FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] 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 0-17637
eVision USA.Com, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 45-0411501
------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1700 Lincoln Street, Suite 3200, Denver, CO 80203
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(Address of principal executive offices)
(303) 860-1700
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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 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.
[X] Yes [ ] 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.
The registrant had 22,338,207 shares of its $.01 par value common stock
outstanding as of February 15, 2000.
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
a. Unaudited Consolidated Balance Sheets as of December 31, 1999
and September 30, 1999......................................... 3
b. Unaudited Consolidated Statements of Operations for the three
months ended December 31, 1999 and 1998....................... 5
c. Unaudited Consolidated Statements of Comprehensive Income (Loss)
for the three months ended December 31, 1999 and 1998.......... 6
d. Unaudited Consolidated Statement of Stockholders' Equity (Deficit)
for the three months ended December 31, 1999................... 7
e. Unaudited Consolidated Statements of Cash Flows for the three
months ended December 31, 1999 and 1998........................ 8
f. Notes to Unaudited Consolidated Financial Statements............ 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................... 19
Item 3. Quantitative and Qualitative Disclosures about Market Risks......... 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 21
Item 2. Change in Securities................................................ 22
Item 5. Other Information................................................... 22
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits........................................................ 23
b. Reports on Form 8-K............................................. 23
Signatures................................................................... 24
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
ASSETS 1999 1999
------------ ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ................................................... $10,071,981 7,593,772
Certificate of deposit, restricted (Note 6) ................................. 575,000 575,000
Receivables from brokers or dealers and clearing
organizations ............................................................ 1,180,506 --
Trade receivables ........................................................... 633,742 1,009,918
Other receivables ........................................................... 505,211 542,209
Securities owned, at market value ........................................... 1,164,669 1,495,701
Notes receivable ............................................................ 3,575,000 3,150,000
Notes receivable, related party (Note 6) .................................... 4,400,000 3,400,000
Investments in debt securities, available-for-sale, at market
value (Note 5) ........................................................... 2,171,571 1,991,258
Other assets ................................................................ 620,975 271,026
----------- -----------
Total current assets ..................................................... 24,898,655 20,028,884
PROPERTY, FURNITURE AND EQUIPMENT, net ......................................... 1,159,605 1,233,360
FINANCING COSTS, net of accumulated amortization
of $141,232 and $108,062 .................................................... 884,642 917,812
OTHER LONG-TERM ASSETS ......................................................... 949,035 559,995
----------- -----------
Total assets ............................................................. $27,891,937 22,740,051
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1999 1999
------------ ------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses ........................................ $ 4,320,801 3,417,849
Payable to clearing organization ............................................. -- 128,040
Current portion of capital lease obligations ................................. 56,090 70,812
Accrued interest payable to related party (Note 6) ........................... 212,111 212,111
Current portion of convertible debentures to related party (Note 6) .......... 500,000 500,000
Other current liabilities .................................................... 232,423 273,029
------------ ------------
Total current liabilities ................................................. 5,321,425 4,601,841
CAPITAL LEASE OBLIGATIONS, net of current portion ............................... 93,464 89,351
CONVERTIBLE DEBENTURES .......................................................... 6,767,546 6,747,383
CONVERTIBLE DEBENTURES TO RELATED PARTY (Note 6) ................................ 7,500,000 7,500,000
DEFERRED RENT CONCESSIONS ....................................................... 1,512,200 1,540,715
------------ ------------
Total liabilities ......................................................... 21,194,635 20,479,290
------------ ------------
MINORITY INTEREST IN SUBSIDIARIES ............................................... 6,153,007 6,191,241
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 3 and 4):
PREFERRED STOCK, 25,000,000 shares authorized, $0.10 par value;
Convertible Series B-1, 508,000 shares issued and outstanding ........... 50,800 --
Convertible Series B, 110,500 shares issued and outstanding ............. -- 11,050
COMMON STOCK, 100,000,000 shares authorized, $0.01 par value;
21,389,411 and 19,838,299 shares issued and outstanding ................. 213,894 198,383
Subscriptions for Convertible Series B-1 Preferred Stock ..................... 951,428 --
Additional paid-in capital ................................................... 17,197,556 13,106,401
Accumulated deficit .......................................................... (18,227,310) (17,144,251)
Accumulated other comprehensive income ....................................... 357,927 247,937
Unearned ESOP shares ......................................................... -- (350,000)
------------ ------------
Total stockholders' equity (deficit) ................................... 544,295 (3,930,480)
------------ ------------
Total liabilities and stockholders' equity (deficit) ................... $ 27,891,937 22,740,051
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended December 31,
1999 1998
---- ----
REVENUE:
<S> <C> <C>
Brokerage commissions .................................................. $ 4,254,345 3,975,367
Investment banking ..................................................... 105,655 129,119
Trading profits, net ................................................... 449,142 461,399
Other broker/dealer .................................................... 444,536 555,615
Computer hardware and software operations .............................. 1,449,772 2,959,556
Interest income on investments in debt securities ...................... 343,088 261,260
Unrealized gain on securities .......................................... 2,274 233,936
Other .................................................................. -- 5,257
------------ ------------
7,048,812 8,581,509
------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Broker/dealer commissions .............................................. 2,455,258 2,380,054
Computer cost of sales ................................................. 875,592 2,729,982
Interest expense on convertible debentures ............................. 242,907 288,925
General and administrative ............................................. 4,025,547 3,555,476
Stock based compensation ............................................... 377,108 --
Depreciation and amortization .......................................... 114,867 106,350
------------ ------------
8,091,279 9,060,787
------------ ------------
Operating loss ............................................................ (1,042,467) (479,278)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income ........................................................ 235,614 19,372
Interest expense ....................................................... (4,828) (6,999)
Interest expense to related party ...................................... (212,111) (198,112)
Other .................................................................. (6,270) --
------------ ------------
12,405 (185,739)
------------ ------------
Loss before minority interest and income taxes ............................ (1,030,062) (665,017)
Minority interest in (earnings) loss ...................................... 21,004 (12,778)
