<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number: 33-38214-D
SUMmedia.com Inc.
(Exact name of small business issuer as specified in its charter)
Colorado 95-4734398
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Suite 1200, 1055 W. Hastings, Vancouver, B.C. CANADA V6E 2E9
(Address of principal executive offices)
(604) 605-0901
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required 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 [ ]
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 [ ] 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: On June 30, 2000, the registrant had
18,955,540 shares of $0.01 par value common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE> 2
SUMmedia.com Inc.
INDEX TO FORM 10 - QSB
<TABLE>
<CAPTION>
Page
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements 2
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2 - Plan of Operations 8
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 13
Item 3 - Defaults upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
1
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
SUMmedia.com Inc.
(Formerly Reliance Resources Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------------ ------------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 195,095 $ 2,108,167
Accounts receivable 309,341 65,830
Sales tax recoverable 206,334 173,519
Prepaid expenses 3,692,828 231,460
Due from related parties 29,637 --
------------------ ------------------
Total Current Assets 4,433,235 2,578,976
Property and equipment, net of accumulated amortization 4,592,317 1,840,821
Goodwill, net of accumulated amortization 9,385,966 11,616,052
Other Assets 358,041 74,359
------------------ ------------------
$ 18,769,559 $ 16,110,208
================== ==================
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 5,951,956 $ 1,407,212
Deferred revenue 321,578 104,012
Current portion of obligation under capital lease 26,352 13,318
Demand loan 1,000,000 --
Due to related parties -- 56,436
------------------ ------------------
Total Current Liabilities 7,299,886 1,580,978
Obligation under capital lease 110,621 58,939
------------------ ------------------
7,410,507 1,639,917
------------------ ------------------
Stockholders' Equity
Capital Stock
Authorized
1,000,000 preferred shares, $0.01 par value
65,500,000 common shares, $0.01 par value
Issued
18,955,540 (1999 - 16,142,000) common shares 189,555 161,420
Additional paid-in capital 30,079,251 20,859,829
Warrants issued in connection with private placements 4,918,919 2,552,751
Share subscriptions -- (125,000)
Deficit accumulated during the development stage (23,737,730) (8,959,271)
Accumulated other comprehensive income (90,943) (19,438)
------------------ ------------------
11,359,052 14,470,291
------------------ ------------------
$ 18,769,559 $ 16,110,208
================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
SUMmedia.com Inc.
(Formerly Reliance Resources Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, 1990
(DATE OF
FOR THE THREE MONTHS FOR THE SIX MONTHS INCORPORATION) TO
ENDED JUNE 30, ENDED JUNE 30, JUNE 30,
---------------------------- ---------------------------- -----------------
2000 1999 2000 1999 2000
<S> <C> <C> <C> <C> <C>
Revenue $ 431,700 $ -- $ 906,212 $ -- $ 1,038,263
Cost of Revenues 257,876 -- 389,494 -- 507,434
------------ ------------ ------------ ------------ ------------
Gross Profit 173,824 -- 516,718 -- 530,829
------------ ------------ ------------ ------------ ------------
Operating Expenses
General and administrative (128,593) 3,000 5,411,342 4,500 7,876,750
Marketing 3,672,972 -- 6,157,504 -- 7,585,053
Amortization of goodwill 1,115,042 -- 2,230,086 -- 4,031,309
Amortization of property and
equipment 440,346 -- 597,149 -- 694,567
Research and development 94,218 -- 155,216 -- 252,230
Stock-based compensation -- -- 653,014 -- 3,153,014
------------ ------------ ------------ ------------ ------------
5,193,985 3,000 15,204,311 4,500 23,592,923
------------ ------------ ------------ ------------ ------------
Loss from operations (5,020,161) (3,000) (14,687,593) (4,500) (23,062,094)
Share of loss from equity
accounted investment (90,866) -- (90,866) -- (90,866)
------------ ------------ ------------ ------------ ------------
Loss for the period $ (5,111,027) $ (3,000) $(14,778,459) $ (4,500) $(23,152,960)
============ ============ ============ ============ ============
Basic and fully diluted loss per share (0.28) nil (0.82) nil
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 5
SUMmedia.com Inc.
