U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------
|X| Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended October 31, 2000
|_| Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____
Commission File No. 000-24996
INTERNET COMMERCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3645702
(State of incorporation ) (I.R.S. Employer
Identification Number)
805 Third Avenue, 9th Floor
New York, New York 10022
(Address of principal executive offices, including zip code)
(212) 271-7640
(Registrants 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. Yes |X| No |_|
As of December 6, 2000 the issuer had outstanding 9,406,469 shares of
Class A Common Stock and 2,574 shares of Class B Common Stock that are
convertible into Class A Common Stock.
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INDEX TO FORM 10-Q
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of October 31, 2000 (unaudited) and July 31, 2000.... 3
Statements of operations and comprehensive loss for the
three months ended October 31, 2000 (unaudited) and
October 31, 1999 (unaudited) .......................................... 4
Statements of cash flows for the three months ended October 31, 2000
(unaudited) and October 31, 1999 (unaudited).......................... 5
Notes to financial statements.......................................... 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 10-13
PART II. OTHER INFORMATION
Item 1. Legal proceedings.............................................. 13
Item 2. Changes in Securities and Use of Proceeds...................... 13
Item 6. Exhibits and Reports on Form 8-K .............................. 14
SIGNATURES............................................................. 15
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<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
Balance Sheets
October 31, July 31,
2000 2000
(unaudited)
------------ ----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $11,190,610 $14,003,329
Marketable securities 953,970
Accounts receivable (net of allowance for doubtful
accounts of $84,474 and $74,388, respectively) 641,188 629,087
Note receivable 5,000,000
Prepaid expenses and other assets 195,891 209,112
------------ ----------
Total current assets 12,981,659 19,841,528
Restricted cash 537,873 523,863
Prepaid acquisition costs - RTCI 261,235 369,486
Property and equipment, net 1,066,379 925,596
Investment in RTCI 5,063,699
Software development costs, net 415,268 474,592
Goodwill, net 2,516,194 182,927
Other assets 14,237 14,237
---------- ---------
Total assets $22,856,543 $22,332,229
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses 919,159 1,090,859
Accrued dividends 381,989 275,763
Deferred revenue 49,382 250,000
Capital lease obligation 288,233 307,677
Deferred tax liability 324,390
Other liabilities 137,755 86,237
------------ ----------
Total current liabilities 2,100,909 2,010,536
Capital lease obligation - less current portion 188,912 231,457
Deferred tax liability 24,720
------------ ----------
Total liabilities 2,314,540 2,241,993
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock:
Preferred stock - 5,000,000 shares authorized, including
10,000 series A preferred stock, 10,000 series C preferred
stock and 175 series S preferred stock
Series A preferred stock - par value $.01 per share,
$1,000 liquidation Value per share, 568 and 668 shares
issued and outstanding at October 31, 2000 and
July 31, 2000, respectively 6 7
Series C preferred stock - par value $.01 per share, $1,000
liquidation value per share, 44.76 votes per share;
10,000 shares issued and outstanding at both October 31,
2000 and July 31, 2000 100 100
Common stock:
Class A - par value $.01 per share, 40,000,000 shares
authorized, one vote per share;
6,685,956 and 6,388,445 shares issued and outstanding
at October 31, 2000 + and July 31, 2000, respectively 66,860 63,884
Class B - par value $.01 per share, 2,000,000 shares
authorized, six votes per share; 2,574 shares issued
and outstanding at both October 31, 2000 and
July 31, 2000 26 26
Additional paid-in capital 62,236,763 58,432,187
Accumulated deficit (41,686,322) (38,405,968)
Accumulated other comprehensive loss (75,430) __________
----------- -----------
Total stockholders' equity 20,542,003 20,090,236
----------- -----------
Total liabilities and stockholders' equity 22,856,543 22,332,229
=========== ===========
</TABLE>
