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 1-12293
ESOFTBANK.COM INC.
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(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)
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(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 [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $.001 Par Value - 12,920,000 shares as of August 23, 2001
Index
ESOFTBANK.COM, INC. and Subsidiaries
Page No.
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30,
2001 and December 31, 2000 3
Condensed consolidated statements of operations--
Three months ended June 30, 2001 and 2000 4
Condensed consolidated statements of operations--
Six months ended June 30, 2001 and 2000 5
Condensed consolidated statements of cash flows--
Six months ended June 30, 2001 and 2000 6
Notes to condensed consolidated financial statements--June 30, 2001 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESOFTBANK.COM, INC. AND SUBSIDIARIES
Condensed CONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 31, 2000
(Unaudited)
December 31, June 30,
2000 2001 2001
(Unaudited) (Unaudited)
----------- -----------
Rmb Rmb US$
ASSETS
CURRENT ASSETS
Cash 3,221,718 172,836 20,824
Accounts receivable 640,900 4,568,762 550,453
Deposits and other 1,000,271 1,630,694 196,469
Advances to employees 427,395 704,233 84,847
Costs and estimated earnings in excess
of billings on uncompleted contracts 207,944 140,091 16,879
Amount due from related party -- 32,454 3,910
----------- ----------- ----------
TOTAL CURRENT ASSETS 5,498,228 7,249,070 873,382
----------- ----------- ----------
NONCURRENT ASSETS
Long-term investment 2,800,000 2,800,000 337,349
Product development costs, net 852,995 1,036,455 124,874
Fixed assets 2,929,976 2,630,061 316,875
Other 265,068 0 0
TOTAL NONCURRENT ASSETS 6,848,039 6,466,516 779,098
----------- ----------- ----------
TOTAL ASSETS 12,346,267 13,715,586 1,652,480
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loan 16,000,000 16,000,000 1,927,711
Accounts payable 159,900 159,900 19,265
Accrued expenses -- -- --
Salaries,wages and other compensation 669,171 575,960 69,393
Employee frings benefits 635,988 944,500 113,795
Taxes 355,713 117,316 14,134
Other 1,588,513 3,647,327 439,437
Customer deposits 41,000 35,000 4,217
Billings in excess of costs and estimated
earnings on uncompleted contracts 57,890 549,915 66,255
Due to director 2,316,408 3,337,658 402,127
Due to related party - Sitech Holding 281,155 33,874
---------- ----------
TOTAL CURRENT LIABILITIES 21,824,583 25,648,731 3,090,208
MINORITY INTEREST 261,925 307,644 37,066
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock - Par value US$.001; issued and
outstanding - 12,920,000 shares 107,236 107,236 12,920
Additional paid-in capital 52,715,431 52,715,431 6,351,257
Reserve funds 347,148 347,148 41,825
Accumulated deficit (62,910,056) (65,410,604) (7,880,796)
------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (9,740,241) (12,240,789) (1,474,794)
------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 12,346,267 13,715,586 1,652,480
============ =========== ===========
3
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2000 2001 2001
---- ---- ----
Rmb Rmb US$
REVENUE 3,005,000 5,345,473 644,033
COST OF SALES (1,625,465) (3,991,250) (480,874)
------------ ----------- ---------
GROSS PROFIT (LOSS) 1,379,535 1,354,223 163,159
SELLING AND ADMINISTRATIVE
EXPENSES (7,597,837) (4,399,060) (530,007)
------------ ----------- ---------
LOSS FROM OPERATIONS (6,218,302) (3,044,837) (366,848)
------------ ----------- ---------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE -- (520,520) (62,713)
OTHER INCOME, NET 7,973 1,110,528 133,798
------------ ----------- ---------
TOTAL OTHER INCOME (EXPENSE), NET 7,973 590,008 71,085
------------ ----------- ---------
LOSS BEFORE TAXES (6,210,329) (2,454,829) (295,763)
TAXES 154,646 -- --
------------ ----------- ---------
INCOME (LOSS) BEFORE
MINORITY INTEREST (6,364,975) (2,454,829) (295,763)
MINORITY INTEREST (1,296,768) 45,719 5,508
NET LOSS (5,068,207) (2,500,548) (301,271)
