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 September 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 September 30, 2000, the registrant
had 19,632,351 shares of $0.01 par value common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
Page
PART I: FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements 2
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2 - Plan of Operations 13
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities 18
Item 3 - Defaults upon Senior Securities 21
Item 4 - Submission of Matters to a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8 - K 21
Signatures 22
1
<PAGE>
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>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 196,682 $ 2,108,167
Accounts receivable 164,194 65,830
Sales tax recoverable 45,151 173,519
Prepaid expenses 145,160 231,460
---------------- ----------------
Total Current Assets 551,187 2,578,976
Property and equipment, net of accumulated amortization 4,339,017 1,840,821
Goodwill, net of accumulated amortization 8,258,670 11,616,052
Other Assets 291,371 74,359
---------------- ----------------
$ 13,440,245 $ 16,110,208
================ ================
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 5,703,705 $ 1,407,212
Deferred revenue 183,482 104,012
Current portion of obligation under capital lease 381,093 13,318
Short term loans 1,235,826 --
Due to related parties 90,507 56,436
---------------- ----------------
Total Current Liabilities 7,594,613 1,580,978
Obligation under capital lease 572,559 58,939
---------------- ----------------
8,167,172 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 19,632,351 (1999 - 16,142,000) common shares 196,323 161,420
Additional paid-in capital 31,095,911 20,859,829
Warrants issued in connection with private placements 5,366,866 2,552,751
Share subscriptions -- (125,000)
Deficit accumulated during the development stage (31,450,088) (8,959,271)
Accumulated other comprehensive income 64,061 (19,438)
---------------- ----------------
5,273,073 14,470,291
---------------- ----------------
$ 13,440,245 $ 16,110,208
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SUMMEDIA.COM INC.
(FORMERLY RELIANCE RESOURCES INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD FROM
DECEMBER 7, 1990
(DATE OF
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED INCORPORATION) TO
ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------- -----------------
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenue $ 135,844 $ 40,361 $ 1,042,054 $ 40,361 $ 1,174,105
Cost of Revenues 47,668 32,242 437,163 32,242 555,103
------------- ------------- ------------- ------------- -----------------
Gross Profit 88,176 8,119 604,891 8,119 619,002
------------- ------------- ------------- ------------- -----------------
Operating Expenses
General and administrative 1,721,175 915,340 7,132,516 919,840 9,597,925
- Stock-based compensation -- 2,500,000 653,014 2,500,000 3,153,014
Marketing 1,794,051 539,624 7,951,555 539,624 9,379,104
Marketing - loss from sale of
prepaid advertising services 2,318,800 -- 2,318,800 -- 2,318,800
Amortization of goodwill 1,127,296 673,927 3,357,382 673,927 5,158,605
Amortization of property and
equipment 630,866 23,082 1,228,014 23,082 1,325,432
------------- ------------- ------------- ------------- -----------------
Research and development 135,690 44,184 290,906 44,184 387,919
------------- ------------- ------------- ------------- -----------------
7,727,878 4,696,157 22,932,187 4,700,657 31,320,799
------------- ------------- ------------- ------------- -----------------
Loss from operations (7,639,702) (4,688,038) (22,327,296) (4,692,538) (30,701,797)
Share of loss from equity
accounted investment (72,656) -- (163,522) -- (163,522)
------------- ------------- ------------- ------------- -----------------
Loss for the period $ (7,712,358) $ (4,688,038) $ (22,490,818) $ (4,692,538) $ (30,865,319)
============= ============= ============= ============= =================
Basic and fully diluted loss per
share (0.40) (0.40) (1.22) (0.11)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
SUMMEDIA.COM INC.
