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UNITED STATES
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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27971
THE FINANCIAL COMMERCE NETWORK, INC.
(Exact name of registrant as specified in its charter)
NEVADA 22-2582276
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
40 Wall Street
New York, New York 10005
(Address of principal executive offices and zip code)
(212) 635-9587
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 48,280,256 shares of common
stock, $.001 par value, as of June 30, 2001.
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THE FINANCIAL COMMERCE NETWORK, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
Part I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Page
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations
Three months and six months ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
Three months and six months ended June 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15-16
PART II. OTHER INFORMATION
Item 2. Changes in Securities 17
Signatures 18
2
THE FINANCIAL COMMERCE NETWORK, INC.
Consolidated Balance Sheets
June 30, December 31,
2001 2000
---- ----
ASSETS (unaudited)
------
Current Assets
Cash and equivalents $ 55,696 $ 572
Due from broker 76,839 159,649
Marketable securities owned, at market 199,891 7,614
Other securities owned, at fair value 13,327 13,327
Due from affiliates 281,878 133,983
Other current assets 196,360 155,882
-------------- --------------
Total Current Assets 823,991 471,027
Office equipment, net 7,839 9,258
Other assets 306,283 331,321
-------------- --------------
TOTAL ASSETS $ 1,138,113 $ 811,606
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank loan payable $ 35,939 $ 38,879
Convertible notes payable 272,000 100,000
Loans payable 206,542 -
Accounts payable and accrued expenses 1,371,653 1,267,229
Commissions payable 36,305 12,380
Deferred compensation - 435,000
Due to stockholders, officers and directors 30,069 199,873
-------------- --------------
Total Current Liabilities 1,952,508 2,053,361
Commitments and contingencies
Long-term liabilities
Bank loan payable, less current portion - 7,232
Deferred compensation 1,091,000 656,000
Stockholders' (Deficit)
Common stock, 50,000,000 shares authorized at $.001 par value; issued and
outstanding 48,280,256 at June 30, 2001
and 27,649,123 at December 31, 2000 48,281 27,650
Convertible preferred stock 10,000,000 shares authorized
at $.001 par value; issued and outstanding
67,500 at June 30, 2001 and December 31, 2000 67 67
Additional paid-in capital 34,497,739 33,925,841
Deficit (36,294,896) (35,667,942)
Treasury stock - preferred stock, 5,000 and 5,000 shares (50,000) (50,000)
Treasury stock - common stock, 544,436 and 79,436 shares (81,586) (115,603)
Subscription receivable (25,000) (25,000)
-------------- --------------
Total Stockholders' (Deficit) (1,905,395) (1,904,987)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,138,113 $ 811,606
============== ==============
See Notes to Financial Statements.
3
THE FINANCIAL COMMERCE NETWORK, INC.
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues
Trading and commissions $ 217,997 $ (57,701) $ 273,730 $ 814,181
Investment banking 4,520 14,300 8,520 37,969
Interest 1,945 4,068 4,231 9,693
Other 2,045 - 26,435 13,125
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
226,507 (39,333) 312,916 874,968
Selling, General and Administrative Expenses
Employee compensation and benefits 140,674 160,005 210,021 1,258,627
Clearance fees 24,694 52,333 44,267 95,631
Occupancy 74,798 105,046 133,542 139,098
Communications 87,591 12,766 131,921 51,278
Insurance - 10,424 3,729 22,139
Stock option and warrant compensation - 671,876 - 688,736
Other 250,578 251,969 350,010 638,407
------------ ------------ ------------ ------------
578,335 1,264,419 873,490 2,893,916
(Loss) from operations (351,828) (1,303,752) (560,574) (2,018,948)
Other Income and Expenses
Interest income - - 1 -
Interest expense (7,249) - (10,581) -
------------ ------------ ------------ ------------
(7,249) - (10,580) -
------------ ------------ ------------ ------------
(Loss) before income tax (benefit) and preferred
stock dividends (359,077) (1,303,752) (571,154) (2,018,948)
Income tax (benefit) - - - -
------------ ------------ ------------ ------------
(Loss) before preferred stock dividends (359,077) (1,303,752) (571,154) (2,018,948)
Preferred Stock dividends (27,900) - (55,800) -
------------ ------------ ------------ ------------
Net (loss) applicable to common shares $ (386,977) $ (1,303,752) $ (626,954) $ (2,018,948)
============ ============ ============ ============
Basic and diluted (loss) per share $ (0.01) $ (0.06) $ (0.02) $ (0.09)
============ ============ ============ ============
Basic and diluted average shares outstanding 33,963,804 22,459,615 31,625,454 21,697,371
============ ============ ============ ============
See Notes to Financial Statements.