(Formerly Reliance Resources Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, 1990
(DATE OF
SIX MONTHS ENDED INCORPORATION) TO
JUNE 30, JUNE 30,
---------------------------- -----------------
2000 1999 2000
<S> <C> <C> <C>
Cash Flows From Operating Activities
Loss for the period $(14,778,459) $ (4,500) $(23,152,960)
Adjustments to reconcile loss for the period to net cash
used in operating activities
Stock based compensation 653,014 -- 3,153,014
Amortization of property and equipment and goodwill 2,827,235 -- 4,725,876
Share of loss from equity accounted investment 90,866 -- 90,866
Common stock issued for payment of consulting fees 1,172,400 -- 1,172,400
Common stock issued for payment of legal fees 100,000 -- 100,000
Changes in non-cash working capital items
Accounts receivable (247,037) -- (308,709)
Sales tax recoverable (37,252) -- (181,840)
Prepaid expenses (3,494,546) -- (3,717,774)
Accounts payable and accrued liabilities 4,614,857 4,500 5,908,065
Deferred revenue 221,804 -- 196,704
------------ ------------ ------------
(8,877,118) -- (12,014,358)
------------ ------------ ------------
Cash flows from (used in) financing activities
Proceeds from issuance of common shares 9,760,700 -- 17,124,930
Due to related parties (86,073) -- (827,173)
Repayments of capital lease obligations (8,460) -- (13,526)
Proceeds from demand loan 1,000,000 -- 1,000,000
------------ ------------ ------------
10,666,167 -- 17,284,231
------------ ------------ ------------
Cash flows from (used in) investing activities
Purchase of property and equipment (3,275,469) -- (4,833,486)
Other assets (329,548) (324,834)
Cash acquired on acquisition of SUM Media Corp. -- -- 212,591
------------ ------------ ------------
(3,605,017) -- (4,945,729)
------------ ------------ ------------
Foreign exchange effect on cash (97,104) -- (129,049)
------------ ------------ ------------
Net increase in cash and cash equivalents (1,913,072) -- 195,095
Cash and cash equivalents at beginning of period 2,108,167 -- --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 195,095 $ -- $ 195,095
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
SUMmedia.com Inc.
(Formerly Reliance Resources Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
THE COMPANY
SUMmedia.com Inc. (the "company" or "SUMmedia.com") is an Internet media and
marketing company that provides online coupons for small and medium sized
businesses through its portal, "savingumoney.com." The company's business
consists primarily of providing Internet marketing initiatives including
coupons, advertising banners, discount shopping and website design and hosting.
The company was incorporated on December 7, 1990, under the laws of the State of
Delaware as Pursuit Ventures Corporation ("Pursuit"). Under a Plan and Agreement
of Merger dated August 21, 1998, Pursuit merged with Remington Assets Limited, a
Colorado corporation that was incorporated on March 20, 1997. Under the terms of
the Agreement of Merger, Remington became the surviving company. Effective
September 8, 1998, Pursuit changed its name to Reliance Resources Inc.
("Reliance"). In June 1999, Reliance completed a 1:32 forward stock split. The
accompanying consolidated financial statements are presented on a
post-stock-split basis.
On August 6, 1999, Reliance entered into a share exchange agreement with SUM
Media Corp. (formerly E-Com Media Corp.), a British Columbia, Canada company.
Pursuant to the terms of the agreement, Reliance issued 3,200,000 common shares
to acquire 100% of the issued and outstanding shares of SUM Media Corp. On
August 25, 1999, Reliance changed its name to SUMmedia.com Inc.
GOING CONCERN
The company has not yet generated significant revenues and has no assurance of
future profitability. Even if marketing efforts are successful, substantial time
may pass before profitability will be achieved. During this time, the company
will require additional financing. The company has a net working capital
deficiency and losses from operations that raise substantial doubt about its
ability to continue as a going concern.
The accompanying consolidated financial statements were prepared on the basis of
accounting principles applicable to a going concern, which assumes the
realization of assets and discharge of liabilities in the normal course of
business. The company's ability to continue as a going concern is dependent upon
obtaining additional financing and upon its ability to attain profitable
operations. The company is in discussions with financing institutions with
respect to securing additional equity financing. There are no assurances,
however, that the company will be successful in closing such financing
transactions. These consolidated financial statements do not give effect to any
adjustments that would be necessary should the company not be able to continue
as a going concern.
DEVELOPMENT STAGE
The company's activities, subsequent to its acquisition of SUM Media Corp., have
primarily consisted of establishing facilities, recruiting personnel, conducting
research and development, selling services and coupons, developing business and
financial plans and raising capital. Accordingly, the company is considered to
be in the development stage. The accompanying financial statements should not be
regarded as typical for a normal operating period. Prior to its acquisition of
SUM Media Corp., the company was inactive and incurring only general and
administrative expenses.
5
<PAGE> 7
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the
company in accordance with generally accepted accounting principles for interim
financial information. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of the company's
management, the unaudited consolidated financial statements contain all
adjustments necessary (consisting of normal recurring accruals) for a fair
presentation of the financial position as at June 30, 2000 and the results of
operations for the three and six month periods ended June 30, 2000 and 1999. The
results of operations for the three and six month periods ended June 30, 2000,
are not necessarily indicative of the results to be expected for the full year.
