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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 March 31, 2000
---------------------------------------------
[ ] 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: 12,312,963 shares of Common
Stock
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
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.
The March 31, 2000 condensed consolidated financial statements included in this
filing on Form 10-Q have been reviewed by Moss Adams LLP, independent certified
public accountants, in accordance with established professional standards and
procedures for such review. The report of Moss Adams LLP commenting upon their
review accompanies the condensed financial statements included in Item 1 of
Part I.
<PAGE> 3
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
SmartSources.com, Inc.
We have reviewed the consolidated condensed financial statements of
SmartSources.com, Inc. and Subsidiaries as of March 31, 2000 and for the three
and six months then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1999 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein), and in our report dated
March 14, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of September 30, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/S/ MOSS ADAMS LLP
Bellingham, Washington
May 10, 2000
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SMARTSOURCES.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
March 31, 2000
Sept. 30, 1999 Unaudited
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 164,200 $ 4,326,000
Trade accounts receivable, net ................... 184,800 369,000
Prepaid expenses ................................. 12,300 35,000
----------- -----------
Total current assets .................... 361,300 4,730,000
CAPITALIZED SOFTWARE COSTS and PURCHASED SOFTWARE
RIGHTS, net..................................... 1,550,500 1,386,000
PROPERTY AND EQUIPMENT, net ...................... 764,300 808,000
OTHER ASSETS ..................................... 33,300 154,000
----------- -----------
TOTAL ASSETS ............................ $ 2,709,400 $ 7,078,000
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILIITES
Accounts payable and accrued liabilities ......... $ 140,000 $ 230,000
Income tax payable ............................... 78,300 79,000
Current portion of long-term debt ................ 58,700 47,000
----------- -----------
Total current liabilities ............... 277,000 356,000
LONG-TERM LIABILITIES
Due to stockholder ............................... 24,700 19,000
Interest payable ................................. -- 33,000
Long-term debt, net of current portion ........... 414,800 3,786,000
Deferred tax liability ........................... 64,200 69,000
----------- -----------
Total liabilities ....................... 780,700 4,263,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST ................................ 3,441,100 --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 11,563,200 and 50 million shares.... 1,821,300 9,645,000
Authorized, 12,312,963 shares outstanding at
September 30, 1999 and March 31, 2000
respectively
Accumulated other comprehensive income ........... 124,500 133,000
Accumulated deficit .............................. (3,210,700) (6,488,700)
Deferred compensation ............................ (247,500) (474,300)
----------- -----------
Total stockholders' equity (deficit)..... (1,512,400) 2,815,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)...................................... $ 2,709,400 $ 7,078,000
</TABLE>
See accompanying notes to these consolidated financial statements.
2
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SMARTSOURCES.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED
Quarter and Six months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------ ------------------------------
MARCH 31, 1999 MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 2000
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES EARNED ...................... $ 188,500 $ 427,200 $ 350,100 $ 639,000
COST OF SALES ........................ 20,200 46,200 49,500 99,700
---------- ---------- ---------- ----------
GROSS PROFIT ......................... 168,300 381,000 300,600 539,300
OTHER EXPENSES, EXCLUSIVE OF
DEPRECIATION AND AMORTIZATION
Research & Development............. 62,000 243,200 85,200 497,000
Sales and Marketing ............... 101,000 231,900 156,300 372,600
General and Administrative ........ 240,900 563,200 352,500 1,127,700
---------- ---------- ---------- ----------
403,900 1,038,300 594,000 1,997,300
---------- ---------- ---------- ----------
OPERATING LOSS BEFORE DEPRECIATION AND
AMORTIZATION ....................... (235,600) (657,300) (293,400) (1,458,000)
Depreciation and amortization ........ 42,000 141,400 72,900 283,700
---------- ---------- ---------- ----------
OPERATING EARNINGS (LOSS) ............ (277,600) (798,700) (366,300) (1,741,700)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Realized gain (loss) on investments -- -- (48,800) --
Interest income ................... -- 35,600 -- 35,600
Interest expense .................. (11,400) (1,646,700) (23,800) (1,657,600)
---------- ---------- ---------- ----------
(11,400) (1,611,100) (72,600) (1,622,000)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ....................... (289,000) (2,409,800) (438,900) (3,363,700)
PROVISION FOR (BENEFIT FROM) INCOME
TAXES............................... 80,200 (85,700) 20,200 (85,700)
---------- ---------- ---------- ----------
NET INCOME (LOSS) .................... $ (369,200) $(2,324,100) $ (459,100) $(3,278,000)
---------- ---------- ---------- ----------
Basic earnings (loss) per share ...... $ (0.05) $ (0.19) $ (0.07) $ (0.28)
Diluted earnings (loss) per share .... $ (0.05) $ (0.19) $ (0.07) $ (0.28)
Weighted average common share
outstanding (basic and diluted)..... 6,688,300 12,143,400 6,688,300 11,898,500
</TABLE>
See accompanying notes to these consolidated financial statements.