4
THE FINANCIAL COMMERCE NETWORK, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Operating Activities
Net (loss) $ (359,463) $ (1,303,752) $ (571,540) $ (2,018,948)
Adjustments to reconcile net (loss) to
net cash used by operating activities:
Stock option and warrant compensation - 337,500 - 688,736
Common stock issued for compensation - 229,609 - 296,876
Common stock to be issued for services - 37,500 - 37,500
Common stock issued for services - - 4,200 230,314
Depreciation and amortization 925 5,000 1,419 5,000
Changes in operating assets and liabilities:
Marketable securities owned, at market (195,705) 622,057 (192,277) 101,066
Other securities owned, at fair value - (7,555) - 28,918
Due from clearing broker 48,675 11,200 82,810 -
Other current assets (16,486) 268,061 (40,478) 203,000
Other assets (32,555) (315,000) 25,038 (315,000)
Accounts payable and accrued expenses 306,246 41,445 112,424 (169,349)
Commissions payable 28,068 (58,231) 23,925 (12,562)
Director fees payable 30,625 - 61,250 69,250
Deferred compensation - 162,500 - 322,000
----------- ------------ ------------ ------------
Net cash (used) by operating activities (189,670) 30,334 (493,229) (533,199)
Financing Activities
Sale of common stock 150,000 38,361 325,000 720,000
(Acquisition of) sale of treasury stock - 10,065 - 10,065
Advances from affiliates (153,595) 432 (147,895) 10,753
Payments on bank loan (4,641) (5,006) (10,172) (8,402)
Repayments to stockholders (99,587) (121,000) (97,122) (219,627)
Loans payable 46,784 206,542 -
Convertible loans payable 272,000 272,000 -
----------- ------------ ------------ ------------
Net cash provided by financing activities 210,961 (77,148) 548,353 512,789
----------- ------------ ------------ ------------
Increase (decrease) in cash 21,291 (46,814) 55,124 (20,410)
Cash at beginning of period 34,405 49,408 572 23,004
----------- ------------ ------------ ------------
Cash at end of period $ 55,696 $ 2,594 $ 55,696 $ 2,594
=========== ============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during year for:
Interest $ - $ - $ 1,078 $ -
=========== ============ ============ ============
Income taxes $ - $ - $ - $ -
=========== ============ ============ ============
See Notes to Financial Statements.
5
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 1 - ORGANIZATION AND OPERATIONS
The Financial Commerce Network, Inc. ("TFCN") was incorporated in the
State of Washington in July 1969. TFCN is a holding company. Its wholly
owned subsidiary, Alexander, Wescott & Co., Inc. (ALWC), is a
broker-dealer registered with the Securities and Exchange Commission
(SEC), the Commodity Futures Trading Commission (CFTC) and is also a
member of the National Association of Securities Dealers, Inc. (NASD)
and the National Futures Association (NFA). ALWC's operations consist
primarily of engaging in principal transactions and providing
investment banking services. Alexander Wescott Securities, Ltd. (ALWS)
is a Bermuda based broker dealer. Its wholly owned StockChicken.com
(SC) subsidiary is a financial information provider which has no
operations.
