<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED March 31, 2000
ZEROS & ONES, INC.
(Exact Name of Registrant as specified in its Charter)
COMMERCIAL LABOR MANAGEMENT, INC.
(Former Name: Change Effective July 1, 1999)
Nevada 88-0241079
--------- -------------
(State or other Jurisdiction of I.R.S.Employer
Incorporation or Organization Identification No.)
39 E. Walnut St., Pasadena, California 91103
--------------------------------------------
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (626) 584-4040
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days.
Yes No
X
---------- ------
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock
Common Stock, $.001 par value 23,441,070
------------------------------- ---------
Title of Class Number of Shares Outstanding
at May 15, 2000
<PAGE>
PART 1 - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1 Financial Statements (unaudited)
The following financial statements are furnished:
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000................1
STATEMENT OF INCOME AND OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND 1999............................................................2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999..................................................3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE
MONTHS ENDED MARCH 31, 2000..............................................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................6
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 2000
--------------
<S> <C>
Current assets:
Cash $ 7,107,207
-------------
Total current assets 7,107,207
-------------
Property and equipment, net of
accumulated depreciation and amortization 69,933
Intangible asset, net of
accumulated amortization 176,376
Other assets:
Software development costs 147,588
Other assets 50,000
-------------
$ 7,551,104
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 723,934
Current portion of obligations under capital lease 20,620
-------------
Total current liabilities 744,554
-------------
Obligations under capitalized leases, less current maturities 29,043
Stockholders' equity:
Preferred stock, $.001 par value --
2,000,000 shares authorized, 0 shares issued
and outstanding
Common stock, $.001 par value 8,634,205
100,000,000 shares authorized 23,441,070 shares issued
and outstanding
Paid-in capital 8,362,455
Less: accounts receivable from stockholder (89,800)
Accumulated deficit during development stage (10,129,353)
--------------
Total stockholders' equity 6,777,507
-------------
$ 7,551,104
=============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
From
Three months Three months inception to
ended ended March 31, 2000
March 31, 2000 March 31, 1999 (See Note 1)
-------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ 280,805 $ 46,733 $ 1,104,026
Cost of sales 95,578 23,193 526,626
-------------- -------------- --------------
Gross profit 185,227 23,540 577,400
Loss on investment in related party - 451,771 4,219,622
Bad debt from related party - 483,669
General and administrative 618,215 232,708 5,762,066
-------------- -------------- --------------
Total expenses 618,215 684,479 10,465,357
-------------- -------------- --------------
Net (loss) $ (432,988) $ (660,939) $ (9,887,957)
============== ============== ==============
Loss per share, basic and diluted $ (0.02) $ (0.05)
Average shares outstanding, basic 19,740,838 13,694,223
and diluted
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ZEROS AND ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
From inception
March 31 March 31 to
2000 1999 March 31, 2000
--------- ---------- ---------------
<S> <C> <C> <C>
Cash flows provided by (used for) operating activities:
Net (loss) $ (432,988) $ (660,859) $ (9,887,957)
Adjustments to reconcile net (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization expense 46,234 5,244 236,187
Stock issued for services - - 191,889
Loss on investment in related party - 451,771 3,564,651
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 25,000 23,441 -
Accounts receivable - stockholders 202,500 - 202,500
Due to and from related party - 110,895 143,800
Prepaid expenses - 362 (21,600)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 581,154 (63,974) 692,293
Accrued officer salary (107,500) - -
--------- --------- ----------
Total adjustments 747,388 527,739 5,009,720
--------- --------- ----------
Net cash provided by (used for) operating activities 314,400 (133,120) (4,878,237)
--------- --------- ----------
Cash flows provided by (used for) investing activities:
Acquisition of property and equipment - (8,863) (71,565)
Acquisition of goodwill - - (120,000)
Investment in related party - (562,666) (3,564,651)
Increase in software development costs (98,000) - (98,000)
