SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
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 1-12293
ESOFTBANK.COM INC.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0394313
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Flat A, United Plaza, 5022 Binhe Main Street
Futian District Shenzhen, PRC 518026
(Address of principal executive offices)
011-86-755-255-1130
(Issuer's Telephone Number, including Area Code)
-----------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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.
Yes [X] No [_]
As of November 9, 2000, 2000, 12,800,000 shares of our common stock, par
value $.001 per share, and 600 shares of our Series A convertible preferred
stock, par value $0.001 per share, were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
[The remainder of this page intentionally left blank]
-1-
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 629,351 5,074,416 611,375
Accounts receivable 2,014,330 1,895,980 228,431
Deposits and other 1,047,357 2,147,932 258,787
Advances to employees 433,878 519,480 62,588
Due from related parties 1,488,112 179,291
Due from SiTech Holding (Hainan) Company Limited 1,485,426 2,948,499 355,241
---------- ---------- ----------
TOTAL CURRENT ASSETS 5,610,342 14,074,419 1,695,713
---------- ---------- ----------
NONCURRENT ASSETS
Product development costs, net 822,272 718,082 86,516
Investment -- 2,800,000 337,349
Fixed assets 759,533 2,625,056 316,272
---------- ---------- ----------
TOTAL NONCURRENT ASSETS 1,581,805 6,143,138 740,137
---------- ---------- ----------
TOTAL ASSETS 7,192,147 20,217,557 2,435,850
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 364,448 842,264 101,478
Accrued expenses 303,951 962,969 116,020
Customer deposits 105,098 123,776 14,913
Taxes payable 467,734 183,034 22,052
Short-term borrowings 2,977,432 7,352,773 885,876
Due to director 260,494 -- --
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 4,479,157 9,464,816 1,140,339
---------- ---------- ----------
LONG-TERM DEBT-BANK -- 16,000,000 1,927,711
---------- ---------- ----------
TOTAL LIABILITIES 4,479,157 25,464,816 3,068,050
---------- ---------- ----------
MINORITY INTEREST 2,704,690 1,414,336 170,402
---------- ---------- ----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, Series A convertible and redeemable, par
value US$0.001; issued and outstanding - 600 shares -- -- --
Preferred stock, Series C convertible and redeemable, par
value US $0.001; issued and outstanding - nil -- -- --
Common stock - Par value US$.001; issued and
outstanding - 12,800,000 shares 106,240 106,240 12,800
Additional paid-in capital 1,423,060 51,507,416 6,205,713
Foreign currency translation -- -122,274 -14,732
Accumulated deficit -1,521,000 -58,152,977 -7,006,383
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 8,300 -6,661,595 -802,602
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 7,192,147 20,217,557 2,435,850
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- F-1 -
<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE 1,425,391 4,827,190 $581,589
COST OF SALES 217,271 3,156,820 380,339
------------ ------------ ------------
GROSS PROFIT 1,208,120 1,670,370 201,250
SELLING AND ADMINISTRATIVE EXPENSES 232,236 3,323,143 400,379
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 975,884 (1,652,773) (199,129)
------------ ------------ ------------
OTHER EXPENSE
INTEREST EXPENSE -- 203,909 24,567
OTHER EXPENSE, NET 126 17,301 2,085
------------ ------------ ------------
TOTAL OTHER INCOME, NET 126 221,210 26,652
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 975,758 (1,873,983) (225,781)
TAXES 16,500 -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE 959,258 (1,873,983) (225,781)
MINORITY INTEREST
MINORITY INTEREST -- 310,213 37,375
------------ ------------ ------------
NET INCOME (LOSS) 959,258 (1,563,770) (188,406)
============ ============ ============
INCOME (LOSS) PER SHARE .08 (.12) (.02)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,800,000 12,800,000 12,800,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- F-2 -
<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE 2,351,333 7,832,190 $ 943,637
COST OF SALES (586,506) (4,782,285) (576,179)
------------ ------------ ------------
GROSS PROFIT (LOSS) 1,764,827 3,049,905 367,458
SELLING AND ADMINISTRATIVE EXPENSES (474,322) (10,920,980) (1,315,780)
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 1,290,505 (7,871,075) (948,322)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE -- (203,909) (24,567)
OTHER INCOME (EXPENSE), NET 8,027 (9,328) (1,124)
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE), NET 8,027 (213,237) (25,691)
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 1,298,532 (8,084,312) (974,013)
TAXES 34,162 154,646 18,632
------------ ------------ ------------