For further information, refer to the consolidated financial statements and
notes thereto included in the company's Form 10-KSB for the year ended December
31, 1999.
The consolidated financial statements include the accounts of SUMmedia.com Inc.
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated on consolidation. Investments in entities in which the
company can exercise significant influence, but less than majority owned and not
otherwise controlled by the company, are accounted for using the equity method.
PREPAID EXPENSES
Prepaid expenses related primarily to advertising services to be provided in
fiscal 2000 paid for in advance. These prepaid advertising services are being
recorded into expenses based on the fair value of the advertising services
consumed by the company.
JOINT VENTURE
During April 2000, the company entered into a joint venture agreement with
Golden Net Limited and Party Assets Limited whereby SUMmedia.com Asia Limited, a
Hong Kong subsidiary of the company, was formed to establish and manage, in
Asia, an Asian version of the savingumoney.com website and to offer all other
related business services. Pursuant to the terms of the joint venture agreement,
the company entered into a license agreement with SUMmedia.com Asia Limited
whereby SUMmedia.com Asia Limited was granted an exclusive licence to distribute
the company's products in Asia. The company's ownership interest in the joint
venture is 45%. The investment is accounted for using the equity method and the
company's share of the net loss to June 30, 2000 was $90,866. At June 30, 2000,
the carrying value of the investment was $272,006 and is recorded in other
assets.
DEMAND LOAN
The loan from an unrelated third party has no specific terms of repayment, bears
interest at prime plus 2%, is unsecured, and is repayable on demand.
REVENUE RECOGNITION
The company uses the percentage of completion method to record revenues related
to the design and production of customer's websites.
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and foreign currency translation
adjustments. Comprehensive loss was $5,115,580 and $3,000 for the three-month
periods ended June 30, 2000 and 1999, respectively and $14,849,964 and $4,500
for the six-month periods ended June 30, 2000 and 1999, respectively.
SEGMENT INFORMATION
The company identifies its operating segments based on business activities,
management responsibility and geographical location. During the six months ended
June 30, 2000, the company operated within two operating segments (website
design and online couponing services), and operated in two geographic areas
(Canada and the
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<PAGE> 8
United States). Website design accounted for 74% and 67% of the companies total
revenues for the six and three months ended June 30, 2000, respectively. Coupons
accounted for 13% and 21% of the companies total revenues for the six and three
months ended June 30, 2000, respectively. Substantially all the company's assets
are located in Canada and substantially all of its revenues were earned in
Canada.
CAPITAL STOCK
<TABLE>
<CAPTION>
ISSUE CASH PROCEEDS WARRANT
PRICE PER AND SHARE EXERCISE WARRANT
PRIVATE PLACEMENTS COMMON UNIT SUBSCRIPTIONS PRICE EXPIRY FROM
DATE OF ISSUANCE SHARES WARRANTS $ $ $ ISSUANCE DATE
<S> <C> <C> <C> <C> <C> <C>
January 2000 159,900 -- 3.00(a) 479,700 -- --
January 2000 308,000 308,000 3.25(b) 1,001,000 4.25 12 months
January 2000 500 -- --(c) -- -- --
January 2000 1,000,000 1,000,000 4.00 4,000,000 6.00 12 months
February 2000 700,000 700,000 5.25(d) 3,675,000 7.00 12 months
March 2000 50,000 50,000 6.00 300,000 8.50 12 months
March 2000 3,000 -- --(c) -- -- --
May 2000 24,000 -- 3.13(a) 75,000 -- --
May 2000 2,300 -- --(e) -- -- --
June 2000 510,000 -- --(f) -- -- --
June 2000 5,000 -- --(g) -- -- --
June 2000 30,840 -- --(g) -- -- --
June 2000 20,000 20,000 5.25(h) 105,000 7.00 12 months
</TABLE>
(a) Common shares issued pursuant to an option exercise.
(b) The company issued 37,840 common shares as compensation for finders' fees
related to this private placement.
(c) Common shares issued as compensation for service rendered.
(d) The company issued 126,000 common shares as compensation for finders' fees
related to this private placement.
(e) Common shares issued pursuant to a cashless option exercise of 4,800 stock
options at $3.125 per share.
(f) Common shares issued as compensation for finders' fees and for legal and
consulting services provide to the company. Compensation allocated to
services received based on the fair market value of such services.
(g) Common shares issued as compensation for finders' fees.
(h) The company issued 600 common shares as compensation for finders' fees
related to this private placement.