3
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SMARTSOURCES.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Six months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
March 31, 1999 March 31, 2000
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<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net Income (Loss) ............................... $ (459,100) $(3,278,000)
Adjustments to reconcile net income (loss) to
net cash from operating activities
Depreciation and amortization ................... 72,900 283,700
Loss on disposal of assets ...................... 48,800 --
Stock-based compensation ........................ -- 144,700
Realized gains (losses) on sale of investments .. (7,200) --
Accrued interest expense from long-term debt .... -- 30,200
Accrued interest expense from intrinsic
value of conversion feature of long-term debt -- 1,604,300
Changes in operating assets and liabilities
Trade accounts receivable ....................... 226,900 (181,200)
Other assets .................................... (14,100) (126,000)
Accounts payable and other current liabilities .. 64,800 94,200
Administrative fees payable ..................... 39,000 --
Income taxes payable and refundable ............. (7,000) --
Sale deposit .................................... (98,700) --
----------- -----------
Net cash flows from operating activities ..... (133,700) (1,428,100)
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment .............. (39,500) (50,700)
Purchase of capitalized software ................ -- (60,700)
Refund of deposit on property and equipment ..... -- 16,000
Proceeds from sale of Familyware ................ 163,200 --
Proceeds from sale of investments ............... 17,400
----------- -----------
Net cash flows from investing activities ..... 141,100 (95,400)
CASH FROM FINANCING ACTIVITIES
Repayment of note payable, net .................. (13,800) --
Principal repayments of long-term debt .......... (32,000) (34,000)
Principal repayments of capital lease obligations -- (5,400)
Repayment of advances from stockholder .......... (97,300) (5,500)
Proceeds from long-term debt and stock warrants.. 4,552,000
Proceeds from issuance of common stock .......... 300,000 1,184,200
Dividends ....................................... (140,300) --
----------- -----------
Net cash flows from financing activities ..... 16,600 5,691,300
EFFECT OF CHANGES IN EXCHANGE RATES ................ (500) (6,000)
----------- -----------
NET CHANGE IN CASH ................................. 23,500 4,161,800
CASH AND CASH EQUIVALENTS, beginning of period ..... 1,700 164,200
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ........... $ 25,200 $ 4,326,000
Supplemental disclosure of Cash Flow information:
Interest paid ................................ $ 23,800 $ 23,200
Income taxes paid (received) ................. $ 19,000 $ (85,700)
</TABLE>
See accompanying notes to these consolidated financial statements.
4
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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 accounts of its direct
and indirect wholly-owned subsidiaries: Nifco Investments, Inc.;
SmartSources.com, Technologies, Inc.;
5
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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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UNAUDITED INTERIM FINANCIAL STATEMENTS - The accompanying unaudited
condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial reporting and in accordance with the instructions for Form 10-QSB
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures normally required by generally accepted
accounting principles for complete financial statements or those normally
reflected in the Company's Annual Report on Form 10-KSB. The financial
information included herein reflects all adjustments (consisting of normal
recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation of results for interim periods. Results of interim
periods are not necessarily indicative of the results to be expected for a
full year.