INCOME (LOSS) BEFORE
MINORITY INTEREST 1,264,370 (8,238,958) (992,645)
MINORITY INTEREST -- 1,606,981 193,612
------------ ------------ ------------
NET INCOME (LOSS) 1,264,370 (6,631,977) $ (799,033)
============ ============ ============
INCOME (LOSS) PER SHARE .10 (.52) $ (.06)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,800,000 12,800,000 12,800,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- F-3 -
<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Retained
Additional Foreign Earnings
Common paid-in Currency (Accumulated
Stock capital Translation Deficit) Total
Rmb Rmb Rmb Rmb Rmb
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 106,240 51,423,060 -- (51,521,000) 8,300
Net loss -- -- -- (6,631,977) (6,631,977)
Foreign currency translation -- -- (122,274) -- (122,274)
Assumption of liabilities by
Shareholder contributed to capital -- 160,985 -- -- 160,985
Elimination of minority shareholder
Portion of contributed capital -- (76,629) -- -- (76,629)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 106,240 51,507,416 (122,274) (58,152,977) (6,661,595)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- F-4 -
<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) 1,264,370 (6,631,977) $(799,033)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 73,420 202,470 24,394
Amortization of product development costs 70,168 232,645 28,030
Provision for losses on receivables - Customers -- 400 48
Minority interest -- (1,606,983) (193,612)
(Increase) decrease in
Accounts receivable (837,500) 117,950 14,211
Deposits and other (1,320) (1,100,575) (132,599)
Costs and estimated earnings in excess of
billings on uncompleted contracts (200,000) -- --
Advances to employees 338,231 (85,602) (10,314)
Increase (decrease) in
Accounts payable and accrued expenses 486,176 852,134 102,667
Customer deposits (10,087) 18,678 2,250
Billings in excess of costs and estimated
earnings on uncompleted contracts (157,016) -- --
----------- ----------- -----------
Total Adjustments (237,928) (1,368,883) (164,925)
----------- ----------- -----------
Net Cash (Used In) Provided by Operating 1,026,442 (8,000,860) (963,958)
----------- ----------- -----------
Cash Flows from Investing Activities
Capital expenditures (199,189) (2,067,993) (249,156)
Capitalized expenditures for product development costs (221,529) (128,455) (15,477)
Net repayments from (advances to) SiTech Holding (Hainan)
Company Limited (518,910) 1,485,426 178,967
Net (advances to) repayments from related parties (89,898) (4,436,611) (534,532)
Initial Investment of minority shareholder -- 240,000 28,916
Investment -- (2,800,000) (337,349)
Other -- (122,274) (14,732)
----------- ----------- -----------
Net Cash (Used in) Provided by Investing
Activities (1,029,526) (7,829,907) (943,363)
----------- ----------- -----------
Cash Flows from Financing Activities
Net short-term borrowings -- 4,375,341 527,149
Proceeds of issuance of long-term debt -- 16,000,000 1,927,711
Net repayments to director -- (260,494) (31,385)
Capital contributions -- 160,985 19,396
----------- ----------- -----------
Net Cash Provided by Financing Activities -- 20,275,832 2,442,871
----------- ----------- -----------
Net Increase (Decrease) in Cash (3,084) 4,445,065 535,550
Cash, Beginning of Period 34,687 629,351 75,825
----------- ----------- -----------
Cash, End of Period 31,603 5,074,416 $611,375
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
- F-5 -
<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated interim financial statements included in this report are
unaudited. The Company believes the interim financial statements are presented
on a basis consistent with the audited financial statements. The Company also
believes that the interim financial statements contain all adjustments necessary
for a fair presentation of the results for such interim periods. All of these
adjustments are normal recurring adjustments. The results of operations for
interim periods do not necessarily predict the operating results for the full
year. The consolidated balance sheet as of December 31, 1999 has been derived
from audited financial statements but does not include all disclosures required
by generally accepted accounting principles as permitted by interim reporting
requirements. The information included in this report should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations, the audited financial statements and related notes
included in the Company's 1999 Form 10-KSB and the audited financial statements
of World Concept Development Limited and Subsidiary and SiTech Hainan Limited in
the Form 10-KSB. Certain reclassifications have been made to prior periods'
financial statements to conform to the 2000 presentation and the accounting for
the acquisitions, as more fully described below in Note 2.
