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 June 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 August 10, 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 $0.001 per share, were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
[The remainder of this page intentionally left blank]
-1-
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 629,351 17,587,453 $2,118,970
Accounts receivable 2,014,330 1,802,000 217,108
Deposits and other 1,047,357 1,774,510 213,796
Advances to employees 433,878 341,524 41,148
Due from related parties 1,189,970 143,370
Due from SiTech Holding (Hainan) Company Limited 1,485,426 -- --
---------- ---------- ----------
TOTAL CURRENT ASSETS 5,610,342 22,695,457 2,734,392
---------- ---------- ----------
NONCURRENT ASSETS
Product development costs, net 822,272 681,438 82,101
Fixed assets 759,533 2,437,322 293,654
---------- ---------- ----------
TOTAL NONCURRENT ASSETS 1,581,805 3,118,760 375,755
---------- ---------- ----------
TOTAL ASSETS 7,192,147 25,814,217 $3,110,147
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 364,448 1,426,474 $171,865
Accrued expenses 303,951 158,044 19,041
Customer deposits 105,098 3,262,727 393,100
Due to SiTech Holding (Hainan) Company Limited -- 823,681 99,239
Taxes payable 467,734 148,042 17,835
Short-term borrowings 2,977,432 7,319,445 881,861
Due to director 260,494
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 4,479,157 13,138,413 1,582,941
---------- ---------- ----------
LONG-TERM DEBT-BANK 16,000,000 1,927,711
---------- ---------- ----------
TOTAL LIABILITIES 4,479,157 29,138,413 3,510,652
---------- ---------- ----------
MINORITY INTEREST 2,704,690 1,724,551 207,777
---------- ---------- ----------
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 -- -73,196 -8,819
Accumulated deficit -1,521,000 -56,589,207 -6,817,976
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 8,300 25,814,217 3,110,147
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 7,192,147 25,814,217 $3,110,147
========== ========== ==========
</TABLE>
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<PAGE>
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE 547,067 3,005,000 $ 362,048
COST OF SALES (157,283) (1,254,143) (151,101)
------------ ------------ ------------
GROSS PROFIT (LOSS) 389,784 1,750,857 210,947
SELLING AND ADMINISTRATIVE EXPENSES (136,042) (4,650,707) (560,327)
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 253,742 (2,899,850) (349,380)
TOTAL OTHER INCOME (EXPENSE), NET (4,921) (5,048) (608)
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 258,663 (2,904,898) (349,988)
TAXES -- 154,646 18,632
------------ ------------ ------------
INCOME (LOSS) BEFORE
MINORITY INTEREST 258,663 (3,059,544) (368,620)
MINORITY INTEREST -- 638,094 76,879
------------ ------------ ------------
NET INCOME (LOSS) 258,663 (2,421,450) $ (291,741)
============ ============ ============
INCOME (LOSS) PER SHARE .02 (.19) $ (.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
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000 2000
Rmb Rmb US$
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE 925,942 3,005,000 $ 362,048
COST OF SALES (369,235) (1,625,465) (195,831)
------------ ------------ ------------
GROSS PROFIT (LOSS) 556,707 1,379,535 166,209
SELLING AND ADMINISTRATIVE EXPENSES (242,086) (7,597,837) (915,402)
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 314,621 (6,218,302) (749,193)
TOTAL OTHER INCOME, NET 8,153 7,973 961
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 322,774 (6,210,329) (748,232)
TAXES 17,662 154,646 18,632
------------ ------------ ------------
INCOME (LOSS) BEFORE
MINORITY INTEREST 305,112 (6,364,975) (766,864)
MINORITY INTEREST -- 1,296,768 156,237
------------ ------------ ------------
NET INCOME (LOSS) 305,112 (5,068,207) $ (610,627)
============ ============ ============
INCOME (LOSS) PER SHARE .02 (.40) $ (.05)
============ ============ ============
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
SIX MONTHS ENDED JUNE 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 -- -- -- (5,068,207) (5,068,207)
Foreign currency translation -- -- (73,196) -- (73,196)
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 June 30, 2000 106,240 51,507,416 (73,196) (56,589,207) (5,048,747)
=========== =========== =========== =========== ===========
</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
SIX MONTHS ENDED JUNE 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) 305,112 (5,068,207) $ (610,627)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 35,558 73,880 8,901
Amortization of product development costs 46,779 155,096 18,686
Provision for losses on receivables - Customers -- 400 48
Minority interest -- (1,296,768) (156,237)
(Increase) decrease in
Accounts receivable (573,622) (211,930) (25,534)
Deposits and other (180,338) (727,153) (87,609)
Costs and estimated earnings in excess of
