10-Q 1 d25803_10q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ANNUAL REPORT Form 10- Q ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter Ended March 31, 2001 VIAPAY LIMITED (Exact Name of Registrant as Specified in Charter) Nevada 000-28309 88-0430739 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) Abbey House, 450 Bath Road, Longford, Heathrow UB7 0EB (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code 0208-757-5800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock 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[_] No [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting and non-voting common equity held by non- affiliates of the registrant: $ 17,559,844 Number of shares of Common Stock outstanding: 18,730,500 Documents incorporated by reference: none This document contains forward-looking statements. These statements relate to future events or Viapay's future financial performance. In some cases, one can identify forward-looking statements by terminology. For example, "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue", or the negative of these terms or other comparable terminology, indicate forward-looking statements. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, one should specifically consider various factors, including the risks outlined in the Risk Factors section. These factors may cause Viapay's actual results to differ materially from any forward-looking statement. Although it believes that the expectations reflected in the forward-looking statements are reasonable, Viapay cannot guarantee future results, levels of activity, performance or achievements. Accordingly, neither Viapay nor any other person assumes responsibility for whether the forward-looking statements ultimately prove accurate. Viapay will not update any of the forward-looking statements after the date of this annual report to conform them to actual results or to changes in Viapay's expectations that occur after the date of this annual report. PART I. - FINANCIAL INFORMATION Item 1. Financial Statements Viapay Limited (A Development Stage Company) Consolidated Balance Sheet

Shareholders' Equity: Ordinary shares, US$0.001 par value, 200,000,000 shares authorized; 18,730,500 issued and outstanding at March 31, 2001 (Note 4) ................................. 18,730 Additional paid-in capital ........................................................ 11,218,210 Deficit accumulated during the development stage................................... (8,974,132) Deferred compensation expense...................................................... (6,879,112) Accumulated other comprehensive income............................................. 121,694 -------------- Total shareholders' equity ........................................................ (4,494,610) -------------- Total liabilities and shareholders' equity ........................................ $ 454,107 ==============

The accompanying notes are an integral part of these financial statements. Viapay Limited (A Development Stage Company) Consolidated Statement of Operations Unaudited For the three month period ended March 31, 2001 General and administrative expenses ....................... (2,216,191) ------------- Operating Loss ........................................... $ (2,216,191) Interest income, net ...................................... 316 Exchange loss, net ........................................ 47,753 Loss on disposal of property and equipment ................ (19,713) ------------- Loss before provision for income taxes .................... $ (2,187,835) Provision for income taxes (Note 5) ....................... -- ------------- Net loss, being retained loss for the period............... $ (2,187,835) ============= Accumulated loss brought forward $ (6,786,297) ============= Net loss per ordinary share - basic and diluted............ $ (0.12) ============= Shares used in computing net loss per share amounts - weighted average.............................. 18,628,944 ============= The accompanying notes are an integral part of these financial statements. Viapay Limited (A Development Stage Company) Consolidated Statement of Changes in Shareholders' Equity

The accompanying notes are an integral part of these financial statements Viapay Limited (A Development Stage Company) Consolidated Statement of Changes in Cash Flows Cash Flows from Operating Activities: Net loss....................................................... $ (2,213,035) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................................. 24,123 Loss on disposal of property and equipment..................... 19,713 Accounts receivable............................................ 150,156 Prepaids and current assets.................................... 52,878 Accounts payable .............................................. 459,278 Accrued liabilities ........................................... 557,100 ------------ Net cash used in operating activities ......................... $ (949,787) ============ Cash Flows from Investing Activities: Proceeds from disposal of property and equipment............... 713 ------------ Net cash used in investing activities ......................... $ 713 ------------ Cash Flows from Financing Activities: Proceeds from sales of ordinary shares (Note 4) ............... 442,000 Proceeds from short-term debt ................................. 300,000 ------------ Net cash provided by financing activities...................... $ 742,000 ------------ Net increase in cash and cash equivalents ..................... (207,074) Effect of exchange rate changes on cash and cash equivalents... 89,030 Cash and cash equivalents at beginning of period............... 110,278 ------------ Cash and cash equivalents at end of period .................... $ (7,766) ============ Supplemental disclosures of cash flow information: Interest paid ................................................... 