NOTE 2 - ACQUISITIONS
On March 31, 2000, Natural Way Technologies, Inc. (Natural Way) entered into an
Exchange agreement (the Exchange) with World Concept Development Limited
(World), an independent third party. In accordance with the Exchange, Natural
Way acquired 100% of the issued and outstanding shares of World in exchange for
9,300,000 post reverse split shares of Natural Way. Prior to closing, Natural
Way effected a one for five reverse stock split and changed the name of the
Company to eSoftbank.com, Inc.
The Exchange has been accounted for using the purchase method of accounting as a
reverse acquisition, whereby the company issuing its shares to effect the
business combination is determined to be the acquiree in the business
combination. This occurs when the shareholders of the issuer have less than a
majority of voting control of the combined entity. The company whose
shareholders retain the majority voting interest in the combined entity is
presumed the acquirer. In the current Exchange, the existing shareholders of
Natural Way will retain a 27% voting interest in the combined entity on
completion of the Exchange. Accordingly, World is deemed to be the acquirer and
the assets of Natural Way were required to be fair valued at acquisition. As
Natural Way had no assets, as of the date of the Exchange, no fair value
adjustment was required. The historical financial information prior to the
Exchange are those of World.
World, a development stage enterprise, was incorporated on October 27, 1999, in
the British Virgin Islands. World incorporated its wholly owned subsidiary
eSoftbank Networks (Shenzhen) Co. Ltd. (Shenzhen) on December 30, 1999, in the
Peoples' Republic of China (PRC). World and Shenzhen were incorporated to effect
a merger, exchange of capital stock, asset acquisition or other business
combination with a domestic or foreign, private or publicly held business. As of
December 31, 1999, World had not commenced any formal business operations and
the only activity related to the Company's formation.
- F-6 -
<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - ACQUISITIONS (Continued)
On February 21, 2000, World, via Shenzhen, acquired 9.52% of the outstanding
capital of SiTech Hainan Limited. (SiTech), a company related through common
ownership and management from Dr. Hongbing Lan, a director and shareholder of
both World and SiTech for approximately $62,650. On the same date, Shenzhen
acquired an additional 42.86% of SiTech from SiTech Hainan Holding Co., Ltd.
(Holdings), a company related through common ownership and management, for
approximately $280,000. SiTech is a software designer and markets both packaged
and custom designed Internet-related software applications. Since both entities
involved in the acquisition were under common control, the transaction was
accounted for at historical cost in a manner similar to that in
pooling-of-interests accounting. The consolidated financial statements include
the results of operations for World and its subsidiary from their inception.
On February 21, 2000, Shenzhen also acquired an 80% of the newly issued and
outstanding stock of eSoftbank (Beijing) Software Systems Co., Ltd. (Beijing), a
PRC company, from Holdings for an initial capital investment of approximately
$116,000. The remaining 20% of Beijing is owned by Mr. Hongyu Lan, the brother
of Dr. Hongbing Lan.
NOTE 3 - LONG-TERM DEBT
On May 29, 2000 the Company entered into a one year credit facility with
Shenzhen Commercial Bank for RMB 16 million at 5.3125%. The credit facility is
secured by shares in the Company owned by Dr. Lan, director and shareholder of
the Company.
- F-7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
The following presentation contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
based on our current expectations and relate to anticipated future events that
are not historical facts, such as our business strategies and their intended
results. Our actual results could differ materially from those set forth in the
forward-looking statements as a result of (i) changes in general economic
conditions, (ii) changes in the assumptions used in making these statements,
(iii) our lack of a long-term operating history, (iv) competition generally, and
in the technology sector in particular, (v) our ability to attract, hire, train
and retain competent personnel in a variety of functions, (vi) our ability to
raise sufficient capital to fund our expansion, and (vii) our ability to attract
visitors to our website and sustain a high transaction volume on our website.
