<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1999
-------------------------------------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 33-1933 3-D
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SMARTSOURCES.COM, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Colorado 84-1073083
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2030 Marine Drive, Suite 100 North Vancouver, British Columbia V7P 1V7, CANADA
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(604) 986-0889
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(Issuer's Telephone Number, Including Area Code)
Innovest Capital Sources Corporation, Telco Communications, Inc. and
Cody Capital Corporation; 4 Normandy Drive, Kenner, LA 70065; December 31
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act 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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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 10,918,305 shares of Common
Stock
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
An index to the financial statements of the Company filed as a part of
this report appears at Page F-1. The financial statements of the Company appear
at Pages F-2 through F-5 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations and Comparative Information
The consolidated revenues from operations for the quarter ended March
31, 1999 were up slightly from the previous quarter at $188,500. Revenues of
$350,100 for the six months ended March 31, 1999 are lower than expected in
relation to annual revenues for the fiscal years 1998 and 1997 of $1,571,000 and
$1,054,800, respectively. The low level of revenues is due in part to the
Company's efforts being focused on the work carried forward from the merger with
Nifco Investments Ltd. Although revenues increased 17% from $161,600 for the
first quarter, to $188,500 for the second quarter, the operating expenses
increased by 72% from $252,200 to $433,900 for the two quarters, respectively.
The net result was an operating loss of $254,300 for the second quarter. The
increase in operating expenses was due to increases in staff and costs incurred
in conjunction with the acquisition of Nifco Investments Ltd.
The Company moved forward with its initiative to enhance revenues by
shifting the focus of the Company from Research & Development Engineering to
sales and marketing by adding a Vice President of Sales and Marketing and a Vice
President of Corporate Development. Sales in future quarters are expected to
improve as the sales and marketing department grows and as certain software
engineering contracts currently under negotiations are finalized.
Comparative revenues for the three and six-month periods ended March
31, 1998 are not available due to the following: (1) prior to the merger with
SmartSources.com, Nifco Investments Ltd. and its subsidiaries were not required
to report consolidated financial information on a quarterly basis in accordance
with U.S. generally accepted accounting principles; (2) the accounting systems
and records for these companies cannot generate an accurate quarterly cutoff for
the same quarter in the fiscal year 1998; and (3) it is not practicable for the
Company to go back and recreate such financial information.
Repurchase of Software Rights
SmartSources.com's subsidiary, Origin Software Corporation, has been
negotiating to repurchase the rights to the Company's primary software product,
ORIGIN(R), and obtain release from any contingent liability related to the
original sale of the software rights in 1995 and 1996 to Columbia Diversified
Software Fund Limited Partnership. Subsequent to March 31, 1999, the terms of a
repurchase agreement were finalized. The agreement is expected to be executed in
May 1999.
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 0.5 at March 31,
1999. This reflects no change from the previous quarter. Timing of payment of
the $157,000 of administrative fees payable is negotiable, and this liability
does not pose an immediate threat to the Company's liquidity. The Company
continues to have a $163,800 credit facility with a Canadian bank to help
finance any shortfall in its short-term cash needs.
During the second quarter, the Company received a $300,000 capital
infusion by means of an offering under Regulation D, Rule 504.
2
<PAGE> 3
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.
(b) A Current Report on Form 8-K was filed on February 10, 1999, to report
a change in the Registrant's independent auditors.
A Current Report on Form 8-K was filed on March 31, 1999, to report a
change in the Registrant's fiscal year end to September 30.
3
<PAGE> 4
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.
SMARTSOURCES.COM, INC.