------------ ------------
Loss from continuing operations before income taxes ....................... (1,009,058) (677,795)
Income tax expense (benefit) .............................................. (23,935) 21,400
------------ ------------
NET LOSS .................................................................. (985,123) (699,195)
Preferred stock dividends ................................................. (97,936) --
------------ ------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS ................................ $ (1,083,059) (699,195)
============ ============
Weighted average number of common shares outstanding ...................... 20,472,390 17,639,131
============ ============
Basic and diluted loss per common share ................................... $ (0.05) (0.04)
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three months ended
December 31,
1999 1998
---- ----
<S> <C> <C>
NET LOSS ...................................................... $(985,123) (699,195)
Other comprehensive income:
Unrealized gain on available-for-sale securities,
net of tax of $70,322 (Note 5) ......................... 109,990 --
--------- ---------
COMPREHENSIVE INCOME (LOSS) .................................. $(875,133) (699,195)
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Convertible Convertible
Series B Series B-1 Additional
Preferred Preferred Common Paid-in
Stock Stock Stock Capital
----------- ----------- ------ ----------
<S> <C> <C> <C> <C>
Balances at September 30, 1999 ................. $ 11,050 -- 198,383 13,106,401
Exchange of Convertible Series
B Preferred Stock for Convertible
Series B-1 Preferred Stock (Note 3) .......... (11,050) 11,050 -- --
Issuance of Convertible Series B-1
Preferred stock, net of issuance
costs of $521,635 (Note 3) ................... -- 39,750 -- 3,413,615
Subscriptions received for Convertible
Series B-1 Preferred Stock (Note 3) .......... -- -- -- --
Issuance of common stock for
payment of interest (Note 6) ................. -- -- 4,286 207,825
Issuance of common stock on
exercise of options (Note 4) ................. -- -- 11,225 469,715
Payment of ESOP note (Note 4) .................. -- -- -- --
Preferred stock dividends (Note 3) ............. -- -- -- --
Other comprehensive income:
Unrealized gain on
available-for-sale securities (Note 5) ....... -- -- -- --
Net loss ....................................... -- -- -- --
----------- ----------- ----------- ----------
Balances at December 31, 1999 .................. $ -- 50,800 213,894 17,197,556
=========== =========== =========== ==========
7(a)
<PAGE>
<CAPTION>
Accumulated
other
Subscriptions Accumulated comprehensive Unearned
Received Deficit Income ESOP stock Total
------------- ----------- ------------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1999 ................. -- (17,144,251) 247,937 (350,000) (3,930,480)
Exchange of Convertible Series
B Preferred Stock for Convertible
Series B-1 Preferred Stock (Note 3) .......... -- -- -- -- --
Issuance of Convertible Series B-1
Preferred stock, net of issuance
costs of $521,635 (Note 3) ................... -- -- -- -- 3,453,365
Subscriptions received for Convertible
Series B-1 Preferred Stock (Note 3) .......... 951,428 -- -- -- 951,428
Issuance of common stock for
payment of interest (Note 6) ................. -- -- -- -- 212,111
Issuance of common stock on
exercise of options (Note 4) ................. -- -- -- -- 480,940
Payment of ESOP note (Note 4) .................. -- -- -- 350,000 350,000
Preferred stock dividends (Note 3) ............. -- (97,936) -- -- (97,936)
Other comprehensive income:
Unrealized gain on
available-for-sale securities (Note 5) ....... -- -- 109,990 -- 109,990
Net loss ....................................... -- (985,123) -- -- (985,123)
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1999 .................. 951,428 (18,227,310) 357,927 -- 544,295
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7(b)
<PAGE>
<TABLE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended December 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS ........................................................ $ (985,123) (699,195)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization ................................... 114,867 106,350
Amortization of deferred financing costs ........................ 33,170 --
Amortization of deferred rent ................................... (28,515) (28,505)
Accretion of investments in debt securities ..................... -- (101,934)
Accretion of original issue discount on convertible debentures .. 20,163 18,256
Unrealized gain on securities ................................... 2,274 (233,936)
Minority interest in earnings (loss) ............................ (21,004) 12,778
Payment of interest in exchange for common stock ................ 212,111 --
Cashless exercise of stock options .............................. 377,108 --
Other noncurrent assets ......................................... (389,040) --
Changes in operating assets and liabilities:
Increase in receivables from brokers or dealers and
clearing organizations .......................................... (1,308,546) (491,939)
Decrease (increase) in trade receivables ........................ 376,176 (1,026,174)
Decrease in other receivables ................................... 36,998 192,979
Decrease in securities owned, net of securities sold but not
purchased ....................................................... 328,758 94,694
Increase in other assets ........................................ (349,949) (93,172)
Increase in accounts payable and accrued expenses ............... 734,693 2,267,918
Decrease in other current liabilities ........................... (57,836) (86,466)
----------- -----------
Net cash used in operating activities ........................... (903,695) (68,346)
----------- -----------
(Continued)
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Three months ended December 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture and equipment ................... $ (41,112) (61,580)
Increase in investments in debt securities ...................... -- (3,945,278)
Increase in loan advances on short term notes receivable ........ (425,000) (2,200,000)
Increase in loan advances on short term notes receivable,
related party ................................................... (1,000,000) --
Other investing activities ...................................... -- (87,578)
------------ ------------
Net cash used in investing activities ........................... (1,466,112) (6,294,436)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net of offering costs 3,453,365 --
Proceeds from exercises of stock options ........................ 103,832 --
Proceeds from ESOP note payment ................................. 350,000 --
Principal payments on capital leases ............................ (10,609) (18,266)
Subscriptions for Convertible Series B-1 Preferred Stock ........ 951,428 --
Proceeds from issuance of convertible debentures, net ........... -- 531,334
Proceeds from issuance of convertible debentures to related party -- 1,000,000
------------ ------------
Net cash provided by financing activities ....................... 4,848,016 1,513,068
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..................................................... 2,478,209 (4,849,714)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 7,593,772 9,112,652
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 10,071,981 4,262,938
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest ...................................... $ 4,828 6,999
============ ============
Cash payments for income taxes: ................................. $ 25,000 --
============ ============
OTHER INVESTING AND FINANCING ACTIVITIES:
Cashless exercise of stock options (Note 4) ..................... $ 377,108 --
============= ===========
Common stock issued for interest (Note 6) ...................... $ 212,111 157,111
============= ===========
Common stock issued for guaranty ............................... $ -- 62,500
============= ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
9
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of eVision USA.Com,
Inc. and subsidiaries (eVision or the Company) have been prepared in accordance
with the instructions to Form 10-Q and, therefore, do not include all
information and disclosures necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, these financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the results of operations and
financial position for the interim periods presented.
The consolidated subsidiaries include all of the identified majority owned or
controlled companies set forth in Note 2. All significant intercompany
transactions have been eliminated.