Overview
eSoftBank.com, Inc. is a leading Chinese web-based software development &
sub-contracting services provider. We offer a wide range of value-added services
including IT consulting, project outsourcing, quality control and software
releasing. Our focus is on various e-commerce, network management and resource
control systems for business and government enterprises. Our website,
HTTP://WWW.ESOFTBANK.COM, is a registry for Chinese web page designers and
e-commerce developers, as well as institutions requiring the services of these
people, on which we provide a cost-efficient platform for job exchanges and
assignments. It is an interactive and integrated virtual software community
offering technical databank, knowledge exchange, job subcontracting, software
testing and support services. Through the website, we offer independent software
engineers a source of business opportunities and web space, while companies are
able to select from a variety of software engineers and software companies. Our
revenues are derived from commissions on transaction volume on the platform, as
well as handling fees and service charges for software engineering and technical
support services. Our headquarters are in Shenzhen, China.
We changed our company's name from Natural Way Technologies, Inc. to
eSoftBank.com, Inc. on March 31, 2000 when we acquired (the "Acquisition") all
of the issued and outstanding shares of World Concept Development Limited
("WCD"). WCD owns the software development and Internet-based software
subcontracting platform operations conducted in China under the name
eSoftBank.com.
The Acquisition has been accounted for using the purchase method of
accounting as a reverse acquisition, whereby the company issuing its shares to
effect a business combination is determined to be the acquiree in the business
combination. This occurs
2
<PAGE>
when the shareholders of the issuer have less than a majority of voting control
of the combined entity. The company whose shareholders retain the majority
voting interest in the combined entity is presumed the acquirer. In the
Acquisition, the then-existing shareholders of Natural Way retained a 27% voting
interest in the combined entity on completion of the Acquisition. Accordingly,
WCD is deemed to be the acquirer and the assets of Natural Way are required to
be fair valued at acquisition. As Natural Way had no assets (other than
obligations due from a shareholder) or operations during 1999 and 2000 (prior to
March 31st), no fair value adjustments were required and there are no changes to
the WCD financial statements that would require a pro forma analysis.
Additionally, because WCD is deemed to be the acquirer, the historical financial
statements of Natural Way (now eSoftbank.com Inc.) have been restated, and now
reflect the historical operations of WCD and its subsidiaries.
SiTech Hainan Ltd. is the only company that existed prior to 1999 that is
reflected in our consolidated financial statements. All amounts presented below
for the third quarter and the first nine months of 1999 are historical results
for SiTech Hainan. WCD was formed in the fourth quarter of 1999 and only became
operational in the first quarter of 2000. Accordingly, the discussion and
analysis below compares the results of operations of SiTech Hainan for the third
quarter and first nine months of 1999 with the consolidated results of
operations of WCD for the third quarter and first nine months of 2000.
The business of eSoftbank.com is currently conducted in Renminbi, the
currency of China ("RMB"), which for purposes of this section and our financial
statements are converted at an exchange rate of $1.00 = RMB 8.30.
Third Quarter and First Nine Months of 2000 versus Third Quarter and First Nine
Months of 1999
We had revenues of $581,589 and $943,637 from operations during the third
quarter and first nine months of 2000, respectively, compared to $171,734 and
$283,293 for the same periods of 1999. The increases of 287% and 231% over the
respective periods of 1999 (and 61% increase over the second quarter 2000
revenues) reflect the services that we and our subsidiaries provided to Shenzhen
Wanli Aoxiang Investment Development Co., Ltd. (hereinafter referred to as
"Swaid") under our service contract with Swaid, which we described under
"Outlook" in management's discussion and analysis of financial results in our
Form 10-QSB for the first quarter of 2000. Other projects, including several
other B2B website projects in Hong Kong generating approximately $78,000 in
revenues and a project for a Chinese listed company that generated approximately
$40,000 in revenues, also contributed significantly to these increases. In
contrast, a significant portion of revenues in 1999 were generated by software
development projects that completed prior to the end of calendar 1999.
