<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-9925
Mount10, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 87-0427731
--------------------------------- --------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Grundstrasse 12, 6343 Rotkreuz, Switzerland
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(Address of principal executive offices)
+ 41 41 798 33 44
--------------------------------
(Issuer's telephone number)
COPE, Inc.
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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
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As of November 13, 2000, the Company had 4,509,085 shares of its $.001 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements PAGE
----
<S> <C>
Unaudited Condensed Consolidated Balance Sheets at
September 30, 2000 (unaudited) and December 31, 1999 (audited)................ 2
Unaudited Condensed Consolidated Statements of Operations for the three month
periods and nine month periods ended September 30, 2000 and 1999.............. 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 2000 and 1999.......................... 4
Notes to Condensed Consolidated Financial Statements............................ 5
</TABLE>
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<PAGE>
MOUNT10, INC.
Condensed Consolidated Balance Sheets
(Amounts in U.S. Dollars)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
--------------------- --------------------
Unaudited
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,237,521 $ 653,906
Trade accounts receivable 5,702,463 4,627,287
Inventories (net of provision of $202,766 and $201,107) 2,514,299 2,111,519
Other current assets 1,763,113 668,756
--------------------- --------------------
Total current assets 11,217,396 8,061,468
Property, plant and equipment, net 1,652,521 1,283,487
Loans receivable 2,153,607 0
Loans receivable from related party 1,162,640 550,361
Goodwill (net of amortization of $5,070,842 and $2,367,866) 14,954,485 14,228,210
Intangible assets 83,554 81,687
Deferred income taxes 1,641,000 823,972
Deferred capital transactions costs 0 1,264,237
--------------------- --------------------
TOTAL ASSETS $ 32,865,203 $ 26,293,422
===================== ====================
Current liabilities:
Short-term borrowings $ 1,480,196 $ 4,482,832
Trade accounts payable 5,113,974 6,730,851
Loans payable to related parties 706,400 1,081,611
Loans payable, other 191,206 628,180
Other current liabilities 2,581,469 2,339,600
Current income taxes payable 230,233 155,475
Deferred income taxes 87,984 96,340
--------------------- --------------------
Total current liabilities 10,391,462 15,514,889
--------------------- --------------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Shareholders' equity:
Share capital:
Common stock, $0.001 par value
Authorized shares 30,000,000
Issued and outstanding shares 4,314,085 (3,405,423 in
1999) 4,314 3,405
Additional paid in capital 27,804,674 11,420,355
Accumulated other comprehensive income/(loss)
Cumulative translation adjustment (267,826) (183,177)
Retained earnings/(deficit) (5,067,421) (462,050)
--------------------- --------------------
Total shareholders' equity 22,473,741 10,778,533
--------------------- --------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 32,865,203 $ 26,293,422
===================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
MOUNT10, INC.
Condensed Consolidated Statements of Income
(Amounts in U.S. Dollars except share amount)
For the three month periods and nine month periods ended September 30, 2000
and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three month periods ended Nine month periods ended
September 30, September 30,
------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenue
Sales of solutions $ 8,419,087 $ 7,421,082 $ 22,463,357 $ 21,772,465
Sales of services 1,507,686 920,463 3,340,470 3,133,056
------------ ------------- -------------- --------------
Total revenue 9,926,773 8,341,545 25,803,827 24,905,521
Cost of sales (7,652,590) (5,862,695) (17,884,103) (16,561,361)
------------ ------------- -------------- --------------
Gross profit 2,274,183 2,478,850 7,919,724 8,344,160
------------ ------------- -------------- --------------
Operating expenses:
Selling, general and administrative
expenses (3,494,761) (3,107,541) (9,566,454) (7,881,755)
Consultancy expenses (246,297) (90,668) (733,475) (343,229)
Depreciation (129,255) (112,046) (354,289) (302,363)
Impairment of intangibles assets 0 0 0 0
Amortization of goodwill and other
intangibles assets (982,994) (799,832) (2,702,976) (1,486,115)
------------ ------------- -------------- --------------
Total operating expenses (4,853,307) (4,110,087) (13,357,194) (10,013,462)
Operating loss (2,579,124) (1,631,237) (5,437,470) (1,669,302)
Other income (expense):
Interest expense (30,707) (63,151) (146,510) (146,280)
Interest expense to related party 62 0 (22,203) 0
Interest income 27,757 0 98,399 40,836
Interest income from related party 7,529 4,946 23,216 15,295
Other 0 (31,635) 0 (31,834)
------------ ------------- -------------- --------------