The preparation of interim financial statements required management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
These interim financial statements should be read in conjunction with the Annual
Report on Form 10-K for the year ended September 30, 1999. Operating results for
the three months ended December 31, 1999, are not necessarily indicative of the
results that may be expected for the year ending September 30, 2000. Certain
reclassifications have been made to prior period's consolidated financial
statements to conform to current period presentation.
NOTE 2 - ORGANIZATION
eVision is a holding company that was incorporated under the laws of the state
of Colorado on September 14, 1988. eVision's consolidated subsidiaries include
companies that operate as a fully disclosed securities broker/dealer; intend to
provide transaction processing, networking and internet based services; design,
develop, install, market and support software systems for the securities
brokerage industry; and provide leveraged financing, including financing over
the Internet.
American Fronteer Financial Corporation
American Fronteer Financial Corporation (American Fronteer or AFFC) is
registered as a broker/dealer with the Securities and Exchange Commission
(Commission), is a member of the NASD and the Boston Stock Exchange, is an
associate member of the American Stock Exchange, and is registered as a
securities broker/dealer in all 50 states. American Fronteer's business consists
of providing retail securities brokerage and investment services, trading fixed
income and equity securities, providing investment banking services to corporate
and municipal clients, managing and participating in underwriting corporate and
municipal securities, and selling a range of professionally managed mutual funds
and insurance products.
10
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
eBanker USA.com, Inc.
Fronteer Development Finance Inc., a Delaware corporation (Fronteer
Development), was incorporated in the state of Delaware in March 1998 to operate
as a finance company. Fronteer Income Growth Inc. (FIGI), a wholly owned
subsidiary of Fronteer Development, was incorporated in September 1998 under the
International Business Companies Ordinances of the Territory of the British
Virgin Islands. In March 1999, Fronteer Development was merged into eBanker
USA.com, Inc. (eBanker), a Colorado corporation, primarily for the purpose of
effectuating a name change to eBanker and becoming a Colorado corporation.
eBanker USA.com, Inc. is a 29% owned consolidated subsidiary of eVision.
eBanker was created with the purpose of providing a wide range of on-line
financial lending products and services. eBanker intends to identify, target and
serve high-margin, global financial market segments, through its interactive and
multimedia website. eBanker's website first became operational in September
1999. The website is still in its initial phase of development and will
continually be expanded. eBanker has been designed as a non-deposit taking,
broad financial services entity, so that it is not subject to the regulations
facing traditional financial institutions. eBanker's activities have primarily
consisted of raising approximately $13,000,000 from outside sources in private
placements of securities, and making loans to affiliated and unaffiliated
entities.
In January 2000, eBanker launched its new financial services web portal
www.ebankerusa.com. The eBanker web portal is designed to provide individuals
and corporations with convenient, online access to capital in the form of
customized financial products and services.
In March 1999, eBanker commenced a private placement (March 1999 Private
Placement) of 3,000,000 units (March 1999 Private Placement Units) each
consisting of one share of common stock and one detachable warrant to purchase
one share of common stock. Each March 1999 Private Placement Unit was sold for
$6.00. The detachable warrants are exercisable to purchase one share of common
stock at an exercise price of $8.00 per share from the earlier of 120 days after
an initial public offering of eBanker's securities or one year after the date of
the March 1999 Private Placement until August 31, 2000. The offering terminated
in July 1999 and 895,779 March 1999 Private Placement Units were sold for
proceeds of $4,659,627, net of issuance costs of $715,047.
Q6 Technologies, Inc.
Q6 Technologies, Inc. (Q6 Technologies), is a Colorado corporation formed in
March 1999 by Q6 Group, LLC, a Pennsylvania limited liability company, and
eVision. Q6 Technologies is currently a development stage company with no
operations. On June 18, 1999, Q6 Technologies acquired from eVision 72.8% of the
outstanding common stock of Secutron Corp., a Colorado corporation that designs,
develops, installs, markets and supports software systems for the securities
brokerage industry (Secutron). Q6 Technologies' interests in Secutron were
acquired in the early formation and capitalization of Q6 Technologies with
eVision. Q6 Technologies subsequently increased its ownership of Secutron to
approximately 78% in September 1999 and 97% in December 1999 primarily in
connection with the settlement of a lawsuit by eVision and Secutron. Q6
Technologies determined that the businesses of Secutron and its wholly owned
subsidiary, MidRange Solutions Corp. (MidRange) were not an appropriate part of
Q6 Technologies' long-term business strategy. Effective December 17, 1999, Q6
Technologies transferred its ownership interests in Secutron and MidRange, back
to eVision in return for the cancellation of 5,000,000 shares of Class B Common
Stock of Q6 Technologies previously held by eVision and certain contractual
concessions. eVision continues to hold 944,444 shares of Class A Common Stock
and 555,556 shares of Class B Common Stock of Q6 Technologies. As a result of
this transaction, Q6 will be accounted for using the equity method of accounting
for investments in common stock beginning on December 17, 1999.
11
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On December 29, 1999, Q6 Technologies commenced a private placement of 4,000,000
shares of its Class B Common Stock at $3.00 per share. AFFC is acting as
placement agent and will receive a commission of 10% and a nonaccountable
expense reimbursement of 3% of the gross proceeds. In addition, AFFC may receive
up to 1,500,000 shares of the Class B Common Stock for nominal consideration if
certain placement targets are met. The offering will continue until all
4,000,000 shares are sold or until March 31, 2000, unless extended by mutual
agreement between AFFC and Q6 Technologies.
NOTE 3 - CONVERTIBLE SERIES B-1 PREFERRED STOCK
On October 16, 1998, eVision commenced a private placement of 1,500,000 shares
of its Series B Preferred Stock at a price of $10.00 per share. Before the
offering was terminated, 25,500 shares were sold. On May 12, 1999, eVision
commenced a second private placement of 1,500,000 shares of its Convertible
Series B Preferred Stock at $10.00 per share. The 25,500 shares of Series B
Preferred Stock sold in eVision's first offering were exchanged for Convertible
Series B Preferred Stock. Including the shares exchanged from the first
offering, 110,500 shares of Convertible Series B Preferred Stock were sold in
the second offering before it was terminated. eVision received $860,147 net of
offering costs of $244,853 for the 110,500 shares. The Convertible Series B
Preferred Stock was offered by American Fronteer, which was issued warrants,
which would allow the holder to purchase shares of eVision's Convertible Series
B Preferred Stock at a purchase price of $12.00 per share for five years.
American Fronteer also received a commission of 10% and a nonaccountable expense
allowance of 3% of the total amount sold in the offering.
