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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 December 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.
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(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
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(Address of Principal Executive Offices)
(604) 986-0889
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(Issuer's Telephone Number, Including Area Code)
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 [ ]
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 [ ]
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: 11,755,300 shares of Common
Stock
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements included herein have been prepared by the Company,
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of December 31, 1999 and the results of its operations and changes in
its financial position from inception through December 31, 1999 have been made.
The results of operations for such interim period are not necessarily indicative
of the results to be expected for the entire year.
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SMARTSOURCES.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1999
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 164,200 $ 197,000
Trade accounts receivable, net 184,800 231,000
Prepaid expenses 94,800 125,000
----------- -----------
Total current assets 443,800 553,000
CAPITALIZED SOFTWARE COSTS, net 1,550,500 1,445,000
PROPERTY AND EQUIPMENT, net 764,300 758,000
OTHER ASSETS 198,300 180,000
----------- -----------
TOTAL ASSETS $ 2,956,900 $ 2,936,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILIITES
Accounts payable and accrued liabilities $ 140,000 $ 264,000
Income tax payable 78,300 79,000
Unearned revenue - 8,000
Current portion of long-term debt 58,700 54,000
----------- -----------
Total current liabilities 277,000 405,000
LONG-TERM LIABILITIES
Due to stockholder 24,700 24,000
Long-term debt, net of current portion 414,800 434,000
Deferred tax liability 64,200 72,000
----------- -----------
Total liabilities 780,700 935,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 3,441,100 3,520,000
STOCHOLDERS' DEFICIT
Common stock 1,821,300 2,507,000
Accumulated other comprehensive income 124,500 139,000
Accumulated deficit (3,210,700) (4,165,000)
----------- -----------
Total stockholders' deficit (1,264,900) (1,519,000)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,956,900 $ 2,936,000
</TABLE>
See accompanying notes to these consolidated financial statements.
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SMARTSOURCES.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three months ended December 31, 1999
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1999
------------- -------------
<S> <C> <C>
REVENUES EARNED $ 161,600 $ 212,000
COST OF SALES 29,000 54,000
---------- ----------
GROSS PROFIT 132,600 158,000
OTHER EXPENSES
Research & Development, exclusive of amortization
of software costs 23,000 254,000
Sales and Marketing 55,500 141,000
General and Administrative 75,000 564,000
Depreciation and Amortization 31,000 142,000
---------- ----------
184,500 1,101,000
---------- ----------
OPERATING LOSS (51,900) (943,000)
---------- ----------
OTHER INCOME (EXPENSE)
Administrative fees (38.700) -
Realized gain(loss) on investments (48,400) -
Interest expense (12,400) (11,000)
Other 1,500 -
---------- ----------
(98,000) (11,000)
---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES (149,900) (954,000)
PROVISION FOR INCOME TAXES 59,900 -
---------- ----------
NET LOSS ($90,000) ($954,000)
BASIC EARNINGS (LOSS) PER SHARE ($0.01) ($0.08)
DILUTED EARNINGS (LOSS) PER SHARE ($0.01) ($0.08)
</TABLE>
See accompanying notes to these consolidated financial statements.