See notes to financial statements
3
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INTERNET COMMERCE CORPORATION
Statements of Operations and Comprehensive Loss
Three Months Ended October 31,
------------------------------
2000 1999
(unaudited)
------------------------------
Revenue:
Services $ 1,316,385 $ 140,363
----------- ----------
Expenses:
Cost of services 1,059,014 222,931
Product development and enhancement 152,197 223,214
Selling and marketing 1,177,917 565,832
General and administrative (excluding non-cash
charges in connection with stock-based
compensation of $450,111 and $0 during the
three months ended October 31, 2000 and
October 31, 1999, respectively) 1,959,362 906,547
Non-cash charges in connection with stock-based
compensation 450,111
----------- -----------
(4,798,602) (1,918,524)
----------- -----------
Operating loss (3,482,217) (1,778,161)
----------- -----------
Other income and expense:
Interest and investment income 217,799 27,759
Interest expense (15,936) (24,264)
----------- -----------
201,863 3,495
----------- -----------
NET LOSS (3,280,354) (1,774,666)
Dividends attributable to preferred stock (106,226)
----------- -----------
Loss attributable to common stockholders (3,386,580) (1,748,826)
========== ===========
Basic and diluted net loss per common share $ (.51) $ (.96)
========== ===========
Weighted average number of common shares outstanding
- basic and diluted net loss per common share 6,616,766 1,841,794
========== ===========
NET LOSS (3,280,354) (1,774,666)
Other comprehensive income / (loss):
Unrealized holding gains / (loss) (75,430) 25,840
------------ -----------
Comprehensive loss $(3,355,784) $(1,748,826)
=========== ===========
See notes to financial statements
4
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INTERNET COMMERCE CORPORATION
Statements of Cash Flows
Three Months Ended October 31,
------------------------------
2000 1999
(unaudited)
----------------------------
Cash flows from operating activities:
Net loss $(3,280,354) $(1,774,666)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 142,084 106,127
Software development cost amortization 59,324 3,050
Loss on sale of marketable securities 14,932
Non-cash charges for compensatory stock
options issued 450,111
Changes in assets and liabilities net of
effects from purchase of IDC:
Accounts receivable 129,217 (65,394)
Prepaid expenses and other assets 58,173 74,736
Accounts payable and accrued expenses (175,617) 63,414
Deferred revenue (270,206)
Other liabilities 14,757 (16,449)
---------- ----------
Net cash used in operating activities (2,872,511) (1,594,250)
----------- ----------
Cash flows from investing activities:
Payment for purchase of IDC, net of cash
acquired 103,847
Purchases of property and equipment (102,713) (34,029)
Purchase of certificate of deposits (14,010)
Proceeds from sales of marketable securities 1,988,163
---------- ---------
Net cash (used in) provided by
investing activities (12,876) 1,954,134
---------- ---------
Cash flows from financing activities:
Proceeds from exercise of employee stock
options 154,912 20,059
Payments of capital lease obligations (82,244) (41,469)
--------- ---------
Net cash provided by (used in) 72,668 (21,410)
financing activities --------- ---------
Net (decrease) increase in cash and cash
equivalents (2,812,719) 338,474
Cash and cash equivalents, beginning of period 14,003,329 114,258
---------- ---------
Cash and cash equivalents, end of period $11,190,610 $ 452,732
=========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest during the period $ 15,936 $ 24,264
Noncash investing and financing activities:
Issuance of common stock for settlement 176,000
Property acquired under capital lease 47,022
Conversion of note to equity of RTCI 5,063,699
Accrued dividends on preferred stock 106,226
Unrealized loss in marketable securities 75,430 25,840
Conversion of series A preferred
stock to class A common stock 200
Fair value of assets acquired from
purchase of IDC 3,788,387
Payment for purchase of IDC, net of
cash acquired 3,308,754
Liabilities assumed from IDC 479,633
See notes to financial statements
5
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INTERNET COMMERCE CORPORATION
Notes to Financial Statements
October 31, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three-month period ended October 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 31, 2001.