4,641 (89,840) (47,098) (121,983)
------------ ------------- -------------- --------------
Earnings before taxes (2,574,483) (1,721,077) (5,484,568) (1,791,285)
Current income taxes (54,672) 37,454 (91,195) 0
Deferred income taxes 483,100 266,236 970,392 123,038
------------ ------------- -------------- --------------
428,428 303,690 879,197 123,038
------------ ------------- -------------- --------------
Net loss $ (2,146,055) $ (1,417,387) $ (4,605,371) $ (1,668,247)
============ ============= ============== ==============
Basic earnings per share $ (0.50) $ (0.39) $ (1.05) $ (0.49)
Diluted earnings per share $ (0.50) $ (0.39) $ (1.05) $ (0.49)
Weighted average shares outstanding
Basic 4,305,584 3,595,751 4,080,016 3,418,217
Diluted 4,305,584 3,595,751 4,080,016 3,418,217
============ ============= ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
MOUNT10, INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in U.S. Dollars)
For the nine month periods ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine month periods ended
---------------------------------------------
September 30, September 30,
2000 1999
------------------ --------------------
<S> <C> <C>
Cash flow used by operating activities
Net loss $ (4,605,371) $ (1,668,247)
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 354,289 302,363
Amortization of goodwill and other intangibles assets 2,702,976 1,486,115
Deferred income taxes (970,392) (123,038)
Effects of changes in operating assets and liabilities, net of
business acquisition
Accounts receivable (1,375,302) 1,155,103
Inventories (547,888) 419,341
Other current assets 3,447 (2,091,269)
Accounts payable (204,350) (1,447,390)
Customer advances (12,870) (216,558)
Other current liabilities 234,463 666,052
------------------ --------------------
Net cash flow used by operating activities (4,420,998) (1,517,528)
------------------ --------------------
Cash flow used in investing activities
Purchase of property, plant and equipment (816,052) (397,689)
Loans receivables (3,068,963) (1,129,859)
Acquisition of businesses, net of cash acquired (1,050,964) 0
------------------ --------------------
Net cash flow used by investing activities (4,935,979) (1,527,548)
Cash flow provided by financing activities
Issuance of common stock 14,002,014 188,076
Increase/decrease of short term borrowings (3,968,672) 2,570,240
------------------ --------------------
Net cash flow provided by financing activities 10,033,342 2,758,316
Effect of exchange rate changes on cash (92,750) (60,380)
Net increase/decrease of cash and cash equivalents 583,615 (347,140)
Cash and cash equivalents at beginning of the period 653,906 1,303,114
------------------ --------------------
Cash and cash equivalents at end of the period $ 1,237,521 $ 955,974
================== ====================
Supplemental cash flow disclosure
Interest paid $ 168,713 $ 146,280
Income taxes paid 91,195 53,725
Noncash investing and financing activities:
Short-term borrowings assumed in acquisition of business 0 132,652
Short-term borrowings incurred to effect acquisition of
business 0 0
Cash acquired in acquisition 403,267 0
</TABLE>
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<PAGE>
MOUNT10, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of September 30, 2000 and for the nine month
periods ended September 30, 2000 and 1999
NOTE 1 - BASIS OF PRESENTATION
These condensed consolidated financial statements of MOUNT10, Inc., a Delaware
corporation formerly known as COPE, Inc. ("Mount10" or the "Company"), do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the financial statements and notes thereto included in the
MOUNT10's Annual Report on Form 10-KSB for the year ended December 31, 1999. In
the opinion of management, the financial information set forth in the
accompanying condensed consolidated financial statements reflect all adjustments
necessary for a fair statement of the periods reported, and all such adjustments
were of a normal and recurring nature. Interim results are not necessarily
indicative of results for a full year.
Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities", which
requires that costs related to start-up activities be expensed as incurred.
Prior to 1999, the MOUNT10 capitalized its start-up costs and amortized them
over four years. MOUNT10 adopted the provisions of the SOP as of January 1.
1999. There was no material impact on net income or financial position as a
result of the adoption of SOP 98-5.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share". SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings per
share is calculated by dividing net income by the weighted average shares
outstanding. The computation of diluted earnings per share is similar to basic
earnings per share except that it assumes that the weighted average shares
outstanding is increased by shares issuable upon exercise of those stock options
for which market price exceeds exercise price. Shares issuable upon exercise of
stock options have not been included in the computation of diluted earnings
(loss) per share in 2000 since their effect thereon would be anti-dilutive.