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SMARTSOURCES.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Quarter ended December 31, 1999
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1999
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CASH FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $ (90,000) $ (954,000)
Adjustments to reconcile net income(loss) to
net cash from operating activities
Depreciation and amortization 31,000 142,000
Loss on disposal of assets 48,400 -
Stock-based compensation - 100,000
Realized gains (losses) on sale of investments (700) -
Deferred income taxes (72,100) -
Changes in operating assets and liabilities
Trade accounts receivable 262,600 (44,000)
Other assets (5,100) (18,000)
Accounts payable and other current liabilities 28,600 149,000
Administrative fees payable 38,700 -
Income taxes payable and refundable 12,200 -
Sale deposit (97,900) -
---------- ----------
Net cash flows from operating activities 155,700 (637,000)
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment (500) (14,000)
Refund of deposit on property and equipment - 16,000
Proceeds from sale of Familyware 163,200 -
---------- ----------
Net cash flows from investing activities 162,700 2,000
CASH FROM FINANCING ACTIVITIES
Repayment of note payable, net (52,900) -
Principal repayments of long-term debt (10,600) (17,000)
Principal repayments of capital lease obligations - (2,000)
Repayment of advances from stockholder (97,300) (1,000)
Proceeds from issuance of common stock - 686,000
Dividends (140,300) -
---------- ----------
Net cash flows from financing activities (301,100) 666,000
EFFECT OF CHANGES IN EXCHANGE RATES (100) 1,800
NET CHANGE IN CASH 17,200 32,800
CASH AND CASH EQUIVALENTS, beginning of period 1,700 164,200
CASH AND CASH EQUIVALENTS, end of period 18,900 197,000
Supplemental disclosure of Cash Flow information:
Interest paid $ 12,400 $ 11,000
Income taxes paid $ (100) 0
Non-cash transactions:
Property and equipment acquired under capital leases $ 21,000
Accounts payable refinanced under capital lease obligations $ 6,000
</TABLE>
See accompanying notes to these consolidated financial statements.
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NOTE I - ORGANIZATION, REVERSE ACQUISITION, AND OPERATIONS
ORGANIZATION
SmartSources.com, Inc. (the Company) was incorporated in 1987 in the State
of Colorado as Cody Capital Corporation. The Company completed a public
offering in 1988. In 1989, it acquired Telco of Baton Rouge, Inc., which
was merged into the Company, and the Company changed its name to Telco
Communications, Inc. In 1994, the Company filed for Chapter 11 bankruptcy
protection. The Bankruptcy Court (the Court) subsequently converted the
status of the filing to Chapter 7 and appointed a Trustee to manage the
affairs of the Company.
In 1996, under direction of the Court, all authorized but unissued shares
were sold to an individual, and the Company emerged from bankruptcy with no
assets, liabilities, and subject to no claims or litigation. In 1997, the
Company name was changed to Innovest Capital Sources Corporation, and
control of the Company was obtained by Intrepid International, S.A., a
Panamanian corporation, through purchase of approximately 85% of the
Company's outstanding shares.
From the date of its emergence from bankruptcy on April 12, 1996 until
December 11, 1998, the date of the acquisition discussed below, the Company
operated as a development stage company. Prior to the acquisition, the
Company had no material amount of assets or liabilities.
REVERSE ACQUISITION
Effective December 11, 1998, the Company completed the acquisition of Nifco
Investments Ltd. (Nifco Investments) and Subsidiaries. The acquisition was
effected by exchanging six million shares of common stock for all
outstanding shares of Nifco Investments. In connection with the
transaction, the stockholders of Nifco Investment obtained control of the
Company; and, accordingly, the transaction is characterized as a reverse
acquisition. However, because the Company had no material amount of assets
or liabilities, the transaction was accounted for as a recapitalization of
Nifco Investments, rather than a business combination. The capital
structure presented in the accompanying financial statements reflects the
capital structure of the Company subsequent to a one for 75 reverse stock
split authorized on October 15, 1998 and the six million shares issued in
connection with the acquisition.
Concurrent with the acquisition, the Company name was changed to
SmartSources.com, Inc., and it adopted the September 30 fiscal year-end of
Nifco Investments.
OPERATIONS
Nifco Investments was incorporated in the province of British Columbia,
Canada in September 1998 for the purpose of holding all outstanding shares
of SmartSources.com Technologies, Inc. ((Technologies), formerly Nifco
Synergy Ltd.); Intelli Trade Corporation (Intelli Trade); Infer
Technologies, Inc. (Infer Technologies); and Origin Software Corporation
(Origin Software).
Technologies is a British Columbia corporation organized in 1990.
Operations are located in Vancouver, British Columbia where it is engaged
in developing and marketing computer and internet-based knowledge
management software. Over the past five years, efforts have focused
primarily on international trade compliance applications, which help
businesses qualify for preferential tariff treatment under the North
American Free Trade Agreement (NAFTA).