275 The accompanying notes are an integral part of these financial statements. Viapay Limited (A Development Stage Company) Notes to the Consolidated Financial Statements 1. Organization, Background, Going Concern and Subsequent Events Viapay Limited, an Irish corporation, was incorporated on April 6, 2000. In September 2000, the Company acquired all of the net assets of Interface e.com, Inc., a Nevada corporation. Interface e.com Inc. was a public company with no assets other than cash and had not traded. In consideration for the net assets acquired, all of the outstanding shares of Viapay Limited's Common Stock were transferred to Interface e.com, Inc., which shares were recorded at the historical value of the net assets acquired. The acquisition has been treated as a re-capitalisation of Viapay Limited with Viapay Limited as the acquirer, i.e. a reverse acquisition. The historic financial statements prior to September 2000 are those of Viapay Limited. Interface e.com, Inc. subsequently changed its name to Viapay Limited. For purposes of clarity, Viapay Limited, the Nevada corporation and the entity defined herein, together with its subsidiaries, as "The Company", is the sole owner of Viapay Limited, the Irish corporation. As a result of the above transaction, the accompanying statements of operations include the results of Viapay Limited for the period from inception (April 6, 2000) through March 31, 2001. In addition, the statement of operations includes the results of Interface e.com, Inc. from September 2000 through March 31, 2001. Viapay has wholly-owned subsidiary companies as follows: Name Country of Incorporation Viapay Limited Ireland Viapay Holdings Ireland Viapay Technologies Limited England, United Kingdom Viapay Personnel Services Limited Jersey United Kingdom 2. Summary of Significant Accounting Policies Basis of Preparation These financial statements have been prepared in accordance with generally accepted accounting principles in the United States. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Viapay Limited and its subsidiaries in Ireland and The United Kingdom (together "the Company") after eliminating all material inter-company transactions and balances. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. Foreign Currency The functional currency of Viapay Limited is the U.S. dollar. As it is anticipated that most of their transactions will be denominated in U.S. dollars, the functional currency of the Irish subsidiaries is also the U.S. dollar. The Company's subsidiaries in the United Kingdom operate using local functional currencies. Accordingly, all assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and costs are translated using average exchange rates for the period. The resulting cumulative translation adjustments are presented as a separate component of shareholders' equity. Realized and unrealized exchange gains or losses from translation adjustments are reflected in the statement of operations. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of these assets as follows: - Fixtures and fittings 5 years Computer hardware 3 years Computer software 5 years Property and equipment at March 31, 2001 are summarized as follows: - March 31, 2001 Fixtures and fittings 3,967 Computer hardware 187,862 Computer software 79,020 -------------- Total cost 270,849 Less accumulated depreciation (59,156) -------------- Property and equipment, net $ 211,693 ============== Long-Lived Assets The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No losses from impairment have been recognized in the financial statements. Research and Development Internal and external costs incurred in the planning or conceptual development of software for internal use are expensed as incurred. Once the planning or conceptual development of software has been achieved, and the project has reached the application or development stage, the following costs are capitalized as intangible assets: o External direct costs of materials and services used in the project, o Payroll and payroll-related costs for employees who are directly associated with and who devote time to the project (to the extent of the time spent directly on the project), and o Interest cost incurred in the development of the project. Training and routine maintenance costs are expensed as incurred. During the period ended March 31, 2001, however, all software development costs were expensed as incurred, as the amounts qualifying for capitalization were immaterial. Such costs are recorded as a component of general and administrative expenses. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires the use of an asset and liability method of accounting for deferred income taxes. Under SFAS No. 109, deferred tax assets or liabilities at the end of each period are determined using the enacted tax rate expected to apply to taxable income in the period in which the deferred tax asset or liability is expected to be settled or realized. Deferred tax assets are recognized in full subject to a valuation allowance to reduce the amount of such assets to that, which is more likely than not to be realized. Fair Value of Financial Instruments The book values of cash, deposits and prepayments, trade accounts payable, and other financial instruments approximates their fair values principally because of the short-term maturities of these instruments. Cash The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash. Advertising No advertising expenditure was incurred during the period ended March 31, 2001. Net Loss Per Share The Company computes net loss per share in accordance with Financial Accounting Standards Board Statement No. 128 "Earnings Per Share" ("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic net loss per share is computed by dividing the net loss attributed to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Share-Based Compensation The Company accounts for share-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." Indirect Taxes Indirect taxes comprise principally United Kingdom Value Added Tax, which is paid in acquiring goods and services and subsequently recovered from the Tax authority. Comprehensive Income To date, the Company has not had any transactions that are required to be reported in comprehensive income, other than foreign currency translation adjustments arising on consolidation of its subsidiaries in the United Kingdom, which amounted to a gain of $121,694. Segment Information The Company identifies its operating segments based on business activities and management responsibility. The Company is a Development Stage company, which will operate in a single business segment providing an on-line network supporting accounts payments, clearing and settlement for e-commerce transactions. