
Net loss $(1,345,432) $(530,881)
Adjustments to reconcile net loss to net cash
(used) provided by operating activities:
Depreciation and amortization 122,041 67,882
Issuance of common stock for interest - 200,000
Increase in accounts receivable (10,877) (10,950)
Increase in other current assets (43,928) -
Increase in accounts payable 108,212 138,436
Increase in accrued consulting fees - 28,000
Increase in other current liabilities 159,861 107,911
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Net cash (used) provided by operating activities (1,010,123) 398
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Cash Flows From Investing Activities:
Purchases of equipment (219,149) (46,637)
Increase in other assets (21,479) (150,000)
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Net cash used by investing activities (240,628) (196,637)
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Cash Flows From Financing Activities:
Proceeds from notes payable - 250,000
Proceeds from notes payable to related parties 100,000 -
Payments on notes payable to related parties (14,760) -
Proceeds from issuance of common stock 1,044,250 -
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Net cash provided by financing activities 1,129,490 250,000
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Net (decrease) increase in cash (121,261) 53,761
Cash, beginning of period 414,716 -
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Cash, end of period $ 293,455 $ 53,761
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NetCommerce, Inc.
Notes to Consolidated Financial Statements
Note 1 - Organization and History
NetCommerce, Inc. ("NetCommerce" or the "Company") is incorporated in the State
of Nevada. The company develops, designs, and hosts internet web pages.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements at August 31, 2000, include
the accounts of NetCommerce and its majority-owned subsidiaries (collectively,
the "Company"). All significant intercompany accounts have been eliminated in
consolidation.
The accompanying consolidated financial statements reflect the historical
operations of Metroplex for all periods presented. The accompanying
consolidated financial statements include the operations of the Company's
acquirees from the dates of acquisition.
Liquidity
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. Since inception, the Company
has generated cash flows from financing activities to fund losses from
operations. The Company expects to raise equity and/or debt financing through a
private placement of securities. The Company expects to use the financing to
fund losses from operations for the foreseeable future. Losses from operations
are expected to increase due to management's belief that expanded marketing and
sales efforts is required to significantly increase the Company's revenues.
There are no assurances that the Company will be successful in obtaining
additional funding on terms satisfactory to the Company. These factors raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Unaudited Interim Financial Statements
The interim financial data as of August 31, 2000, and for the three months ended
August 31, 2000 and 1999, is unaudited; however, in the opinion of management,
the interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly and Company's financial position as of
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August 31, 2000, and the results of its operations and cash flows for the three
months ended August 31, 2000 and 1999.
Note 3 - Marketable Securities
At August 31, 2000 the Company held 28,572 shares of NetHoldings.com, Inc. for
which the market quote on the OTC:BB was $5 per share and has been reflected as
such on the accompanying balance sheet. As of October 18, 2000, the value has
declined to $3.50 per share. No adjustment has been made to the accompanying
consolidated financial statements to reflect this subsequent decline in value as
management has deemed such decline to be temporary.
Note 4 - Sales Taxes
Effective October 1, 1999, the State of Texas requires that sales tax must be
paid on all revenues derived from services related to the development of web
sites. During fiscal 1999, the Company has not remitted any amounts to the State
of Texas for sales taxes on their web development services. The Company has
recorded an accrued sales tax liability of $151,517 as a result of the Sales Tax
Audit conducted by the Comptroller of Public Accounts in Texas. The liability
has been partially reduced and will be retired in installments. The
interpretation of the statute is still under scrutiny by a large segment of the
business community in Texas.
Note 5 - Notes Payable
Two new notes payable to related parties were incurred totaling $100,000 as part
of an additional financing project.
Note 6 - Stockholders Equity
On various dates during the three months ended August 31, 2000, the Company
issued 3,849,000 shares of common stock for cash at prices ranging from $0.20 to
$0.75 per share.
On August 31, 2000 the Company entered into a subscription agreement with two
related parties for 1,500,000 shares of common stock for total cash proceeds of
$200,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
NetCommerce is an Internet-related holding company, which invests in, develops
and operates Internet service companies from majority or wholly owned
subsidiaries. NetCommerce's Internet services, including web page design, web
hosting and ISP marketing activities are conducted through Metroplex.
NetCommerce's Internet-related telecommunications services are developmental-
stage and include the sale of prepaid calling cards and re-marketing of long
distance services. All of the company's telecommunication services will be
conducted through InterCom. As of February 29, 2000, there have been no
operations in InterCom. Both Metroplex and InterCom are wholly owned
subsidiaries of the Company.