Date: June 29, 1999 By: /s/ Sokhie Puar
------------------------- -----------------------------------------
Vice President, Corporate Development and
Duly Authorized Officer and Principal
Financial and Accounting Officer
4
<PAGE> 5
Index to Financial Statements
<TABLE>
<CAPTION>
Description Page(s)
<S> <C>
SmartSources.com, Inc. and Subsidiaries Balance Sheet (Unaudited)
as of March 31, 1999 F-2
SmartSources.com, Inc. and Subsidiaries Statement of Operations (Unaudited)
for the Three and Six Month Periods Ended March 31, 1999 F-3
SmartSources.com, Inc. and Subsidiaries Statement of Cash Flows (Unaudited)
for the Three and Six Month Periods Ended March 31, 1999 F-4
Notes to Financial Statements F-5
</TABLE>
F-1
<PAGE> 6
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
BALANCE SHEET (UNAUDITED)
MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents ................................. $ 25,200
Trade accounts receivable, net ............................ 181,600
-------------
Total current assets ............................. 206,800
CAPITALIZED SOFTWARE COSTS, net ................................. 71,400
PROPERTY AND EQUIPMENT, net ..................................... 693,600
OTHER ASSETS .................................................... 20,800
-------------
TOTAL ASSETS ..................................... $ 992,600
=============
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable and accrued liabilities ............ $ 149,900
Administrative fees payable ............................... 157,000
Income taxes payable ...................................... 3,600
Note payable .............................................. 39,700
Current portion of long-term debt ......................... 64,600
-------------
Total current liabilities ........................ 414,800
-------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion .......................... 428,900
Due to stockholder .............................................. 70,200
Deferred gain ................................................... 2,457,600
Deferred income taxes ........................................... 162,800
-------------
TOTAL LIABILITIES ................................ 3,534,300
-------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock .............................................. 300,100
Accumulated other comprehensive income .................... 154,200
Accumulated deficit ....................................... (2,996,000)
-------------
Total Stockholders' Deficit ...................... (2,541,700)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ...... 992,600
=============
</TABLE>
F-2
<PAGE> 7
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1999
---------------- ----------------
<S> <C> <C>
REVENUES EARNED .......................... $ 188,500 $ 350,100
OPERATING EXPENSES ....................... 433,900 686,100
---------------- ----------------
OPERATING LOSS ........................... (245,400) (336,000)
---------------- ----------------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE ................ (11,400) (23,800)
ADMINISTRATIVE FEES ............. (39,000) (39,000)
LOSS ON DISPOSAL OF ASSETS ...... -- (48,800)
OTHER ........................... 6,800 8,700
---------------- ----------------
(43,600) (102,900)
---------------- ----------------
LOSS BEFORE PROVISION FOR INCOME TAXES ... (289,000) (438,900)
PROVISION FOR INCOME TAXES ............... 80,200 20,200
---------------- ----------------
NET LOSS ................................. $ (369,200) $ (459,100)
================ ================
Basic earnings (loss) per share $ (0.05) $ (0.07)
Diluted earnings (loss) per share $ (0.05) $ (0.07)
</TABLE>
F-3
<PAGE> 8
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ......................................................... $ (369,200) $ (459,100)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation & amortization ...................................... 42,000 72,900
Deferred income taxes ............................................ 72,100 --
Realized (gains) losses on investments ........................... (6,600) (7,200)
Loss on disposal of assets ....................................... -- 48,800
Changes in assets and liabilities
Trade accounts receivable ........................................ (34,800) 226,900
Other assets ..................................................... (9,100) (14,100)
Accounts payable and other current liabilities ................... 35,400 64,800
Sale deposits .................................................... -- (98,700)
Administrative fees payable ...................................... -- 39,000
Income taxes payable/refundable .................................. (19,200) (7,000)
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(289,400) (133,700)
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CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of property & equipment ................................. (39,000) (39,500)
Proceeds from sale of Family ware ................................ -- 163,200
Proceeds from sale of investments ................................ 17,400 17,400
-------------- --------------
(21,600) 141,100
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Borrowing (repayment) on line of credit, net ..................... 39,000 (13,800)
Proceeds from issuance of shares ................................. 300,000 300,000
Payment of long-term debt ........................................ (21,400) (32,000)
Repayment of stockholder advances ................................ -- (97,300)
Dividends ........................................................ -- (140,300)
-------------- --------------
317,600 16,600
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EFFECT OF CHANGES IN EXCHANGE RATES ....................................... (300) (500)
-------------- --------------
NET CHANGE ................................................................ 6,300 23,500
CASH, BEGINNING OF PERIOD ................................................. 18,900 1,700
-------------- --------------
CASH, END OF PERIOD ....................................................... 25,200 25,200
============== ==============
INTEREST PAID ............................................................. $ 11,400 $ 23,800
============== ==============
TAXES PAID (REFUNDED) ..................................................... $ 19,100 $ 19,000
============== ==============
</TABLE>
F-4
<PAGE> 9
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements and notes thereto at March 31,
1999 and for the three and six months then ended reflect the reverse merger of
SmartSources.com, Inc. ("SmartSources" or the "Company") with Nifco Investments
Ltd. and Subsidiaries (collectively, "Nifco") on December 11, 1998. The merger
was effected through issuance of 6 million shares of SmartSources' stock for all
outstanding common shares of Nifco Investments Ltd. Because SmartSources had no
assets or liabilities at the date of merger, the transaction was accounted for
as a recapitalization of Nifco Investments Ltd. rather than a business
combination.
Comparative results of operations and cash flows for the three and six
months ended March 31, 1998 are not available due to the following factors.
Prior to the merger, Nifco had no requirement to report consolidated financial
position, results of operations and cash flows on a quarterly basis in
accordance with U.S. generally accepted accounting principles. The accounting
systems and records of the consolidated group comprising Nifco cannot generate
an accurate quarterly cutoff during the fiscal 1998 period, and it is not
practicable for the Company to go back and recreate such financial information.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instruction for Form 10-QSB and
Section 228.310.3(b) of Regulation S-B. Accordingly, they do not include all of
the information and disclosures normally required by generally accepted
accounting principles for complete financial statements or those reflected in
the Company's Annual Report on Form 10-KSB.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations and cash flows for the three months ended
December 31, 1998 are not necessarily indicative of the results to be expected
for the full year. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statement
for the years ended September 30, 1998 and 1997 and the notes thereto included
in the Company's Proxy Statement filed on Form DEF 14A.