The balance sheet at July 31, 2000 has been derived from the audited financial
statements at that date, but does not include all the footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the audited financial statements and footnotes
thereto included in Internet Commerce Corporation's (the "Company" or "ICC")
Annual Report on Form 10-KSB for the fiscal year ended July 31, 2000.
NOTE B - ORGANIZATION AND NATURE OF BUSINESS
The Company was incorporated under the name Infosafe Systems, Inc. in
November 1991 in the State of Delaware.
ICC provides Internet-based e-commerce service for the business-to-business
marketplace. ICC.NET is a secure, low-cost, real-time transaction system for
exchanging and managing, data, documents, Electronic Data Interchange ("EDI"),
graphics, audio and video for commercial trading partners of any size. The
ICC.NET system bridges legacy e-commerce investments to the Internet. Through
its purchase of Intercoastal Data Corporation ("IDC"), ICC also licenses EDI
software and provides EDI services.
ICC began the development of its ICC.NET or CommerceSense(R) service in 1997,
introduced ICC.NET for beta testing in November 1997 and launched the first
version of ICC.NET commercially in April 1999. The ICC.NET system uses the
Internet and proprietary technology to deliver the Company's customers'
documents and data files to members of their trading communities, many of which
have incompatible systems, by translating the documents and data files into any
format required by the receiver. The system can be accessed using a standard Web
browser or virtually any other communications protocol.
NOTE C - SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
Revenue recognition:
The Company's revenues from its ICC.NET service are derived from subscription
fees which include transaction, mailbox and fax transmission fees. The Company
also derives revenues through implementation fees, consulting and
interconnection fees.
Subscription fees are charged for the use of the Company's ICC.NET service,
which include both fixed and usage-based fees. These fees are recognized
currently, provided that all of the following conditions are met: a license
agreement has been signed, the electronic data has been delivered, there are no
material uncertainties regarding customer acceptance and collection of the
resulting receivable is reasonably assured. Implementation fees are generally
billed in the period the new customer is activated. Consulting fees are
recognized as services are performed.
6
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INTERNET COMMERCE CORPORATION
Notes to Financial Statements
October 31, 2000
NOTE C - SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (CONTINUED)
The Company's revenues from licensing EDI software and from providing EDI
services consist primarily of consulting services, licensing fees and customer
support. Such revenues are accounted for in accordance with the American
Institute of Certified Public Accountants' Statement of Position 97-2, "Software
Revenue Recognition". Revenue from the license of software is recognized after
shipment of the software and the fulfillment of acceptance, provided no
significant obligations remain and collection of the resulting receivable is
deemed probable. Revenues from installation, consulting and education seminars
are recognized when services are provided and revenue from support contracts are
recognized ratably over the life of the contract.
NOTE D - MARKETABLE SECURITIES
The following is a summary of securities that are available for sale:
Gross Unrealized
------------------
Cost Gains Losses Fair Value
---------- ---------- --------- ----------
Corporate equity securities $1,029,400 $ $ 75,430 $ 953,970
========== ========== ========= =========
NOTE E - INVESTMENT IN RTCI
On August 15, 2000, the $5,000,000 note receivable and unpaid accrued interest
on the note receivable were converted into common stock of RTCI.
NOTE F - ACQUISITION
On August 3, 2000, ICC consummated a merger with IDC (the "IDC Merger"). All
issued and outstanding shares of IDC were converted into a total of 190,861
shares of ICC class A common stock. The former stockholders of IDC have the
right to receive additional shares of ICC class A common stock equal to the
difference between the number of shares calculated at the closing date and the
number of shares of ICC class A common stock calculated using the value of ICC
class A common stock on the date the registration statement ICC has filed
covering the resale of these shares becomes effective, up to a total of an
additional 47,715 shares.
It is the opinion of management that this transaction qualifies as a tax-free
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986.