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<PAGE>
NOTE 3 - BUSINESS ACQUISITION
On May 1, 2000, MOUNT10 acquired Multicom Software Oy ("Multicom"), a Finnish
company, in a stock and cash transaction accounted for by the purchase method of
accounting. MOUNT10 issued 24,956 new shares and paid EURO 1,795,000 in exchange
for all outstanding Multicom shares, Further, there is an Earn-out Model of EURO
800,000. Accordingly, the operating results of Multicom have been included in
the consolidated operating results from the date of acquisition. The excess of
the purchase price over the fair value of net assets acquired was $3,570,359 and
has been recorded as goodwill, which is being amortized on a straight line basis
over five years. Multicom, headquartered in Lappeenranta, Finland, is a system
management software provider and a data and information management consultant
The Multicom assets acquired and liabilities assumed have been recorded at their
estimated fair values at the date of the Multicom acquisition. A summary of the
assets acquired, liabilities assumed and consideration paid follows:
Cash and cash equivalent.................................... $ 403,267
Accounts receivable......................................... 279,453
Inventory................................................... 75,000
Other current assets........................................ 6,440
Property, plant and equipment............................... 48,703
Other assets................................................ 8,309
Accounts payable............................................ (149,521)
Loans payable............................................... (221,979)
Other current liabilities................................... (126,943)
----------
Net fair value of assets acquired and liabilities assumed 322,729
Goodwill.................................................... 3,570,359
----------
Purchase Price.............................................. 3,893,088
==========
Value of the securities issued, funds and potential earn out $3,793,088
Estimated acquisition costs 100,000
----------
Purchase price 3,893,088
==========
Estimated annual amortization
(based on amortization period of five years) $ 715,000
On April 19, 1999, MOUNT10 acquired Hicomp Software Systems GmbH ("Hicomp"), a
German software company, in a stock transaction accounted for by the purchase
method of accounting. MOUNT10 issued 420,000 new shares in exchange for all
outstanding Hicomp shares. Accordingly, the operating results of Hicomp have
been included in the consolidated operating results from the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired was $15,417,264 and has been recorded as goodwill, which is being
amortized on a straight line basis over five years. Hicomp, headquartered in
Hamburg, Germany, develops back-up and retrieval software products. Its leading
products, Hiback and Hibars, are multi-platform back-up solutions recognized for
performance and flexibility.
In October 1999, the Company repurchased from the former shareholders of Hicomp
200,000 of the common shares issued by the Company in the acquisition at a price
of DEM 7,200,000 ($3,598,000).
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<PAGE>
The Hicomp assets acquired and liabilities assumed have been recorded at their
estimated fair values at the date of the Hicomp acquisition. A summary of the
assets acquired, liabilities assumed and consideration paid follows:
Accounts receivable......................................... $ 102,005
Other current assets........................................ 22,544
Property, plant and equipment............................... 146,399
Other assets................................................ 215,614
Short-term borrowings....................................... (132,652)
Accounts payable............................................ (240,262)
Other current liabilities................................... (444,353)
Noncurrent liabilities...................................... (264,159)
-----------
Net fair value of assets acquired and liabilities assumed... (594,864)
Goodwill.................................................... 15,626,069
-----------
Purchase Price.............................................. 15,031,205
===========
Value of the securities issued.............................. $14,582,400
Estimated acquisition costs................................. 448,805
-----------
Purchase price.............................................. 15,031,205
===========
Annual amortization
(based on amortization period of five years)................ $ 3,125,214
The Company paid in the last quarter 1999 $171,330 of the acquisition cost. In
the first quarter 2000 the Company paid $277,475 acquisition costs.
The pro forma unaudited results of operations for the nine months ended
September, 2000 and September 30, 1999, assuming consummation of the purchases
as of the beginning of the periods presented, are as follows:
<TABLE>
<CAPTION>
Nine month periods ended
September 30,
2000 1999
<S> <C> <C>
Net revenue 26,524,423 27,708,345
Net loss (4,819,757) (3,519,217)
Per share data:
Basic earnings (loss) (1.12) (0.89)
</TABLE>
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<PAGE>
NOTE 4 - COMMON STOCK AND STOCK OPTION PLAN
During 1998, MOUNT10 adopted the 1998 Stock Option Plan ("1998 Plan") which
provides for the granting of either incentive stock options or non-qualified
stock options to employees, officers, directors, consultants and independent
contractors of MOUNT10. Under the 1998 Plan, MOUNT10 is authorized to grant a
maximum of 400,000 stock options for terms of up to ten years (five years in the
case of incentive stock options granted to greater than 10% stockholders).
Options are subject to forfeiture upon termination of employment or other
relationship with MOUNT10 and the 1998 Plan terminates in August 2008.
NOTE 5 - SEGMENT AND GEOGRAPHIC DATA
In 1998, MOUNT10 adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which superceded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 established
standards for the way that public business enterprises report information about
operating segments in annual financial statements. SFAS No. 131 also established
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS 131 did not effect results of
operations or financial position, but did effect the disclosure of segment
information.