NOTE 3 - LONG-TERM DEBT AND PRIVATE PLACEMENT
LONG-TERM DEBT -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, March 31, 1999
1999 2000
------------- --------------
<S> <C> <C>
Convertible debentures, interest at 7% payable at maturity or upon
conversion or redemption, due February 2005, see further
description below ............................................ $ -- $ 3,326,300
Capital lease obligations payable in aggregate monthly installments of
$4,580, including imputed interest at rates ranging from 9.7% to 11.94%,
due at dates from November 1999 to March 2003 ........................... -- 63,500
Note payable to a Canadian bank in monthly installments of $4,400 plus
interest at prime plus 1.25%, collateralized by general assets of
Technologies, due August 2000 ........................................... 44,400 18,000
Mortgage payable to a Canadian bank in monthly installments of $1,700
including interest at 8.75%, collateralized by real estate of Technologies
and assignment of rents, guaranteed by the majority stockholder, due in
2011 .................................................................... 155,500 153,500
Mortgages payable to two Canadian finance companies in aggregate monthly
installments of $2,200, including interest at rates of 7% and 9%,
collateralized by real estate of Technologies and guaranteed by the
majority stockholder, due January 2001 and June 2002 .................... 273,600 271,700
----------- -----------
Total debt ............................................................... 473,500 3,833,000
Less current portion ..................................................... (58,700) (47,000)
----------- -----------
Long-term portion ........................................................ $ 414,800 $ 3,786,000
=========== ===========
Long-term debt matures as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
2000........................... $ 47,000
2001........................... 51,600
2002........................... 55,700
2003........................... 60,200
2004........................... 65,800
Thereafter........................ 3,505,700
----------
$3,786,000
</TABLE>
PRIVATE PLACEMENT OF CONVERTIBLE DEBENTURES AND WARRANTS -
On February 24, 2000, the Company issued $5 million of convertible
debentures and detachable stock purchase warrants. The debentures mature in
February 2005 and bear interest at 7%, which is payable upon maturity, or
upon conversion or redemption. The detachable warrants entitle holders to
purchase 330,000 shares of the Company's common stock over a five-year term
at an exercise price of $11.10 per share.
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In connection with issuing the debentures and warrants, the Company paid
$325,000 of placement fees, $93,000 of legal costs, and $30,000 to the
holders of the debentures for reimbursement of a portion of their legal
costs. The Company also issued 25,000 warrants in lieu of placement fees.
The warrants entitle the holders to purchase an equal number of shares of
common stock at a price of $11.10 per share. The term of the 25,000
warrants is two years.
Concurrent with placing the debentures and warrants, the Company entered
into a Registration Rights Agreement (the Registration Agreement) with the
holders of the debentures. The Registration Agreement requires that the
Company file a registration statement with the Securities and Exchange
Commission by March 24, 2000 to register the shares of common stock that
may be acquired upon conversion of the debentures.
The debentures are convertible in whole or in part into common stock any
time before maturity at a conversion price that floats with the market
price of the stock, not to exceed a fixed conversion price of $9.71. After
August 24, 2000, if the debentures are submitted for conversion and the
conversion price is below $9.71, the Company has the right to redeem the
debentures for cash at an amount equal to the value of the converted
shares. For each share of common stock issued upon conversion, the holders
of the debentures have the option to purchase one additional share at the
fixed conversion price of $9.71. The number of shares issued upon
conversion of the debentures and exercise of the additional purchase option
is limited in that the total number of shares beneficially owned by the
holders of the debentures and their affiliates may not exceed 4.9% of
outstanding common shares. Any issuance of shares in excess in of this
limitation must be approved by a majority of the Company's common
stockholders.
In the event that certain circumstances pertain, including without
limitation the following, the conversion price will be adjusted downward:
1. The Company's common stock is not listed on the American Stock
Exchange or the Nasdaq Small Cap Market by October 24, 2000 or on the
Nasdaq National Market by February 24, 2001.
2. The Company is in default of the requirements of the Registration
Agreement.
In the event the Company fails to comply with certain terms of the
debentures, holders may elect for the debentures to be redeemed for cash at
an amount equal to 120% of the conversion price that would otherwise apply,
plus interest and default payments. If the rules of the National
Association of Securities Dealers (NASD) apply, in the event the number of
shares to be issued upon conversion exceeds 20% of shares outstanding at
the time the debentures were issued, the Company must obtain stockholder
approval to issue shares in excess of this limit. If stockholder approval
is not obtained, the debentures underlying the shares in excess of the 20%
limit would become redeemable for cash.