(FORMERLY RELIANCE RESOURCES INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(EXPRESSED IN U.S. DOLLARS)
(UNAUDITED)
COMMON STOCK WARRANTS ISSUED WITH
PRIVATE PLACEMENTS
ACCUMULATED TOTAL
ADDITIONAL OTHER SHAREHOLDER'S
SHARES AMOUNT PAID IN WARRANTS AMOUNT DEFICIT COMPREHENSIVE EQUITY
CAPITAL INCOME (DEFICIT)
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE-DEC. 31, 1999 16,142,000 161,420 20,734,829 3,311,900 $2,552,751 $ (8,959,271) $(19,438) $14,470,291
Private placement #8 of
308,000 units
(consisting of one
common share and one
warrant)in January
2000 for $3.25 per unit 308,000 3,080 622,155 308,000 249,100 - - 874,335
Private placement #9 of
1,000,000 units
(consisting of one
common share and one
warrant) in January
2000 for $4 per unit 1,000,000 10,000 2,481,953 1,000,000 1,080,172 - - 4,000,000
Private placement #10 of
700,000 units
(consisting of one
common share and one
warrant) in February
2000 for $5.25 per unit 700,000 7,000 2,703,710 700,000 964,290 - - 3,247,125
Option exercise for
159,900 shares at $3
per share in January
2000 159,900 1,599 478,101 - - - - 479,700
Private placement #14 of
50,000 units
(consisting of one
common share and one
warrant) in March 2000
for $6 per unit 50,000 500 235,479 50,000 64,021 - - 300,000
Stock-based compensation 3,000 30 21,720 - - - - 21,750
Stock-based compensation 500 5 3,558 - - - - 3,563
Stock-based compensation - - 635,312 - - - - 635,312
Option exercise for
24,000 shares at
$3.125 per share in
May 2000 24,000 240 74,760 - - - - 75,000
Shares issued to third
party for finders fee
and legal and
consulting services in
June 2000 510,000 5,100 1,779,900 - - - - 1,785,000
Payment of subscription
receivable on Private
Placement #4 - - 125,000 - - - - 125,000
Finders fee on Private
Placement #5 - - (14,375) - - - - (14,375)
Private placement #13 of
20,000 units
(consisting of one
common share and one
warrant) in June 2000
for $5.25 per unit 20,000 200 94,490 20,000 8,585 - - 103,275
Option exercise for
2,300 shares at $3.125
per share in May 2000 2,300 23 (23) - - - - -
Shares issued to third
party for finders fee
in June 2000 5,000 50 14,325 - - - - 14,375
Shares issued to third
party for finders fee
in June 2000 30,840 308 88,357 - - - - 88,665
Private placement #15 of
27,200 units
(consisting of one
common share and one
warrant) in July 2000
for $2.50 per unit 27,200 272 45,092 27,200 22,636 - - 68,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS ISSUED WITH
PRIVATE PLACEMENTS
ACCUMULATED TOTAL
ADDITIONAL OTHER SHAREHOLDER'S
SHARES AMOUNT PAID IN WARRANTS AMOUNT DEFICIT COMPREHENSIVE EQUITY
CAPITAL INCOME (DEFICIT)
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Private placement #16 of
*70,000 units
(consisting of one
common share and one
warrant) in July 2000
for $2.50 per unit 70,000 700 116,044 70,000 58,256 - - 175,000
Private placement #17 of
*28,000 units
(consisting of one
common share and one
warrant) in July 2000
for $2.50 per unit 28,000 280 41,827 28,000 27,893 - - 70,000
Private placement #18 of
*32,500 units
(consisting of one
common share and one
warrant) in July 2000
for $2.25 per unit 32,500 325 44,753 32,500 28,047 - - 73,125
Private placement #19 of
*25,000 units
(consisting of one
common share and one
warrant) in July 2000
for $2.00 per unit 25,000 250 32,277 25,000 17,473 - - 50,000
Private placement #20 of
31,111 units
(consisting of one
common share and one
warrant) in August
2000 for $2.25 per
unit 31,111 311 41,618 31,111 28,071 - - 70,000
Private placement #21 of
200,000 units
(consisting of one
common share and one
warrant) in August
2000 for $2 per unit 200,000 2,000 296,888 200,000 101,112 - - 400,000
Private placement #22 of
20,000 units
(consisting of one
common share and one
warrant) in August
2000 for $2 per unit 20,000 200 29,850 20,000 9,950 - - 40,000
Private placement #23 of
20,000 units
(consisting of one
common share and one
warrant) in August
2000 for $2.50 per unit 20,000 200 33,835 20,000 15,965 - - 50,000
Private placement #24 of
20,000 units
(consisting of one
common share and one
warrant) in August
2000 for $2.50 per unit 20,000 200 33,835 20,000 15,965 - - 50,000
Private placement #25 of
24,000 units
(consisting of one
common share and one
warrant) in August
2000 for $2.50 per unit 24,000 240 38,053 24,000 21,707 - - 60,000
Private placement #26 of
29,000 units
(consisting of one
common share and one
warrant) in August
2000 for $2.25 per unit 29,000 290 39,369 29,000 25,591 - - 65,250
Private placement #27 of
150,000 units
(consisting of one
common share and one
warrant) in September
2000 for $2 per unit 150,000 1,500 223,219 150,000 75,281 - - 300,000
Foreign currency
translation adjustment - - - - - - 83,499 83,499
Loss for the period - - - - - (22,490,818) - (22,490,818)
----------------------------------------------------------------------------------------------------------
Total comprehensive - - - - - - - (22,407,319)
income
----------------------------------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 19,632,351 196,323 31,095,911 6,066,711 $5,366,866 $(31,450,089) $64,061 $5,273,073
2000
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
SUMMEDIA.COM INC.