Name Changes
On May 13, 1999 the Company changed its name from Intrex to Intrex.com.
On September 8, 1999 the Company changed its name to The Financial
Commerce Network, Inc.
The accompanying unaudited financial statements have been prepared by
The Financial Commerce Network, Inc. in accordance with the rules and
regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, certain information and footnote
disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. In the
opinion of management of the Company, the unaudited financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's
financial position at June 30, 2001, its operating results for the
three and six months ended June 30, 2001 and 2000 and cash flows for
the three and six months ended June 30, 2001 and 2000. The balance
sheet at December 31, 2000 has been derived from the Company's audited
consolidated financial statements as of that date. Th financial
statements and the notes should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto
contained in the Company's annual report on Form 10-KSB for the year
ended December 31, 2000 filed with the Securities and Exchange
Commission.
The results of operations for the three and six months ended June 30,
2001 are not necessarily indicative of the results that may be expected
for future quarters or the year ending December 31, 2001.
6
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 1 - ORGANIZATION AND OPERATIONS (continued)
Acquisitions
Effective March 29, 1999, Alexander, Wescott Holdings, Inc. (Holdings),
the parent company of ALWC, entered into an agreement with TFCN. The
agreement provided for TFCN to issue 13,500,000 shares of its common
stock and assume liabilities of approximately $572,000, in exchange for
all of Holdings' outstanding shares of ALWC in a transaction accounted
for as a reverse merger. As a result, ALWC is considered, for
accounting purposes, to be the acquiring company since the stockholders
of ALWC acquired more than 50% of the issued and outstanding stock of
TFCN. The accompanying consolidated financial statements give effect to
this reverse merger.
During the first quarter of 2000, TFCN entered into an agreement with
Alexander Wescott International, LTD., (sole shareholder of ALWS),
whereby TFCN would exchange 125,000 restricted shares of the Company's
common stock in exchange for all of the issued and outstanding shares
of ALWS. The consolidated financial statements give effect to this
acquisition for all periods presented, as the entities were entities
under common control, therefore, the acquisition is presented as an
as-if pooling. The shares were issued during June 2000.
During May 2000, TFCN entered into an agreement whereby TFCN exchanged
200,000 restricted shares of the Company's common stock in exchange for
all of the issued and outstanding shares of StockChicken.com and
assumed liabilities of approximately $47,000. The shares were issued to
the stockholders of StockChicken.com with a valuation of $2.00 per
share. The acquisition has a "reset" provision that provides on the
sixth month anniversary of the closing, if the price of TFCN common
stock is below a $2.00 bid price for five consecutive trading days,
then the selling shareholders will be given an additional number of
TFCN common shares to offset the price. The accompanying consolidated
financial statements reflect operations of StockChicken.com from May
18, 2000, the closing date of the agreement, through December 31, 2000.
In connection with this transaction, the Company recorded goodwill of
approximately $447,704, which represents the excess value of the shares
issued over the net assets of StockChicken.com that were acquired. For
the period May 18, 2000 to December 31, 2000, StockChicken.com had no
revenues. In December 2000, the Company issued an additional 1,494,924
restricted shares of the Company's common stock for the "reset"
provision of the contract. The management of the Company believes that
due to current economic conditions, the value of the goodwill has been
impaired and, therefore the value of the goodwill has been reduced to
$1,000.
7
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 1 - ORGANIZATION AND OPERATIONS (continued)
In June 2000, the Company issued 30,000 shares of restricted common
stock in exchange for the domain name "Irishheritagestore.com" and all
rights associated with any and all revenues generated from the
arrangement with Vstore.com, the provider of the merchandise for
Irishheritagestore.com. The restricted common stock was valued at
$22,500. The management of the Company believes that due to current
economic conditions, the value of the domain name has been impaired
and, therefore the value has been reduced to $1,000.
In August 2000, the Company issued 50,000 shares of restricted common
stock in exchange for the rights to the domain names the 500PitStop.com
and CountryandWesternHits.com and all rights associated with and any
and all revenue generated from the seller's agreement with Vstore.com.