Deferred offering costs 258,000 - 258,000
Other assets (50,000) 142,550 (50,963)
-------- --------- -----------
Net cash provided by (used for) investing activities 110,000 (428,979) (3,647,179)
-------- --------- -----------
Cash flows provided by (used for) financing activities:
Proceeds from line of credit - - 10,919
Proceeds on notes payable - stockholders - - 330,000
Proceeds from issuance of warrants and private placements 6,975,873 - 7,248,756
Proceeds from issuance of common stock - 21,568 259,076
Payments on obligations under capitalized leases (4,771) (1,181) (23,805)
Payment on notes payable - stockholders (270,725) - (330,000)
Payment on notes payable for goodwill (87,500) (87,500)
Payment on line of credit (10,919) (5,231) (10,919)
Issuance of preferred stock 752,952 8,573,084
Dividends distributed - (232,988)
Draws by proprietor - (31,000) (104,000)
--------- --------- ------------
Net cash provided by financing activites 6,601,958 737,108 15,632,623
--------- --------- ------------
Net increase (decrease) in cash 7,026,358 175,009 7,107,207
Cash, beginning of year 80,849 120,434 -
--------- --------- ------------
Cash, end of year $7,107,207 $ 295,443 $ 7,107,207
========= ========= ============
</TABLE>
3
<PAGE>
ZEROS AND ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
From inception
March 31 March 31 to
2000 1999 March 31, 2000
--------------- --------- ---------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $ 7,344 $ - $ 12,460
============= ============= ===========
Income taxes paid $ - $ - $ -
============= ============= ===========
Supplemental schedule of non-cash investing
and financing activities:
Acquisition of fixed assets under capitalized leases $ 6,065 $ - $ 73,469
============= ============= ===========
Stock issued for services $ - $ - $ 191,889
============= ============= ===========
Stock issued for deferred offering cost $ - $ - $ 258,000
============= ============= ===========
Issuance of common stock for equipment $ - $ - $ 144,547
============= ============= ===========
Issuance of common stock for accounts receivable $ - $ - $ 292,300
============= ============= ===========
Issuance of common stock for accounts payable $ - $ - $ 5,459
============= ============= ===========
Notes payable issuance for goodwill $ - $ - $ 87,500
============= ============= ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
ZEROS AND ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
Commmon Stock Preferred Stock
-------------------- ------------------ Accumulated
Additional Receivable Deficit During
Number of Par Value Number of Paid in from Development
Shares $.001 Shares Amount Capital stockholder Stage Total
=================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 17,503,494 $ 8,628,267 - $ - $ 1,392,520 (292,300) (9,696,365) 32,122
Payments on receivable from
stockholder (Unaudited) 202,500 202,500
Proceeds from private placement
and warrants (Unaudited) 5,937,576 5,938 6,969,935 - 6,975,873
Net loss for the three months
ended March 31, 2000
(Unaudited) (432,988) (432,988)
-------------------------------------------------------------------------------------------------
Balance at March 31, 2000
(Unaudited) 23,441,070 $ 8,634,205 - $ - 8,362,455 $ (89,800) $(10,129,353) $6,777,507
==================================================================================================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(1) INTERIM FINANCIAL STATEMENTS:
The accompanying unaudited condensed consolidated financial statements of
Zeros and Ones, Inc. and its subsidiary (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the financial
statements included in this quarterly report reflect all adjustments
(consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of its financial position at
the dates presented and the Company's results of operations and cash flows
for the periods presented. The Company's interim results are not
necessarily indicative of the results to be expected for the entire year.
The financial information contained herein should be read in conjunction
with the Company's audited financial statements included in its Annual
Report on Form 10-KSB for the year ended December 31, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
The Company develops content and technology for the Internet, Digital
Television, and broadband platforms. In addition to fees generated from
development of software products, the Company also receives royalty income
from sales of certain software products developed for others.
DEVELOPMENT STAGE ENTERPRISE:
The Company is a development stage enterprise company as defined in
Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises." All losses accumulated since
inception of Zeros and Ones, Inc. have been considered as part of the
Company's development stage activities.