WARRANTS
<TABLE>
<CAPTION>
VALUE ASSIGNED
NUMBER OF EXERCISE PRICE PER WARRANT(1)
EXPIRY DATE COMMON SHARES $ $
<S> <C> <C> <C>
September 2000 1,000,000 4.50 0.77
December 2000 1,000,000 5.00 0.99
December 2000 100,000 4.25 0.95
December 2000 308,000 4.25 0.81
December 2000 52,000 4.00 0.67 - 0.99
January 2001 1,000,000 6.00 1.08
February 2001 700,000 7.00 1.38
March 2001 50,000 8.50 1.28
June 2001 20,000 7.00 0.43
August 2001 1,000,000 3.00 0.34
</TABLE>
(1) The value assigned to the warrants above has been estimated using the
Black-Scholes valuation model. Assumptions used in the valuation model
included:
a) risk for interest rate of 5.9%;
b) expected volatility of 80%;
c) expected dividend yield of nil; and
d) the actual term to expiry.
7
<PAGE> 9
STOCK OPTIONS
A summary of the activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
COMMON PER SHARE
SHARES $
-------------- --------------
<S> <C> <C>
Balance - December 31, 1999 2,472,000 3.12 - 3.44
Granted January 1 to June 30, 2000 728,400 3.12 - 10.00
Exercised January 1 to June 30, 2000 (26,300) 3.12
Cancelled January 1 to June 30, 2000 (317,000) 3.12 - 10.00
-------------- --------------
Balance - December 31, 1999 2,857,100 3.12 - 10.00
============== ==============
</TABLE>
In addition to the options issued pursuant to the stock option plan, the company
issued 95,000 stock options to three members of senior management. The options
entitle the holder to purchase one share of common stock for $0.01 for a period
of 10 years and fully vested on April 1, 2000.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 7,
SIX MONTHS SIX MONTHS 1990 (DATE OF
ENDED JUNE 30, ENDED JUNE INCORPORATION) TO
2000 30, 1999 JUNE 30, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Supplemental non-cash investing and financing activities
Issuance of common shares for acquisition of SUM
Media Corp. -- -- 12,000,000
Stock based compensation 653,014 -- 3,153,014
Issuance of common shares for finder's fee 615,640 -- 615,640
Issuance of common shares for consulting services 1,172,400 -- 1,172,400
Issuance of common shares for legal services 100,000 -- 100,000
Capital lease obligations 74,838 -- 151,457
</TABLE>
SUBSEQUENT EVENTS
Subsequent to June 30, 2000, the company settled a legal action filed by a
former officer and director of the company in which the former officer and
director alleged that they were unfairly dismissed from their employment with
the company. Pursuant to the terms of the settlement, the company paid notice
damages of $69,000, the company agreed to locate, on a best efforts basis, a
place for the 200,000 restricted SUMmedia.com shares held by the former officer
and director, and the company agreed that the 48,000 SUMmedia.com stock options
held by the former officer and director can be exercised for a period of up to
six months from the date the SEC restrictions were removed on shares acquired
under the company's Stock Option Plan.
ITEM 2 - PLAN OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This document contains certain "forward-looking statements" that involve known
and unknown risks and uncertainties, such as statements of SUMmedia.com's plans,
objectives, expectations and intentions. When used in this document, the words
"expects," "anticipates," "intends," "plans" and similar expressions are
intended to identify certain of these forward-looking statements. The cautionary
statements made in this document are applicable to all related forward-looking
statements, wherever they appear in this document. SUMmedia.com's actual results
could differ materially from those discussed in this document.
CASH REQUIREMENTS
The company has not yet generated significant revenues, has no assurance of
future profitability and has generated losses from operations. These factors
raise concerns about the company's ability to continue as a going concern. To
address these issues, management is continuing to aggressively pursue additional
financings. Management plans to
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<PAGE> 10
continue to pursue additional financings to fund operations until it is able to
generate significant revenues and profits from its business operations.
SUMmedia.com believes that its existing cash and cash sources will not be
sufficient to fund its losses from operations, its capital expenditures and
other obligations beyond the next two months. If SUMmedia.com is not able to
generate sufficient cash flow from operations or to raise additional capital
through financings when required, in sufficient amounts, and on terms acceptable
to SUMmedia.com, its business, financial condition and operating results will be
materially adversely affected.
SUMmedia.com anticipates that it will require at least $50 million over the next
12 months to fund the following: the opening of new markets ($6 million), the
generation of brand awareness ($4 million), general operating costs and working
capital ($21 million), expansion and improvement of the company's financial and
information technology infrastructure and its operations infrastructure ($17
million), and continued research and development activities ($2 million).
In order to meet its expected cash deficiency and liquidity issues,
SUMmedia.com's management team is aggressively pursuing third-party investors
and strategic alliances. In addition, previous private sales of warrants allow
existing investors to invest an additional $35 million in SUMmedia.com within
one-year of the date of the purchase of the warrant.