============ =========== =========
BASIC AND DILUTED NET LOSS PER SHARE (.40) (.19) $ (. 02)
============ =========== =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,800,000 12,920,000 12,920,000
4
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2000 2001 2001
Rmb Rmb US$
--- --- ---
REVENUE 3,005,000 3,227,547 $ 388,861
COST OF SALES (1,254,143) (2,547,265) (306,899)
---------- ----------- ----------
GROSS PROFIT (LOSS) 1,750,857 680,282 81,962
SELLING AND ADMINISTRATIVE
EXPENSES (4,650,707) (1,580,778) (190,455)
---------- ----------- ----------
LOSS FROM OPERATIONS (2,899,850) (900,496) (108,493)
---------- ----------- ----------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE -- (263,656) (31,766)
OTHER INCOME, NET (5,048) 948,993 114,336
---------- ----------- ----------
TOTAL OTHER INCOME (EXPENSE), NET (5,048) 685,337 82,570
---------- ----------- ----------
LOSS BEFORE TAXES (2,904,898) (215,159) (25,923)
TAXES 154,646 (12,979) (1,564)
---------- ----------- ----------
INCOME (LOSS) BEFORE
MINORITY INTEREST (3,059,544) (202,180) (24,359)
MINORITY INTEREST (638,094) 133,616 16,098
---------- ----------- ----------
NET LOSS (2,421,450) (68,564) (8,261)
========== =========== ==========
Basic and diluted net loss per share (.19) (.01) $ (.001)
========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,800,000 12,920,000 12,920,000
=========== =========== ==========
5
ESOFTBANK.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2000 2001 2001
Rmb Rmb US$
--- --- ---
Cash Flows from Operating Activities
Net income (loss) (5,068,207) (2,500,548) $ (301,271)
Adjustments to reconcile
net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 73,880 307,715 37,074
Amortization of product dev costs 155,096 253,189 30,505
Provision for losses on receivables
- Customers 400 -- --
Minority interest (1,296,768) 45,719 5,508
(Increase) decrease in
Accounts receivable 211,930 (3,927,862) (473,236)
Deposits and other (727,153) (630,423) (75,954)
Costs and estimated earnings in
excess of billings on uncompleted
contracts -- 67,853 8,175
Others -- 265,068 31,936
Advances to employees 92,354 (276,838) (33,354)
Increase (decrease) in Accounts payable
and accrued expenses 596,427 2,035,718 245,267
Customer deposits 3,157,629 (6,000) (723)
Billings in excess of costs and
estimated earnings on uncompleted
contracts -- 492,025 59,280
----------- ------------ -----------
Total Adjustments 2,263,795 (1,373,836) (165,522)
----------- ------------ -----------
Net Cash Provided by (Used in)
Operating Activities (2,804,412) (3,874,384) (466,793)
Cash Flows from Investing Activities
Capital expenditures (1,751,669) (7,800) (940)
Capitalized expenditures for product
development costs (14,262) (436,649) (52,608)
Net repayments from shareholders 1,485,426 -- --
Advances to related parties (1,189,970) (32,454) (3,910)
Other (73,196) -- --
Net Cash Provided by (Used In) Investing
Activities (1,543,671) (476,903) (57,458)
----------- ------------ ----------
Cash Flows from Financing Activities
Borrowings from Bank 16,000,000 -- --
Net short term borrowings 4,342,013 281,155 33,874
Net borrowings from director 563,187 1,021,250 123,042
Issuance of common stock 160,985 -- --
Initial investment of minority
stockholder 240,000 -- --
----------- ------------ ----------
Net Cash Provided by Financing Activities
21,306,185 1,302,405 156,916
----------- ------------ ----------
Net Increase (Decrease) in Cash 16,958,102 (3,048,882) (367,335)
Cash, Beginning of Period 629,351 3,221,718 388,159
----------- ------------ ----------
Cash, End of Period 17,587,453 172,836 $ 20,824
=========== ============ ==========
6
ESOFTBANK.COM, INC. AND SUBSIDIARIES
NOTES TO Condensed CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2001
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
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 31,2000
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 2000 Form 10-KSB and the audited
financial statements in the Form 10-KSB.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31 2000.