The unaudited cumulative statements of operations and cash flows during the
development stage consist of results from operations from various entities
within the Group. The date of inception of each entity within the Group is
varied with dates of inception ranging from January 19, 1996 to April 1,
1998. Information from dates of inception to December 31, 1997 and three
months ended March 31, 2000 and 1999 are unaudited.
REVENUE RECOGNITION:
The Company recognizes revenues at various stages of a project upon
delivery of the completed work product of the respective particular stage
as set forth in the "Work for Hire" agreements.
6
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
PRINCIPLES OF CONSOLIDATION:
The condensed consolidated financial statements include the accounts of its
wholly owned subsidiaries of Quantum Arts, Inc., EKO Corporation, Polygonal
Research Corporation, KidVision, Inc., Wood Ranch Technology Group, Inc.
and Pillar West Entertainment. All significant intercompany transactions
and balances have been eliminated.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
SOFTWARE DEVELOPMENT COSTS:
The Company capitalizes software development costs upon the establishment
of technological feasibility, subject to net realization value
considerations. The Company will start the amortization of the capitalized
software development costs when the product is available for use or sale.
(3) ACCOUNTS RECEIVABLE FROM STOCKHOLDER:
The Company received $292,300 of accounts receivable from a stockholder as
part of assets purchased in exchange for the company's stock and
accordingly, these accounts receivable from stockholder are classified as
contra account to stockholders' equity. As of March 31, 2000, services
performed by the stockholder in the amount of $202,500 were used to
offset a portion of the balance of the accounts receivable from
stockholder.
(4) INVESTMENT IN RELATED PARTY:
During January 1996, Pillar West Entertainment, Inc. (PWE) entered into a
Production and Licensing Agreement with Randall Overton Productions, Inc.
(Randall Overton) in which the majority common stockholder of PWE is
also a major stockholder of Randall Overton. Pursuant to this agreement,
60% of gross proceeds raised from the issuance and sale of PWE convertible
preferred stock was contributed to Randall Overton for the production,
marketing, sale, and distribution of certain products and programs. As of
March 31, 2000 and 1999, losses from this investment in related party were
$ 0 and $451,771, respectively.
7
<PAGE>
ZEROS & ONES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(5) COMMON STOCK:
During February 2000, the Company amended its Articles of Incorporation to
provide for an increase in the number of authorized shares of common stock
to 100,000,000. The Company also declared a three-to-one stock split. The
stock split was effective on February 25, 2000. The financial statements as
of March 31, 2000 reflect the retroactive adjustment of the stock split.
(6) PRIVATE PLACEMENTS:
During the first quarter of 2000, pursuant to a Confidential Private
Placement Memorandum, the Company sold 5,407,296 post-split shares of the
Company's common stock at a purchase price $1.46 per share and 5,407,296
post-split warrants at an exercise price of $1.83 per share. The
Confidential Private Placement was exempt from the registration provisions
of the Act pursuant to Section 4(2) of the Act, as transactions by an
issuer not involving any public offering. The securities issued pursuant to
the Confidential Private Placement were restricted securities as defined in
Rule 144. The offering generated gross proceeds of approximately $8,100,000
subject to various offering costs. An additional 150,000 post-split shares
of the Company's common stock were issued for services rendered in
connection with this confidential private placement, which was priced at
$1.46 per share. An additional 180,300 post split warrants exercisable
until March 31, 2005 at a price of $1.83 per share, 33,860 post split
warrants exercisable until March 31, 2001 at a price of $1.83 per share,
and 22,915 post split warrants exercisable until March 31, 2001 at a price
of $5.00 per share, were issued for services rendered in connection with
this confidential private placement.
(7) SIGNIFICANT AGREEMENTS:
During January 2000, the Company entered into a Website Development and
License Agreement with National Legal Services, Inc. ("NLS").