On September 27, 1999, eVision commenced a private offering of 1,500,000 shares
of its Convertible Series B-1 Preferred Stock at a price of $10.00 per share and
110,500 shares were being offered in exchange for the Convertible Series B
Preferred Stock outstanding on a one-for-one basis. Through December 31, 1999,
508,000 shares of Convertible Series B-1 Preferred Stock were sold for proceeds
of $4,313,512, net of offering costs of $766,488. At December 31, 1999, eVision
had received subscriptions to shares of Convertible Series B Preferred stock in
the amount of $951,428 for which approvals of the investors had not yet been
obtained. All of these investors were approved in January 2000 and the shares of
Convertible Series B-1 Preferred Stock were then issued. The Convertible Series
B-1 Preferred Stock was offered by American Fronteer, which was issued 150,000
warrants that allow the holder to purchase shares of eVision's Convertible
Series B-1 Preferred Stock at a purchase price of $12.00 per share for five
years. American Fronteer also received a commission of 10% and a nonaccountable
expense allowance of 3% of the total amount sold in the offering. After the
payment of all offering costs, the Company will receive approximately
$12,975,000, net of offering costs of $2,025,000.
12
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Convertible Series B-1 Preferred Stock has a cumulative annual dividend rate
payable semi-annually of 8% in cash and 7% in additional shares of the
Convertible Series B-1 Preferred Stock. Online Credit International Ltd. (Online
International) has guaranteed the payment of any cash dividends that accrue on
the Convertible Series B-1 Preferred Stock through October 31, 2002. The
semi-annual dividend payable on shares of Convertible Series B-1 Preferred Stock
will be equivalent to three and one-half on hundredths of a share of Convertible
Series B-1 Preferred Stock for each outstanding share of Convertible Series B-1
Preferred Stock. Any Convertible Series B-1 Preferred Stock issued as a dividend
on the Convertible Series B-1 Preferred Stock will have the same dividend and
the same terms as the Convertible Series B-1 Preferred Stock. The dividend on
the Convertible Series B-1 Preferred Stock is payable semi-annually beginning
October 31, 1999, and continuing each April 30 and October 31 thereafter, when
and if declared by the Board of Directors. Each share of Convertible Series B-1
Preferred Stock is immediately convertible by the holder into 10 shares of
eVision's common stock which is equivalent to a price of $1.00 per share of
common stock. In addition, each share of Convertible Series B-1 Preferred Stock
is automatically convertible into 10 shares of common stock at $1.00 per share
at such time as the closing bid price of the common stock is at least $4.00 per
share for 30 consecutive trading days. The Convertible Series B-1 Preferred
Stock is redeemable by eVision on or after October 1, 2003, at a price of $12.50
per share plus any accrued and unpaid dividends. Accrued dividends, for both the
stock and the cash portions, for quarter ended December 31, 1999 were $97,936.
NOTE 4 - STOCKHOLDERS' EQUITY
As of September 30, 1999, the Employee Stock Ownership Plan of eVision had a
note payable to eVision that was secured by shares of eVision common stock.
During the quarter ended December 31, 1999, the loan amount of $350,000 plus
accrued interest of $212,007, was paid in full.
During the quarter ended December 31, 1999, the Company issued a total of
1,122,529 shares of common stock on the exercise of stock options by employees.
Cash proceeds for the exercise were $103,832. Included in the total are 603,373
shares of common stock were issued in a cashless exercise of options to purchase
840,000 shares of common stock and resulted in stock-based compensation expense
of $377,108.
During the quarter ended December 31, 1999, the Company granted options to
employees to purchase 1,311,000 shares of the Company's common stock at prices
ranging from $0.50 to $0.75 per share. The options vest over two to four years
and are exercisable for a period of ten years.
On January 16, 2000, options were granted to certain officers and directors to
purchase 750,000 shares of eVision common stock at an exercise price equal to
the market price of the shares on the grant date of $2.875 per share. The
options vest immediately and are exercisable for a period of ten years. On the
same date, the Board of Directors and these officers agreed to cancel previously
issued options for the purchase of 250,000 shares of common stock of eVision at
$0.20 per share, which were exercisable only if eVision maintains basic earnings
of $0.10 per share beginning with the year ended September 30, 1999.
On January 16, 2000, a similar earnings requirement provision of certain options
of certain directors was removed. The grants, previously made to two directors
for a total of 250,000 shares, had a provision that earnings per share had to be
$0.10 before any options would vest. The exercise price was not amended and this
resulted in compensation expense of approximately $600,000, which was recorded
in January 2000.
13
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INVESTMENTS IN DEBT SECURITIES
As of December 31,1999, investments in debt securities of Asian corporations
traded on the Hong Kong Stock Exchange are as follows:
<TABLE>
<CAPTION>
Amortized Fair Redemption Interest Maturity
Corporation Cost Value Value Rate Date
- -------------------------- ----------- ----- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Paul Y-ITC ............... $ 707,798 884,700 1,000,000 5.00% 02/03/01
China Resources .......... 1,135,139 1,286,871 1,720,667 2.00% 04/30/04
--------- --------- ---------
$1,842,937 2,171,571 2,720,667
========== ========= =========
</TABLE>
The amortized cost value differs from the original cost by the amount of
purchase discount and redemption premium accreted to interest income since the
date of purchase. The debt securities carry a premium redemption value over the
face amount of each security. If the security is held to maturity, the Company
will receive a guaranteed premium, above the face value. The purchase discount
and the premium for holding each security to maturity were being accreted to
interest income over the remaining life of the security using the effective
interest rate method. As of December 31,1999, the securities are classified as
available-for-sale and are carried at fair value. Unrealized gains for the
quarter ended December 31, 1999 were $109,990, net of income tax expense of
$70,322.
Subsequent to December 31, 1999, the investments were sold for proceeds of
$2,267,640.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Skyhub Asia Company Limited
On January 24, 2000, eVision entered into an agreement whereby eVision agreed to
issue 1,185,209 shares of eVision's common stock in exchange for 60% of the
outstanding common shares of Gemtron International Global Ltd., which was
renamed Skyhub Far East, Inc. (Skyhub). eVision is only required to issue the
1,185,209 shares if eVision's shareholders approve an amendment to eVision's
Articles of Incorporation that increases the number of shares of common stock
eVision is authorized to issue. In the event the amendment is not adopted,
eVision has agreed to provide Skyhub with approximately $3,000,000 in financing
for the 60% interest. eBanker has loaned Skyhub $1,500,000 which bears interest
at 12% per annum as part of the $3,000,000 financing commitment of eVision, to
be paid back when additional funding is available or through the issuance and
sale of the Company's common stock. eVision has agreed that the value of the
1,185,209 shares of eVision common stock will be no less that $3 million when
sold in an orderly manner in the open market. Any shortfall will be made up by
eVision in cash. Skyhub was incorporated in the British Virgin Islands on
December 28, 1998 and its only operations during 1999 consisted of contracts for
services, which grossed approximately $200,000 in revenues.