RESEARCH AND DEVELOPMENT
During the next 12 months, SUMmedia.com intends to expend approximately $2
million in the pursuit of Internet research and development. These expenditures
will relate primarily to the development of new coupon delivery technologies and
will include salaries for company employees and fees paid to consultants.
PURCHASES OF SIGNIFICANT EQUIPMENT
SUMmedia.com expects to spend $17 million related to the expansion and
improvement of the company's financial and information technology
infrastructure, as well as to expand and improve its operations infrastructure.
EMPLOYEES
As of June 30, 2000, SUMmedia.com had 147 employees (including 67 in Vancouver,
British Columbia, 31 in Toronto, Ontario, 17 in Seattle, Washington, 11 in
Calgary, Alberta, 11 in Dallas, Texas and 10 in Atlanta, Georgia. At December
31, 1999, SUMmedia.com had 89 employees.
RESULTS OF OPERATIONS
SUMmedia.com commenced operations as an Internet media and marketing company on
August 6, 1999 with its purchase of all the issued and outstanding shares of SUM
Media Corp. From inception (December 7, 1990) to August 6, 1999, SUMmedia.com
was an inactive "shell" with no operations or revenues; it had an accumulated
deficit of $644,500, comprised mainly of general and administrative costs
(legal, audit, etc.). As a result, comparative figures for the three and six
month periods ending June 30, 1999 are not meaningful and are, therefore, not
included in this discussion.
SUMmedia.com reports its financial statements in U.S. dollars but its functional
currency shifted to the Canadian dollar in 1999 due to a change in
SUMmedia.com's principal business activity. While management expects
SUMmedia.com's functional currency to soon return to the U.S. dollar, it does
not anticipate exchange rate or inflation forces to be material until that time
because historical analysis of the two currencies shows relative stability.
SUMmedia.com incurred a loss of $5.1 million for the quarter ended June 30, 2000
and a loss of $14.8 million for the six month period ended June 30, 2000, due
primarily to stock-based compensation, operating expenses, marketing and
branding development, amortization of goodwill and prepaids and continuing costs
related to raising capital.
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<PAGE> 11
Revenues for the six months ended June 30, 2000 were approximately $900,000.
Revenues for the three months ended June 30, 2000 were approximately $430,000.
Revenues from web site development contracts accounted for 74% and 67% of total
revenues for the six months and three months ended June 30, 2000, respectively.
These web site development revenues relate to amounts earned by the company for
business consulting and development work related to customers websites. The
company records web site development revenues using the percentage of completion
method. For the six months ended June 30, 2000, web site development revenues
relate primarily to work done on two large contracts which accounted for 95% of
the revenues earned from this revenue source.
Coupon revenues form the next largest component of revenue for the six months
ended June 30, 2000 comprising 13% of total revenues earned during this period.
For the three months ended June 30, 2000, coupons accounted for 21% of total
revenues. Coupon revenues are earned by the company for each month that
SUMmedia.com coupons are posted on the savingumoney.com website. Management
attributes the 300% increase in coupon revenues over the first quarter of 2000
to the increased acceptance of the coupon concept by small- and medium-sized
businesses and the effectiveness of the company's advertising programs.
Additional revenues were derived from online advertising on SUMmedia.com's
website which was earned by the company for each month that a customer's banner
ads were posted on a SUMmedia.com website. Online advertising accounted for 8%
and 9% of total revenues for the six months and three months ended June 30,
2000, respectively. The remainder of SUMmedia.com's revenues were derived from
the resale of computer equipment and software which accounted for 5% and 3% of
total revenues for the six months and three months ended June 30, 2000,
respectively. The company records only the net profit received from the resale
of computer equipment and software as revenue. At the 1999 year end, the company
stopped selling regional exclusive rights to market the company's products in
predefined geographical areas. Revenues for the year ended December 31, 1999
from these activities were $132,000.