Management, via country managing directors, controls operations on a geographic
basis with subsidiaries located in Switzerland, Germany and Austria and uses
earnings before interest, taxes, depreciation and amortization (EBITDA) as its
measure of segment profit or lossEarnings before interest, taxes, depreciation
and amortization is defined as net income plus the following:
. extraordinary items and cumulative effect of accounting change;
. provision for income taxes;
. interest expense; and
. Depreciation and amortization
Earnings before interest, taxes, depreciation and amortization is presented not
as an alternative measure of operating results or cash flow operations as
determined in accordance with generally accepted accounting principles, but
because it is a widely accepted financial indicator of a company's ability to
incur and service debt.
Each geographic area's operations comprise the following products and services:
(1) Solutions which consist of the design, implementation and management of
storage and security solutions including the sale of related software and
hardware; and (2) Services which consist of consulting, training and integration
services including operations and maintenance support. The enterprise-wide
disclosures regarding products and services are contained in the income
statement.
-8-
<PAGE>
Information concerning MOUNT10's reportable segments is summarized as follows by
location of operations (Switzerland: COPE Holding AG, Mount10 Schweiz AG;
Germany: Moun10 Deutschland GmbH and Hicomp Software Systems GmbH, Austria:
Mount10 Austria GmbH; Finland: Multicom Software Oy; Other: MOUNT10, Inc.;
intercompany sales are generally at purchase cost):
<TABLE>
<CAPTION>
Nine months
period ended September 30,
---------------------------------
2000 1999
-------------- ------------
<S> <C> <C>
Total revenue:
Switzerland $ 9,645,745 $ 10,073,915
Germany 11,904,446 12,995,445
Austria 3,054,070 1,889,796
Finland 1,408,110 0
------------ ------------
$ 26,012,371 $ 24,959,156
============ ============
Sales between geographic areas:
Switzerland $ (23,663) $ (39,859)
Germany (125,182) (11,854)
Austria (36,392) (1,922)
Finland (23,307) 0
------------ ------------
$ (208,544) $ 53,635
============ ============
Total revenue from external customers:
Switzerland $ 9,622,082 $ 10,034,056
Germany 11,779,264 12,983,591
Austria 3,017,678 1,887,874
Finland 1,384,803 0
------------ ------------
$ 25,803,827 $ 24,905,521
============ ============
Depreciation and amortization:
Switzerland $ 215,669 202,814
Germany 188,137 165,289
Austria 37,871 43,381
Finland 8,238 0
Other 2,607,350 1,376,994
------------ ------------
$ 3,057,265 $ 1,788,478
============ ============
Earnings before interest, taxes,
depreciation and amortization (EBITDA):
Switzerland $ (1,425,695) $ (430,110)
Germany (550,296) 569,362
Austria 113,353 52,303
Finland 360,795 0
Other (878,362) (104,213)
------------ ------------
$ (2,380,205) $ 87,342
============ ============
</TABLE>
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======
<PAGE>
<TABLE>
<S> <C> <C>
Reconciliation of EBITDA to earnings
before taxes:
Earnings before interest, taxes,
depreciation and amortization (EBITDA):
Switzerland $ (1,425,695) $ (430,110)
Germany (550,296) 569,362
Austria 113,353 52,303
Finland 360,795 0
Other (878,362) (104,213)
------------ ------------
$ (2,380,205) $ 87,342
============ ============
Depreciation and amortization:
Switzerland $ (215,669) $ (202,814)
Germany (188,137) (165,289)
Austria (37,871) (43,381)
Finland (8,238) 0
Other (2,607,350) (1,376,994)
------------ ------------
$ (3,057,265) $ (1,788,478)
============ ============
Interest, net;
Switzerland $ (31,872) $ (52,528)
Germany (31,843) (34,396)
Austria (3,943) (3,225)
Finland (838) 0
Other 21,398 0
------------ ------------
$ (47,098) (90,149)
------------ ------------
Earnings before taxes $ (5,484,568) (1,791,285)
============ ============
September 30, December 31,
------------- ------------
2000 1999
------------- ------------
Total assets:
Switzerland $ 8,105,978 $ 4,986,345
Germany 6,303,868 5,246,029
Austria 1,985,629 1,227,224
Finland 1,025,008 0
Other 15,444,720 14,833,824
------------ ------------
$ 32,865,203 $ 26,293,422
============ ============
</TABLE>
NOTE 6 - SUBSEQUENT EVENT
The Company changed its corporate name to "MOUNT10, Inc." effective as of
October 20, 2000. The name change was effected by way of an amendment to the
Company's Certificate of Incorporation adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
In October 2000, the Company conducted the private placement sale of 195,000
shares of its common stock, at a price of EURO 41 per share, to approximately
five investors. The gross proceeds to the Company were approximately EURO
7,995,000.