NOTE 2 - 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.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
sub-contractors, software engineers, development teams to our website, and setup
a nation-wide collaborative platform for software outsourcing in China.
Overview
ESOFTBANK.COM, Inc., is a Chinese online software development & sub-contracting
services provider. We offer a wide range of value-added services including IT
consulting, project outsourcing, quality control and software releasing. Our
focus is on various e-commerce, network management and resource control systems
for business and government enterprises. Our website, HTTP://www.eSoftBank.com,
is a registry for Chinese web page designers and e-commerce developers, as well
as institutions requiring the services of these people, on which we provide a
cost-efficient platform for job exchanges and assignments. The website is an
interactive and integrated virtual software community offering technical
databank, knowledge exchange, job-subcontracting, software-testing and support
services. Through the website, we offer independent software engineers a source
of business opportunities and web space, while companies are able to select from
a variety of software engineers and software companies. Our revenues are derived
from commissions on transaction volume on the platform, as well as handling fees
and service charges for software engineering and technical support services. Our
headquarters are in Shenzhen, China.
We changed our company's name from Natural Way Technologies Inc. to
ESOFTBANK.COM, Inc. on March 31, 2000 when we acquired (the "Acquisition") all
of the issued and outstanding shares of World Concept Development Limited
("WCD"). WCD owns the software development and Internet-based software
subcontracting platform operations conducted in China under the name of
ESOFTBANK.COM.
The Acquisition has been accounted for using the purchase method of accounting
as a reverse acquisition, whereby the company issuing its shares to effect a
business combination is determined to be the acquiree in the business
combination. This occurs when the shareholders of the issuer have less than a
majority of voting control of the combined entity. The company whose
shareholders retain the majority voting interest in the combined entity is
presumed the acquirer. In the Acquisition, the then-existing shareholders of
Natural Way retained a 27% voting interest in the combined entity on completion
of the Acquisition. Accordingly, WCD is deemed to be the acquirer and the assets
of Natural Way are required to be fair valued at acquisition. As Natural Way had
no assets (other than obligations due from a shareholder) or operations during
1999 and 2000 (prior to March 31st), no fair value adjustments were required and
there are no changes to the WCD financial statements that would require a pro
forma analysis. Additionally, because WCD is deemed to be the acquirer, the
historical financial statements of Natural Way (now ESOFTBANK.COM Inc.) have
been restated, and now reflect the historical operations of WCD and its
subsidiaries.
8
SiTech Hainan Ltd. (Haikou) is the only company that existed prior to 2000 that
is reflected in our consolidated financial statements. WCD, ESOFTBANK Shenzhen
and Beijing were formed in the fourth quarter of 1999 and only became
operational in the first quarter of 2000. In the first quarter of 2001, WCD and
ESOFTBANK Shenzhen, Beijing, Haikou had operating revenues.
The business of ESOFTBANK.COM is currently conducted in Renminbi, the currency
of China ("RMB"), which for purposes of this discussion and our financial
statements are converted at an exchange rate of $1.00 = RMB 8.30.
Results of Operations
Three-months Ended June 30, 2001 Compared to Three-months Ended June 30, 2000
Total revenues increased by $26,813 or 7.4% to $388,861 for the quarter ended
June 30, 2001 from $362,048 for the quarter ended June 30, 2000, primarily due
to our beginning work on a the inception of service contract with Shenzhen
Huawei Technologies Co. Ltd.
Cost of sales increased $155,798 or 103.1% to $306,899 for the quarter ended
June 30, 2001 from $151,101 for the same period in 2000. A portion of the
increase is attributable to the growth in business activities and related
increase in salaries, but the majority of the increase is from costs incurred in
the and the continued development of our new platform operations. Salaries for
the second quarter of 2001 increased over the same period of 2000 primarily
because we hired more software programmers. Gross margins were 21.0 % in the
quarter ended June 30, 2001 compared with 58.3% for the quarter ended June 30,
2000.