During the six months ended June 30, 2000, SUMmedia.com incurred $5.4 million on
various general and administration costs. General and administration costs for
the three months ended June 30, 2000 were $(129,000) due to a $2.3 million
reversal of a first quarter estimate attributed to various consulting services
received by the company related to establishing and developing business contacts
in the Asian market. The estimate as at the end of the first quarter was based
on the Company's share price at that time for the number of shares expected to
be issued. The subsequent adjustment of approximately $2.3 million was based on
the actual price when the shares were issued during the second quarter. The cost
attributed to the shares issued in respect of the various consulting services
for the six months ended June 30, 2000 was $1.2 million. Also included in
general and administration costs are salaries and benefits of $1.5 million for
the six months ended June 30, 2000 and $870,000 for the three months ended June
30, 2000 related to management, administration and information technology
employees. At June 30, 2000, there were approximately 35 executive management
and administrative personnel and approximately 25 information technology
employees. The company also incurred $870,000 and $520,000 for the six months
and three months ended June 30, 2000, respectively, related to office operations
consisting primarily of rent, telephone and office supplies. Another significant
expenditure was travel expenses associated with trips to the United States,
Australia, Europe and Asia to solidify previous contacts, develop new
relationships, install various operational systems and technology, secure
additional financing and identify additional business partners for SUMmedia.com
at a cost of approximately $560,000 for the six months ended June 30, 2000 and
$180,000 for the three months ended June 30, 2000. Also included in general and
administration expenses are accounting and legal fees of $480,000 and $170,000
for the six and three months ended June 30, 2000, respectively, related
primarily to the completion of the company's 10-SB registration statement and
10-QSB reporting, the filings of patents and trademarks, the development of
business contracts, the analysis of corporate structure and the planning of
business expansion. Continuing costs in the area of investor and public
relations added $290,000 to general and administration expenses for the six
months ended June 30, 2000 and $160,000 for the three months ended June 30,
2000. The company also engaged information technology consultants to assist in
the reconfiguring of its network, arrange wide area networks, arrange its server
co-location facilities, assist in deploying its branches worldwide and provide
technical support at a cost of $520,000 and $250,000 for the six months and
three months ended June 30, 2000, respectively. General and administration costs
for the year ended December 31, 1999 were $2.4 million.
Research and development costs amounted to $155,000 and $95,000 for the six
months and three months ended June 30, 2000, respectively. Research and
development costs were primarily comprised of payments to outside
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contractors and expenses related to engineering design work and testing of
SUMmedia.com's technology. Product development expenses are expected to increase
to approximately $2 million, primarily due to the payment of consulting fees and
salaries related to the development of new eCoupon delivery technologies.
Research and development costs for the year ended December 31, 1999 were
$97,000.
During the six months ended June 30, 2000, SUMmedia.com incurred $6.2 million on
various sales and marketing costs. For the three months ended June 30, 2000, the
sales and marketing costs amounted to $3.7 million. Sales and marketing costs
include salaries and benefits of $1.2 million for the six months ended June 30,
2000 and $0.7 million for the three months ended June 30, 2000. At June 30,
2000, there were approximately 90 sales and marketing employees. The remainder
of the sales and marketing costs relate primarily to promotional activities
including advertising through radio, newspapers, television, and tradeshows.
During the first six months of 2000, SUMmedia.com intensified its North American
branding efforts for the savingumoney.com brand. Significant branding efforts
rolled out in the first six months included the launch and sustaining program of
the company's television advertising campaign in Canada and a major media launch
and sustaining program directed at the Seattle market which coincided with the
company's launch of its Seattle office. Also during the second quarter, the
company began using its prepaid advertising services; included in sales and
marketing expenses for the six months ended June 30, 2000, is $545,000 related
to the use of these services. Sales and marketing costs for the year ended
December 31, 1999 were $1.4 million.
Stock based compensation of $653,000 was recorded for the six months ended June
30, 2000 ($ nil in the three months ended June 30, 2000). This amount relates
primarily to options issued to certain senior executives.
Amortization expense related to property and equipment was $600,000 for the six
months ended June 30, 2000, during which period SUMmedia.com purchased
computers, office equipment, furniture and fixtures and software at a total cost
of $3.3 million. Amortization expense related to goodwill on the purchase of SUM
Media Corp. was $2.2 million for the six months ended June 30, 2000.
Amortization expenses related to property and equipment and goodwill were
$97,000 and $1.8 million, respectively, for the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, SUMmedia.com had approximately $200,000 in cash, a working
capital deficiency of $2.9 million and shareholders' equity of $11.4 million.
Net cash used in SUMmedia.com's operating activities was $8.9 million for the
six months ended June 30, 2000. Net cash flows used in operating activities
consisted primarily of a loss for the six months of $14.8 million. The loss for
the six months was offset by non-cash stock based compensation charges of $0.7
million, amortization of property and equipment and goodwill of $2.8 million, a
share of the loss from an equity accounted investment of $0.1 million and
non-cash consulting and legal fees of $1.3 million. The change in the company's
net working capital also contributed $1 million to operating cash flows.
Cash flows from financing activities of $10.7 million for the six months ended
June 30, 2000 were derived primarily from $9.7 of proceeds received from the
issuance of common shares and from a $1.0 million short term loan.
Cash flows used in investing activities of $3.6 million for the six months ended
June 30, 2000 related primarily to purchases of property and equipment of $3.3
million and an investment in the Hong Kong joint venture of $0.3 million.