Additionally, provided that NLS is current on all payment obligations, the
Company purchased $50,000 worth of NLS Series A Preferred Stock at the
price specified in the current offering of said stock.
During March 2000, the Company entered into two employment agreements
pursuant to which the Company has agreed to issue 250,000 stock options to
purchase 250,000 shares of the Company's common stock and 50,000 stock
options to purchase 50,000 shares of the Company's common stock,
respectively, pursuant to the stock option plan that the Company plans
to adopt in the near future. One of the employment agreements specifies a
stock option guarantee that the shares underlying the options will be
valued at a minimum $1,000,000 at the end of the employee's four year
vesting period or adjustments to the exercise price on the number of
options granted will be made by the Company.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CAUTIONARY STATEMENTS
This Report may contain forward looking statements and estimates regarding the
potential future operating results, financial condition, and business
performance which may be experienced by the Company and its subsidiaries. Please
be advised that there is absolutely no assurance that the Company or its
subsidiaries will actually experience the results, condition or performance
expressed or implied in any statements made in this Report or in any other
Report issued by the Company. The Company and its subsidiaries are subject to
substantial risks which may cause them to fail to achieve their goals or to
perform below expectations, including but not limited to the fact that the
Company may not be able to raise the additional capital or obtain the financing
needed to implement its full business plans, the Company is essentially a
development stage company that has incurred operating losses since inception,
there is no assurance that the Company's planned research and development
projects will result in commercially successful products or services, or whether
patents will be granted for any of them, there is no assurance that the Company
will ever be profitable, the Company's stock price may decline or be volatile,
the Company may not be able to successfully develop, manage or market its
products and services, the Company may not be able to attract or retain
qualified executives and technology personnel, the Company's products and
services may become obsolete, the Company's technology, Internet and media
production businesses are intensely competitive, government regulation may
hinder the Company's business, the Company does not yet have the services of two
of its executives officers, William Burnsed and Bernard Butler-Smith, and there
is no assurance as to if or when they will be available to provide services to
the Company, the Company's facilities may not be adequate to support its
business, additional dilution in outstanding stock ownership may be incurred due
to the issuance of more shares, warrants and stock options, or the exercise of
outstanding warrants and stock options, and other risks inherent in the
Company's businesses.
CURRENT OVERVIEW
On February 25, 2000, the Company effected a three-for-one forward stock split
of its outstanding shares and increased its authorized common stock to
100,000,000 shares. In addition to the split, the Company changed its trading
symbol from ZOZO to ZROS and was issued a new CUSIP number. The Company issued a
mandatory recall and exchange of shares to reflect the new symbol and CUSIP
number.
Management believes that the current capitalization of the Company qualify the
Company to apply for a listing on the NASDAQ Small Cap Market. The Company is in
the process of moving forward with its NASDAQ application and expects to
announce completion of its application in the near future. There is no assurance
that the Company's securities will be accepted for listing on the NASDAQ Small
Cap Market.
The year 1999 was a formation and early stage development year, which sets the
stage for execution of the Company's business plan beginning in the year 2000.
With net capital of approximately $7 million (after offering costs and
commissions) raised through its recent private placement of common stock and
warrants, the Company is now capitalized at adequate levels to execute certain
portions of its plan.
9
<PAGE>
Management believes that adequate funding is now available to finance
development of the Company's 2D/3D real-time digital television project
(LiveCast 3DTM). Phase 1 of the LiveCast 3DTM project has recently been
completed. The achievements of Phase 1 included initial engineering
specifications leading to the filing of multiple provisional patents, the
beginning of discussions with corporations and individuals important to the
continuation of the project, further work on defining the Phase 2 plan for
LiveCast 3DTM, and the hiring of a well established director for the design and
production of the project marketing video. Keith Melton, the director of
multiple 3D films, who most recently directed the IMAX 3D film starring Cirque
du Soleil, has been signed to direct the marketing film for the LiveCast 3DTM
project. The capital raised through the recent CPPM has enabled the Company to
commence Phase 2 of the project. This phase includes developing the lens
prototype, writing the software and algorithms to enable the technology, filing
additional patents to protect the Company's software and intellectual property,
and producing a marketing video to market the product and technology to the
commercial sector.