The restricted common stock was valued at $37,500. The management of
the Company believes that due to current economic conditions, the value
of the domain name has been impaired and, therefore the value has been
reduced to $1,000.
Investments
On March 15, 2000, the Company acquired 490,196 shares of
Naturalist.com, 4.8%, of its outstanding common stock, for an
investment of $250,000. Naturalist.com is an internet portal. As of
March 31, 2001 and December 31, 2000, the Company is carrying the
investment at cost.
Included in other current assets is approximately $145,000 due from
Rascals International, Ltd. The amount is payable in either cash or
shares of Rascals common stock, at a valuation of $.20 per share.
Also, in March 2000, the Company purchased an 8% interest in American
Association of Professional Athletes, Inc. for $69,600. The investment
was recorded at cost. However, at December 31, 2000 management of the
Company, reduced the value of its investment to $1,000 based upon its
estimated market value.
8
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of The
Financial Commerce Network, Inc. and its wholly-owned subsidiaries,
Alexander, Wescott & Co. Inc., Alexander Westcott Securities since
inception and Stockchicken.com since May 18, 2000 (collectively the
Company). All significant intercompany transactions and balances have
been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers money market accounts to be cash equivalents.
Office Equipment
Office equipment is stated at cost less accumulated depreciation. The
Company provides for depreciation using the straight-line method over
an estimated useful life of 6 years.
Securities Transactions
Securities transactions and the related revenues and expenses are
recorded on the trade-date basis.
Investment Banking Revenues
Investment banking revenues are recorded in accordance with the terms
of the investment banking agreements.
Marketable Securities Owned
Marketable securities owned consist of equity securities and money
market funds that are valued at market.
Other Securities Owned
Other securities owned, at fair value consist of restricted equity
securities and warrants received in connection with investment banking
services, that are recorded at fair value which is determined by
Management.
9
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill
Goodwill represents the excess of acquisition costs over the fair
market value of the net assets of acquired businesses. TFCN's policy is
to periodically review the value assigned to goodwill to determine if
it has been permanently impaired by adverse conditions which might
affect TCFN.
Earnings (Loss) Per Common Share
The Company reports earnings (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share", which requires the reporting of both
basic and diluted earnings per share. Net income per share-basic is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Shares issuable under stock warrants are excluded from computations as
their effect is antidilutive.
Income Taxes
The Company complies with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes". SFAS 109 requires
the recognition of deferred tax assets and liabilities for both the
expected future tax impact of differences between the financial
statement and tax basis of assets and liabilities, and for the expected
future tax benefit to be derived from tax loss carryforwards. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
10
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 3 - GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. For the
six months ended June 30, 2001, the Company incurred a net loss of
approximately $571,000. For the years ended December 31, 2000 and 1999,
the Company incurred losses from operations of approximately $2,987,000
and $4,735,000 respectively, exclusive of charges for (1) stock based
compensation and consulting fee of approximately $717,000 and
$26,784,000, respectively (2) impairment of assets of approximately
$598,000 in 2000 and generated negative cash flows from operations of
approximately $836,000 and $2,478,000 respectively.
These losses resulted primarily from the Company establishing itself as
a reporting public company, developing an Internet portal, and building
an infrastructure. In order to effectuate the foregoing, key revenue
producers employed by ALWC were heavily involved and were, therefore,
limited in the time they were able to devote to generating revenues
during the year. Toward the end of 1999 and during 2000, having
completed establishing itself as a public company, the Company began
addressing its operations and substantially reduced costs through staff
reductions and office consolidations. For the three and six months
ended June 30, 2001 and the year ended December 31, 2000, the Company
raised approximately, $175,000, $325,000 and $1,140,000, respectively,
through private placements.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Management believes that the Company will continue as a going concern
because it has the ability to extend the loans and obtain additional
loans from its major shareholder. As a result, the Company will have
sufficient cash to operate for the next twelve months. The Company is
also actively pursuing additional equity financing through stock sales
and when necessary management has loaned money to the Company for
working capital.