14
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Global Med Technologies, Inc.
In May 1999, eBanker extended Global Med Technologies, Inc. (Global Med) a
$750,000 bridge loan commitment of which $750,000 was drawn as of September 30,
1999. Outstanding principal amounts under the loan were due December 31, 1999
and accrue interest at an interest rate of 12% per annum. The due date of the
bridge loan was extended until September 30, 2000 for a fee of 2%, or $15,000,
payable in 13,275 shares of common stock of Global Med. In addition, the loan
can be converted into shares of common stock of Global Med at any time prior to
the due date at $0.50 per share.
Online Credit Ltd. (Online Credit) had previously extended a bridge loan
commitment to Global Med. On October 4, 1999, the $2,000,000 bridge loan between
Global Med and Online Credit was replaced with a line of credit with similar
terms with eBanker. Outstanding principal amounts under the loan are due April
12, 2000 and accrue at an interest rate of 12%. The eBanker line of credit is
convertible into shares of common stock of Global Med at a price based on the
average closing bid price of the Global Med common stock for a period of fifteen
business days prior to conversion. In exchange for assuming the commitment,
86,957 shares of common stock of Global Med, previously issued to Online Credit,
were transferred to eBanker. Through February 14, 2000, Global Med had drawn
$1,000,000 on this line of credit.
Lockup Agreement
On October 25, 1999, Global Med entered into a Lockup Agreement with eBanker and
a Lockup Agreement with eVision. The agreements provide that eBanker and eVision
will not, between October 25, 1999 and October 28, 2000, without Global Med's
prior written consent, publicly offer, sell, contract to sell, grant any option
for the sale of, or otherwise dispose of, directly or indirectly, (i) warrants
to purchase 9,000,000 shares of Global Med's common stock at $0.25 per share
held by eBanker or warrants to purchase 1,000,000 shares of Global Med's common
stock at $0.25 per share held by eVision and (ii) any shares (the Shares, and,
together with the warrants, the Securities) of common stock issuable upon the
exercise of the warrants; provided, however, that eBanker or eVision may offer,
sell, contract to sell, grant an option for the sale of, or otherwise dispose of
all or any part of the Securities or other such security or instrument of Global
Med during such period if such transaction is private in nature and the
transferee of such Securities or other securities or instruments agrees, prior
to such transaction, to be bound by all of the provisions of the lockup
agreements. In exchange for entering into the agreements, eBanker and eVision
were issued 450,000 shares and 50,000 shares of common stock of Global Med,
respectively.
In addition, the agreements provide (i) eBanker and eVision will not be
restricted from disposing of the Securities in the event that an unaffiliated
third party commences a tender offer for the outstanding common stock, and (ii)
eBanker and eVision will not be restricted from disposing of 450,000 and 50,000,
respectively, of the Securities in the aggregate if the closing sale price for
the Global Med common stock on the principal market on which it then trades
equals or exceeds $5.00 per share for any ten consecutive trading day period
preceding the date of such sale, and (iii) that there will be no restrictions
upon the ability of eBanker or eVision to exercise the warrants.
15
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Online Credit Ltd.
The Company previously sold Online Credit a ten year $4,000,000 10% Convertible
Debenture that is convertible into shares of common stock of the Company and an
option to purchase an $11,000,000 12% Convertible Debenture that is convertible
into shares of common stock of the Company. As of December 31, 1998, Online
Credit had purchased a total of $8,000,000 of convertible debentures. The option
to purchase the $11,000,000 12% Convertible Debenture has $7,000,000 available
under option. The principal is due in ten years except for one installment of
$500,000 due in March 2000. During the quarter ended December 31, 1999, eVision
paid the interest accrued as of September 30, 1999 in the amount of $212,111
with the issuance of 428,583 shares of common stock of eVision.
Other
On December 23, 1996, AFFC received notification of an arbitration award in NASD
Arbitration No. 95-05062, Chang, et al. v. AFFC that was originally filed on
October 21, 1995. The allegations in the case related to a private placement
sold by a former broker at AFFC. In 1996, AFFC provided for damages that were
awarded in the amount $424,824 against AFFC, which AFFC appealed. During the
year ended September 30, 1999, AFFC lost the first appeal and the court ordered
AFFC to place on deposit, in a restricted cash account, the amount of $575,000.
On January 25, 2000, the case was settled for the amount of $517,000.
The Company is a defendant in certain arbitration and litigation matters arising
from its activities as a broker/dealer. In the opinion of management, these
matters including any damages awarded against the Company have been adequately
provided for in the accompanying consolidated financial statements, and the
ultimate resolution of these arbitration and litigation matters will not have a
significant adverse effect on the consolidated results of operations or the
consolidated financial position of the Company.