billings on uncompleted contracts 398,692 -- --
Advances to employees 546,201 92,354 11,127
Increase (decrease) in
Accounts payable and accrued expenses 394,305 (596,427) (71,859)
Customer deposits (61,869) 3,157,629 380,437
Billings in excess of costs and estimated
earnings on uncompleted contracts (402,775) -- --
----------- ----------- -----------
Total Adjustments 202,931 2,263,795 272,746
----------- ----------- -----------
Net Cash (Used In) Provided by Operating 508,043 (2,804,412) (337,881)
----------- ----------- -----------
Cash Flows from Investing Activities
Capital expenditures (182,054) (1,751,669) (211,044)
Capitalized expenditures for product development costs (150,849) (14,262) (1,718)
Net repayments from (advances to) SiTech Holding (Hainan)
Company Limited (518,910) 1,485,426 178,967
Net (advances to) repayments from related parties 7,088 (1,189,970) (143,370)
Initial Investment of minority shareholder -- 240,000 28,916
Other -- (73,196) (8,819)
----------- ----------- -----------
Net Cash (Used in) Provided by Investing
Activities (844,725) (1,303,671) (157,069)
----------- ----------- -----------
Cash Flows from Financing Activities
Net borrowings from SiTech Holding -- 823,681 99,239
Net short-term borrowings 370,018 4,342,013 523,134
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 -- 21,066,185 2,538,095
----------- ----------- -----------
Net Increase (Decrease) in Cash 33,336 16,958,102 2,043,145
Cash, Beginning of Period 34,687 629,351 75,825
----------- ----------- -----------
Cash, End of Period 68,023 17,587,453 $ 2,118,970
=========== =========== ===========
</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, software
releasing etc.. Our focus is on various e-commerce, network management and
resource control systems for business and government enterprises. As one of the
first Application Service Providers (ASP) in China, eSoftBank.com is an
interactive and integrated virtual software community offering technical
databank, knowledge exchange, job subcontracting, software testing and
supporting services. 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. 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 consummated 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 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").
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
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<PAGE>
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
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 as were
due from a shareholder) or operations during 1999 and 2000, no fair value
adjustments were required and there are no changes to the WCD financials 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, of which SiTech Hainan is the only
operating company.
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 second quarter and the first half 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
second quarter and first half of 1999 with the consolidated results of
operations of WCD for the second quarter and first half of 2000.
Part of our strategy consists of enhancing market recognition of our brand
name as a global on-line software subcontracting platform and marketing our on-
line software outsourcing platform to various industries. To further these
goals, we signed an agreement with Shenzhen Commercial Bank, a local commercial
bank, to cooperate in the following areas:
-- the bank will use our platform as a bidding center to purchase
computer-related equipment;
-- we will have the right of first refusal concerning the bank's software
outsourcing projects;
-- we will promote the bank's proven software technologies and
information services; and
-- we and the bank will cooperate in developing e-banking, including
on-line banking, on-line payment and other activities.
The bank has also agreed to cooperate with us in the future in other e- commerce
projects.
We have completed negotiations concerning our strategic alliance with
Shenzhen Machinery Equipment Bid Center (the Bid Center), which was finalized
and announced in the first week in July. We expect this agreement to further
strengthen our on-line subcontracting business and to generate annual estimated
transaction volume of US$100 million. The bid center is directly supervised by
the Trade Development Bureau of the
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<PAGE>
Shenzhen Municipality. Its clients include business entities, individuals, as
well as governmental entities. We and the Bid Center agreed to cooperate in the
following areas:
-- Developing a bid channel to purchase hardware and software;
-- The Bid Center will provide us with all the information on bid
projects;
-- We will provide technical support services to the Bid Center;
-- We will provide the Bid Center with long term technical support,
consulting services and network development.