(FORMERLY RELIANCE RESOURCES INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
(UNAUDITED)
PERIOD FROM
DECEMBER 7, 1990
(DATE OF
NINE MONTHS ENDED INCORPORATION) TO
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- -----------------
2000 1999 2000
<S> <C> <C> <C>
Cash Flows From Operating Activities
Loss for the period $ (22,490,818) $ (4,692,538) $ (30,865,319)
Adjustments to reconcile loss for the period to net cash
used in operating activities
Stock based compensation 653,014 2,500,000 3,153,014
Amortization of property and equipment and goodwill 4,585,396 697,009 6,484,037
Share of loss from equity accounted investment 163,522 -- 163,522
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 (103,162) (2,883) (164,835)
Sales tax recoverable 124,021 (41,550) (20,567)
Prepaid expenses 78,682 (23,051) (144,546)
Accounts payable and accrued liabilities 4,446,060 350,086 5,739,268
Deferred revenue 85,425 (13,503) 60,326
----------------- ----------------- -----------------
(11,185,460) (1,226,430) (14,322,700)
----------------- ----------------- -----------------
Cash flows from (used in) financing activities
Proceeds from issuance of common shares 11,232,075 2,000,000 18,596,305
Due to related parties 34,071 (505,834) (707,029)
Repayments of capital lease obligations (91,988) (1,999) (97,054)
Proceeds from Sales Leaseback 417,689 -- 417,689
Proceeds from short term loans 1,235,826 -- 1,235,826
----------------- ----------------- -----------------
12,827,673 1,492,167 19,445,737
----------------- ----------------- -----------------
Cash flows from (used in) investing activities
Purchase of property and equipment (3,198,413) (128,831) (4,756,430)
Other assets (335,534) (12,540) (330,820)
Cash acquired on acquisition of SUM Media Corp. -- 212,591 212,591
----------------- ----------------- -----------------
(3,533,947) 71,220 (4,874,659)
----------------- ----------------- -----------------
Foreign exchange effect on cash (19,751) (10,327) (51,696)
----------------- ----------------- -----------------
Net increase in cash and cash equivalents (1,911,485) 326,630 196,682
Cash and cash equivalents at beginning of period 2,108,167 -- --
----------------- ----------------- -----------------
Cash and cash equivalents at end of period $ 196,682 $ 326,630 $ 196,682
================= ================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
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 experienced recurring net losses of $22,490,818 for the nine
months ended September 30, 2000 and $8,314,771 for the year ended December 31,
1999. The company has not been able to generate significant revenues from its
current business model. The company has a net working capital deficiency of
$7,043,426 and only $196,682 of cash available as at September 30, 2000. During
the three months ended September 30, 2000, in efforts to raise funds for
operations, the company entered into a sale leaseback transaction and the
company returned to a vendor advertising credits at a discounted price.
Subsequent to September 30, 2000, the company pledged as collateral a secondary
charge over all present and future property, assets, rights and undertakings of
the company related to amounts owed to a certain major supplier. Further, the
company is actively pursuing additional funding to continue its current
operations. These current conditions have and are significantly affecting the
company's operations and liquidity. These matters raise substantial doubt about
the company's ability to continue as a going concern. The company's continued
existence is dependent upon several factors including the company's ability to
generate revenues and obtain additional funding.
In addition to the activities noted above and reducing discretionary spending,
the company is discussing with other parties, business opportunities to further
develop their ecoupon business. These discussions are at a preliminary stage and
there are no assurances that the company will be successful in consummating
these opportunities. During the current quarter, the company will be forced to
make difficult decisions regarding the future direction and funding of the
company. The company has retained financial and legal advisors who are reviewing
financial alternatives available to the company, including a possible financial
reorganization.