-10-
<PAGE>
In July 2000, MOUNT10, Inc. and Mount10.com Holding AG, a Swiss stock company
engaged in the business of data storage and web hosting, entered into a Merger
Agreement pursuant to which Mount10.com Holding AG will acquire MOUNT10, Inc. in
a stock for stock exchange. In the merger transaction, each common share of
MOUNT10, Inc. will automatically convert at the time of merger into the capital
shares of Mount10.com Holding AG. Pursuant to the Merger Agreement, the
shareholders of Mount10, Inc. will hold as a group after the consummation of the
merger approximately 80% of the outstanding capital shares of Mount10.com
Holding AG and the pre-merger shareholders of Mount10.com Holding AG will hold
approximately 20% of the capital shares of Mount10.com Holding AG. The
consummation of the merger is subject to the approval of the Merger Agreement by
the shareholders of MOUNT10, Inc. The merger is expected to be consummated in
the first quarter 2001.
In expectation of its merger with MOUNT10.com Holding AG, the Company delisted
its common shares from trading on all U.S. stock exchanges effective as of
October 6, 2000. At the same time, the Company terminated its SEC periodic
reporting requirements under Section 12 of the Securities Exchange Act of 1934.
The Company's common shares continue to trade on the Frankfurt Stock Exchange,
Neuer Markt, and certain German over-the-counter markets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
MOUNT10, Inc. ("MOUNT10") is a provider of enterprise data storage and security
consulting, services and solutions to customers located primarily in Western
Europe. MOUNT10's storage and security business consists of the analysis,
design and implementation of storage and security systems that integrate the
software and hardware products that best meet the identified objective. MOUNT10
generally provides its data storage and security systems on a turn-key basis and
purchases for resale the software and hardware components made part of the
systems solutions. The company resells software and hardware products offered by
the major vendors in the data storage and security industry. MOUNT10 also offers
its own proprietary storage software products, Hiback and Hibars. MOUNT10
provides enterprise data storage and security systems and solutions to a variety
of companies in the financial, insurance, pharmaceutical and telecommunication
industries located primarily in Germany, Switzerland, Finland and Austria.
During the first nine months of 2000, MOUNT10 commenced the provision of
consulting, services and solutions to the e-platform industry, including the
design, development and operation of application infrastructure and managed web
sites. Commencing in August 2000, Mount10 has served as an application
infrastructure provider (AIP) and managed web host provider (MHP).
MOUNT10's goal is to become the leading independent provider of enterprise data
storage and security services and solutions and e-platforms in Western Europe.
The key elements of MOUNT10's strategy are:
. Continue to Emphasize Storage and Security Consulting Services. By
emphasizing the quality of its consulting services in the area of data storage
and security, MOUNT10 believes that it can establish and foster a reputation in
Western Europe as a leading provider of enterprise services and solutions.
. Foster a Reputation for Independence. MOUNT10 intends to foster the
reputation and image in the storage and security industry of an independent
organization firm dedicated to providing storage and security services and
solutions to the enterprise data storage market only.
. Expand Through Targeted Acquisitions. MOUNT10 intends to aggressively
seek out and acquire high quality independent consulting firms throughout
Western Europe.
. Leverage off its Core Competence to Develop an E-Platform Solution.
MOUNT10 has a unique standing in Central Europe due to its experience and
reputation in the date storage industry. Data storage and security are key
elements in the Internet age and MOUNT10's core competence in this area provides
it with an
-11-
<PAGE>
advantage in designing, developing and operating application infrastructure and
managed web sites. MOUNT10 intends to leverage off it reputation and success in
the data storage and security industry to develop and market an e-platform
solution to its clientele.
Peter Zurbruegg becomes new New Chief Executive Officer
Peter Zurbruegg, formerly was Vice President at UBS (Union Bank of Switzerland)
where he was responsible for distributed systems, joined the Company as its new
Chief Executive Officer as of July 1, 2000. Mr. Zurbruegg joined MOUNT10 to
oversee the integration and management of the proposed merger with Mount10, an
internet application infrastructure and web hosting provider. Stephan
Isenschmid, co-founder of MOUNT10 and its former CEO, continues to serve the
company as a board member and strategic advisor.
Multicom Acquisition
On May 1, 2000 MOUNT10 acquired 100% of Multicom, a Finnish Company, in a
combined share and cash transaction. The acquisition of Multicom Software gives
MOUNT10's software business direct access to the northern European market.