Intelli Trade is a British Columbia corporation organized in 1994.
Operations are located in Toronto, Ontario, where it provides international
trade consulting services.
Infer Technologies is a Delaware corporation organized in 1999 to exploit
the Company's knowledge-management applications software known as kServer.
Operations are located in Silicon Valley.
Origin Software is a British Columbia corporation organized in September
1998 to hold the rights to certain software products (see Note 3).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The preceding financial statements are presented in
accordance with U.S. generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
SmartSources.com, Inc. and Subsidiaries include the
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accounts of its direct and indirect wholly-owned subsidiaries: Nifco
Investments, Inc.; SmartSources.com, Technologies, Inc.; Intelli Trade,
Inc.; Infer Technologies, Inc.; and Origin Software Corporation. All
material intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Examples of
estimates subject to possible revision based upon the outcome of future
events include amortization and valuation of capitalized software costs,
depreciation of property and equipment, and income tax liabilities. Actual
results could differ from those estimates.
REVENUE RECOGNITION - The Company recognizes revenue in accordance with
American Institute of Certified Public Accountants Statement of Position
(SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP
97-2 with Respect to Certain Transactions. Revenue from packaged software
products is recognized when shipped. Maintenance and subscription revenue
is recognized ratably over the contract period. Revenue attributable to
significant support is based on the price charged for the undelivered
elements and is recognized ratably over the related product's life cycle.
Revenue from fixed-price service contracts and software development
contracts requiring significant production, modification, or customization
are recognized using the percentage-of-completion method. Revenue from
service contracts that are based on time incurred is recognized as work is
performed.
CASH AND CASH EQUIVALENTS - All highly liquid investments, with a maturity
of three months or less at the time of purchase, are considered to be cash
equivalents.
ACCOUNTS RECEIVABLE - The Company extends credit to customers on an
unsecured basis. Management establishes allowances for doubtful accounts
based on evaluation of historical and current payment trends as well as
consideration of specific collection issues that may require additional
specific allowances.
CAPITALIZED SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS - Costs incurred
prior to establishing the technological feasibility of software products
are charged to research and development expense. Research and development
expense incurred during fiscal 1998 and 1999 was $38,400 and $374,700,
respectively. Costs incurred once technological feasibility has been
established, but prior to release of product to customers, are capitalized
and amortized on a product-by-product basis. Annual amortization is the
greater of the amount computed using (a) the ratio that current gross
revenues for a product bear to total current and estimated future revenues
or (b) the straight-line method over the remaining estimated economic life
of the product. Management periodically compares unamortized costs to net
realizable value and writes off any excess. It is reasonably possible that
estimates of future gross revenues, the remaining economic useful life of
the products, or both will be significantly revised. As a result, the
carrying amount of the capitalized software costs may be reduced materially
in the near term.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
Depreciation is computed using straight-line and accelerated methods over
estimated useful lives of the assets. Estimated useful lives by major asset
category are as follows: Buildings and improvements - 20 years, computer
equipment and software - four to ten years, furniture and fixtures - five
years.
INTANGIBLE ASSETS - Costs of perfecting and protecting patents and
trademarks are capitalized and amortized using the straight-line method
over 20 years. No expense was incurred in 1998. Amortization expense for
1999 was $1,400.
VALUATION OF LONG-LIVED ASSETS - The Company periodically reviews
long-lived assets, including identifiable intangible assets, whenever
events or changes in circumstances indicate that the carrying amount of an
asset may be impaired and not recoverable. Adjustments are made if the sum
of the expected future undiscounted cash flows is less than the carrying
amount.
INCOME TAXES - Income taxes are provided for the tax effect of transactions
reported in the financial statements and consist of taxes currently due
plus deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income tax
purposes. Deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or
deductible when the assets or liabilities are settled. Amounts are computed
using enacted tax rates.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of Canadian
operations, where the functional currency is the local currency, are
translated into U.S. dollars at current exchange rates. Revenues and
expenses are translated using average exchange rates prevailing during the
year. Foreign currency translation adjustments are reported as a component
of accumulated other comprehensive income.