Because we believe that our current contracts signal to the e-commerce
market that our model is viewed favorably in China and has the potential to
compete in
3
<PAGE>
international markets, we expect to derive significant revenues from
international expansion. This expansion will be facilitated by our recent
expansion into Hong Kong (see item 3 under "Recent Developments"), which
resulted in the third quarter revenues attributed to the aforementioned Hong
Kong B2B website project.
Our cost of sales was $380,339 in the third quarter of 2000 and $576,179
for the first nine months of the year, compared to $26,177 for the third quarter
of 1999 and $70,663 for the first nine months of 1999. The increases by factors
of 14 and eight in our cost resulted from our being engaged in more projects
than in the same period in 1999, increased salaries, and the continued
development of our new platform operations generally. Salaries for the third
quarter increased primarily because we hired additional software programmers and
because of increasing salary levels of our incumbent programmers. Furthermore,
costs of sales increased because these programmers focused their efforts on
profit-generating projects instead of marketing related research and development
activities.
Gross margin as a percentage of sales was 35% in the third quarter of 2000
and 39% for the first nine months of the year, compared to 85% during the third
quarter of 1999 and 75% for the first nine months of last year. This resulted
primarily from the increase in costs of sales associated with implementing the
new platform, including those factors contained in the preceding paragraph.
While revenues increased by a factor of three to four from year to year, cost of
sales increased by factors of fourteen and eight for the quarter and nine-month
period, respectively. Because our new platform has been established and revenues
are increasing, we expect our gross margin to increase as the rate of increase
in cost of sales decreases.
Our selling and administrative expenses ("SGA") increased to $400,379 in
the third quarter and $1,315,780 for the nine month period, increases of
$372,399 and $1,258,633, respectively, from $27,980 and $57,147 in the
comparable periods of 1999. The increase from year to year is due to increases
in staffing and marketing efforts. However, three-month SGA expenses decreased
by $159,948, or 29%, from the $560,327 in expenses incurred in the second
quarter of 2000. The decrease from the second quarter SGA expense level reflects
our successful efforts to increase internal management efficiency. Management
has also imposed stricter controls on advertising expenses, which decreased by
52% to $69,905 from $145,306. We expect these controls to contribute to
decreasing SGA expenses in the future. Additionally, in an effort to make our
distribution system more efficient, we have also established strategic alliances
with established companies that will assist us in distributing our software. See
item 1 under "Recent Developments."
We incurred losses for the third quarter of 2000 of $188,406 (after giving
effect to the minority interest held by others in SiTech Hainan, which decreased
the operating loss by $35,375). Our aggregate losses were $799,034 during the
first nine months of 2000. This represented a decrease in net income of $303,979
for the quarter and $951,368 for the nine month period, respectively, when
compared with our profits of $115,573 and
4
<PAGE>
$152,334 during the third quarter and first nine months of 1999. The operating
losses in the first nine months of 2000 over the first nine months of 1999 were
due to our marketing campaign, the costs of setting up our offices, the initial
decrease in our revenues while we established our platform and the increased
cost of sales as we developed and launched our eSoftBank.com website. We believe
that the foregoing trends may have been reversed, however. For example, during
the third quarter of 2000, our losses were 35% less than during the second
quarter of 2000, which decrease was due to our improved control over SGA
expenses, as described in the immediately preceding paragraph. As our expenses
decrease, we expect that our operations as a worldwide on-line software
subcontracting platform will result in smaller losses and, ultimately,
profitability. Notwithstanding our expectations, however, there is no assurance
that we will ever become profitable.
Outlook
General
We believe that we are well-positioned for growth in the rapidly developing
information technology ("IT") industry in China and, we anticipate,
internationally. Our web site is currently visited and utilized by individuals
and companies in Beijing, Shenzhen, Hainan and other cities in China. We also
expect that our revenues will increase significantly as a result of our
expansion into Hong Kong.
Recent Developments
We believe that the recent developments described below will have a
positive impact on our future results of operations. However, there is no
assurance that these benefits will be realized or that, if realized, these
benefits will reach the levels we anticipate.