Selling and administrative expenses decreased by $369,872 or 66% to $190,455 for
the quarter ended June 30, 2001, from $560,327 for the same period in 2000,
primarily due to cost controls such as imposing stricter controls on advertising
expenses. We expect these controls to continue contributing to decreasing SGA
expenses in the future as we work to make our distribution system more
efficient. We have also established strategic alliances with established
companies that will assist us in distributing our services. By executing such
alliances we also decrease our distribution costs.
We incurred interest expense of $31,766 for the second quarter of 2001. We had
no interest expense for the second quarter of 2000. We incurred interest expense
on our short-term loan from the Bank.
9
Other expense for the quarter ended June 30, 2000, consisted of recovery of
prior expenses, foreign currency gain or losses and miscellaneous expenses. For
the second quarter of 2001, we had other income, net of $114,336 compared to
$608 (expenses) for the corresponding period of 2000 principally reflecting
refund of business taxes to various subsidiaries.
Our income taxes decreased to $1,564 for the second quarter of 2001. We had a
one time tax liability for the corresponding period of the prior year totally
$18,632. We may incur income tax expenses, even though we had an operating loss
because income taxes in the People's Republic of China are a function of gross
sales and not of net income.
The minority interest represents the 20% interest in eSoftBank (Beijing)
Software Systems Co. Ltd. and the 47.6% of SiTech Hainan Ltd. not owned by the
Company.
As a result of the foregoing, our net loss decreased by $283,480 for the second
quarter of 2001, to $8,261 from $291,741 for the same period in 2000. The
decreased operating losses in the second quarter of 2001 over the second quarter
of 2000 was due to reduced selling and administrative expenses increased other
income and lower taxes which were partially offset by reduced gross profits and
increased interest expense due to our incomes from projects are growing faster
than our cost. We believe that these trends will continue as our revenues
increase and expenses decrease. We also expect that our operations from being a
software outsourcing services provider and subcontracting platform will produce
additional revenues and, ultimately, profitability. However, there is no
assurance that we will ever become profitable.
Six Months ended June 30, 2001 Compared to Six Months ended June 30, 2000.
Total revenues increased by $281,984 or 77.9% to $644,033 for the six months
ended June 30, 2001 from $362,049 for the six months ended June 30, 2000. This
increase is due to the fact that we had no revenues for the first quarter of
calendar year 2000 and increased revenues during the second quarter of calendar
year 2001 from our contract with Shenzhen Huawei Technologies Co. Ltd.
Cost of Sales increased $285,035 or 145.5% to $480,874 for the six months ended
June 30, 2001 from $195,839 for the six months ended June 30, 2000. A portion of
this increase reflects increased costs associated with increased revenues and
the balance represents additional costs incurred in the continued development of
our new platform operations. Gross margins were 25.3% for the six months ended
June 30, 2001 compared with 45.9% for the six months ended June 30, 2000.
Selling and administrative expenses decreased by $385,395 or 42.1% to $530,007
for the six months ended June 30, 2001 from $915,402 for the six months ended
June 30, 2000. This decrease results from our imposition of cost controls,
reduced advertising, expenditures and the execution of strategic alliances to
reduce our distribution costs.
We incurred interest expense of $62,713 on our short-term bank borrowings for
the six months ended June 30, 2001. We had no interest expense for the
corresponding period of the prior year.
We had other income, net of $133,798 for the six months ended June 30, 2001
reflecting a refund of business taxes previously paid. This compares with other
income of $961 for the corresponding period of the prior year.
Our income taxes were $0 for the six months ended June 30, 2001, compared to
$18,632 for the corresponding period of the prior year. The taxes for the prior
year represent a one-time charge.
The minority interest represents the 20% interest in eSoftBank (Beijing)
Software Systems Co. Ltd. and the 47.6% of SiTech Hainan Ltd. not owned by the
Company.
10
As a result of the foregoing, our net loss decreased to $301,271 for the six
months ended June 30, 2001, from $610,627 for the six months ended June 30,
2000.
Liquidity and Capital Resources
At the end of the second quarter of 2001, we had cash of $20,824 and a deficit
in working capital of approximately $1.5 million, compared to cash of $2,118,970
and a deficit in working capital of $600,000 at the end of the second quarter of
2000. This decreased our cash resulted from a combination of our investment in
eSoftBank.com web site, our OnTeam platform and project and an increase in
accounts receivable from Huawei and other clients.