Multicom is a system management software provider and a data and information
management consultant. For years Multicom Software has also been a value-added
reseller of the back-up software products of MOUNT10's recently acquired
subsidiary, HICOMP Software Systems, of Hamburg, Germany. Multicom's staff of
13 engineers and professionals has used HICOMP's Hiback and Hibars products to
successfully implement comprehensive solutions in the data security sector.
Merger of MOUNT10, Inc. and Mount10.com Holding AG
In July 2000, MOUNT10, Inc. and Mount10.com Holding AG, a Swiss stock company
engaged in the business of data storage and web hosting, entered into a Merger
Agreement pursuant to which Mount10.com Holding AG will acquire MOUNT10, Inc. in
a stock for stock exchange. In the merger transaction, each common share of
MOUNT10, Inc. will automatically convert at the time of merger into the capital
shares of Mount10.com Holding AG. Pursuant to the Merger Agreement, the
shareholders of MOUNT10, Inc. will hold as a group after the consummation of the
merger approximately 80% of the outstanding capital shares of Mount10.com
Holding AG and the pre-merger shareholders of Mount10.com Holding AG will hold
approximately 20% of the capital shares of Mount10.com Holding AG. The
consummation of the merger is subject to the approval of the Merger Agreement by
the shareholders of MOUNT10, Inc. The merger is expected to be consummated in
the first quarter 2001.
Mount10.com Holding AG is a Swiss stock company engaged in the business of
protecting strategic data from manipulation, loss unauthorized access and damage
by external or hostile groups and individuals. Mount10.com Holding AG operates
its own data center in a high-security, underground vault. The vault is located
in the heart of the Swiss Alps and embedded in an operational defense force
facility. The vault is designed to withstand risks to the security of the
customers data during peace and times of war. MOUNT10, Inc.'s Chairman of the
Board and President, Adrian Knapp, and Director, Stephan Isenschmid, each own
approximately 16.3% of Mount10.com Holding AG.
Public Offering
In February 2000, MOUNT10 conducted a public offering of 800,000 shares of its
common stock, at an offering price 21.00 ($20.54) per share on the Frankfurt
Stock Exchange, "Neuer Markt".
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<PAGE>
Hicomp Acquisition
On April 19, 1999, MOUNT10, Inc. acquired Hicomp Software Systems GmbH, a German
software company. Based on the Sale and Assignment of Business Shares entered
into on December 21, 1998 between MOUNT10, Inc. and Mr. Uwe Hinrichs, the
president and sole shareholder of Hicomp, MOUNT10 issued 420,000 shares of
common stock in exchange for all of the outstanding capital shares of Hicomp.
Currency Exchange Rates. MOUNT10 regularly enters into contracts payable in
-----------------------
EURO, Swiss Francs, German Marks, Fin Marks and Austrian Schillings.
Although MOUNT10 reports its results in US Dollars, virtually all of its sales
are denominated in other currencies, primarily, Swiss Francs and German Marks,
EURO and, to a lesser extent, the Austrian Schillings, Fin Marks, and EURO. A
significant amount of MOUNT10's cost of sales (i.e., hardware and software
purchases) on the other hand, are denominated in US Dollars. Consequently,
MOUNT10's cost of doing business is directly affected by any changes in the
exchange rate between the US Dollar, on the one hand, and the Swiss Franc or
German Mark, on the other hand. The financial position and results of operations
of MOUNT10 and its foreign subsidiaries are measured using local currency as
the functional currency. Assets and liabilities of MOUNT10 and its subsidiaries
are translated at the exchange rate in effect at each year-end. Income statement
accounts are translated at the average rate of exchange prevailing during the
year. Translation adjustments arising from differences in exchange rates from
period to period are included in the cumulative translation adjustment account
in stockholders' equity.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30,
1999
Net Revenue. During the nine months ended September 30, 2000, the Company had
-----------
net revenue of $25,803,827, which amounts to an increase of 3.6% over the net
revenue of $24,905,521 during the prior year period. The small increase in net
revenue is due to the stronger US Dollar compared to the prior year period.
During the nine months ended September 30, 2000, the Company had net revenue of
EURO 27,455,381, which amounts to an increase of 18.6% over the net revenue of
EURO 23,146,955 during the prior year period. MOUNT10 acquired Hicomp on April
19, 1999 and Multicom Software on May 1, 2000. Hicomp has been included in the
consolidated operating results for period subsequent to April 18, 1999. Multicom
has been included in the consolidated operating results for period subsequent to
May 1, 2000.
Sales of solutions increased 3.2% (increase in EURO 17.9.%) during the
nine months ended September 30, 2000 over the prior year period reaching
$22,463,357 (EURO 23,899,814) as compared to $21,772,465 (EURO 20,270,849).