The acquisition of IDC was accounted for under the purchase method of accounting
and accordingly, the assets and liabilities were recorded based on their fair
values at the date of acquisition and the results of operations have been
included in the financial statements for the period subsequent to acquisition.
7
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INTERNET COMMERCE CORPORATION
Notes to Financial Statements
October 31, 2000
NOTE F - ACQUISITION (CONTINUED)
The allocation of the purchase price is summarized below:
Purchase Price:
Acquisition cost $ 3,308,754
Transaction costs 243,286
----------------
Total purchase price $ 3,552,040
================
Fair value of assets acquired:
Marketable securities $ 1,029,400
Fixed assets 79,931
Other assets 488,852
Liabilities assumed (479,633)
----------------
Fair value of net assets
acquired 1,118,550
----------------
Cost in excess of net assets
acquired $ 2,433,490
================
Payment of Purchase Price:
Common stock and additional $ 3,308,754
paid-in capital
Transaction costs 243,286
----------------
$ 3,552,040
================
The cost in excess of net assets acquired is being amortized over a period of
ten years and is included in general and administration expenses in the
statement of operations.
The following table presents unaudited pro forma results assuming we had
acquired each of IDC and RTCI (see Note H) at the beginning of fiscal year 2000.
This information may not necessarily be indicative of our future combined
results.
Revenues $ 10,002,000
Net loss $(24,022,322)
Basic and diluted loss per share $ (4.49)
NOTE G - STOCKHOLDERS' EQUITY
[1] Series A preferred stock:
In August 2000, one hundred shares of ICC series A preferred stock were
converted into 20,000 shares of ICC class A common stock.
[2] Stock options:
During the three-month period ended October 31, 2000, current and former
employees of ICC exercised stock options for 86,650 shares of class A common
stock.
8
<PAGE>
INTERNET COMMERCE CORPORATION
Notes to Financial Statements
October 31, 2000
NOTE H - SUBSEQUENT EVENT
Acquisition of Research Triangle Commerce, Inc.
On November 6, 2000, ICC completed the acquisition of Research Triangle
Commerce, Inc. ("RTCI"), pursuant to an Agreement and Plan of Merger dated June
14, 2000 (the "Merger Agreement"). RTCI is a vertically integrated electronic
commerce ("EC") services firm that specializes in solutions involving XML
(eXtensible Markup Language), EDI and EAI (Enterprise Application Integration),
and provides EC consulting, outsourced EC services and technical resource
management.
Under the terms of the Merger Agreement, RTCI's outstanding shares of common
stock were converted into approximately $2.5 million of cash and 2,719,024
shares of ICC class A common stock and RTCI's options and warrants were
converted into options and warrants of ICC with the right to receive upon
exercise an aggregate of 394,905 shares of ICC class A common stock and
approximately $100,000 of cash. The cash portion of the purchase price was
funded from cash acquired from RTCI.
The acquisition of RTCI was accounted for under the purchase method of
accounting and accordingly, the assets and liabilities were recorded based on
their fair values at the date of acquisition and the results of operations have
been included in the financial statements for the period subsequent to the
acquisition.
The purchase price was allocated between the fair value of the net assets
acquired of approximately $11 million and the purchase price in excess of the
acquired assets of approximately $14 million. The purchase price in excess of
the acquired assets is being amortized over a period of ten years. Other
intangible assets acquired from RTCI were its workforce valued at $4 million,
its mapping technology valued at $4.8 million and its customer list valued at
$100,000. The value of the workforce and mapping technology are being amortized
over a period of five years and the value of the customer list is being
amortized over a period of ten years.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Quarterly Report on Form 10-Q contains a number of "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Specifically, all statements other
than statements of historical facts included in this Report regarding our
financial position, business strategy and plans and objectives of management for
future operations are forward-looking statements. These forward-looking
statements are based on the beliefs of management, as well as assumptions made
by and information currently available to management. When used in this report,
the words "anticipate," "believe," "estimate," "expect," "may," "will,"
"continue" and "intend," and words or phrases of similar import, as they relate
to our financial position, business strategy and plans, or objectives of
management, are intended to identify forward-looking statements. These
"cautionary statements" reflect our current view with respect to future events
and are subject to risks, uncertainties and assumptions related to various
factors including, without limitation, those listed below the heading "Overview"
and in our registration statements and periodic reports filed with the
Securities and Exchange Commission under the Securities Act and the Exchange
Act.