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 financial statements do not include any adjustment relating to the
recoverability of assets or settlement of liabilities that might be necessary
should the Company be unable to continue as a going concern.
In addition, due to the significant uncertainties regarding the company's
ability to generate adequate future cash flows from operations, the company has
assessed that there are preliminary indications of impairment of its long-lived
7
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
assets including software, computer and office equipment, leased automobiles,
goodwill and its investment in a joint venture with Golden Net Limited and Party
Assets Limited. Under such circumstances, generally accepted accounting
principles require that the company estimate the expected future cash flows to
result from the use of the asset and its eventual disposal. If the expected
future cash flows are less than the net carrying amount of the long-lived
assets, an impairment loss is to be recognized. Estimates of expected future
cash flow are to be the best estimate based on reasonable and supportable
assumptions and projections. Management has not yet been able to arrive at its
best estimate. Given the current conditions, it is reasonably possible that the
company will not be able to recover the carrying amount of these assets from
operations in the near term. As a result, the carrying amount of long-lived
assets may be reduced materially in the near term as follows:
Property Plant and Equipment
- computer and office equipment and leased automobile written down to
approximately 40% of carrying value
- software written down to nil
Goodwill
- written down to nil
Investment in joint venture
- written down to nil
Additional write-downs of other categories of assets may also result in the near
term. These consolidated financial statements do not give effect to any such
adjustments.
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.
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 September 30, 2000 and the results
of operations for the three and nine month periods ended September 30, 2000 and
1999. The results of operations for the three and nine month periods ended
September 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 and 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. During the three month period ended September 30, 2000,
the company sold $2.55 million of the prepaid advertising services back to the
original vendor for $490,000. At September 30, 2000, the company also wrote down
the remaining $250,470 of prepaid advertising services to $45,085 to reflect the
fair market value of such services based on the transaction entered into during
the quarter. The resulting loss of $2,318,800 has been recorded in Marketing -
loss from sale of prepaid advertising services.
8
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
SEPTEMBER 30, DECEMBER 31,
2000 1999
$ $
------------- -------------
Software 2,861,420 1,251,266
Computer equipment 1,129,848 417,152
Leased computer equipment 899,630 --
Leased automobile 206,320 107,107
Office equipment 115,320 63,130
Furniture and fixtures 207,427 54,113
Leasehold improvements 229,101 66,546
------------- -------------
Property and equipment - at cost 5,649,286 1,959,314
Accumulated Depreciation 1,310,269 118,493
------------- -------------
Property and equipment - net 4,339,017 1,840,821
============= =============
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 license 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 for the three and nine months ended September
30, 2000 were $72,656 and $163,522, respectively. At September 30, 2000, the
carrying value of the investment was $199,350 and is recorded in other assets.
SHORT-TERM LOANS SEPTEMBER 30,
2000
$
------------
Demand Loan 1,000,000
Other 235,826
------------
1,235,826
============
The demand loan is from an unrelated third party, has no specific terms of
repayment, bears interest at prime plus 2%, is unsecured, and is repayable on
demand.
The other short-term loan is from an unrelated third party, has no specific
terms of repayment, bears no interest and is unsecured.
COMMITMENTS
a) The company has the following commitments for the rental of office
premises under the terms of operating leases:
$
-----------
2000 119,000
2001 446,000
2002 433,000
2003 426,000
2004 405,000
-----------
1,829,000
===========
9
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
b) The company has the following lease commitments for computer equipment
and automobiles under the terms of capital leases:
SEPTEMBER 30, DECEMBER 31,
2000 1999
$ $
------------- ------------
2000 21,101 19,114
2001 638,690 19,114
2002 387,578 19,114
2003 46,134 29,650
2004 23,582 --
------------- ------------
1,117,085 86,992
Amount representing interest (163,433) (14,735)
------------- ------------
953,652 72,257
Less: Current portion (381,093) (13,318)
------------- ------------
572,559 58,939
============= ============
During August 2000, the Company entered into a lease agreement with
Hewlett-Packard (Canada) Ltd. whereby the Company obtained lease financing in
the amount of $1,040,000 including a sale leaseback of previously purchased
equipment in the amount of $420,000. Under the terms of the lease agreement, the
leases are repayable over a period of two years and are secured by a general
security agreement which creates a first priority charge over all present and
future property, assets, rights and undertakings of the Company. On the sale
leaseback transaction, the Company recorded a gain of $70,000. This gain has
been deferred and recorded in fixed assets and is being amortized into income
over the term of the lease.