16
<PAGE>
<TABLE>
<CAPTION>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - SEGMENT DISCLOSURE
For the Three Months Ended December 31, 1999
--------------------------------------------------------------------------------
Q6 Technologies
and
Consolidated AFFC Secutron eBanker Others Eliminations Total
- ------------ ---- --------------- ------- ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers ................. $ 5,253,678 1,049,772 242,264 103,098 -- 7,048,812
Intersegment revenues .................... -- -- 109,460 323,306 (432,766) --
----------- ----------- ----------- ----------- ----------- -----------
Total revenues ........................... 5,253,678 1,049,772 351,724 426,404 (432,766) 7,048,812
=========== =========== =========== =========== =========== ===========
Operating loss ........................... (438,567) 43,608 (61,454) (476,594) (109,460) (1,042,467)
Other income (expense), net .............. 13,002 (3,634) -- (106,423) 109,460 12,405
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations
before minority interest and
income taxes ........................... (425,565) 39,974 (61,454) (583,017) -- (1,030,062)
=========== =========== =========== =========== =========== ===========
Depreciation and
amortization ........................... 98,233 11,323 -- 5,311 -- 114,867
=========== =========== =========== =========== =========== ===========
Capital expenditures ..................... $ 41,112 -- -- -- -- 41,112
=========== =========== =========== =========== =========== ===========
Identifiable assets as of
December 31, 1999 ...................... $ 5,851,037 890,718 15,917,534 10,865,654 (5,633,006) 27,891,937
=========== =========== =========== =========== =========== ===========
<CAPTION>
For the Three Months Ended December 31, 1998
--------------------------------------------------------------------------------
Q6 Technologies
and
Consolidated AFFC Secutron eBanker Others Eliminations Total
- ------------ ---- --------------- ------- ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers ................. $ 5,104,596 2,959,556 278,072 239,285 -- 8,581,509
Intersegment revenues .................... 16,904 100,000 -- 117,000 (233,904) --
----------- ----------- ----------- ----------- ----------- -----------
Total revenues ........................... 5,121,500 3,059,556 278,072 356,285 (233,904) 8,581,509
=========== =========== =========== =========== =========== ===========
Operating income (loss) .................. (474,062) 128,463 (26,985) (106,694) -- (479,278)
Other income (expense), net .............. 5,550 (926) -- (190,363) -- (185,739)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations
before minority interest and
income taxes ........................... (468,512) 127,537 (26,985) (297,057) -- (665,017)
=========== =========== =========== =========== =========== ===========
Depreciation and
amortization ........................... 94,459 11,573 -- 318 -- 106,350
=========== =========== =========== =========== =========== ===========
Capital expenditures ..................... $ 61,580 -- -- -- -- 61,580
=========== =========== =========== =========== =========== ===========
Identifiable assets as of
December 31, 1998 ...................... $ 6,541,395 2,462,908 9,090,151 7,770,764 (7,433,952) 18,431,266
=========== =========== =========== =========== =========== ===========
</TABLE>
17
<PAGE>
eVISION USA.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - OTHER SUBSEQUENT EVENTS
In January 2000, a wholly owned subsidiary of eVision entered into an agreement
to purchase real property in Vancouver, British Columbia Canada, for
approximately $1.4 million, subject to certain general conditions. The property
is commercial real estate that would serve as the offices for NeuroWeb Canada,
Inc., an eVision subsidiary. Closing is anticipated to be on June 30, 2000. The
Company is currently investigating various financing alternatives.
On February 11, 2000, the board of directors of eBanker agreed to enter into a
loan agreement with Mr. Fai H. Chan, Chairman and Chief Executive Officer of
eVision and a director of eBanker, subject to legal review and shareholder
notice. Mr. Chan abstained from the vote of approval. The amount of the loan
would be $1,800,000, for a term of 18 months, interest at 16% per annum payable
semiannually, secured by 600,000 shares of common stock of American Pacific
Bank. The loan would contain a call option for 40,000 shares of common stock of
American Pacific Bank at a price of $4.50 exercisable for a period of 5 years.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended December 31, 1999 were $7,048,812, a
decrease of $1,532,697 or 18% from the $8,581,509 for the three months ended
December 31, 1998. The decrease is primarily the result of decreased revenue
from hardware and software operations of $1,509,784, or 51%, partially offset by
an increase in brokerage commissions of 7% or $278,978.
Computer hardware and software costs decreased 68%, or $1,854,390, for the three
months ended December 31, 1999. The decrease primarily correlates to the
decrease in sales. Sales decreased in the three months ended December 31, 1999
primarily because Midrange had a significant sale in the three months ended
December 31, 1998 that was not repeated nor replaced in the current period. In
addition, MidRange activities were being curtailed in preparation for the sale
of the majority of the assets of Midrange in December 1999. Gross profit
increased from $229,574 for the three months ended December 31, 1998 to $574,180
for the three months ended December 31, 1999 due to the change in the product
mix away from hardware and software sales to consulting projects which have a
higher profit margin.
Interest expense on the convertible debentures issued by eBanker was $242,907
and $288,925 for the quarters ended December 31, 1999 and 1998, respectively.
The proceeds from the convertible debentures were invested in debt securities
that earned $343,088 and $261,260 in interest income for the quarters ended
December 31, 1999 and 1998, respectively.
General and administrative expenses increased $470,071, or 13%, for the quarter
ended December 31, 1999 from the quarter ended December 31, 1998 primarily due
to the formation and initial phases of Q6 Technologies which occurred during the
third and fourth fiscal quarters of the year ended September 30, 1999.
During the quarter ended December 31, 1999, the Company issued 1,122,529 shares
of common stock in the exercise of stock options by employees. Cash proceeds for
the exercise were $103,832. In addition, 603,373 shares of common stock were
issued in a cashless exercise of options to purchase 840,000 shares of common
stock resulting in a stock-based compensation expense of $377,108.
As of September 30, 1999, the Employee Stock Ownership Plan of eVision had a
note payable to eVision that was secured by shares of eVision common stock.
During the quarter ended December 31, 1999, the loan amount of $350,000 plus
interest of $212,007, was paid in full. The total amount of interest was
recognized in the three months ended December 31, 1999 as interest income.
Interest expense of $212,111 and $198,112 was incurred on the convertible
debentures to Online Credit for the quarters ended December 31, 1999 and 1998,
respectively.
Liquidity and Capital Resources
The Company, as of December 31, 1999, had $10,071,981 in cash and cash
equivalents and $19,577,230 in working capital. Cash used in investing
activities of $1,466,112 consisted primarily of $1,425,000 in loan advances on
short-term notes made by eBanker. Proceeds from issuance of Convertible Series
B-1 Preferred Stock of $3,453,365 primarily provided cash to fund other
operating and investing activities.
19
<PAGE>
The Company previously sold Online Credit a ten year $4,000,000 10% Convertible
Debenture that is convertible into shares of common stock of the Company and an
option to purchase an $11,000,000 12% Convertible Debenture that is convertible
into shares of common stock of the Company. As of December 31, 1998, Online
Credit had purchased a total of $8,000,000 of convertible debentures, of which
$1,000,000 had been purchased during the quarter ended December 31, 1998. The
option to purchase the $11,000,000 12% Convertible Debenture has $7,000,000
available remaining under option. The principal is due in ten years except for
one installment of $500,000 due in March 2000.