A total of $1,330,000 of the $5,000,000 gross proceeds from the private
placement was allocated to the detachable stock warrants, based upon the
relative fair value of the warrants and the debentures. The value ascribed
to the warrants was recorded as a debt discount and an increase in common
stock. The debt discount is recognized as interest expense over the
five-year term of the debentures using the effective interest method.
Total issue costs, including the fair value of stock warrants issue in lieu
of finder's fees, were $502,300, of which $368,700 was allocated to the
debentures and $133,600 was allocated to the detachable warrants. The
portion of the issue costs attributable to the debentures was recorded as
an offset against the gross proceeds allocated to the debentures and is
being amortized over the five-year term of the debt using the effective
interest method. The portion of the costs attributable to the warrants was
recorded as an offset against the gross proceeds allocated to the warrants.
At the date of issue, the conversion price of the debentures was less than
the fair value of the Company's common stock. The intrinsic value of this
conversion feature was $1,575,800, which was recorded as a charge to
interest expense and an increase to common stock.
NOTE 4 - CAPITAL STOCK
COMMON STOCK - The Company has a single class of common stock. Authorized
shares total 50 million. During the three months ended March 31, 2000, the
Company issued 100,300 shares for total proceeds of $498,200. During the
remainder of the six months ended March 31, 2000, the Company issued
another 192,100 shares for total proceeds of $686,000.
At March 31, 2000, a total of 3,732,700 common shares are reserved to honor
the conversion rights, investments options, and stock purchase warrants
issued in connection with the private placement described in Note 3.
Another 5,610,000 common shares are reserved to honor other outstanding
stock warrants and grants made under the Company's stock incentive
compensation plan.
EXCHANGE OF CLASS B REDEEMABLE, EXCHANGEABLE PREFERRED STOCK OF ORIGIN
SOFTWARE CORPORATION-
On February 15, 2000, the Company issued 457,400 shares of common stock to
Columbia Diversified Software Fund Limited Partnership (Columbia) in
exchange for 5 million shares of Class B redeemable, exchangeable preferred
stock of the Company's subsidiary, Origin Software. As a result of the
exchange, minority interest decreased by $3,407,000, and common stock
increase by the same amount.
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As described in Note 7, subsequent to March 31, 2000, Columbia has
contended that the Company has not performed in accordance with the Share
Exchange Agreement governing the exchange of shares.
ACQUISITION OF CLASS A PREFERRED STOCK OF INFER TECHNOLOGIES, INC. --
In July 1999, the Company's subsidiary, Infer Technologies, entered into a
subscription agreement to sell its chief engineer all shares of Infer
Technologies' Class A preferred stock for $0.01 per share. Holders of the
shares have the right to exchange each preferred share for approximately 18
shares of the Company's common stock. The subscription rights accrued
ratably over 24 months at 312.5 shares per month. As the rights accrue, the
Company recognizes stock-based compensation using the intrinsic value
method, based on the difference between the $0.01 sales price and the
market value of the 18 shares of common stock of the Company for which each
preferred share can be exchanged. Through December 31, 1999, the Company
recognized $113,000 of stock-based compensation related to this
arrangement.
Effective January 1, 2000, the Company and the employee canceled the
agreement and the Company acquired all outstanding Class A preferred shares
of its subsidiary in exchange for agreeing to issue the employee 300,000
stock options. The exercise price of the options committed to be awarded
will approximate the fair value of the Company's shares on the grant date.
As a result of the cancellation of the agreement and acquisition of the
subsidiary's preferred shares, minority interest decreased by $113,000 and
common stock increased by the same amount. No gain or loss was recognized
as a result of the Company acquiring the subsidiary's preferred shares.
STOCK WARRANTS --
During the three months ended March 31, 2000, in conjunction with the
private placement of convertible debentures described in Note 3, the
Company issued detachable stock purchase warrants that allow holders to
purchase 330,000 of the Company's common stock for $11.10 per share. The
term of the warrants is five years. A total of $1,330,000 of the $5,000,000
gross proceeds from the private placement was allocated to the detachable
stock warrants, based on the relative fair value of the warrants and the
debentures. The value ascribed to the warrants was recorded as a debt
discount and an increase in common stock.