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and foreign currency translation
adjustments. Comprehensive loss was $7,557,354 and $4,709,766 for the
three-month periods ended September 30, 2000 and 1999, respectively and
$22,407,319 and $4,714,266 for the nine-month periods ended September 30, 2000
and 1999, respectively.
SEGMENT INFORMATION
The company identifies its operating segments based on business activities,
management responsibility and geographical location. During the nine months
ended September 30, 2000, the company operated within three operating segments
(online couponing services, website design and online advertising), and operated
in two geographic areas (Canada and the United States). Substantially all the
company's assets are located in Canada and substantially all of its revenues
were earned in Canada.
<TABLE>
<CAPTION>
Consolidated Online Couponing Website Design Online Advertising
-------------------------- -------------------------- ------------------------ ------------------------
Sept 30, Dec 31, Sept 30, Dec 31, Sept 30, Dec 31, Sept 30, Dec 31,
2000 1999 2000 1999 2000 1999 2000 1999
$ $ $ $ $ $ $ $
----------- ---------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 1,042,054 132,051 169,326 96,398 748,208 23,769 124,520 11,884
Operating income
(loss) (17,741,900) (6,416,130) (18,220,229) (6,439,221) 378,468 13,317 99,861 9,774
Goodwill amort 3,357,382 1,801,223 3,357,382 1,801,223 -- -- -- --
Amortization of
capital assets 1,228,014 97,418 1,207,389 90,543 3,750 1,250 16,875 5,625
Share of loss
from equity
accounted
investment 163,522 -- 163,522 -- -- -- -- --
Net loss (22,490,818) (8,314,771) (22,948,522) (8,330,987) 374,718 12,067 82,986 4,149
Assets 13,440,245 16,110,208 13,412,745 16,062,083 5,000 8,750 22,500 39,375
</TABLE>
10
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL STOCK
PRIVATE PLACEMENTS ISSUE CASH PROCEEDS WARRANT
PRICE PER AND SHARE EXERCISE WARRANT
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
July 2000 27,200 27,200 2.50 68,000 3.50 12 months
July 2000 70,000 70,000 2.50 175,000 3.50 12 months
July 2000 28,000 28,000 2.50 70,000 3.50 12 months
July 2000 32,500 32,500 2.25 73,125 3.25 12 months
July 2000 25,000 25,000 2.00 50,000 3.00 12 months
August 2000 31,111 31,111 2.25 70,000 3.25 12 months
August 2000 200,000 200,000 2.00 400,000 3.00 12 months
August 2000 20,000 20,000 2.00 40,000 3.00 12 months
August 2000 20,000 20,000 2.50 50,000 3.50 12 months
August 2000 20,000 20,000 2.50 50,000 3.50 12 months
August 2000 24,000 24,000 2.50 60,000 3.50 12 months
August 2000 29,000 29,000 2.25 65,250 3.25 12 months
September 2000 150,000 150,000 2.00 300,000 2.75 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
VALUE ASSIGNED
NUMBER OF EXERCISE PRICE PER WARRANT (1)
EXPIRY DATE COMMON SHARES $ $
------------- ------------- -------------- ---------------
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
July 2001 25,000 3.00 0.70
July 2001 32,500 3.25 0.86
July 2001 125,200 3.50 0.83 - 1.00
August 2001 1,220,000 3.00 0.34 - 0.51
August 2001 60,111 3.25 0.88 - 0.90
August 2001 64,000 3.50 0.80 - 0.90
September 2001 150,000 2.75 0.50
For the nine months ended September 30, 2000, no warrants were exercised.
11
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
(1) The value assigned to the warrants 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.
STOCK OPTIONS
A summary of the activity under the stock option plan is as follows:
NUMBER OF EXERCISE PRICE
COMMON PER SHARE
SHARES $
--------- -----------
Balance - December 31, 1999 2,472,000 3.12 - 3.44
Granted January 1 to Sept.
30, 2000 1,044,800 3.12
Exercised January 1 to Sept.
30, 2000 (26,300) 3.12
Cancelled January 1 to Sept.
30, 2000 (757,800) 3.12 - 3.44
--------- -----------
Balance - September 30, 2000 2,732,700 3.12 - 3.44
========= ===========
In addition to the options issued pursuant to the stock option plan, the company
issued 95,000 stock options on January 3, 2000 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.