NEW ACCOUNTING STANDARD - In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Among other provisions, SFAS No. 133 requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those financial instruments at fair value.
Accounting for changes in fair value is dependent on the use of the
derivatives and whether such use qualifies as hedging activity. The new
standard, as amended, becomes effective for the Company in fiscal 2001 and
management is currently assessing the impact, if any, it may have on
financial position and results of operations.
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NOTE 3 - CAPITAL STOCK
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 preceding
financial statements reflects the capital structure of the Company
subsequent to a one for 75 stock split authorized on October 15, 1998 and
the six million shares issued in connection with the acquisition discussed
in Note 1. Prior to completion of the acquisition in the first quarter of
fiscal 1999, Nifco Investments, Inc. paid $142,400 of cash dividends to its
majority stockholder. The dividends paid in both 1998 and 1999 were based
on equity as reported under accounting principles generally acceptable in
Canada, which differs substantially from equity as reported under U.S.
generally accepted accounting principles.
During the quarter ended December 31, 1999, the Company issued or was
committed to issue 192,100 shares for total proceeds received of $686,000.
Subsequent to December 31, 1999 the Company was in the process of raising
capital through the issuance of additional shares.
At December 31, 1999, a total of 5,000,000, common shares are reserved to
honor the exchange rights of holders of the Class B preferred shares of the
company's subsidiary, Origin Software, though the number of shares that
will ultimately be issued to honor such rights may be significantly less
than the total shares reserved. Another 2,412,410 common shares are
reserved to honor outstanding stock warrants, grants made under the
Company's stock incentive compensation plan, and the exchange rights of
holders of the Class A preferred shares of Infer Technologies.
Stock Option Incentive Compensation Plan
Effective June 21, 1999, the Company adopted the 1999 Stock Incentive
Compensation Plan (the Plan). Under the Plan, the Company may make grants
of incentive stock options, nonqualified stock options, and stock awards to
employees, officers, directors and consultants of the Company and its
subsidiaries for an amount of common shares equal to 10% of issued and
outstanding shares, not to exceed 550,000 shares. The Company has granted
1,034,000 options, and it is in the process of amending the Plan in order
to ratify the options issued in excess of the amount authorized under the
plan. The exercise price of incentive stock options and nonqualified stock
options can be no less than the fair value of the Company's common stock on
the date of grant. The maximum term of options is ten years; and, unless
otherwise modified by the Plan administrator, they vest over four years.
Options granted to senior management during 1999 vest over two years.
A summary of the status of the Plan at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average
Of Shares Exercise Price
--------- --------------
Options outstanding at December 31, 1999
<S> <C> <C>
Granted 1,094,000 $ 5.50
Exercised - -
Forfeited (60,000) 5.50
Options outstanding at December 31, 1999 1,034,000 $ 5.50
Options exercisable at December 31, 1999 - $ -
</TABLE>
A summary of stock options outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 5.50 1,034,000 4.5 years $ 5.50 - $ -
</TABLE>
The Company applies the provision of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations to account for its
stock-based awards. Accordingly, costs for employee stock options or
issuance of shares is measured as the excess, if any, of the fair value of
the Company's common stock at the measurement date over the amount the
employee must pay to acquire the stock. No compensation expense was
recognized for grants of awards under the Plan
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in the quarter ended December 31, 1999.
STOCK OPTIONS - OTHER
Effective December 15, 1999, the Company issued 200,000 options to purchase
the same number of the Company's common shares as follows: 50,000 shares at
an exercise price of $5.25, 50,000 shares at an exercise price of $6.00,
50,000 shares at an exercise price of $7.50 and 50,000 shares at an
exercise price of $8.00. The options expire on December 14, 2002. The
options were issued at no cost in connection with the Company entering into
a consulting agreement with Continental Capital & Equity Corporation
(Continental). Under the agreement, Continental will assist and advise the
Company with respect to investor relations professional services.