In connection with the private placement, the Company issued additional
warrants, in lieu of finder's fees, to purchase another 25,000 shares of
common stock at $11.10 per share. The term of 21,300 of the warrants is
five years; the term of the other 3,700 warrants is two years. The fair
value of the stock warrants was allocated between the convertible
debentures and detachable stock warrants and recorded as an offset against
the gross proceeds received for the securities.
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 4,000,000 shares. The Company has granted
1,819,000 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 March 31, 2000 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average
Of Shares Exercise Price
--------- --------------
<S> <C> <C>
Options outstanding at March 31, 2000
Granted ................................ 919,000 $ 5.50
Exercised .............................. 890,000 7.09
Forfeited .............................. (105,000) 5.86
Options outstanding at March 31, 2000 ..... 1,704,000 $ 6.51
Options exercisable at March 31, 2000 ..... -- $ --
</TABLE>
A summary of stock options outstanding at March 31, 2000 is as follows:
9
<PAGE> 12
<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 to $10.25 1,704,000 4.3 years $6.51 -- $ --
</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 in the quarter ended March
31, 2000.
STOCK OPTIONS -- OTHER
1.
During the six months ending March 31, 2000 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.
2.
In January 2000 the Company issued 100,000 options to purchase the same
number of the Company's common shares at an exercise price of $5.50. The
options expire on January 2002 and were issued at no cost in connection
with the Company entering into a consulting agreement with Peter Sanders
under which Mr. Sanders will assist and advise the Company in 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 33.7%
Average expected life of options 1.5 years
</TABLE>
Total compensation cost computed for the options issued to Peter Sanders is
$105,000. The cost is being recognized ratably over the two-year term of
the options.
NOTE 5 -- NON-CASH TRANSACTIONS
As described in Note 4, during the three months ended March 31, 2000, the
holder of the Class B preferred shares of the Company's subsidiary, Origin
Software Corporation, exchanged the preferred shares for 457,400 shares of
the Company's common stock. In addition, the Company acquired 1,600 shares
of Class A preferred stock of its subsidiary, Infer Technologies, Inc., in
connection with an employee compensation arrangement. As a result of these
transactions, a total of $3,520,000 of minority interests was reclassified
as common stock.
During the six months ended March 31, 2000, the Company also acquired
$21,000 of equipment under capital lease agreements. In connection with its
entering into the lease agreements, the Company refinanced $6,000 of trade
accounts payable.
NOTE 6 -- SEGMENT INFORMATION
10
<PAGE> 13
SEGMENT INFORMATION --
The Company's primary operations consist of the development and sale of
trade compliance software products to entities subject to the North
American Free Trade Agreement and the development and implementation of
internet-based content management software. Other services include
international trade consulting. Management assesses the operations of its
software sales and development activities and its consulting activities as
separate segments. The following tables and schedules summarize certain
information about these segments.