We believe that this strategic alliance will further broaden our business arena
and client base, which we believe are critical to our success. The revenue
stream will come from commissions on a transactional basis.
Another alliance that we expect will broaden our market exposure is our
signed agreement with 263.net to jointly publish an embedded software
transaction platform and virtual software community called 263.eSoftBank.com for
3 million 263.net users. Management believes that 263.net's homepage receives up
to 1,200,000 "hits" daily, and has as many as 3,800,000 registered users.
As part of our efforts to maintain a strong brand image, we also have begun
the ISO 9001 certification process for quality assurance for our outsourcing
business.
The business of eSoftbank.com is currently conducted in Renminbi, the
currency of China ("RMB"), which for purposes of this section and our financials
are converted at an exchange rate of $1.00 = RMB 8.30.
Second Quarter and First Half of 2000 versus Second Quarter and First Half of
1999
We had revenues of $362,048 from our primary lines of business (and other
revenues of $1,752 from secondary lines of business) during the second quarter
of 2000, compared to an aggregate of $66,538 ($111,559) for the second quarter
(first half) of 1999. We did not have any revenues during the first quarter of
the year, as we were completing the infrastructure related to our new
subcontracting platform during that quarter. Our revenues for the second quarter
and first half of 2000 reflect the increase in 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. We also
earned revenues this year for a consulting project with a second company. In
contrast, revenues in the first quarter of 1999 were primarily generated by
software development projects, which were all completed prior to the end of
calendar 1999. We believe that our current contracts signal to the e-commerce
market that our model is acceptable in China. We also believe that our
Internet-based platform, which offers technical databank, knowledge exchange,
job subcontracting, software testing and supporting services, will begin to
generate positive results in the near future. We expect
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<PAGE>
revenues to increase in the following quarters due to the launching of our
eSoftBank.com website and revenues from our other software development
operations described in the "Overview" and "Outlook" sections.
Our cost of sales was $151,101 in the second quarter of 2000 and $195,831
for the first six months of this year, compared to $18,950 for the second
quarter of 1999, an eightfold increase, and $44,487 for the first six months of
1999. This increase in our cost resulted from the implementation of the strategy
described above, particularly the cost of parts to support our activities and
increased salaries. Salaries for the quarter increased because we increased our
current staff base to 140, including 50 salespeople. These two components
accounted for about $107,000, or 81%, of the increase in cost of sales.
Additionally, salaries reflected an increase in personnel-months of about 38%
over the first quarter of 2000.
Gross margin as a percentage of sales (projects) was 42% in the second
quarter of 2000 and 54% for the first half of the year, compared to 29% during
the second quarter of 1999 and 42% for the first half of last year. This
decrease was the result of the aforementioned increases in parts and salaries.
We expect our gross margin to increase in the future as a result of continuing
increases in sales without a simultaneous comparable increase in cost of sales.
Our selling and administrative expenses increased to $560,327 in the second
quarter ($915,402 for six months), an increase of $513,754 ($912,476) from
$16,390 ($857,069) in the comparable period of 1999. Our increase in staffing
and the concurrent increase in our marketing efforts in Shenzhen and Hainan in
addition to Beijing comprise a significant portion of this increase.
We incurred losses for the second quarter of 2000 of $291,741 (after giving
effect to the minority interest held by others in SiTech Hainan, which decreased
the operating loss by $76,879). We also incurred losses of $610,627 during the
first six months of 2000. This represented a decrease in net income of $322,905
for the three month period and $647,387 for the six month period, respectively.