The recent receipt of investment capital has also allowed the Company to
escalate full development of the MovieShopping.com Website and business.
Strategic alliances and distribution arrangements are rapidly coming into place
to enable the execution of the MovieShopping.com plan.
FineItems.com, an early development and prototype Website to test the Company's
WebSuites e-commerce technology, will also be expanded. Management believes that
the estimated costs for expansion of FineItems.com are reasonable, when compared
to the potential revenue which the site may generate once it has been expanded.
The receipt of capital from the recent private placement has also enabled the
Company to secure the rights and a relationship to the popular characters
created by Paul Frank Industries, the well-known clothing company that is the
holder of these rights. The Company holds a four year exclusive right to develop
the Paul Frank characters in all forms of media, and also holds the shared
rights to merchandise licensing and development. An animated show is currently
being developed for the Internet. The Company has received interest from
companies that offer distribution of web-based animation, as well as from major
television networks for an animated show. The Company is currently in
negotiation for these shows, and plans to announce a distribution deal in the
near future.
Earlier this year, the Company began the next phase of its project with National
Legal Services ("NLS"). This project is part of the Company's Venture Catalyst
Initiative. The Company plans to create a complete on-line law firm with a
myriad of service offerings for NLS. As compensation for the Company's efforts
and involvement, NLS is paying the Company a production fee which covers all of
the Company's production costs, and is expected to result in a profit to the
Company. Additionally, the Company owns 3% of the outstanding common stock of
NLS. The Company believes that its efforts during the fourth quarter of 1999 led
to this development work.
During 1999, the Company also developed a design and prototype for a Website and
CD-ROM interactive human physiology educational program. This work was done
under contract with McGraw Hill, Inc. Due to current financial limitations
placed on the project by McGraw Hill, the Company has elected not to proceed
with Phase 2 of this development work. This decision was made after a careful
analysis of the budget requirements necessary to design, develop, and deliver to
McGraw Hill a full program which would meet the quality standards expected of
all work produced by the Company.
10
<PAGE>
During 1999 and continuing into 2000, the Company also developed a series
of fully interactive 3-D games under contract with Electronic Arts, Inc., a
leading interactive entertainment software company. Also used on the games
developed for Electronic Arts was the Company's own HuMotion(TM) software
processes, which the Company believes is an industry first in the translation of
completely human motion to a Web page. For this work, the Company received
development funding from Electronic Arts.
The games developed for Electronic Arts utilized a new web driver developed by
Wild Tangent, Inc. Wild Tangent was founded by Alex St. John, the creator of
Microsoft's DirectX technology. The Company recently developed a strategic
relationship with Wild Tangent whereby Wild Tangent will provide a flow of new
customers to the Company for projects that utilize Wild Tangent's streaming 3-D
driver technologies, heightened training in the use of new technology
developments, and early access to Wild Tangent's pre-alpha and beta development
programs. The Company and Wild Tangent may also pursue a co-marketing plan
designed to bolster the visibility of both companies.
Management believes that, 1999 was a formation year for the Company. The Company
put substantial work into the above mentioned projects, the consolidation of the
acquired companies, funding efforts, hiring of key industry talent, and
establishing deals for projects which the Company believes will lead to
financial and marketing success in the future. Some of the projects begun in
1999 will be ready for delivery to the market during the latter part of 2000.
Management believes that these projects will lead to ongoing revenue streams
will for the Company. The Company believes that its revenue streams will grow as
the Company releases more of its products into the market. As a result of its
recent capitalization, the Company is now positioned to implement important
aspects of its business plan creating the opportunity for sustained growth. In
1999, the Company established additional key relationships important to the
Company's vision of a future which is rapidly evolving due to broadband
distribution coming of age in a world driven by technology. A future where the
lines between what is a television and what is a computer are blurring. The
Company will endeavor to continue to establish new alliances to enable the
Company to become a leading broadband technology and content provider.