On September 27, 1999, eVision commenced a private offering of 1,500,000 shares
of its Convertible Series B-1 Preferred Stock at a price of $10.00 per share and
110,500 shares were being offered in exchange for the Convertible Series B
Preferred Stock outstanding on a one-for-one basis. Through December 31, 1999,
approximately 508,000 shares of Convertible Series B-1 Preferred Stock were sold
for proceeds of $4,313,512, net of offering costs of $766,488. At December 31,
1999, eVision had received subscriptions to shares of Convertible Series B
Preferred stock in the amount of $951,428 for which approvals of the investors
had not yet been obtained. All of these investors were approved in January 2000
and the shares of Convertible Series B-1 Preferred Stock were then issued. The
Convertible Series B-1 Preferred Stock was offered by American Fronteer, which
was issued 150,000 warrants that allow the holder to purchase shares of
eVision's Convertible Series B-1 Preferred Stock at a purchase price of $12.00
per share for five years. American Fronteer also received a commission of 10%
and a nonaccountable expense allowance of 3% of the total amount sold in the
offering. After the payment of all offering costs, the Company will receive
approximately $12,975,000, net of offering costs of $2,025,000.
In May 1999, eBanker extended Global Med a $750,000 bridge loan commitment of
which $750,000 was drawn as of September 30, 1999. Outstanding principal amounts
under the loan were due December 31, 1999 and accrue interest at an interest
rate of 12% per annum. The due date of the bridge loan was extended until
September 30, 2000 for a fee of 2% payable in 13,275 shares of common stock of
Global Med. In addition, the loan can be converted into shares of common stock
of Global Med at any time prior to the due date at $0.50 per share.
On October 4, 1999, eBanker extended to Global Med a $2,000,000 bridge loan
commitment, of which a total of $1,000,000 has been drawn. Outstanding principal
amounts under the loan are due April 12, 2000 and accrue interest at an interest
rate of 12% per annum.
A good portion of the Company's assets are highly liquid, consisting mainly of
assets that are readily convertible into cash. These assets are financed by the
Company's equity capital, convertible debentures and accounts payable. Changes
in the amount of securities owned by the Company and receivables from brokers or
dealers and clearing organizations directly affect the amount of the Company's
financing requirements.
Management believes that the Company's cash flows from operations, proceeds
received from the Convertible Series B-1 Preferred Stock Private Placement and
cash on hand will be sufficient to fund its debt service, expected capital costs
and other liquidity requirements for the foreseeable future.
Year 2000
The Company has continued with the plans in place as reported as of the fiscal
year ended September 30, 1999. As of February 15, 2000, nothing has come to the
attention of the Company that would indicate the existence or probable
occurrence of any Year 2000 problems.
20
<PAGE>
Inflation
The effect of inflation on the Company's operations is not material and is not
anticipated to have any material effect in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, the Company had investments in Asian equity securities,
which exposed the Company to foreign exchange rate risk and equity price risk.
These securities expose the Company to exchange rate risk as well as credit
risk.
During the quarter ended December 31, 1999 the Company analyzed its portfolio of
convertible debentures and notes receivable and determined there exists some
potential for interest rate risk. The interest rates range from 10% to 18% per
annum. The Company will continue to evaluate its risk compared to market
conditions for similar types of debt instruments. The following table summarizes
the market risks for the Company:
<TABLE>
<CAPTION>
December 31, 1999 September 30, 1999
Fair Value Carrying Value Fair Value Carrying Value
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Foreign Exchange Rate Risk:
Equity securities ............... $ 737,899 737,899 621,171 621,171
Debt securities ................. 2,171,571 2,171,571 1,991,258 1,991,258
Equity Price Risk:
Equity securities* .............. 1,164,669 1,164,669 1,495,701 1,495,701
Credit Risk:
Debt securities ................. 2,171,571 2,171,571 1,991,258 1,991,258
Interest Rate Risk
Convertible debentures ........... 6,767,546 6,767,546 6,747,383 6,747,383
Convertible debentures,
related party ................. 8,000,000 8,000,000 8,000,000 8,000,000
Notes receivable ................ 3,575,000 3,575,000 3,150,000 3,150,000
Notes receivable,
related party ................. 4,400,000 4,400,000 3,400,000 3,400,000
</TABLE>
*Includes the equity securities of the Asian corporations.
Subsequent to December 31, 1999, the investments in debt securities were sold
for proceeds of $2,267,640.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 23, 1996, AFFC received notification of an arbitration award in NASD
Arbitration No. 95-05062, Chang, et al. v. AFFC that was originally filed on
October 21, 1995. The allegations in the case related to a private placement
sold by a former broker at AFFC. In 1996, AFFC provided for damages that were
awarded in the amount of $424,824 against AFFC, which AFFC appealed. During the
year ended September 30, 1999, AFFC lost the first appeal and the court ordered
AFFC to place on deposit, in a restricted cash account, the amount of $575,000.
On January 25, 2000, the case was settled for the amount of $517,000.
21
<PAGE>
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
The Company previously sold Online Credit a ten year $4,000,000 10% Convertible
Debenture that is convertible into shares of common stock of the Company and an
option to purchase an $11,000,000 12% Convertible Debenture that is convertible
into shares of common stock of the Company. As of December 31, 1998, Online
Credit had purchased a total of $8,000,000 in convertible debentures. The
interest on the convertible debentures as of September 30, 1999 was paid with
428,583 shares of common stock of the Company during the quarter ended December
31, 1999.
The issuance of shares for interest were made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended (1933 Act). The purchaser had access to full information concerning the
Company and represented that it purchased the shares and the convertible
debentures for the purchaser's own account and not for the purpose of
distribution. The shares and the convertible debentures contain a restrictive
legend advising that the securities represented by the shares and the
convertible debentures may not be offered for sale, sold or otherwise
transferred without having first been registered under the 1933 Act or pursuant
to an exemption from registration under the 1933 Act. No underwriters were
involved in the transaction.
On September 27, 1999, eVision commenced an offering of 1,500,000 shares of its
Convertible Series B-1 Preferred Stock to holders of Convertible Series B
Preferred Stock who exchanged their Convertible Series B Preferred Stock for
Convertible Series B-1 Preferred Stock and to others at a purchase price of
$10.00 per share. The offering was completed on January 15, 2000. The sales of
preferred stock were made in reliance upon the exemptions from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
of Regulation D adopted under the 1933 Act. The purchasers had access to full
information concerning eVision and represented that they acquired the shares for
the purchasers' own accounts and not for the purpose of distribution. The
certificates for the shares contain a restrictive legend advising that the
shares may not be offered for sale, sold or otherwise transferred without having
first been registered under the 1933 Act or pursuant to an exemption from
registration under the 1933 Act. American Fronteer was the sales agent for the
offering and received a 10% commission in addition to a 3% nonaccountable
expense allowance and warrants.