1. We recently signed a Cooperation Agreement with Capital Networks, a
leading Chinese Internet Infrastructure Provider. Under this
Agreement, eSoftBank.com and Capital Networks will work together on
Web Solutions, ERP and other related projects. At the same time,
Capital Networks has agreed to be the reseller of eSoftBank.com's
Network Management Software-SitechGate, which we believe has already
established a proven track record in the Chinese market. Capital
Networks, an experienced ISP& Internet infrastructure operator, and
eSoftbank have also agreed to carry out a joint-development for the
ADSL version of Sitechgate Communications Software, which we
anticipate will increase revenues in the near future. Capital Networks
is also a strategic partner of China Telecom and one of the largest
ISPs in Beijing.
2. We recently purchased a 2.67% equity share in Hunan Xiangyou
Technology Co., Ltd. for about $337,000. Xiangyou Technology is the
5
<PAGE>
result of the restructuring of China Post Bureau and China Mobile,
which restructuring was commenced one year ago and backed by the
Ministry of Information Industry and was intended to efficiently
integrate China Post Bureau's subsidiaries into a more comprehensive
entity. We believe that Xiangyou Technology will achieve profitability
in the near future, although there is no assurance that it will ever
become profitable. We believe this investment will provide us with
access to Xiangyou Technology's customer base, which is derived from
its more established equityholders (China Post and China Mobile). We
also believe that we can leverage our relationship with Xiangyou
Technology into a broader technology base in telecommunications and
e-post services.
3. In furtherance of our efforts to move into international markets, we
secured two more contracts with Hong Kong based IT companies, CEInet
and ChinaHR, to provide web solutions service. The total value of the
two contracts is approximately US $420,000.
4. We have been engaged to design, develop and implement a Compensation
Management System for Industrial and Commercial Bank of China (ICBC)
Hainan Branch. ICBC is one of the four big commercial banks in the
PRC. We completed the system design and installation of this project
in some Hainan ICBC branches during the third quarter. We anticipate
that this project will enable us to gain significant experience in the
banking sector, which we believe has substantial market potential in
management system related projects. The total value of the contract is
approximately US$600,000.
5. We have signed a cooperation agreement with Jiangzhong Pharmaceutical
Co. Ltd. (Jiangzhong), one of the largest public pharmaceutical
companies in China, to provide web solutions for Jiangzhong's B2B
platform. The type of B2B pharmaceutical platform operated by
Jiangzhaong is strictly licensed by the Chinese government, which has
granted only five such licenses to date. We believe that our agreement
with Jiangzhong will provide us with greater experience and name
recognition in this market. We believe that Jiangzhong will benefit as
our products and services will enable Jiangzhong to better market its
pharmaceutical products through the Internet, resulting in anticipated
decreases in sales & general administrative costs and secure broader
distribution channels.
Liquidity and Capital Resources
At the end of the third quarter of 2000, we had cash on hand of $611,375,
in contrast to $75,825 at the end of the third quarter of 1999. This increased
cash is primarily a combination of funds remaining from a short term loan from
Shenzhen
6
<PAGE>
Commercial Bank to one of our subsidiaries and projects revenues from Swaid.
Management believes this funding will enable us to develop our business and meet
our operating cash needs until our business generates positive cash flow. Under
the terms and conditions of a credit facility contract between eSoftbank.com
(Shenzhen) and the bank dated May 29, 2000, on June 30, 2000, eSoftbank.com
(Shenzhen) borrowed $2 million from the bank with an interest rate of 5.3125%
and a term of one year. The loan is collateralized by 3,193,660 of our shares
issued to one of our principals. If our operations do not generate the positive
net income within the time period that management anticipates, we will find it
difficult to satisfy our cash requirements without additional cash contributions
from investors. We believe that this need will diminish as our website,
subcontracting platform and other services become more familiar to those in
China's IT community.
[The remainder of this page intentionally left blank]
7
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Items 3 - 5. We have nothing to report under these items.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None.
[The remainder of this page intentionally left blank]
8
<PAGE>
Signature
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eSoftbank.com Inc.
(Name of Registrant)
Dated: November 13, 2000 By: /s/ Lan Hongbing
-------------------------------------
Name: Lan Hongbing
Title: Chief Executive officer
(Authorized Officer)
By: /s/ Liao Qianzhi
-------------------------------------
Name: Liao Qianzhi
Title: Vice President, Finance
(Principal Accounting Officer)
9