Although we believe that our expectations are reasonable, we cannot assure you
that our expectations will prove to be correct. Based upon changing conditions,
should any one or more of these risks or uncertainties materialize, or should
any underlying assumptions prove incorrect, actual results may vary materially
from those described in this report as anticipated, believed, estimated,
expected or intended.
Overview
We were founded in November 1991 under the name Infosafe Systems, Inc. and from
1991 to 1997 we conducted limited operations and developed certain products that
we were unable to exploit commercially and consequently discontinued. In 1997,
we shifted our business emphasis to focus exclusively on the development and
marketing of our ICC.NET service and changed our name to Internet Commerce
Corporation in September 1998 to reflect this shift. We ceased to be a
development stage company and became an operating entity in the fourth quarter
of our fiscal year ended July 31, 1999.
We developed our ICC.NET service as an alternative to the EDI services that are
currently provided by traditional VANs that offer their services primarily using
dedicated telecommunications links. Our ICC.NET service translates and transmits
electronic documents, such as purchase orders, requests for proposals and
receipts, images and other data over the Internet as well as other traditional
telecommunication services if the customer so chooses.
We are currently focusing on our ICC.NET service. As a result, our revenue for
the foreseeable future is almost entirely dependent on the success of this
service, including, but not limited to, the number of customers who subscribe to
the service and the volume (in kilocharacters) of the data, documents or other
information they send or retrieve utilizing our service and revenue derived from
our new EDI service bureau. We will need to generate significant revenue to
achieve and maintain profitability. If we do not increase our revenue
significantly, we will continue to be unprofitable.
We expect to base our expenditures on our plans and estimates of future revenue.
We may be unable to adjust spending in a timely manner if we experience an
unexpected shortfall in our revenue. As a result, we may not achieve
profitability.
10
<PAGE>
Results of Operations and Financial Condition
Three Months Ended October 31, 2000 Compared with Three Months Ended October
31, 1999.
Our revenue was $1,316,000 and $140,000 in the three months ended October 31,
2000 (the "2001 Quarter") and October 31, 1999 (the "2000 Quarter"),
respectively. Revenue related to our ICC.NET service, which include transaction,
mailbox and consulting fees, increased $515,000 in the 2001 Quarter from the
2000 Quarter. The increase in ICC.NET service revenue was the result of an
increase in the number of billable customers and transaction volume for the 2001
Quarter compared to the 2000 Quarter. We also recognized $411,000 in revenue in
the 2001 Quarter from our EDI service bureau which was acquired with our
purchase of IDC on August 3, 2000. The service bureau's revenue was primarily
generated from the services performed, licensing fees and customer support. In
the 2001 Quarter, we also recognized $250,000 from guaranteed payments received
from Hightech International Services GmbH, a subsidiary of ThyssenKrupp
Information Services GmbH ("TKIS"), under a Joint Services Agreement dated July
28, 2000.
Cost of services increased to $1,059,000 in the 2001 Quarter from $223,000 in
the 2000 Quarter. In the 2001 Quarter salaries and related employee benefits
increased $302,000. Expenses related to customer and technical support provided
by our product development and enhancement employees increased $129,000. Service
costs related to an agreement with Sector, Inc. ("Sector") increased $37,000
primarily from increased service fees in the 2001 Quarter. Sector is a
wholly-owned subsidiary of SIAC (Securities Industry Automation Corporation)