On July 5, 2000, the company repriced 355,200 options that were issued under the
1999 stock option plan with exercise prices from $4.25 to $8.88. The new
exercise price for these options is $3.12. In accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", the
Company is required to recognized stock based compensation related to the
repriced options to the extent that the market price of the Company's shares
subsequent to the repricing exceeds the revised exercise price for the options.
For the three month period ended September 30, 2000, no stock based compensation
has been recorded related to these repriced stock options as the market price of
the Company's shares has been below the new exercise price for the repriced
options from the date of the repricing to September 30, 2000.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS PERIOD FROM DECEMBER
ENDED ENDED 7, 1990 (DATE OF
SEPTEMBER 30, SEPTEMBER 30, INCORPORATION) TO
2000 1999 SEPTEMBER 30, 2000
------------- ------------- --------------------
<S> <C> <C> <C>
Supplemental non-cash investing and financing activities
Issuance of common shares for acquisition of SUM -- -- 12,000,000
Media Corp.
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
Issuance of common shares for Joint Venture finder's 45,000 -- 45,000
fee
Capital lease obligations 976,527 -- 1,053,850
</TABLE>
12
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
CONTINGENCIES
Pursuant to a Settlement Agreement dated July 25, 2000, related to a legal
action against the company by a former officer and director for unfair
dismissal, the company has been informed that the former officer and director
has commenced a new legal action for non-performance with regards to the
settlement agreement. Specifically, the former officer and director of the
company is claiming that the company did not fulfill its obligation under the
settlement agreement to find a placee for 200,000 restricted SUMmedia.com shares
held by the former officer and director at a price equal to $4.00 per share. The
former officer and director of the company is claiming damages of $800,000 and
costs. The company's management believes the claim to be unfounded and expects
to be successful in defending the legal action.
SUBSEQUENT EVENTS
During October 2000, the Company entered into a general security agreement with
DDB Worldwide Communications Group Inc. related to outstanding accounts payable
as at September 30, 2000 in the amount of $3.0 million. Under the terms of the
agreement, the Company granted DDB Worldwide Communications Group Inc. a
secondary charge over all present and future property, assets, rights and
undertakings of the Company.
During October and November 2000, as part of a plan to restructure its
operations, the Company closed its corporate offices in Toronto, Calgary,
Atlanta and Seattle. In conjunction with the closing of these offices and a
reduction of staffing levels in Vancouver, a total of 62 employees were laid
off.
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 since inception.
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 continue to pursue additional
financings to fund operations until it is able to generate significant revenues
and profits from its business operations. During the three months ended
September 30, 2000, in an effort to raise funds for operations, the company
entered into a sale leaseback transaction and the company sold previously
purchased advertising credits to the original vendor at a significantly reduced
price. In addition, subsequent to September 30, 2000, the company pledged as
collateral a secondary charge over all present and future property, assets,
rights and undertakings of the company related to $3.0 million owed to a certain
major supplier.
SUMmedia.com's existing cash and cash sources will not be sufficient to fund its
losses from operations, its capital expenditures and other obligations. If
SUMmedia.com is not able to generate sufficient cash flow from operations or to
raise additional capital through financings, in sufficient amounts, and on terms
acceptable to SUMmedia.com, its business, financial condition and operating
results will be materially adversely affected. The company's current financial
condition has significantly affected the company's operation and liquidity and
continues to do so.
13
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
EMPLOYEES
As of September 30, 2000, SUMmedia.com had 118 employees (including 67 in
Vancouver, British Columbia, 17 in Toronto, Ontario, 15 in Atlanta, Georgia, 14
in Seattle, Washington and 5 in Calgary, Alberta. 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 nine
month periods ended September 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.
During the quarter ended September 30, 2000, SUMmedia.com announced a new
strategic focus where the company would become an application service provider.
Under this new direction, SUMmedia.com will market its eCoupon services under
the "SUMsolutions" (TM) banner to businesses that want to increase their ability
to target and reach new customers and to improve existing customer
relationships. The SUMsolutions (TM) product will allow businesses to extend
SUMmedia.com internet-based marketing tools, such as web sites and web-based and
wireless coupons, to their customers. For the quarter ended September 30, 2000,
SUMmedia.com has not recorded any SUMsolutions (TM) product revenues.