Cash used in operating activities increased by $128,912 to $466,793 for the
six-month period ended June 30, 2001, from $337,881 in the same period in 2000.
This change is principally attributable to the increase in accounts receivable.
We have received partial payments in the month of July and August in 2001 and
have reached an agreement with Huawei on payment terms. We do not expect any
collection issues.
Net cash used in investing activities for the six-month period ended June 30,
2001 was $57,438 primarily from capitalization expenditures for product
development. This compares with $185,984 for the corresponding period of the
prior year. This decrease resulted from reduced capital expenditures and reduced
advances to related parties.
Net cash provided by financing activities in the six-month period ended June 30,
2001 was $156,916, compared with $2,567,010 for the six months ended June 30,
2000. This decrease resulted from decreased short-term borrowings.
Although our business is now generating more revenues from our project
management centers, management is in the process of raising additional capital
from investors both in China and other countries. Management believes that this
funding will enable us to develop our business and meet our short-term operating
cash needs. Under the terms and conditions of a credit facility with Shenzhen
Commercial Bank, on June 30, 2000, ESOFTBANK Shenzhen borrowed $1.928 million
from the bank at 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. The
bank has recently agreed to renew the loan for two-years to May 29, 2002.
However, based on the current level of expenditures, it will be necessary for us
to seek additional funding over the next twelve months. Without such funding, we
will be unable to fully implement our business plan.
11
Outlook
General
We believe that we are well positioned for growth in the rapidly developing
information technology ("IT") industry in China and internationally. Our web
site is currently visited and utilized by individuals and companies in Beijing,
Shenzhen, Hainan and other major cities in China. Approximately, 300 projects
were traded on our platform in 2000 but we only recorded those projects in which
our employees are involved and provided value-added service in our annual report
of 2000.
There are three other types of projects from which we do not generate revenues:
the first are projects where we serve as a middleman, and introduce external IT
software engineers to outsourcing project owners (clients). The client will make
payment directly to the external IT engineers and we do not charge a commission
in order to attract more IT engineers and projects. Second, we split some
projects into small packages and recommend these packages to external IT
engineers without any commission; and the third direct transaction signed
between external IT engineers and outsourcing project owners. The total annual
amount for these 3 types of projects in 2000 was $796K (unaudited), managed by
ESOFTBANK and finished by a third party, $995K(unaudited), managed by ESOFTBANK
and be outsourced to a third party) and $1,721K (unaudited), managed and
finished by a third party) respectively. With the functioning of our project
management platform, external IT engineers will use our service and IT tools,
outsourcing project owners will be attracted to our offline program management
and development services to ensure timely and efficient outsourcing.
We also expect that our revenues will increase as a result of our
software-outsourcing model as an integration of our online
software-subcontracting platform and our onsite project management center. We
have established the following four project management centers in China:
Huawei Project Management Center to provide software outsourcing services in
telecommunication industry.
BKB Project Management Center to access the Japanese software outsourcing
market.
Beijing Project Management Center will focus on American software outsourcing
market. This is a department under ESOFTBANK (Beijing) Software Systems Co.,
Ltd.
SiTech Project Management Center provides e-business solutions for the China and
Hong Kong markets. They have recently developed one of the largest investment
e-commerce systems (http://www.Chinagator.com) in China.
12
Recent Developments
We believe that the recent developments described below will have a positive
impact on our future results of operations. However, there is no assurance that
these benefits will be realized or that, if realized, these benefits will reach
the levels we anticipated.
1. We have entered a strategic partnership with Huawei Technologies Co. Ltd.
to provide software development services for the telecommunication
industry. Huawei Technologies Co. Ltd. is one of the leading telecom
equipment provides and one of the largest network solutions providers in
Asia. Under this agreement, ESOFTBANK is required to build a multi-layer
and object-oriented automatic testing platform. The platform is primarily
used to provide black box testing with high automation. It also provides a
system-integrated testing platform that has an open interface for various
testing tools and completes various testing tasks such as system function
testing, integrated testing and reliability testing.