which is a joint subsidiary of the New York and American Stock Exchanges. Sector
provides us with a computer room facility in the SIAC Data Center. We use this
facility to house our servers and communications infrastructure. In addition,
amortization of capitalized software increased $56,000, data lines and support
increased $65,000 and costs of consultants increased $88,000 in the 2001
Quarter. The remaining increase of $159,000 was primarily attributable to
overhead costs. Included in the above increases was $160,000 in expenses
incurred by our new EDI service bureau division. Personnel related to cost of
services increased to 47 at the end of the 2001 Quarter from 29 at the end of
2000 Quarter.
Product development and enhancement costs related to the maintenance and
improvement of our ICC.NET service decreased to $152,000 in the 2001 Quarter
from $223,000 in the 2000 Quarter. In the 2001 quarter salaries and related
employee benefits increased $232,000 and costs incurred for consultants
increased $59,000. These increases were offset by amounts charged to cost of
services, selling and marketing and general and administration expenses in the
amount of $438,000. The remaining increase of $76,000 was primarily attributable
to overhead costs. Personnel related to product development and enhancements
increased to 18 at the end of the 2001 Quarter from 11 at the end of the 2001
Quarter.
Selling and marketing expenses increased to $1,178,000 in the 2001 Quarter from
$566,000 in the 2000 Quarter. The increase reflects spending related to our
expanded selling and marketing efforts. Salaries and related employee benefits
increased $311,000 in the 2001 Quarter. Expenses relating to selling and
marketing efforts of our development and enhancement employees increased
$37,000. Expenses related to travel, advertising and trade shows, and for
consultants increased $34,000, $118,000 and $63,000 respectively. The remaining
increase of $49,000 was primarily attributable to overhead costs. Included in
the above increases were $24,000 in expenses incurred by our new EDI service
bureau division. Personnel related to selling and marketing increased to 23 at
the end of the 2001 Quarter from 10 at the end of the 2000 Quarter.
General and administrative costs increased to $1,959,000 in the 2001 Quarter
from $907,000 in the 2000 Quarter. The increase is attributable to an increase
in recruitment fees, salaries and related employee benefits of $335,000 and an
increase in professional fees and consulting fees of $209,000. General and
administration expenses incurred by our development and enhancement employees
increased by $271,000. Fees paid to the Nasdaq Stock Market, Inc. increased
$69,000 primarily due to initial listing fees for listing our class A common
stock on the Nasdaq National Market. Amortization of goodwill increased $61,000
relating to our purchase of IDC. The remaining increase of $107,000 was
primarily attributable to overhead costs. Included in the above increases were
$118,000 in expenses
11
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incurred by our new EDI service bureau division. Personnel related to general
and administrative functions increased to 26 at the end of the 2001 Quarter from
17 at the end of the 2000 Quarter.
Non-cash charges in connection with compensation and services were $450,000 in
the 2001 Quarter and $0 in the 2000 Quarter. In March 2000, ICC granted options
to purchase 100,000 shares of class A common stock in connection with a
consulting agreement with a former executive officer and board member. The
options were valued at $6,318,850 and were being amortized as consulting expense
over the term of the consulting agreement. Non-cash charges for these options
amounted to $450,000 during the 2001 Quarter. On September 22, 2000, the former
board member surrendered the options; accordingly we will not be required to
take any charges in connection with these options in the future.
We earned income from investments of $218,000 in the 2001 Quarter and $28,000 in
the 2000 Quarter. The increase in the 2001 Quarter was due to higher average
cash balances in the 2001 Quarter compared to the 2000 Quarter.
Interest expense decreased to $16,000 in the 2001 Quarter from $24,000 in the
2000 Quarter. The decrease was due to a decrease in the principal balances of
our capital leases.
The net loss in the 2001 Quarter was $3,280,000 compared to $1,775,000 in the
2000 Quarter. The net loss in the 2001 Quarter included non-cash charges for
compensation in connection with stock-based compensation in the amount of
$450,000.