SUMmedia.com incurred a loss of $7.7 million for the three months ended
September 30, 2000 and a loss of $22.5 million for the nine months ended
September 30, 2000, due primarily to operating expenses and marketing and
branding development. Non-cash charges included in the losses for the three and
nine months ended September 30, 2000 were $4.1 million and $8.9 million,
respectively, and related to stock based compensation, non-cash consulting and
legal fees, amortization of property and equipment, amortization of goodwill and
a loss from the sale of prepaid advertising. Excluding the non-cash charges,
SUMmedia.com incurred a loss of $3.6 million for the three months ended
September 30, 2000 and a loss of $13.6 million for the nine months ended
September 30, 2000
Revenues for the nine months ended September 30, 2000 were approximately $1.0
million. Revenues for the three months ended September 30, 2000 were
approximately $135,000. Revenues from web site development contracts accounted
for 68% and 17% of total revenues for the nine months and three months ended
September 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 nine months ended September
30, 2000, web site development revenues relate primarily to work done on two
large contracts which accounted for 90% of the revenues earned from this revenue
source.
Coupon revenues form the next largest component of revenue for the nine months
ended September 30, 2000, comprising 16% of total revenues earned during this
period. For the three months ended September 30, 2000, coupons accounted for 45%
of total revenues. Coupon revenues are earned by the company for each month that
SUMmedia.com coupons are posted on the savingumoney.com website.
Additional revenues derived from online advertising on SUMmedia.com's website
were earned by the company for each month that a customer's banner ads were
posted on a SUMmedia.com website. Online advertising accounted for 12% and 38%
of total revenues for the nine months and three months ended September 30, 2000,
14
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
respectively. The remainder of SUMmedia.com's revenues were derived from the
resale of computer equipment and software which accounted for 4% and 0% of total
revenues for the nine months and three months ended September 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
were $132,000.
During the nine months ended September 30, 2000, SUMmedia.com incurred $7.1
million on various general and administration costs. General and administration
costs for the three months ended September 30, 2000 were $1.7 million. The
amount spent on general and administration declined during the quarter ended
September 30, 2000, as management continued to focus on reducing operating
costs. A large component of general and administration expenses for the nine
months ended September 30, 2000 are the cost attributed to the shares issued in
respect of the various consulting services in the amount of $1.2 million ($0 for
the three months ended September 30, 2000). Also included in general and
administration costs are salaries and benefits of $2.2 million for the nine
months ended September 30, 2000 and $730,000 for the three months ended
September 30, 2000 related to management, administration and information
technology employees. At September 30, 2000, there were approximately 25
executive management and administrative personnel and approximately 35
information technology employees. General and administration also includes
$200,000 for the three and nine months ended September 30, 2000 related to
severance for senior management including John Veltheer, President, David Lewis,
Chief Financial Officer and Secretary, and Al Szajman, Vice President of
Marketing. The company also incurred $1.4 million and $550,000 for the nine
months and three months ended September 30, 2000, respectively, related to
office operations consisting primarily of rent, telecommunication costs,
information and infrastructure IT support costs and office administration costs
including supplies, office equipment rentals, training, subscriptions, printing
and couriers. Another significant expenditure for the nine months ended
September 30, 2000 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 $570,000. For the three months ended September 30,
2000, expenditures related to travel were reduced as management focused on
working with opportunities in the North American market resulting in
expenditures of $20,000. Also included in general and administration expenses
are accounting and legal fees of $640,000 and $160,000 for the nine and three
months ended September 30, 2000, respectively, related primarily to the
completion of the company's 10-SB registration statement in the first quarter of
2000, ongoing SEC reporting including 10-QSB, 8-K and proxy reports, filing 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 $330,000 to general and
administration expenses for the nine months ended September 30, 2000 and $45,000
for the three months ended September 30, 2000. In the quarter ended September
30, 2000, management has focused on reducing the use of outside investor and
public relations consultants and has moved these efforts to in-house staff to
reduce costs in this area. For the nine months ended September 30, 2000, the
company incurred $520,000 related to information technology consultants. These
consultants were engaged to assist in the reconfiguring of SUMmedia.com's
network, arrange wide area networks, arrange SUMmedia.com's server co-location
facilities, assist in deploying SUMmedia.com's branches worldwide and provide
technical support. For the three months ended September 30, 2000, the company
incurred minimal costs in this area. General and administration costs for the
year ended December 31, 1999 were $2.4 million.