(We had profits of $31,164 and $36,760 during the comparable quarter and six
month period of 1999.) The operating losses in the first half of 2000 were due
to our marketing campaign, the costs of setting up our offices, and the initial
decrease in our revenues while we established our platform and increased cost of
sales as we developed and launched our eSoftBank.com website. During the second
quarter, this increase was mainly attributable to our staffing increase. As
expenses stop growing, our shift in focus from a pure software development
company to a worldwide on-line software subcontracting platform is expected to
reverse these negative trends in the future. We do not expect that operating
expenses will continue to increase at this pace.
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<PAGE>
Outlook
We believe that we are well-positioned for growth in the rapidly developing
information technology ("IT") industry in China and, eventually, beyond. We
anticipate an increase in our business as we are developing from a regional
software development company in Hainan to a group of companies with extensive
geographical coverage. We anticipate that our web site will be visited and
utilized by individuals and companies in Beijing, Shenzhen, Hainan and other
cities in China. The three named cities are of particular significance to us
because (i) Beijing is the center for IT talent and markets in China, (ii)
Shenzhen has relatively easy access to Hong Kong and can be used as a capital
channel for future fund raising, and (iii) Hainan is our current technology
base. In the near future, we plan to set up a representative office in the
United States and establish an American Programmer Club. We are also in
preparation to launch a complete English version of our website.
We are currently engaged to undertake the projects listed below. We
anticipate that these projects and others under consideration will have a
positive impact on our revenues and cash flows in later quarters.
1. We have entered into a service contract for a data telecommunication
company, pursuant to which our customer will make use of our bidding
platform to get proposals for its e-business plans. We understand that
the telecommunications company has a budget of approximately $1.2
million to spend on its e-business, of which we will have the
opportunity to earn about 10% as a service fee if the
telecommunications company chooses a plan proposed through eSoftbank's
platform. Additionally, we will serve as the project supervisor during
the implementation of the plan.
2. Our subsidiary esoftbank.com Beijing has entered into a website
construction contract with a well-known electric company. We
anticipate that this contract will generate revenues of about $40,000.
3. Our subsidiary SiTech Hainan has entered into a payroll auto-transfer
software programming project with a commercial bank pursuant to which
SiTech Hainan will develop a software which can auto-transfer payroll
from the bank's commercial customers accounts to their respective
employees' accounts. The anticipated revenues are about $26,000.
4. In addition to these contracts, we anticipate that we will receive
revenues from the remaining portion of our service contract with Swaid
(about $380,000) and from other several smaller projects (estimated at
$48,000).
We plan to build upon our presence in China and expand our presence
overseas in the future.
6
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Liquidity and Capital Resources
At the end of the second quarter of 2000, we had cash on hand of
$2,118,970, in contrast to $8,196 at the end of the second quarter of 1999. This
increased cash is primarily due to funds provided as a short term loan from
Shenzhen Commercial Bank to one of our subsidiaries. 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 $1.9
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.
7
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. None
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Our outstanding common stock was trading (simultaneously) on a pre- and
post-reverse split basis during the reporting period. On June 20, 2000, we
released an explanatory press release, which provided in pertinent part as
follows:
"On March 31, 2000 the Company amended its Articles of Incorporation
to change its name from Natural Way Technologies, Inc. to eSoftBank.com,
Inc. and reverse split its shares on a 1:5 basis. These transactions
resulted from the Company's acquisition of World Concept Development, Inc.
Unfortunately, when the new trading symbol for the Company was issued,
it reflected only the name change. This caused confusion in the market
place as the 1:5 reverse split was reflected only after May 31, 2000. The
Company has since taken the steps necessary to remedy any problems or
losses caused by this confusion. Effective June 1, 2000 all share
transactions reflect the 1:5 reverse split."
Item 6.
(a) Exhibit 27 - Financial Data Schedule
(b) o We filed a report on Form 8-K on June 5, 2000 (Item 1, Change of Control)
and a report on Form 8-K/A on June 7, 2000 (Item 1, Change of Control, and
Item 7, Financial Statements for World Concept Development Limited and
Subsidiary and for SiTech Hainan Limited) with respect to the March 2000
transactions and share issuances described in Item 2 of Part II of our Form
10-Q for the reporting quarter ended March 31, 2000.
o We also issued the press release quoted in Item 5 immediately above.
8
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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: August 11, 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