Sales of solutions consist of revenue from the resale of hardware and software
components along with associated consulting services. Sales of services
increased 6.6% (increase in EURO 23.6%) during the nine months ended September
30, 2000 reaching $3,340,470 (EURO 3,555,567) as compared to $3,133,056 (EURO
2,876,106) for the prior year period. Sales of services consist of revenue from
stand-alone consulting and integration services. The increase in sales of
services is a result of the marketing efforts in the second quarter of 2000.
Cost of Sales. During the nine months ended September 30, 2000, cost of sales
--------------
increased by 8.0% (in EURO increase 23.8%) to $17,884,103 (EURO 19,028,200)
compared to $16,561,361 (EURO 15,373,945) for the prior year period,
representing 79.6% (in EURO 79.6%) and 76.1% (in EURO 75.8%), respectively, of
the total revenue from the sale of solutions. Cost of sales consists
exclusively of the cost of software and hardware acquired for resale.
Gross Profit. MOUNT10's gross profit margin for the nine months ended September
------------
30, 2000 was 30.7% (in EURO 30.7%) compared to 33.5% (in EURO 33.6%) for the
prior year period.
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<PAGE>
Selling, General, Administrative and Consulting Expenses. MOUNT10's selling,
--------------------------------------------------------
general, administrative and consulting expenses as a percentage of net sales
increased between the nine months ended September 30, 2000 (39.9%; in EURO
39.9%) compared to the prior year period (33.5%; in EURO 33.0%).
Net Income/(Loss). During the nine months ended September 30, 2000, MOUNT10 had
-----------------
a net loss of $4,605,371 (EURO 4,893,066) as compared to net loss of
$1,668,247 (EURO 1,245,628) during the prior year period. Earnings before
interest, taxes, depreciation and amortization for the nine months ended
September 30, 2000 was $(2,380,205) as compared to earnings before interest,
taxes, depreciation and amortization of $87,342 for the prior year period. The
decrease in income is mainly attributable due to the amortization of goodwill
involved with MOUNT10's acquisition of Multicom in May 2000 and Hicomp in April
1999.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Net Revenue. During the three months ended September 30, 2000, the Company had
-----------
net revenue of $9,926,773, which amounts to an increase of 19.0% over the net
revenue of $8,341,545 during the prior year period. During the three months
ended September 30, 2000, the Company had net revenue of EURO 10,648,155, which
amounts to an increase of 31.7% over the net revenue of EURO 8,084,831 during
the prior year period. MOUNT10 acquired Hicomp on April 19, 1999 and Hicomp has
been included in the consolidated operating results for period subsequent to
April 19, 1999. MOUNT10 acquired Multicom on May 1, 2000 and Multicom has been
included in the consolidated operating results for period subsequent to May 1,
2000.
Sales of solutions increased 13.4% (increase in EURO 25.7.0%) during the
three months ended September 30, 2000 over the prior year period reaching
$8,419,087 (EURO 9,042,607) as compared to $7,421,082 (EURO 7,190,643). Sales of
solutions consist of revenue from the resale of hardware and software components
along with associated consulting services. Sales of services increased 63.8%
(increase in EURO 68.6%) during the three months ended September 30, 2000
reaching $1,507,686 (EURO 1,605,548) as compared to $920,463 (EURO 894,188) for
the prior year period. Sales of services consist of revenue from stand-alone
consulting and integration services. The increase in sales of services is a
result of the marketing efforts in the second quarter of 2000.
Cost of Sales. During the three months ended September 30, 2000, cost of sales
--------------
increased by 30.5% (in EURO increase 45.9%) to $7,652,590 (EURO 8,219,027)
compared to $5,862,695 (EURO 5,631,521) for the prior year period, representing
90.9% (in EURO 90.9%) and 79.0% (in EURO 78.3%), respectively, of the total
revenue from the sale of solutions. Cost of sales consists exclusively of the
cost of software and hardware acquired for resale.
Gross Profit. MOUNT10's gross profit margin for the three months ended
------------
September 30, 2000 was 22.9% (in EURO 22.8%) compared to 29.7% (in EURO 30.3%)
for the prior year period.
Selling, General, Administrative and Consulting Expenses. MOUNT10's selling,
--------------------------------------------------------
general, administrative and consulting expenses as a percentage of net sales
increased between the three months ended September 30, 2000 (37,7%; in EURO
37.6%) compared to the prior year period (38.3%; in EURO 38.1%).
Net Income/(Loss). During the three months ended September 30, 2000, MOUNT10
-----------------
had a net loss of $2,146,055 (EURO 2,314,766) as compared to net loss of
$1,417,387 (EURO 1,101,802) during the prior year period. Earnings before
interest, taxes, depreciation and amortization for the three months ended
September 30, 2000 was $(1,466,875) , which amounts to an decrease of 217.8%
over earnings before interest, taxes, depreciation and amortization of
$(750,994) for the prior year period. The decrease in income is mainly
attributable due to the amortization of goodwill involved with MOUNT10's
acquisition of Multicom in May 2000 and Hicomp in April 1999.