As required by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has applied the fair value method to account for issuance of the
options. The Company used the Black-Scholes option pricing model to compute
estimated fair value of the warrants, based on the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 6.0%
Price volatility 52.5%
Average expected life of options 1.5 years
</TABLE>
Total compensation cost computed for the options issued to Continental is
$188,000. The cost is being recognized ratably over the three-year term of
the options.
NOTE 4 - SUBSEQUENT EVENT
Subsequent to December 31, 1999, the holders of 5 million class B preferred
shares of Origin Software notified the Company of their intention to
convert the class B shares for 457,380 common shares of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31
------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues Earned 212,000 161,600
Gross Profit 158,000 132,600
R&D, exclusive of amortization 254,000 23,000
of Software costs
Sales and Marketing 141,000 55,500
General and Administrative 563,000 72,700
Depreciation and Amortization 142,000 33,300
Other Operating Expenses 1,000 -
Operating Loss (243,000) (51,900)
Other Expenses (11,000) (98,000)
LOSS BEFORE PROVISION FOR INCOME TAXES (954,000) (149,900)
PROVISION FOR INCOME TAXES - 59,900
NET LOSS (954,000) (90,000)
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents 197,000 18,900
Working capital 148,000 (188,000)
Total assets 2,936,000 933,200
Long-term debt, less current portion 433,000 434,000
Total stockholders' equity (1,519,000) (2,448,100)
</TABLE>
OPERATIONS ANALYSIS
During the quarter ended December 31, 1999 the Company had consolidated revenues
of $212,000, cost of sales of $54,000, other operating expenses of $1,101,000
and a net loss of $954,000.
Revenues for the three months ended December 31, 1999 increased 31% as compared
to 1998 revenues for the same period of $161,600. This is the result of initial
revenue from K-server and an increased client base for the International Trade
products and services.
Gross profit is calculated as net sales less the cost of sales, which consists
of salaries and commissions directly related to earned revenues. For the three
months ended December 31, 1999, the gross profit was $158,000, an increase of
19% over gross profits for the same period in the previous year.
Other operating expenses include Research and Development Costs, Sales and
Marketing, General and Administrative, Amortization and Depreciation. The
aggregate of these costs increased significantly in the quarter ended December
31, 1999 as compared to the same period of the previous fiscal year. The
increase is due to a significant increase in staffing levels across all
departments of the Company.
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Research and Development costs for the period totaled $254,000, as compared to
$23,000 for the previous year. This is a direct result of continued costs
incurred in the development of the K-Server line of products, including higher
payroll costs due to the increased number of engineers working on K-server and
the establishment of an engineering office in Silicon Valley.
Sales and Marketing costs increased 154% in the period of analysis, from $55,500
to $141,000, as a result of higher payroll costs associated with more sales,
marketing and support personnel, and increased travel expenses incurred in the
promotion of the Company's lines of products.
General and Administrative Expenses increased significantly from $75,000
incurred in the first quarter of fiscal 1999 to $563,000. The increase is
partially due to higher payroll costs resulting from the addition of three new
senior managers in August 1999. Furthermore, during the period the Company
retained the services of a consulting firm to conduct a detailed business
strategy for the K-Server division. The total cost of this study is reflected in
G&A expenses for the period. The Company also incurred significant professional
fees related to a settlement with the Canada Customs and Revenue Agency. The
settlement relates to a review conducted by the Agency of various software
transactions, including those to which the Company was a party. In January 2000,
the Agency agreed to the terms of the proposed settlement; and, accordingly no
additional tax liability will be incurred with respect to the transactions
referred to above.
Amortization and depreciation costs increased from $31,000 to $142,000 mainly as
a result of the amortization costs for the Origin software acquired in May 1999.
During the quarter ended December 31, 1999 the Company did not incur any costs
related to Administrative Fees. In the first quarter of fiscal 1999 these costs
totaled $38,700. Also in that period, the Company incurred a loss on the sale of
investments (Familyware software) of $48,400. No such losses were incurred in
the quarter ending December 31, 1999.