Note 4 - NET CAPITAL REQUIREMENT
ALWC, as a member of the NASD, is subject to the SEC Uniform Net
Capital Rule 15c3-1. This rule requires the maintenance of minimum net
capital and that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1 and that equity capital may
not be withdrawn, or cash dividends paid, if the resulting net capital
ratio would exceed 10 to 1. ALWC is also subject to the CFTC's minimum
financial requirements which require that ALWC maintain net capital, as
defined, equal to the greater of its requirements under Regulation 1.17
under the Commodity Exchange Act or Rule 15c3-1. At June 30, 2001,
ALWC's net capital was approximately $200,000, which was approximately
$100,000 in excess of its minimum requirement of $100,000.
11
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 5 - CONVERTIBLE NOTES PAYABLE
In November 2000, the Company issued $100,000 in convertible notes for
$100,000. The notes are convertible into common stock at a price of
$0.10 per share. In January, 2001, the note was converted into
1,000,000 shares of the Company's common stock.
At December 31, 2000 the following convertible notes payable were
outstanding:
Note payable due February 16, 2001 0% interest $ 100,000
==========
The Company issued $272,000 of convertible notes payable to certain
shareholders which bear 8% interest and are due upon demand. The
purchaser has the right to convert these notes at $0.02 per share of
common stock. The Company does not have sufficient authorized common
shares at this time to convert these notes.
Note 6 - BANK LOAN PAYABLE
The bank loan is a variable rate Commercial Promissory Note, with an
interest rate of 2% over the Prime Rate as published in the Wall Street
Journal (9.5% at December 31, 2000 and 8.5% at December 31, 1999). The
loan is repayable in 60 monthly payments of principal and interest
through October 2002. The loan is collateralized by certain of the
Company's assets and is guaranteed by one of the officers of the
Company.
Note 7 - COMMON STOCK
During January 2000, the Company authorized the issuance of 1,010,000
shares of common stock to certain employees of the Company. These
shares will vest over a period of one year commencing January 1, 2000,
provided the employees remain with the Company until December 31, 2000.
The accompanying consolidated financial statements include compensation
expense of approximately $491,000 related to those shares for the year
ended December 31, 2000. The shares were issued in May 2000. 810,000
shares have been forfeited to date and the weighted average per share
amounts give effect to these forfeitures as though the shares were
never issued.
During February and March 2000, the Company sold 1,440,000 shares of
its common stock for $0.50 per share for gross proceeds of $720,000 in
a Private Placement.
During May 2000, the Company issued 13,500 shares of common stock for
professional services valued at $12,997.
12
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 7 - COMMON STOCK (continued)
In July 2000, the Company issued 50,000 shares of restricted common
stock in settlement of a legal matter that has been charged to
operations in the accompanying consolidated financial statements.
During August and September 2000, the Company sold 1,552,500 shares of
its common stock for $0.20 per share for gross proceeds of $310,500 in
a Private Placement.
In November 2000, the Company sold 1,000,000 shares of common stock for
a subscription receivable of $100,000 or $0.10 per share. Due to a drop
in the share price of the Company's stock, the buyer has defaulted on
his subscription and has asked the Company to renegotiate the
subscription price to $0.025 per share or $25,000. The Company's
management has agreed to accept the reduced price but it has not yet
been paid. If the amount is not paid by September 15, 2001, the Company
will cancel the certificate for the 1,000,000 shares.
In December 1999, the Company issued 260,000 shares of common stock,
which vest over one year, to a consultant that will represent the
Company in Geneva, Switzerland. In addition, the agreement provides for
the payment of commissions based on his sales. In October 2000, the
Company issued an additional 50,000 shares of common stock to the same
consultant for commissions valued at $10,000.