Liquidity and Capital Resources
Current assets decreased to $12,982,000 as of October 31, 2000 from $19,842,000
as of July 31, 2000. The decrease was primarily due to a decrease in cash and
cash equivalents of $2,813,000, an increase in marketable securities of $954,000
and a decrease of a note receivable in the amount of $5,000,000. The decrease in
cash and cash equivalents was primarily due to cash used in operations. The
increase in marketable securities resulted from the purchase of IDC. The
decrease of the note receivable was due to the conversion of the note (including
accrued interest) into common stock of RTCI on August 15, 2000.
Total assets increased to $22,857,000 as of October 31, 2000 from $22,332,000 as
of July 31, 2000. The increase was primarily due to an increase in goodwill of
$2,333,000, a decrease in cash and cash equivalents and an increase in
marketable securities. The increase in goodwill is primarily the result goodwill
recognized from the purchase of IDC.
Total liabilities increased to $2,315,000 as of October 31, 2000 from $2,242,000
as of July 31, 2000. The increase was primarily the result of an increase of
current and non-current deferred tax liability of $349,000 and a decrease in
deferred revenue of $201,000. The deferred tax liability arose from the
differences between the tax and book basis of assets acquired from the purchase
of IDC. The decrease in deferred revenue was primarily the result of recognizing
revenues generated from our agreement with TKIS.
At October 31, 2000 we had working capital of $10,881,000.
We have financed our operations through private placements during fiscal 1994,
our initial public offering during fiscal 1995 (the "IPO"), a private placement
in March 1997, a private placement of bridge note units during fiscal 1998 and
1999, a private placement of series A preferred stock in April 1999 and private
placements of our class A common stock, series C preferred stock and warrants in
November 1999. We anticipate losses through fiscal 2001 as we continue to expand
commercial markets for our ICC.NET service and EDI service bureau.
Our principal sources of liquidity, which consisted of cash and cash equivalents
and marketable securities, decreased to $12,145,000 as of October 31, 2000
compared to $14,003,000 as of July 31, 2000. Net cash used in operating
activities was $2,873,000 for the 2001 Quarter compared to $1,594,000 for the
2000 Quarter. The increase in cash
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used in operating activities was primarily the result of increased expenses in
connection with building our infrastructure. Cash flows used in investing
activities were $13,000 for the 2001 Quarter compared to $1,954,000 provided by
investing activities for the 2000 Quarter. The decrease in cash provided by
investing activities was primarily due to marketable securities that were
converted into cash in the 2000 Quarter. No such transaction occurred in the
2001 Quarter. Net cash provided by financing activities was $73,000 in the 2001
Quarter and net cash used in financing activities was $21,000 in the 2000
Quarter. The increase in cash provided by financing activities was primarily the
result of a larger number of stock option exercises in the 2001 Quarter compared
to the 2000 Quarter.
We have a net operating loss carryforward of approximately $52 million to offset
future taxable income for federal income tax purposes. The utilization of the
loss carryforward to reduce any such future income taxes will depend on our
ability to generate sufficient taxable income prior to the expiration of the net
operating loss carryforwards. The carryforward expires from 2007 to 2020. The
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder contain provisions which limit the use of available net operating
loss carryforwards in any given year should significant changes (greater than
50%) in ownership interests occur. Due to the IPO, the net operating loss
carryover of approximately $1.9 million incurred prior to the IPO will be
subject to an annual limitation of approximately $400,000 until that portion of
the net operating loss is utilized or expires. Also, due to the private
placement of series A preferred stock in 1999, the net operating loss carryover
of approximately $18 million incurred prior to the private placement will be
subject to an annual limitation of approximately $1 million until that portion
of the net operating loss is utilized or expires.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
In October 2000, Thomas Lipscomb, a former President and Chief Executive Officer
of the Company, commenced an action against Alan Alpern, a former officer of the
Company, and against Arthur Medici, a former officer and a current director of
the Company, in the Supreme Court of the State of New York, County of New York.