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for all derivative instruments. SFAS No. 137 amended SFAS No. 133 to make it effective for fiscal years beginning after June 15, 2000. In addition, SFAS No. 138, issued in June 2000, amended SFAS No. 133 in respect of the accounting of certain derivative instruments and hedging activities. One of the changes introduced by SFAS No. 133 is that it does permit, subject to meeting the appropriate designation and effectiveness tests, the hedging of anticipated transactions using forward foreign currency contracts. However, the Company has not yet determined whether it will take advantage of the hedging strategy permitted by SFAS No. 133 and therefore it has also not determined what the effect of SFAS No. 133 will be on the earnings and financial position of the Company. 3. Short-Term Debt The short-term debt was advanced by a shareholder and is repayable on demand. 4. Shareholders' Equity Issuances of Ordinary Shares In July 2000, 2,000,000 of the Company's shares were split via a 9 for 1 split, thereby resulting in the issue of 16,000,000 ordinary shares. In August 2000, the Company issued 84,000 ordinary shares of $0.001 at $6.00 per share, valued at $504,000. In September 2000, the Company issued 84,000 ordinary shares of $0.001 at $6.00 per share, valued at $504,000. In September 2000, the Company issued 277,500 ordinary shares of $0.001 at $6.00 per share, valued at $1,665,000. In December 2000, the Company issued 100,000 ordinary shares of $0.001 at $5.00 per share, valued at $500,000. In January 2001 the company issued 60,000 ordinary shares of $0.001 at $3.20 valued at $192,000. In February 2001 the company issued 125,000 ordinary shares of $0.001 at $2.00 valued at $250,000. 5. Commitments and Contingencies At March 31, 2001 the Company had not entered into any commitment, except that it occupies rented offices on a month-to-month basis at a monthly rental of $ 20,083. 6. Segmental Information The Company is a Development Stage company, which will operate in a single operating segment, providing an on-line network supporting accounts payments, clearing and settlement for e-commerce transactions. The following is a summary of enterprise-wide geographic area information: March 31, 2001 Long lived assets, net Country of Domicile United States................................... -- Foreign Countries - Ireland......................................... -- United Kingdom.................................. $ 283,044 --------------- Consolidated total ............................. $ 283,044 =============== 7. Net Loss per Ordinary Share For the three - month period ended March 31, 2001 Net loss $ (2,187,835) =============== Denominator: Weighted average ordinary shares - basic 18,628,944 =============== The effect of the various share options issued during the period (Note 4) have not been included in the computation of diluted net loss per share in the period ended March 31, 2001 as to do so would have been antidilutive Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation THE FOLLOWING PRESENTATION OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF VIAPAY LIMITED AND SUBSIDIARY SHOULD BE READ IN CONJUNCTION WITH VIAPAY'S CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL DATA INCLUDED HEREIN. Viapay is still in the development stage. No revenues were recorded for the three month period to March 31. Viapay has incurred losses since inception and at 31 March 2001 accumulated losses totalled $ 8.9 million. Expenses incurred for the period since inception consisted of general and administrative expenses relating to the development of the company. The company was formed subsequent to 31 March 2000, therefore no comparative figures are available. Liquidity and Capital Resources On March 30 1999 Viapay issued 1,000,000 Rule 144 shares of common stock at par value of $0.001 per share to previous directors and officers of the company. During April 1999, Viapay sold and issued a total of 1,000,000 of its common shares to 33 non-affiliated private investors for cash aggregating $50,000 in private sale transactions. The shares were sold at a price of $0.05 per share. The shares were issued under an exemption from registration pursuant to Rule 504, Regulation D of the Securities Act of 1933. In August 2000 Viapay issued 84,000 shares at $6.00 per share under Regulation S for a total of $504,000. . In September 2000 Viapay issued 84,000 shares at $6.00 per share under Regulation S for a total of $504,000. In September 2000 Viapay issued 277,500 shares at $6.00 per share under Regulation S for a total of $1,790,000 . In December 2000 Viapay issued 100,000 shares at $5.00 per share under Regulation S for a total of $ 500,000 In January 2001 in return for an investment of $192,000 Viapay issued 60,000 shares at $3.20 per share under Regulations S together with five-year warrants to purchase 30,000 shares at $3.20 per share. In February 2001 the company issued 125,000 shares at $2.00 per share under Regulation S for a total of $250,000. In addition to raising capital by means of the foregoing equity issuances, Viapay has borrowed $1.945 million from Pacific Capital Management Inc and $100,000 from First E-Com.com through non interest- bearing loans repayable on demand. Management and Viapay's advisors are actively engaged in raising additional finance. Viapay has engaged a number of institutions to raise financing. Viapay monthly costs are approximately $160,000 the majority of which are salary costs with the remainder including rent, travel and administrations costs. Viapay estimates that an additional $13 million will be required to retire all existing liabilities (other than the $1.945 million loan), complete the development of its products and commence commercial roll out. It also estimates that it will require a further $5 million to finance its ongoing commercial development until the earliest time management believes that it could become cash generative in late 2003. Subject to the completion of financing ViaPay will undertake significant pilot project work and sales and marketing over the next 12 months. Employee numbers are expected to increase significantly and Viapay expects to enter into a range of contracts covering technology purchases, software development, communications infrastructure and distribution agreements as well as pilot programs with participating banks. Inflation Viapay does not believe that inflation will have a material impact on its future operations. 