<TABLE>
<CAPTION>
Software Sales
and Development
-------------------------- International
International Trade
Trade kServer Consulting Total
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Three months ended March 31,
1999
External revenues .............. $ 30,800 $ 71,700 $ 86,000 $ 188,500
Intersegment revenues .......... -- -- -- --
Segment income (loss) before tax ($ 251,800) -- ($ 29,200) ($ 222,600)
Segment assets ................. $ 726,600 -- $ 96,000 $ 822,600
2000
External revenues .............. $ 26,900 $ 258,000 $ 142,300 $ 427,200
Intersegment revenues .......... -- -- -- --
Segment income (loss) before tax ($ 184,100) ($ 25,000) $ 36,000 ($ 173,100)
Segment assets ................. $1,872,500 $ 542,500 $ 148,500 $2,563,500
Six months ended March 31,
1999
External revenues .............. $ 62,400 $ 71,700 $ 184,500 $ 318,600
Intersegment revenues .......... $ 31,500 $ 31,500
Segment income (loss) before tax ($ 423,200) -- $ 50,700 ($ 372,500)
Segment assets ................. $ 726,600 -- $ 96,000 $ 822,600
2000
External revenues .............. $ 91,000 $ 292,000 $ 256,000 $ 639,000
Intersegment revenues .......... -- -- -- --
Segment income (loss) before tax ($ 322,800) ($ 305,000) 68,700 ($ 539,100)
Segment assets ................. $1,872,500 $ 542,500 $ 148,500 $2,563,500
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31,
1999 2000
------------ ------------
<S> <C> <C>
Total income (loss) before tax for reportable segments..... ($ 222,600) ($ 173,100)
Corporate headquarters expenses............................ ($ 66,400) ($2,236,700)
Consolidated total......................................... ($ 289,000) ($2,409,800)
</TABLE>
<TABLE>
<CAPTION>
Six months ended March 31,
1999 2000
------------ ------------
<S> <C> <C>
Total income (loss) before tax for reportable segments..... ($ 372,500) ($ 559,106)
Corporate headquarters expenses............................ ($ 66,400) ($2,804,600)
Consolidated total......................................... ($ 438,900) ($3,363,700)
</TABLE>
NOTE 7 -- CONTINGENCIES
CANADIAN TAX IMPLICATIONS OF SALE AND PURCHASE OF SOFTWARE RIGHTS --
During 1995 and 1996, the Company's subsidiary, Technologies, sold the
rights to its primary software product to Columbia Diversified Software
Fund Limited Partnership (Columbia). During 1999, another of the Company's
subsidiaries, Origin Software, repurchased these rights. During the same
time frame, Technologies purchased and sold an interest in certain other
software rights. These transactions all included a significant noncash
component that employed the issuance, receipt, and settlement of long-term
promissory notes. Although these notes were not recognized for financial
reporting purposes, they did increase significantly the value assigned to
the software rights in question for tax reporting purposes in Canada.
11
<PAGE> 14
Revenue Canada has been reviewing various software transactions, including
those to which Technologies was a party. In October 1999, the Company
submitted a proposed settlement to Revenue Canada that would limit the
amount of tax it must pay on the net gain from these transactions to the
net amount of cash received. Effective January 7, 2000, Revenue Canada
agreed to the terms of the settlement; and, as a result, during the three
months ended March 31, 2000, the Company received an $85,700 Canadian
federal income tax refund.
EXCHANGE OF CLASS B PREFERRED SHARES OF ORIGIN SOFTWARE --
In connection with the repurchase of certain software rights from Columbia
Diversified Software Fund Limited Partnership (Columbia), the Company's
subsidiary, Origin Software, issued 5 million shares of Class B preferred
stock. Concurrent with the issuance of the preferred shares, Origin
Software and the Company entered into a Share Exchange Agreement (the
Agreement) with Columbia. Under the Agreement, subsequent to October 1,
1999, Columbia has the right to exchange all or part of the Class B
preferred shares for an amount of common shares of the Company with market
value of Cdn $5 million (not to exceed 5 million common shares reserved for
the exchange), based on average trading price during the fourteen-day
period immediately prior to exercise. Common shares issued are to be
"freely tradable," but 80% of the shares will be held in trust and released
ratably to Columbia over the following four years.
On January 26, 2000, Columbia notified the Company that it wished to
exercise its exchange rights; and, on February 15, 2000, the Company issued
457,400 shares of common stock to Columbia in exchange for the 5 million
Class B preferred shares.
Columbia has subsequently contended that the Company has not performed in
accordance with the Share Exchange Agreement as a result of its issuing
shares that are currently restricted from resale on the NASD
Over-the-Counter Bulletin Board. The Company is in the process of filing a
registration statement on Form SB-2 with the Securities and Exchange
Commission, in part, to allow the shares held by Columbia to be traded.
Management believes it is not in the best interests of Columbia to delay or
impede the registration process by undertaking legal action, which might
erode the value of the shares currently held by Columbia. However, the
possibility exists that the Company may ultimately issue additional shares
to Columbia to settle the matter, though at present management is unable to
estimate how many shares this may be.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS ANALYSIS
During the quarter ended March 31,2000 we had consolidated revenues of $427,200
operating expenses of $1,038,300 and a net loss before interest and depreciation
of $657,300. For the six months ending March 31,2000, revenues were $639,000,
operating expenses were $1,997,300 and the net loss before depreciation,
amortization and interest was $1,458,000.