ITEM 5. OTHER INFORMATION
On January 24, 2000, eVision entered into an agreement whereby eVision agreed to
issue 1,185,209 shares of eVision's common stock in exchange for 60% of the
outstanding common shares of Gemtron International Global Ltd., which was
renamed Skyhub Far East, Inc. (Skyhub). eVision is only required to issue the
1,185,209 shares if eVision's shareholders approve an amendment to eVision's
Articles of Incorporation that increases the number of shares of common stock
eVision is authorized to issue. In the event the amendment is not adopted,
eVision has agreed to provide Skyhub with approximately $3,000,000 in financing
for the 60% interest. eBanker has loaned Skyhub $1,500,000 which bears interest
at 12% per annum as part of the $3,000,000 financing commitment of eVision, to
be paid back when additional funding is available or through the issuance and
sale of the Company's common stock. eVision has agreed that the value of the
1,185,209 shares of eVision common stock will be no less that $3 million when
sold in an orderly manner in the open market. Any shortfall will be made up by
eVision in cash. Skyhub was incorporated in the British Virgin Islands on
December 28, 1998 and its only operations during 1999 consisted of contracts for
services, which grossed approximately $200,000 in revenues.
22
<PAGE>
In January 2000, a wholly owned subsidiary of eVision entered into an agreement
to purchase real property in Vancouver, British Columbia Canada, for
approximately $1.4 million, subject to certain general conditions. The property
is commercial real estate that would serve as the offices for NeuroWeb Canada,
Inc., an eVision subsidiary. Closing is anticipated to be on June 30, 2000. The
Company is currently investigating various financing alternatives.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Agreement between eVision and Skyhub Far East Inc. dated January
24, 2000
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
There were no Current Reports on Form 8-K filed during the quarter ended
December 31, 1999.
23
<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: February 22, 2000 eVISION USA.COM, INC.,
a Colorado Corporation
By: /s/ Robert H. Trapp
---------------------------------
Robert H. Trapp
Managing Director
By: /s/ Gary L. Cook
---------------------------------
Gary L. Cook
Secretary, Treasurer
and Chief Financial Officer
24
Amended and Restated Agreement Letter
High Speed Internet Access and Value Added Services
This Amended and Restated Agreement Letter is made on 24th day of January
2000 between
Skyhub Far East Inc. (Skyhub, a BVI company)
Room 205, 2/F.,
Kaiser Centre,
18 Centre Street,
Hong Kong
And
eVision USA.Com, Inc (eVision, a Colorado company)
One Norwest Center,
1700 Lincoln Street, 32nd Floor
Denver, CO 80203, USA
Present:
Mr. Fai H. Chan, Chairman (eVision)
Mr. Edward Chan, Director (Skyhub)
- --------------------------------------------------------------------------------
This Amended and Restated Agreement Letter fully replaces the Agreement Letter
dated January 12, 2000, the following have been agreed upon:
1. Skyhub is a company wholly owned by a group of Telecommunications Industry
experts. Skyhub sees a large potential market in providing high-speed
Internet access and related value-added services to customers in the Asia
Pacific region.
2. eVision hereby declares its interest and willingness to invest in Skyhub's
business. Skyhub is willing to cooperate with eVision to develop the
business and penetrate this market.
3. Skyhub has formed a subsidiary, "Skyhub Asia Company Ltd." (Skyhub Asia, a
Hong Kong company).
4. Skyhub Asia will install a satellite hub station and network management
system in Hong Kong.
5. Scope of Service by Skyhub Asia:
Main Service
o Wireless High Speed Internet Access
Value Added Services
o Digital Video Broadcasting
o Distant Learning
o International Unified Messaging
o International Voice and Fax Telecommunications
o Clearing House, Hosting and Exchange Facilities for Internet Service
Providers
o Web Portals and Content Services
<PAGE>
6. eVision agrees to swap 1,185,209 eVision shares in favor of Skyhub's
exchange of 60% of the total issued and outstanding shares of Skyhub. This
is subject to eVision receiving shareholder approval to sufficiently
expanding its authorized issuable common shares. In the event that this
approval is not granted, eVision will provide funding of at least US$3
million plus the accrued interest from the loan described in term 8, to
Skyhub in exchange for the total issued shares. Skyhub will issue shares to
eVision prior to determination of shareholder approval to expand the
authorized issuable common shares.
7. eVision will guarantee the value of no less than US$3 million plus the
accrued interest from the loan described in term 8, in an orderly sale of
these shares in the open market. Any shortfall will be made up by eVision
in cash. The board of directors of Skyhub will agree upon the execution of
the sale of these shares.
8. eVision, itself or through a subsidiary or affiliate, will arrange to lend
Skyhub up to $1.5 million, at 12% interest per annum payable semiannually
to be paid back when additional funding, including through the sale of
eVision shares, becomes available. This is financing will be based on an
approximate cash flow requirement table as follows:
Mid-month US$ ('000)
--------- ---------
February 2000 800
March 2000 300
April 2000 300
May 2000 100
9. eVision, or it subsidiaries or affiliated companies, will make a best
efforts attempt to raise pre-IPO funding of another US$3 million at the
request of Skyhub.
10. eVision hereby undertakes to not to dilute Skyhub existing shareholders
until the IPO offering unless the consent of Skyhub's original shareholders
is received.
11. The board will consist of five members with three board members appointed
by eVision and two board members appointed by Skyhub's original
shareholders.
12. Skyhub will form separate operating companies for each Asian region to
create partnerships with local companies to provide sales, market, service
and support.
13. Skyhub and its subsidiaries (Skyhub Group) will manage the business. This
will ensure quick reactions and close management of the changes in the
business environment within the region. Skyhub Group will be responsible
for the development of the business, day-to-day operations and Value Added
Services development.
14. This transaction is contingent upon confirmation that the financials of
Gemtron are in a condition which allows eVision to be able to audit these
financials, according to regulation S-X adopted under the US Securities Act
of 1934, for the period, and within the time requirements, for eVision to
meet all filing requirements under the US Securities Act of 1934.
This Amended and Restated Agreement Letter is a binding agreement between
eVision and Skyhub.
- --------------------------------------------------------------------------------
For and on behalf of: For and on behalf of:
eVision USA.Com, Inc. Skyhub Far East Inc.
/s/ Fai H. Chan /s/ Edward Chan
- ------------------------------- ----------------------------------
Authorized Signature Authorized Signature
Name: Fai H. Chan Name: Edward Chan
Date: January 24, 2000 Date: January 24, 2000
2
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