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 Securites Holders None Item 5. Other Information Viapay is a development stage company that has been established to create for the international banking industry a secure, on-line network via the internet that supports multi account payments, clearing and settlement for e commerce transactions. This network will be supported by a number of value added services for banks that utilise the network, which will generate transaction volume through the system. The first service planned is a sophisticated online bank-branded shopping forum (incorporating order fulfilment and logistical support). This will enable global access by the retail consumers of any participating bank to goods and services offered on line by any merchant of any participating bank. Viapay will subsequently develop a range of other value added services to the banking industry that will utilise Viapay's online network thereby leveraging the investment in the infrastructure. Viapay's business and results of operations and the trading price of Viapay's common stock are subject to the following risks: Lack of Financing On May 11, Viapay had $ 65,140 in cash as compared to liabilities of $ 2.31 million, not including loans payable of an additional $ 2.045 million. Unless Viapay receives an infusion of cash very shortly, it may be forced to discontinue operations or declare bankruptcy at any time in the immediate future. In such an event, Viapay's securities will become worthless. In order to retire its existing liabilities (other than loans), complete the development of its product and commence commercial deployment, Viapay estimates that it will require an additional $13 million in 2001. At present, management estimates that Viapay's monthly costs are approximately $ 160,000. Even if it is able to commence commercial deployment, Viapay does not expect to generate positive cash flow at that stage, and so additional financing, perhaps substantial, will be required thereafter. Management estimates that it will require $ 5 million in addition to the $ 13 million referred to above before the end of 2003, which is earliest date that management believes Viapay would become self-financing. These financings, required immediately and later, may significantly dilute the interests of Viapay's existing stockholders. While Viapay believes these estimates to be reasonable, the actual amount required may be greater. While management and its advisors are actively engaged in the raising of additional finance, there can be no assurance that Viapay will ever be able to raise any additional financing on terms that it finds acceptable or on any terms whatsoever, and there is no assurance that Viapay will ever become self-financing. Viapay has Incurred Losses and Expects Future Losses Viapay has experienced operating losses in each period since inception and expects these operating losses to continue in the foreseeable future. On March 31, 2001, Viapay had an accumulated deficit of $ 8.9 million. Viapay may not have sufficient resources to increase its revenues enough to achieve profitability. Viapay's failure to increase its revenues significantly would seriously harm Viapay's business and operating results. In fact, Viapay may not have any revenue growth. As Viapay's products will be new and strategically important for banks, the banks' decision- making process regarding their purchase may be lengthy. Viapay anticipates a sales cycle of up to a year for a large bank. Management of the cycle to avoid wasted time on unlikely accounts will be difficult. Viapay Expects an Increase in Operating Expenses Viapay intends to increase operating expenses as it: o Expands sales and marketing activities; o Bolsters technical support and development; and o Raises customer support levels. The amount of this increase will depend entirely upon the extent to which Viapay undertakes the above activities. Viapay must generate significant revenues in order to continue as a going concern and ultimately to become profitable. Expenses will be incurred before Viapay generates any significant revenues as a result of such incurrance. If Viapay does not significantly increase revenues from these efforts, Viapay's business and operating results would be seriously harmed. There is no assurance that Viapay will ever increase revenues enough to become profitable. Viapay Depends on Continued Use of the Internet and Growth of E-commerce Rapid growth in the use of the Internet has occurred only recently. As a result, its acceptance and use may not continue to develop at historical rates, and a sufficiently broad base of consumers may not adopt, or continue to use, the Internet and other online services as a medium of commerce. Demand and market acceptance for recently introduced services and products over the internet are subject to a high level of uncertainty, and there exist few proven services and products. The internet may not be accepted as a long-term commercial marketplace for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. Viapay's success will depend, in large part, upon third parties maintaining the Internet infrastructure to provide a reliable network backbone with the necessary speed, data capacity, security and hardware for reliable Internet access and services. Viapay has no direct influence over these third parties. Shareholders Will Receive No Dividends Viapay has never paid dividends and has no current plans to do so. Given Viapay's financial position, it is unlikely that it will pay any dividends in the foreseeable future. Viapay plans instead to retain earnings, if any, to fund internal growth. Item 6. Exhibits and Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ViaPay Limited May 14, 2001 By: /s/ John Draheim ------------------------------------- John Draheim, Secretary and Treasurer

INTERFACE E COM INC 10-Q