Revenues for the three months ended March 31, 2000 increased 127% as compared to
1999 revenues for the same period, which totaled $188,500. The increase is a
result of new revenues generated by kServer(TM) launched during the current
fiscal year and an increased client base for the International Trade products
and services. A kServer(TM) contract entered into with the Government of Canada
was the main contributor to the increase in revenues. The Company has not
recognized any revenue from the Uniglobe contract as of March 31,2000.
Operating expenses include research and development, sales and marketing, and
general and administrative expenses. The aggregate of these costs increased
considerably as compared to the previous period. The increase was due to a
significant increase in staffing and activity levels across all our departments.
Research and development costs for the three months ended March 31, 2000 totaled
$243,200 as compared to $62,000 for the same period in the previous fiscal year.
This was a direct result of continued costs incurred in the development of the
kServer(TM) line of products, including higher payroll costs due to the
increased number of engineers working on kServer(TM) and the establishment of an
engineering office in California.
12
<PAGE> 15
Sales and marketing costs increased 130% during the quarter, from $101,000 to
$231,900 as a result of higher payroll expense and costs associated with more
sales, marketing and support personnel, and increased travel expenses incurred
in the promotion of our lines of products.
General and Administrative expenses increased 134%, from $240,900 to $563,200.
The increase was partially due to higher payroll costs resulting from the
addition of three new senior managers in August 1999. Furthermore, travel
expense, shareholder relations costs and professional fees all increased as
compared to the previous year.
Amortization and depreciation costs increased from $42,000 to $141,400, mainly
as a result of the amortization costs for the ORIGIN(TM) software acquired in
May 1999.
Interest expense for the three months ending March 31, 2000 was $1,646,700, a
significant increase as compared to previous years period. The increase was
primarily due to the fact that at the date of issue of the convertible
debenture, the conversion price of the debentures was less than the fair value
of the Company's common stock. The intrinsic value of this conversion feature
was determined to be $1,575,800 and was recorded as a charge to interest expense
and an increase to common stock.
Net loss during the quarter was $2,324,100. In the quarter ended March 31,1999,
we reported a net loss of $369,200. The increase in the net loss was primarily
due to higher interest expense and an increase in operating costs.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY:
On March 31, 2000, our cash and cash equivalent balance totaled $4,326,000. This
is a significant increase in cash as compared to the September 30, 1999 cash
position of $164,200. The increase resulted from the issuance on February 24,
2000, of convertible debentures in the aggregate principal amount of $5,000,000.
The debentures bear interest at a rate of 7% per annum commencing February 24,
2000 and mature on February 24, 2005. The principal amount of the debentures
(plus all accrued interest and any additional amounts owed) is convertible, in
whole or in part, at the option of the holders, into shares of Common Stock. In
connection with this issuance, we paid a placement fee of $325,000 and issued
25,000 warrants.
A total of $1,330,000 of the $5,000,000 gross proceeds from the private
placement was allocated to the detachable stock warrants, based upon the
relative fair value of the warrants and the debentures. The value ascribed to
the warrants was recorded as a debt discount and an increase in common stock.
The debt discount is recognized as interest expense over the five-year term of
the debentures using the effective interest method.
Total issue costs, including the fair value of stock warrants issued in lieu of
finder's fees, were $502,300, of which $368,700 was allocated to the debentures
and $133,600 was allocated to the detachable warrants. The portion of the issue
costs attributable to the debentures was recorded as an offset against the gross
proceeds allocated to the debentures and is being amortized over the five-year
term of the debt using the effective interest method. The portion of the costs
attributable to the warrants was recorded as an offset against the gross
proceeds allocated to the warrants.
At the date of issue, the conversion price of the debentures was less than the
fair value of the Company's common stock. The intrinsic value of this conversion
feature was $1,575,800, which was recorded as a charge to interest expense and
an increase to common stock.