RESULTS OF OPERATIONS FOR THE THREE MONTHS PERIOD ENDED MARCH 31, 2000 COMPARED
TO THE SAME PERIOD IN 1999.
The Company's subsidiaries are primarily development stage companies with no
revenue, other than Quantum Arts, Inc. Total revenue for the three month period
ending March 31, 2000 increased to $280,805 from $46,733 for the three month
period ending March 31, 1999. General and administrative expenses increased to
$618,215 during the three months ended March 31, 2000 from $232,708 during the
three months ended March 31, 1999. The substantial increase in operating
expenses in 2000 as compared to 1999 primarily reflect the costs of adding more
computer programmers and other staff, as well as the costs of integrating the
Company's new subsidiaries with each other and with the Company. Operating costs
are expected to exceed revenue in the foreseeable future as the Company (1)
continues to integrate the businesses of the subsidiaries, (2) conducts
research, development, prototype construction and marketing of its three
dimensional television technology, digital video compression software, and its
e-commerce offerings of FineItems.com and MovieShopping.com, and (3) to the
extent additional funding becomes available, establishes the digital media
production center and acquires other companies. For the three months March 31,
2000, the Company's consolidated net loss was $432,988 as compared to a
consolidated net loss of $660,939 for the three months ended March 31,1999.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had combined net cash of $7,107,207 at March 31, 2000 as compared to
net cash of $80,848 as of December 31, 1999 and $295,443 at March 31, 1999. The
Company had a net working capital surplus (i.e. the difference between current
assets and current liabilities) of $6,362,653 at March 31, 2000 as compared to a
working capital deficit of $533,612 at December 31, 1999. Cash flow provided by
operating activities increased to $314,400 in March 31, 2000 as compared to cash
utilized for operating activities of $133,120 during the three months ended
March 31, 1999. Cash provided by investing activities increased to $110,000
during the three months ended March 31, 2000 as compared to cash used for
investing activities of $428,979 during the three months ended March 31, 1999.
Cash provided by financing activities increased from $737,108 during the three
months ended March 31, 1999 to $6,601,958 during the three months ended March
31, 2000. The substantial increase in cash provided by financing activities in
the first three months of 2000 as compared to the first three months of 1999
primarily reflects capital raised by the Company in its private placement of
common stock and warrants completed in early March 2000. Since July 1999, the
Company's capital needs have primarily been met from the proceeds of (i) capital
realized through the acquisition of PWE, including the exercise of outstanding
PWE warrants at an exercise price of $1.00 per share, (ii) project based revenue
from companies including McGraw Hill, Electronic Arts, National Legal Services,
and The Tech Museum of Innovation, and (iii) a private placement of common stock
and warrants made by the Company in 2000 which has raised gross proceeds of
approximately $8,100,000.
The Company expects to continue to have significant capital requirements in 2000
and 2001 to finance the construction of the Advanced Media Production Center
("AMPC"). The Company anticipates capital requirements of approximately $5
million in fiscal 2000 to complete the construction of the AMPC. The Company
will have additional capital requirements during 2000 and 2001 if the Company
continues with its plan of acquisition and incubation of new companies and
projects. There is no assurance that the Company will have sufficient capital to
finance its growth and business operations or that such capital will be
available on terms that are favorable to the Company or at all. The Company is
currently incurring operating deficits which are expected to continue until its
Internet project and digital production consulting work grows in volume, if such
growth is achieved.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
See the Registrant's Reports on Form 8-K, dated February 8,
2000 which is incorporated herein by reference to the extent
necessary to make complete disclosure pursuant to Part II,
Item 2 of this Report on Form 10-QSB.
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE>
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
1) Report on Form 8K, dated February 8, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2000 By: /s/ Steve Schklair
-------------------------------
Steve Schklair
Chief Executive Officer
13
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