We have established a special Project Management Center (PMC) to provide
software-outsourcing services to the telecommunication industry, and annual
revenue from this PMC are estimated to be over US$ 1 millions.
2. In September 2001, we hope to complete an acquistion of Beijing
Kebao Systems Engineering Co., Ltd. (BKB), which will enable ESOFTBANK to
tap the Japanese software outsourcing market.
BKB was formed in 1992 by Beijing Computation Center (a Beijing Municipal
Governmental Research Institute) and Kawasaki (KSI) Steel System Incorporations
in Japan. Its principal business is outsourcing projects from Japanese markets.
BKB has done a great deal of achievements in many fields, and provided customers
with many products, including Network Management Information System, Bank
Remittance System, Business Management Information System and Factory Automation
System and so on. Through the software developing experience for so many years,
BKB has accumulated a whole set of software developing standards both in
developing procedure and quality control. As the result of this endeavor, BKB
has grown into a leading software developing company in remote development and
its achievements are shown by the following facts: In 1996, BKB became the first
software company to get the certificate of ISO9001; in 1997 it passed the
verification of UKAS.
At present, BKB has over 70 employees, among whom 95% hold bachelors and masters
Degrees and many of them are working in Japan or have once worked in Japan. They
are well trained by OJT (On Job Training) course and have excellent cooperative
spirit and rich in IT experience. In the past eight years, BKB has completed
hundreds of projects for Japanese and Chinese clients such as SFI, SOGO, Canon,
KSI, Yasuda Trust Bank, Sakura Bank, Sanyo, Nippon Steel, Beijing Longdian
Futures Companies, Beijing Zhongcai Information Technology Co., Ltd. The total
revenue to date is $24 million with average annual revenue of $3.6 million.
ESOFTBANK's subsidiary ESFB Asia Investment Ltd. Will acquire 51% of the
shareholding of BKB while Beijing Computation Center will hold its previous 49%
shareholding.
3. In September 2001, we also anticipate acquiring a 70% stake in Tongzhou, a
mid-size software company in Northeastern China focusing on project management
software and system integration. Its showcase product is the "TZ-Project
management system" series. To date, Tongzhou has more than 1,000 installations
throughout China, and has served clients in the architectural, chemical,
metallurgical, transportation, manufacturing and energy industries. Tongzhou was
established by the Dalian Technical University, which holds the remaining 30%
stake after the acquisition.
The addition of Tongzhou will significantly improve eSoftBank's position in the
Chinese IT outsourcing market, and strengthen its ability to serve key
industries such as architecture and transportation. In particular, the
acquisition produces the following benefits:
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Expanded product/solution lines: Tongzhou and eSoftBank are both leading
providers of project management software solutions. Together, Tongzhou and
eSoftBank will be capable of offering a broad range of tailored solutions for
customers in different industries.
Stronger project management products: The acquisition of Tongzhou broadens and
strengthens eSoftBank's project management expertise. In particular, Tongzhou's
expertise in the architectural industry will be drawn upon to augment the
feature set of OnTeam, eSoftBank's proprietary software development project
management platform. Expanded client base: eSoftBank will gain direct access to
Tongzhou's formidable client base. New revenue streams: eSoftBank's sales
channels cover more than 1,000 agencies and shops in China. After acquiring
Tongzhou, eSoftBank can take full and effective advantage of its sales channels
to develop new revenue streams.
Family of technical centers expands to Northeastern China: The City of Dalian,
situated in China's Northeast, has already established a strong reputation in
the Japanese outsourcing market. The acquisition of Tongzhou positions eSoftBank
to take advantage of the reputation in further developing the Japanese software
outsourcing market. Tongzhou is an experienced project management software
developer and will be the 6th location to be incorporated into eSoftBank's
family of technical centers.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
None
Reports on Form 8-K
None.
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SIGNATURES
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.
Dated: August 27, 2001 By: /s/ Dr. Hongbing Lan
----------------------
Dr. Hongbing Lan
Chief Executive Officer
Dated: August 27, 2001 By: /s/ Liao Qianzhi
------------------
Liao Qianzhi
Principal Accounting Officer
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