During fiscal 2000, the Company had increased their web site design, development
and hosting services through acquisitions of CurrentMedia LLC and Tectonic Data,
LLC. CurrentMedia is located in Park City, Utah, and develops, designs and
hosts Internet web pages. The Company believes that the acquisition is the
first major step in expanding their operations throughout the United States.
Tectonic is a provider of products and services for video/audio media storages
and streaming. The Company plans on having Tectonic provide products, such as
streaming video technology and full service encoding of media to the 3,000
existing clients of the Company. These services will allow clients to include
commercials, sales presentations, movies and other media messages.
Additionally, on March 17, 2000 the Company acquired Netcom. Netcom provides
connectivity and bandwidth services to small and medium sized businesses. Prior
to the acquisition of Netcom, the Company outsourced the Company's bandwidth
needs. The Company believes that the acquisition of Netcom allows them to
better serve their clients and brings the Company one step closer to providing
the complete package of Internet solutions to small and medium sized businesses.
The consolidated financial statements presented herein reflect the acquisition
of Metroplex on May 5, 1999. As the acquisition resulted in a change of control
of the Company, generally accepted accounting principles required that the
transaction be accounted for as a recapitalization of Metroplex. The
accompanying consolidated financial statements reflect the historical operations
of Metroplex for the nine months and three months ended February 29, 2000 and
February 28, 1999. The accompanying consolidated financial statements include
the operations of the Company from May 5, 1999, the date of the reverse
acquisition.
Results of Operations
Three Months Ended August 31, 2000 Compared to Three Months Ended August 31,
1999
Revenues for the three months ended August 31, 2000, were $270,161 versus
$206,159 during the same period in 1999 representing an increase of $64,002 or
31%. Revenues increased as the Company continued to expand its operations.
The Company's revenues from web development and hosting were $244,465 and
$25,696, respectively, for the current quarter versus total revenues of $206,159
for the 1999 quarter.
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Development expenses were $533,640 during the three months ended August 31, 2000
compared to $230,979 during the same quarter in 1999. The 131% increase was
primarily attributable to an increase in web development related compensation,
which increased by approximately 475% from $71,000 during the first quarter of
fiscal 2000 to $409,000 during the first quarter of fiscal 2001.
Sales and marketing expenses increased by $360,068 or 94% from $293,406 to
$653,474 during the first quarter of fiscal 2001. The increase is related to
the Company's expansion of its direct telemarketing sales staff.
General and administrative expenses increased by $318,811 or 314% from $99,883
during the first quarter of fiscal 2000 to $418,694 during the same quarter in
fiscal 2001. The increase is primarily due to the Company's expansion of its
finance and accounting functions, as well as incurring other expenses necessary
to operate a public company.
Liquidity and Capital Resources
As of August 31, 2000, the Company had a working capital deficiency of $919,407,
with a cash balance of $293,455.
The Company's plan is to seek for additional sources of capital and new
operating opportunities. Management believes that $1 to $3 million is needed to
fund sale, marketing, and product development. In the interim, the Company's
existence is dependent on continuing financial support from an affiliate.
Furthermore, the Company intends to utilize its common stock for future
financial support to finance its needs. There are no assurances that the
Company will be successful in completing an offering sufficient to meet its
operating needs. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern unless substantial funds can be raised
through debt or equity capital.
The Company has no commitments for capital expenditures or additional equity or
debt financing and no assurances can be made that its working capital needs can
be met. The Company incurred $219,149 of capital expenditures during the first
quarter of Fiscal 2001.
The Company has generated cash from sales of its common stock and notes to fund
its capital expenditures and operating losses. During the three months ended
August 31, 2000, the Company generated $844,250 and $300,000 from the issuance
of common stock and notes, respectively, versus proceeds from the issuance of
notes payable of $250,000 during the same period in 1999. The Company used
$1,010,123 in operations in the current quarter versus generating $398 in the
prior year quarter.
The Company has incurred losses, which are available to offset future taxable
income. Due to the uncertainties regarding the recovery of such asset through
future operations, management has recorded a valuation allowance to reduce
all its deferred tax assets to zero. Accordingly, there is no benefit for
income taxes in the accompanying financial statements.
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Part II OTHER INFORMATION
Item 1. Legal Proceedings
There have been no changes since the Company's last report in Item 3, "Legal
Proceedings" of Form 10-KSB for the fiscal year ended May 31, 2000.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NetCommerce, Inc.
Date: October 20, 2000 By: /s/ Mark Lindberg
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Mark Lindberg
President and
Chief Executive Officer
By: /s/ Daniel Henderson
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Daniel Henderson
Secretary
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