Because SUMmedia.com continues to incur operating losses, its working capital
will continue to be depleted. In an effort to improve the company's working
capital going forward, the company's management is attempting to increase
revenues through marketing and branding efforts, the use of strategic alliances
and financings with third-party investors. There can be no assurances, however,
management attempts will produce significant revenue.
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For the six months ended June 30, 2000, SUMmedia.com financed its operations
primarily through private sales of securities and short-term loans. Dilutive
equity issuances completed during the six months, including options granted to
employees and warrants granted in private sales of securities to third party
investors, will, to the extent they are exercised, improve the company's
liquidity and capital resources. While the issuance of shares does raise funds
to develop the company's business, the continued issuance of shares may erode
the company's share price and as a result reduce the amount of capital that the
company is able to raise per share.
SUMmedia.com's funding needs may vary depending upon a number of factors,
including the number and nature of the marketing and sales launch initiatives,
the progress of SUMmedia.com's research and development programs, the number and
breadth of these programs, the progress of the development and commercialization
efforts of new products, and the competing technological and market
developments. In the future, SUMmedia.com will need to raise substantial
additional funds to continue to conduct its branding, marketing, research and
development, and to implement enterprise-wide infrastructure programs.
SUMmedia.com intends to seek additional funding through public or private
financing and up-front licensing fees of its technology. There can be no
assurance that such funds will be available on favorable terms, if at all. If
adequate funding is not available, SUMmedia.com may be required to delay, reduce
or eliminate one or more of its marketing strategies or research and development
programs. These changes may also require SUMmedia.com to seek funding on less
favorable terms than it would otherwise desire.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
SUMmedia.com's exposure to market risk is principally confined to its cash and
cash equivalents which have short maturities and are held with high credit
quality financial institutions and, therefore, are believed to involve minimal
market risk.
Currently, the company's operations are primarily conducted in Canada. However,
as the company expands its operations into the U.S. and other geographic areas
such as Asia and Europe, it will be exposed to foreign currency risks arising
from the movements in the Canadian dollar relative to other foreign currencies.
The company does not plan on using hedges to mitigate this risk.
<TABLE>
<CAPTION>
U.S. TO CANADIAN DOLLAR QUARTER ENDED
EXCHANGE RATES JUNE 30, 2000 1999 1998 1997 1996
-------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Period-end 1.4786 1.4433 1.5333 1.4305 1.3706
Average for the period 1.4669 1.4858 1.4831 1.3844 1.3636
Range 1.4518-1.5081 1.4433-1.5087 1.4198-1.5685 1.3470-1.4305 1.3383-1.3747
</TABLE>
BUSINESS OVERVIEW
SUMmedia.com is an Internet media and marketing company that provides online
coupons, or eCoupons, for small businesses through its portal, savingumoney.com.
SUMmedia.com's goal is to provide Internet marketing initiatives for smaller
businesses lacking the expertise to exploit eCommerce opportunities.
FUTURE ACQUISITIONS
SUMmedia.com will consider strategic acquisitions of companies with a strong
brand identity as well as with customer and product information databases that
augment its databases and large sales deployment teams. It will be
SUMmedia.com's practice that the acquired company's management team will retain
responsibility for critical front-end business functions such as merchandising,
creative presentation and marketing, while consolidating operational functions
under its organization to realize economies of scale.
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Not applicable.
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ITEM 2 - CHANGES IN SECURITIES
All sales of unregistered securities issued by SUMmedia.com were denominated in
U.S. dollars.
In May 2000, SUMmedia.com issued 24,000 shares of its common stock to a director
of the company pursuant to an option exercise at $3.125 per share for gross
proceeds of $75,000. Issuance of the common stock was made in reliance upon the
exemption from registration provided by Rule 506 of Regulation D of the
Securities Act of 1933, as amended (the "Act"). The purchaser was an accredited
investor and had access to full information concerning SUMmedia.com and
represented that he purchased the common stock for his own account and not for
the purpose of distribution. The common stock contained a restrictive legend
advising that the securities may not be offered for sale, sold or otherwise
transferred without having first being registered under the Act or pursuant to
an exemption from registration under the Act. No underwriters were involved in
the transaction.
In May 2000, SUMmedia.com issued 2,300 shares of its common stock to an
unrelated Canadian employee pursuant to a cashless option exercise of 4,800
stock options at $3.125 per share. Issuance of the common stock was made in
reliance upon the exemption from registration provided by Rule 506 of Regulation
D of the Act. The purchaser was an accredited investor and had access to full
information concerning SUMmedia.com and represented that he purchased the common
stock for his own account and not for the purpose of distribution. The common
stock contained a restrictive legend advising that the securities may not be
offered for sale, sold or otherwise transferred without having first being
registered under the Act or pursuant to an exemption from registration under the
Act. No underwriters were involved in the transaction.