On March 31, 2000, the Company had a working capital of $4,374,000 and a current
ratio of 13.3 to 1. The working capital position has increased significantly as
compared to the balance at September 30, 1999 when working capital was $84,300
with a current ratio of 1.3 to 1. The current working capital position was
achieved through the issuance of additional equity capital during the six months
ended March 31, 2000 for gross proceeds of approximately $1,184,000 and the
issuance of convertible debentures in the aggregate principal amount of
$5,000,000.
13
<PAGE> 16
Investing activities during the six months ended March 31, 2000 have consisted
primarily of purchases of property and equipment, principally computer hardware
and software. Capital expenditures, including those under capital leases,
totaled $46,600 in 1998, $139,500 in 1999 and $100,400 in the six months ended
March 31,2000. We expect that capital expenditures will increase with our
anticipated growth in operations, infrastructure and personnel.
To date, we have not invested in derivative securities or any other financial
instruments that involves a high level of complexity or risk. We expect that in
the future, cash in excess of current requirements will continue to be invested
in high credit-quality, interest-bearing securities.
We believe that the net proceeds of the debentures, together with cash and cash
equivalents, will be sufficient to meet our working capital requirements for at
least the next 12 months. Thereafter, we may require additional funds to support
our working capital demand or for other purposes and may seek to raise
additional funds through public or private equity financings or from other
sources. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results.
There are no legal or practical restrictions on the ability of the subsidiaries
to transfer funds to the parent company (Smartsources.com Inc.)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal quarters
beginning with the quarter ending December 31, 2000. SFAS No.133 establishes
accounting and reporting standards for derivative instruments, including other
contracts, and for hedging activities. We will adopt SFAS No. 133 in the quarter
ending December 31, 2000 and do not expect its adoption to have an impact on our
results of operations, financial position or cash flows.
MATERIAL COMMITMENTS:
The Company has not undertaken any material commitments for expenditures as of
March 31, 2000.
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
14
<PAGE> 17
In January 2000, the Company issued 99,605 shares of common stock at $5.00 per
share to six private investors for cash in the aggregate amount of $498,025.
In February 2000, the Company exchanged 457,380 shares of common stock for
5,000,000 shares of Class B Preferred Stock of Origin Software Corporation, a
subsidiary of the Company, held by Columbia Diversified Software Fund Limited
Partnership (the "Partnership"). The preferred shares wee originally issued in
October 1999 in connection with the repurchase of certain software rights from
the Partnership.
In February 24, 2000 the Company issued convertible debentures in the aggregate
principal amount of $5,000,000. These debentures are convertible in whole or in
part, at the option of the holders, into shares of common stock.
There were no underwriters involved in these transactions. A placement fee of
$325,000 and 25,000 warrants were issued in connection with the issuance of the
convertible debenture. 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.
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: May 12, 2000 By: /s/ Nathan Nifco
- -------------------- ---------------------------------------
Chairman and C.E.O.
15
<PAGE> 1
Exhibit 11
EARNING PER SHARE
The numerator and denominator of basic and diluted earnings per share are
as follows:
<TABLE>
<CAPTION>
Six months ended
-------------------------------
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Numerator - Net loss as reported............................ (459,100) ($3,269,225)
Denominator - Weighted average number of shares outstanding.. 6,688,300 11,898,500
Effect of dilutive securities -- --
Dilutive weighted average number of shares outstanding.... 6,688,300 11,898,500
Basic earnings (loss) per share.............................. ($0.07) ($0.28)
Diluted earnings (loss) per share............................ ($0.07) ($0.28)
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 4,326,000
<SECURITIES> 0
<RECEIVABLES> 369,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,730,000
<PP&E> 1,091,700
<DEPRECIATION> 283,700
<TOTAL-ASSETS> 7,078,000
<CURRENT-LIABILITIES> 356,000
<BONDS> 0
0
0
<COMMON> 9,645,000
<OTHER-SE> (6,830,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,078,000
<SALES> 639,000
<TOTAL-REVENUES> 639,000
<CGS> 99,700
<TOTAL-COSTS> 1,997,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,657,600
<INCOME-PRETAX> (3,363,700)
<INCOME-TAX> 85,700
<INCOME-CONTINUING> (3,278,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,278,000)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