In January 2001, the Company issued 1,000,000 shares of restricted
common stock in conversion of a $100,000 convertible note at $0.10 per
share.
In February 2001, the Company accepted from a former employee of ALWC
an exchange of 500,000 shares of the Company's common stock to satisfy
a $17,000 liability he owed the Company.
In February 2001, the Company authorized the issuance of 2,000,000
shares of common stock to be awarded to employees and directors
quarterly. No shares have been issued to date.
In February 2001, the Company sold 2,000,000 shares of common stock in
a private placement for gross proceeds of $50,000.
13
THE FINANCIAL COMMERCE NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note 7 - COMMON STOCK (continued)
In February 2001, the Company entered into an understanding with a
closed broker dealer (the "BD") to acquire all of the outstanding
capital stock of the BD based on certain conditions as defined in the
letter of understanding. The Company has also entered into an agreement
with the BD whereby the Company will acquire the accounts of the BD for
the payment of twenty two percent (22%) of a year's commissions
received by the Company relating to the acquired accounts (subject to
additional terms of the agreement) and 1,000,000 shares of the
Company's common stock to be paid upon the value of the accounts
acquired having an aggregate asset value in excess of $13,000,000. An
additional 1,000,000 shares of common stock can be issued if the
accounts generate $2,000,000 in commissions and is payable at the rate
of 250,000 common shares for each additional $500,000 in commission
revenue generated.
In February 2001, the Company agreed to issue 408,000 shares of common
stock of the Company to affiliates of Richard H. Bach, a principal
stockholder and the Chairman of the Board and Chief Executive Officer
of the Company, in exchange for $10,200 of recently made loans. On
February 9, 2001, the Company agreed to convert $250,000 of the
Company's deferred salary obligation to Mr. Bach into 8,333,333 shares
of common stock. None of the shares issuable to Mr. Bach or his
affiliates in exchange for debt or deferred salary obligations have yet
been issued. Mr. Bach has agreed that the Company can defer the
issuance of any portion of such shares, and he has agreed not to
exercise his options, if the Company does not have an adequate number
of authorized shares available.
In March 2001, the Company sold 1,000,000 shares of common stock in a
private placement for gross proceeds of $25,000.
The Company issued 140,000 shares of restricted common stock for
services during first quarter of 2001 for $4,200.
During the second quarter of 2001 the Company (1) sold 7,500,000 shares
of common stock at $0.02 per share for a gross proceeds of $150,000 in
a private placement, (2) converted $267,700 of loans from the Chairman
and his affiliates for 8,991,333 shares of common stock.
14
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2001 AND 2000
NET LOSSES
For the six months ended June 30, 2001 and 2000, the Company incurred a net loss
of $626,954 and $2,018,948, respectively. For the three months ended June 30,
2001 and 2000 the Company incurred a net loss of $386,977 and $1,308,752,
respectively. Explanations of these results are set forth below.
REVENUE
For the six months ended June 30, 2001, the Company recorded revenue of $312,916
as compared to $874,968 for the six months ended June 30, 2000. For the three
months ended June 30, 2001, the Company recorded revenue of $226,507 as compared
to ($39,333) for the three months ended June 30, 2000.
During the six months ended June 30, 2001, ALWC's trading and commission revenue
was $273,730 and revenue from investment banking was $8,520. During the six
months ended June 30, 2000, ALWC's trading and commission revenue was $814,181
and revenue from investment banking was $37,969. During the three months ended
June 30, 2001, ALWC's trading and commission revenue was $217,997 and revenue
from investment banking was $4,520. During the three months ended June 30, 2000,
ALWC's trading and commission revenue was ($57,701) and the revenue from
investment banking was $14,300.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of employee compensation and
benefits, stock option and warrant compensation, professional fees and
consulting services. Significant costs are attributed to the Company becoming a
reporting public company. This status will increase audit and legal costs
significantly. In relation to the Company becoming a public company, the cost of
corporate relations will also increase as quarterly reports and other investor
information is required. The Company anticipates that its General and
Administrative costs (as a percentage of costs) will decline as the Company's
operations expand.