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<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
MOUNT10's historical working capital requirements include the financing of all
costs involved in the design, implementation and sale of information systems.
MOUNT10 generally contracts to deliver information systems, including all
hardware and software, on a turn-key basis based on fixed price contracts.
Consistent with industry practice, MOUNT10 generally is not able to obtain
significant up-front or progress payments on its contracts providing for the
design, implementation and sale of information systems. Accordingly, MOUNT10 is
generally required to finance its clients' contracts, including the purchase of
the hardware and software components of the information systems. As of September
30, 2000, MOUNT10 had established short-term overdraft facilities under which
MOUNT10 and its subsidiaries could borrow up to $1,486,900. Amounts drawn down
under these facilities are due on demand and collateralized by MOUNT10's
investments in Mount10 Schweiz AG and Mount10 Deutschland GmbH. MOUNT10 has
been successful to date in securing extensions on its lines for purposes of
financing certain client contracts and in the most recent months, however there
can be no assurance that MOUNT10 will continue to do so in the future.
As of September 30, 2000, MOUNT10 had a working capital of approximately
$825,934, compared to a working capital deficit of $7,453,421 as of December 31,
1999. In October 2000, the Company acquired approximately EURO 7,995,000 of
additional capital through its private placement sale of 195,000 shares of
common stock at a price of EURO 41 per share. In February 2000 MOUNT10 completed
a secondary public offering of 800,000 common shares at 21.00 ($20.54) per share
on the Frankfurt Stock Exchange, "Neuer Markt". The net proceeds in that
offering were approximately $14,200,000. During fiscal 1999, MOUNT10
supplemented its working capital with a series of short term loans in the total
aggregate amount of $3,700,000, including an advance of $767,521 and $314,090
from MOUNT10's Chairman of the Board and President, Adrian Knapp and MOUNT10's
Director Stephan Isenschmid, respectively. MOUNT10 applied approximately
$3,700,000 of the net proceeds from its secondary public offering towards the
repayment of the short term loans and the repayment of $2,100,000 of bank
indebtedness under its short-term overdraft facilities.
MOUNT10 believes that the proceeds from its October 2000 private placement,
together with its existing capital resources, will be sufficient to meet its
capital requirements and finance its continued growth during the remainder of
fiscal year 2000. However, MOUNT10 believes it will require additional
financing during fiscal 2001 in order to expand its revenue base and product
line. However, it is impossible to predict right now how much capital MOUNT10
will need or when it will need it.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements that are based on
MOUNT10's beliefs as well as assumptions made by and information currently
available to MOUNT10. When used herein, the words "believe," "expect,"
"anticipate," "estimate" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, including (i) the intense competition in
MOUNT10's industry; (ii) future developments and changes in prevailing
technologies and standards in the data storage industry; (iii) availability of
additional capital as required; and (iv) general economic conditions. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, or projected. MOUNT10 caution shareholders of MOUNT10
and potential investors not to place undue reliance on any such forward-looking
statements, all of which speak only as of the date made.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
In 1999, Mount10 engaged a Swiss software development company to
design, implement and maintain a company-wide enterprise resource planning
solution for MOUNT10. The system was to be completed in January 2000, however in
April 2000 MOUNT10 served notice that it would refuse to accept the system due
to problems that materially impaired the systems's quality of operation. The
software supplier has served MOUNT10 with notice of its intent to sue MOUNT10
for the remaining $500,000 owed the supplier under its contract with MOUNT10.
Mount10 believes that the supplier has breached the contract and, therefore,
MOUNT10 is not obligated to pay the supplier any additional amounts under the
contract. If the supplier institutes legal action, MOUNT10 intends to counter-
claim for damages in excess of $1,000,000, representing payments made to the
supplier, additional costs incurred by MOUNT10 in connection with the supplier's
activities and damages incurred by MOUNT10 due to the supplier's failure to
deliver the promised operating system by the required due date.
Item 2. Changes in Securities.
---------------------
In October 2000, the Company conducted the private placement
sale of 195,000 shares of its common stock, at a price of EURO 41 per share, to
approximately five investors. The gross proceeds to the Company were
approximately EURO 7,995,000.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information.
-----------------
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
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(b) Reports on Form 8-K
-------------------
Inapplicable.
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<PAGE>
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.
MOUNT10, Inc.
(Registrant)
Dated: November 14, 2000 By: /s/ MARKUS BERNHARD
---------------------
Markus Bernhard
Chief Financial Officer
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