In June 2000, SUMmedia.com issued 330,000 shares of its common stock to
Homebright Management Ltd. for gross cash proceeds of nil as compensation for
finders' fees and for legal and consulting services provided to SUMmedia.com.
Issuance of the common stock was made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. The purchaser was an
accredited investor and had access to full information concerning SUMmedia.com
and represented that it purchased the common stock for its own account and not
for the purpose of distribution. The common stock contained a restrictive legend
advising that the securities may not be offered for sale, sold or otherwise
transferred without having first being registered under the Act or pursuant to
an exemption from registration under the Act. No underwriters were involved in
the transaction.
In June 2000, SUMmedia.com issued 180,000 shares of its common stock to Asian
Business Management Ltd. for gross cash proceeds of nil as compensation for
finder's fees and for legal and consulting services provided to SUMmedia.com.
Issuance of the common stock was made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. The purchaser was an
accredited investor and had access to full information concerning SUMmedia.com
and represented that it purchased the common stock for its own account and not
for the purpose of distribution. The common stock contained a restrictive legend
advising that the securities may not be offered for sale, sold or otherwise
transferred without having first being registered under the Act or pursuant to
an exemption from registration under the Act. No underwriters were involved in
the transaction.
In June 2000, SUMmedia.com issued 5,000 shares of its common stock to an
unrelated Canadian employee for gross cash proceeds of nil as compensation for
finders' fees. Issuance of the common stock was made in reliance upon the
exemption from registration provided by Rule 506 of Regulation D of the Act. The
purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that he purchased the common stock for
his own account and not for the purpose of distribution. The common stock
contained a restrictive legend advising that the securities may not be offered
for sale, sold or otherwise transferred without having first being registered
under the Act or pursuant to an exemption from registration under the Act. No
underwriters were involved in the transaction.
In June 2000, SUMmedia.com issued 30,840 shares of its common stock to an
unrelated Hong Kong individual for gross cash proceeds of nil as compensation
for finders' fees. Issuance of the common stock was made in reliance upon the
exemption from registration provided by Rule 506 of Regulation D of the Act. The
purchaser was an accredited investor and had access to full information
concerning SUMmedia.com and represented that he purchased the common stock for
his own account and not for the purpose of distribution. The common stock
contained a restrictive legend advising that the securities may not be offered
for sale, sold or otherwise transferred without
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having first being registered under the Act or pursuant to an exemption from
registration under the Act. No underwriters were involved in the transaction.
In June 2000, SUMmedia.com issued 20,000 units to Eastern Dragon Ltd. for gross
cash proceeds of $105,000. Each unit consisted of one share of common stock and
common stock purchase warrant. The per share price was determined by reducing
the market price, at the time of the commencement of negotiations between the
parties, by approximately 15% to 20% due to the illiquidity of the shares. In
addition, SUMmedia.com sold warrants for nominal consideration to give the
purchaser added incentive to invest and to allow the prospect of future
financing. Each unit consisted of one share of common stock and one common stock
purchase warrant. Each warrant is exercisable for 12 months for $7.00 for one
share of common stock. Issuance of the units was made in reliance upon the
exemption from registration provided by Section 4(2) of the Act. The purchaser
was an accredited investor and had access to full information concerning
SUMmedia.com and represented that it purchased the units for its own account and
not for the purpose of distribution. The units contained a restrictive legend
advising that the securities represented by the units may not be offered for
sale, sold or otherwise transferred without having first being registered under
the Act or pursuant to an exemption from registration under the Act. No
underwriters were involved in the transaction.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
a) The following exhibits are filed as part of this report:
Exhibit 10.1 Joint Venture Agreement, dated April 18, 2000
Exhibit 10.2 Operating System Master License Agreement, dated
April 18, 2000
Exhibit 10.3 Services Agreement entered into with
ForSomeoneSpecial.com, Inc., dated June 1, 2000
Exhibit 27 Financial Data Schedule
b) Reports on Form 8 - K
None.
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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.
SUMmedia.com Inc.
August 12, 2000
By: /s/ Grant M. Petersen
Grant M. Petersen
Chairman and CEO
By: /s/ Steve Tatone
Steve Tatone
Vice President, Finance
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.1 Joint Venture Agreement, dated April 18, 2000
10.2 Operating System Master License Agreement, dated April 18, 2000
10.3 Services Agreement entered into with ForSomeoneSpecial.com, Inc.,
dated June 1, 2000
27 Financial Data Schedule
</TABLE>