In the action, Mr. Lipscomb claims that Messrs. Alpern and Medici tortuously
interfered with his employment agreement with the Company. Mr. Lipscomb seeks
compensatory damages of $672,000 and punitive damages of $1 million. Both
Messrs. Alpern and Medici have requested that the Company indemnify them
pursuant to its by-laws, requests that the Company is currently considering. It
is the Company's understanding that both Messrs. Alpern and Medici intend to
defend the action vigorously.
Item 2: Changes in Securities and Use of Proceeds
In connection with the IDC Merger, we issued a total of 190,861 shares of ICC
class A common stock to the six former shareholders of IDC for all of the issued
and outstanding shares of IDC. On September 15, 2000, ICC filed with the
Securities and Exchange Commission a registration statement on Form S-3
registering the resale of these shares. If the average market value of the
shares for the ten days ending four days prior to the effective date of the
registration statement is less than the average value of the shares for the ten
days ending four days prior to the effective time of the IDC Merger ($17.34 per
share), ICC will issue up to an additional 47,715 shares to the IDC Sellers.
All of the securities described in this section were issued by ICC in a
transaction not involving a public offering, to investors that made
representations that the securities were purchased with investment intent and
not with an intent to distribute the securities. The issuance of the securities
was exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended.
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Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits. The following documents are filed as exhibits to this Quarterly
Report on Form 10-Q, including those exhibits incorporated herein by reference
to a prior filing of ICC under the Securities Act or the Exchange Act as
indicated in parenthesis:
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger among ICC, ICC Acquisition
Corporation, Inc., a wholly-owned subsidiary of ICC,
Research Triangle Commerce, Inc., or RTCI, and the selling
shareholders of RTCI (1)
2.2 Agreement and Plan of Merger among ICC, IDC, and the
selling shareholders of IDC (2)
10.1 Lease Agreement, dated as of August 2, 2000, by and between
IDC Realty, LLC as landlord and ICC as tenant relating to the
rental of an approximately 8,000 square feet facility used by
ICC's IDC division (3)
27.1* Financial Data Schedule
* Filed with this quarterly report.
(1) Incorporated by reference to ICC's current report on form 8-K dated June
15, 2000
(2) Incorporated by reference to ICC's current report on form 8-K dated August
11, 2000
(3) Incorporated by reference to ICC's annual report on form 10-KSB for the
year ended July 31, 2000
(b) Reports on Form 8-K
On August 11, 2000, we filed a Current Report on Form 8-K to report the
acquisition of IDC. Historical financial statements of IDC as of January 31,
2000 and 1999 and for the years then ended and pro-forma financial information
were filed with this report. The combined condensed pro forma balance sheet
combines ICC and RTCI and IDC as of April 30, 2000, as if each acquisition had
occurred on April 30, 2000. The pro forma statements of operations combine
ICC's, RTCI's and IDC's historical results of operations for the twelve months
ended July 31, 1999 and the nine months ended April 30, 2000, as if each
acquisition had occurred on August 1, 1998.
On September 7, 2000, we filed a Current Report on Form 8-K to report the
financial statements of RTCI as of and for the years ended December 31, 1998 and
1999 and as of and for the six months ended June 30, 1999 and 2000.
On September 11, 2000, we filed a Current Report on Form 8-K to report the
financial statements of IDC as of and for the three and six months ended July
31, 2000 and 1999.
On October 13, 2000, we filed a Current Report on Form 8-K to report the
combined condensed pro-forma financial statements of ICC, RTCI and IDC as of
July 31, 2000 and for the fiscal year ended July 31, 2000, as if each
acquisition had occurred on August 1, 1999.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERNET COMMERCE CORPORATION
-----------------------------
(Registrant)
Date: December 6, 2000 By: /s/ Geoffrey S. Carroll
----------------------------------
Dr. Geoffrey S. Carroll
President and Chief Executive
Officer
(Principal Executive Officer)
Date: December 6, 2000 By: /s/ Walter M. Psztur
----------------------------------
Walter M. Psztur
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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