In the period of analysis, the Company's interest expense decreased marginally
by $1,400 due to the reduced long-term debt levels of the company.
As a result of the marginal increase in revenues and significant increase in
operating expenses, the Company had a net loss of $954,000 in the quarter ended
December 31, 1999. In December 31, 1998 the Company reported a net loss of
$90,000 ($149,900 loss before a provision for income taxes of ($59,900)).
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY:
During the quarter ended December 31,1999, the Company's cash position increased
slightly from $164,200 to $197,000. At December 31,1999, the Company had a
working capital of $147,300 and a current ration of 1.4 to 1. The working
capital position is down slightly as compared to the balance at September
30,1999 when the Company's working capital was $166,800 and a current ratio of
1.6 to 1. The Company maintained its working capital position through the
issuance of additional equity capital during the quarter.
The net loss for the three months ended December 31,1999 was $954,000 as
compared to a net loss of $90,000 for the three months ended December 31,1998.
The Company's primary source of liquidity and cash during the quarter was from
the issuance of equity capital. During the quarter, the Company completed equity
financing that resulted in gross proceeds of approximately $686,000. As a result
of the financing, the number of common shares issued and subscribed to during
the quarter increased from 11,563,200 to 11,755,300.
The Company's ability to fund future operations is dependent upon the generation
of new sales and the raising of additional financing. The Company continued its
plan to diversify its revenue base and reposition its operations to take
advantage of the knowledge management software market. The Company plans to
raise additional equity or debt capital in fiscal 2000 in order to meet cash
flow requirements and carry out its intended business plan. Subsequent to
December 31,1999 the Company had secured additional equity
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capital of approximately $500,000. The Company has also entered into discussions
with a number of investors with the intention of raising an additional $3 to $5
million in either debt or equity capital before the end of the quarter ended
March 31,2000.
There are no legal or practical restrictions on the ability of the subsidiaries
to transfer funds to the parent company (Smartsources.com Inc.)
MATERIAL COMMITMENTS:
The Company has not undertaken any material commitments for expenditures as of
December 31,1999.
TRENDS OR UNCERTAINTIES:
There are no known trends or uncertainties that will have a material impact on
revenues.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended December 31,1999 the Company issued an aggregate of
192,100 common shares to certain accredited investors. In November 1999, 177,100
shares were sold at a price of $3.45 per share for gross proceeds of $611,000
and in December 1999 15,000 shares were sold at a price of $5.00 per share for
gross proceeds of $75,000.
There were no underwriters involved in these transactions. The sales were made
in reliance upon the exemption from registration afforded by Section 4(2) of the
1933 Act and Rule 506 of Regulation D thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS
(11) Computation of per share earnings
(27) Financial Data Schedule
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: February 9, 2000 By: /s/ Nathan Nifco
----------------- -----------------------------------------
Chairman and C.E.O.
12
<PAGE> 1
Exhibit 11
EARNING PER SHARE
The numerator and denominator of basic and diluted earnings per share are
as follows:
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1999
------------- -------------
<S> <C> <C>
Numerator - Net loss as reported (90,000) ($954,000)
Denominator - Weighted average number of shares outstanding 6,688,300 11,563,700
Effect of dilutive securities - -
Dilutive weighted average number of shares outstanding 6,388,300 11,563,700
Basic earnings (loss) per share ($0.01) ($0.08)
Diluted earnings (loss) per share ($0.01) ($0.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 197,000
<SECURITIES> 0
<RECEIVABLES> 231,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 553,000
<PP&E> 1,083,590
<DEPRECIATION> 325,298
<TOTAL-ASSETS> 2,936,000
<CURRENT-LIABILITIES> 405,000
<BONDS> 0
0
3,520,049
<COMMON> 2,507,000
<OTHER-SE> (4,026,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,936,000
<SALES> 212,000
<TOTAL-REVENUES> 212,000
<CGS> 54,000
<TOTAL-COSTS> 1,101,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> (954,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (954,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (954,000)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