General and administrative expenses decreased to $873,490 for the six months
ended June 30, 2001 compared to $2,893,916 for the six months ended June 30,
2000, a decrease which was attributable to the reduction of employees. General
and administrative expenses decreased to $578,335 for the three months ended
June 30, 2001 compared to $1,264,419 for the three months ended June 30, 2000,
the decrease was attributable to the reduction of employees.
15
Liquidity and Capital Resources
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
During the six months ended June 30, 2001, the company used cash for operating
activities of approximately $493,000 compared to the six months ended June 30,
2000 of approximately $533,000. Cash used for operations for the six months
ended June 30, 2001 resulted from the Company's net loss of approximately
$572,000 compared to approximately $2,018,000 for the six months ended June 30,
2000.
During the six months ended June 30, 2001 the Company generated cash from
financing activities of approximately $548,000 compared to approximately
$513,000 for the six months ended June 30, 2000. The cash generated during the
six months ended June 30, 2001 was attributable to the sales of common stock and
new loans net of repayments to stockholders. The cash provided during the six
months ended June 30, 2000 was attributable to the sale of common stock net of
repayment to stockholders.
At June 30, 2001, the Company had current assets of $823,991 and current
liabilities of $1,952,508 which resulted in a working capital deficit of
$1,128,517. Current liabilities include accounts payable and accrued expenses of
approximately $1,372,000. At June 30, 2001, the Company had available cash of
approximately $55,000. The Company has been unable to pay its obligations as
they become due.
During the six months ended June 30, 2001, the Company began a private placement
to its shareholders and foreign investors to sell 8% convertible demand note
payable. As of June 30, the Company has issued $272,000 of convertible demand
notes payable with an conversion price of $0.02 per share.
The Company intends to issue additional shares of common stock to raise funds
and the Board of Directors will take appropriate actions to accomplish this
goal.
In addition, implementation of the Company's business plan requires capital
resources substantially greater than those currently available to the Company.
The Company may determine, depending on the opportunities available to it, to
seek additional debt or equity financing to fund the cost of continuing
expansion. There can be no assurance that additional financing will be
available. If neither additional debt nor equity financing is available, the
Company may seek loans. In addition, the Company may seek a strategic alliance
with another company that would provide capital to the Company. The Company
believes that with its cash and marketable securities, combined with its ability
to raise additional equity financing, the Company will have the funds available
to sustain its operations throughout the next year.
To the extent that the Company finances expansion through the issuance of
additional equity securities, any such issuance will result in dilution of the
interests of the Company's stockholders. Additionally, to the extent that the
Company incurs indebtedness or issues debt securities to finance expansion
activities, it will be subject to all of the risks associated with incurring
substantial indebtedness, including the risks that interest rates may flucuate
and cash flow may be insufficient to pay the principal of, and interest on, any
such indebtedness.
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Part II - Other Information
Item 2. Changes in Securities.
During the second quarter of 2001, the Company sold 7,500,000 shares of
common stock at $0.02 per share for a gross proceeds of $150,000 in a
private placement. The sale of these shares was exempt from the
registration requirements of the Securities Act under Section 4(2)
of the Securities Act.
The Company also converted $267,700 of loans from the Chairman and his
affiliates for 8,991,333 shares of common stock. This issue of these
shares was exempt from the registration requirements of the Securities
Act under Section 4(2) of the Securities Act.
During the quarter ended June 30, 2001, the Company issued $272,000 of
8% convertible demand notes payable with a conversion price of $0.02 per
share in a private placement. The sale of these notes was exempt from
the registration requirements of the Securities Act under Section 4(2)
of the Securities Act.
17
Signatures
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Financial Commerce Network, Inc.
Dated: August 20, 2001 By: /s/ Richard H. Bach
------------------------------
Name: Richard H. Bach
Title: Chairman/CEO
18