NOTE 2 - COMMON STOCK
The Company has a single class of no par value common stock. Authorized
shares total 50 million. The capital structure presented in the accompanying
financial statements reflects the capital structure of the Company subsequent to
a one for 75 stock split authorized on October 15, 1998 and the issuance of 6
million shares in connection with the merger with Nifco. On October 15, 1998,
stockholders also approved issuance of additional shares of common stock to be
placed with investors in the following amounts pursuant to Regulation D, Rule
504 and 505:
<TABLE>
<S> <C>
4,230,000 shares at $0.01
500,000 shares at 1.90
600,000 shares at 5.00
</TABLE>
As of March 31, 1999 a total of $300,000 has been received from
investors in advance of the issuance of such shares.
NOTE 3 - CONTINGENCY
During fiscal 1995 and 1996, Nifco sold the rights to its primary
software product, ORIGIN(R), to Columbia Diversified Software Fund Limited
Partnership ("Columbia"). Under terms of the sale agreements, together with
subsequent modifications and other verbal agreements, Nifco has continued to pay
administrative fees to Columbia. During the three and six months ended March 31,
1999, fees paid totaled $39,000.
The sales to Columbia were structured in a manner to take advantage of
certain Canadian tax laws designed to provide tax incentives to investors in
software applications. Revenue Canada is currently reviewing the valuation of
the software used to determine the sales price to Columbia. In the event a lower
value is placed on the software, the possibility exists that Revenue Canada may
question the amount of tax benefits claimed by Columbia and its investors. Under
the sale agreements, Nifco is not required to indemnify Columbia or its
investors in the event of a denial of the benefits claimed.
F-5
<PAGE> 10
Certain provisions in the sale agreement specify the allocation of cash
flows from sale of ORIGIN(R). By mutual agreement, Nifco and Columbia agreed not
to adhere strictly to these provisions. Subsequent to December 31, 1998, the
Company continues to negotiate to repurchase the rights to the software product
and obtain release from any contingent liabilities related to the original sale.
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to March 31, 1999 the Company received an additional
$700,000 from investors for shares described in Note Two. During the subsequent
period, the Company also entered into a definitive agreement to repurchase the
rights to ORIGIN(R) software (See Note 3). The rights are to be acquired through
a series of transactions that are ultimately expected to result in the
forgiveness of certain notes receivable from Columbia Diversified Software Fund
Limited Partnership (for which the Company has not given accounting recognition)
and issuance of up to five million shares of Company stock.
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SMARTSOURCES.COM, INC. FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 25,200 0<F1>
<SECURITIES> 0 0
<RECEIVABLES> 181,600 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 206,800 0
<PP&E> 939,800 0
<DEPRECIATION> (246,200) 0
<TOTAL-ASSETS> 992,600 0
<CURRENT-LIABILITIES> 414,800 0
<BONDS> 0 0
0 0
0 0
<COMMON> 300,100 0
<OTHER-SE> (2,841,800) 0
<TOTAL-LIABILITY-AND-EQUITY> 992,600 0
<SALES> 350,100 0
<TOTAL-REVENUES> 350,100 0
<CGS> 0 0
<TOTAL-COSTS> 686,100 0
<OTHER-EXPENSES> 79,100 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,800 0
<INCOME-PRETAX> (438,900) 0
<INCOME-TAX> 20,200 0
<INCOME-CONTINUING> (459,100) 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (459,100) 0
<EPS-BASIC> (0.07) 0
<EPS-DILUTED> (0.07) 0
<FN>
<F1>
COMPARATIVE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS ENDED
MARCH 31, 1998 ARE NOT AVAILABLE DUE TO THE FOLLOWING FACTORS. PRIOR TO THE
MERGER WITH NIFCO INVESTMENTS LTD AND SUBSIDIARIES (COLLECTIVELY, NIFCO), NIFCO
HAD NO REQUIREMENT TO REPORT CONSOLIDATED FINANCIAL POSITION, RESULTS OF
OPERATIONS AND CASH FLOWS ON A QUARTERLY BASIS IN ACCORDANCE WITH U.S.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THE ACCOUNTING SYSTEMS AND RECORDS OF
THE CONSOLIDATED GROUP COMPRISING NIFCO CANNOT GENERATE AN ACCURATE QUARTERLY
CUTOFF AS OF MARCH 31, 1998, AND IT IS NOT PRACTICABLE FOR THE COMPANY TO GO BACK
AND RECREATE SUCH FINANCIAL INFORMATION.
</FN>
</TABLE>