Research and development costs amounted to $290,000 and $135,000 for the nine
months and three months ended September 30, 2000, respectively. Research and
development costs were primarily comprised of payments to outside 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 nine months ended September 30, 2000, SUMmedia.com incurred $8.0
million on various sales and marketing costs. For the three months ended
September 30, 2000, the sales and marketing costs amounted to $1.8 million.
Sales and marketing costs include salaries and benefits of $1.7 million for the
nine months ended September 30, 2000 and $0.5 million for the three months ended
September 30, 2000. At September 30, 2000, there were approximately 58 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,
15
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 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. During the quarter ended September 30, 2000, consistent with
managements focus on reducing operating costs and the shift in focus to the
application service provider model, the company reduced its marketing efforts.
Total marketing costs related to promotional activities for the quarter ended
September 30, 2000 amounted to $1.3 million. Of the $1.3 million spent on
promotional activities during the quarter ended September 30, 2000, $0.6 million
related to the use of SUMmedia.com's prepaid advertising services; included in
sales and marketing expenses for the nine months ended September 30, 2000, is
$1.1 million related to the use of these prepaid advertising services. Sales and
marketing costs for the year ended December 31, 1999 were $1.4 million. Also,
during the three month period ended September 30, 2000, the company recorded a
loss of $2,318,800 in Marketing - loss from sale of prepaid advertising
services. This loss resulted from the sale of $2.55 million of prepaid
advertising services back to the original vendor for $490,000 and a write down
of the remaining $250,470 of prepaid advertising services to $45,085 to reflect
the fair market value of such services based on the transactions entered into
during the quarter.
Stock based compensation of $653,000 was recorded for the nine months ended
September 30, 2000 ($ nil in the three months ended September 30, 2000). This
amount relates primarily to options issued to certain senior executives.
Amortization expense related to property and equipment was $1.2 million for the
nine months ended September 30, 2000, during which period SUMmedia.com purchased
computers, office equipment, furniture and fixtures and software at a total cost
of $3.2 million. Amortization expense related to goodwill on the purchase of SUM
Media Corp. was $3.4 million for the nine months ended September 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 September 30, 2000, SUMmedia.com had approximately $0.2 million in cash, a
working capital deficiency of $7.0 million and shareholders' equity of $5.3
million. During the quarter ended September 30, 2000, in order to raise funds
for operations, the Company sold prepaid advertising at a loss and entered into
a sale leaseback transaction. Subsequent to September 30, 2000, the company also
entered into a security agreement with a major supplier in order to meet
financial obligations. The company's current financial situation is
significantly affecting the company's operations and liquidity. These matters
raise substantial doubt about the company's ability to continue as a going
concern. The company's continued existence is dependent upon several factors
including the company's ability to generate revenues and obtain additional
funding.
Net cash used in SUMmedia.com's operating activities was $11.2 million for the
nine months ended September 30, 2000. Net cash flows used in operating
activities consisted primarily of a loss for the nine months of $22.5 million.
The loss for the nine months was offset by non-cash stock based compensation
charges of $0.7 million, amortization of property and equipment and goodwill of
$4.6 million, a share of the loss from an equity accounted investment of $0.2
million and non-cash consulting and legal fees of $1.2 million. The change in
the company's net working capital also contributed $4.6 million to operating
cash flows.
Cash flows from financing activities of $12.8 million for the nine months ended
September 30, 2000 were derived primarily from $11.2 million of proceeds
received from the issuance of common shares and from a $1.2 million short-term
loan. The company also entered into a sales leaseback which generated $0.4
million.
Cash flows used in investing activities of $3.5 million for the nine months
ended September 30, 2000 related primarily to purchases of property and
equipment of $3.2 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 its change to the ASP model and to decrease costs by reducing
non-core expenditures. There can be no assurances, however, that management
attempts will produce significant revenue or that cost reductions will enable
the company to generate operating income.
16
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
For the nine months ended September 30, 2000, SUMmedia.com financed its
operations primarily through private sales of securities and short-term loans.
Dilutive equity issuances completed during the nine 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 its business development initiatives, the
progress of SUMmedia.com's research and development programs, the number and the
progress and nature of its new product development and commercialization efforts
and the competing technological and market developments. In the future,
SUMmedia.com will need to raise substantial additional funds to continue these
efforts and initiatives 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 business development, research and development
and new product development and commercialization efforts. 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 CDN. DOLLAR QUARTER ENDED
EXCHANGE RATES SEPT. 30, 2000 1999 1998 1997 1996
-------------- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Period-end 1.5035 1.4433 1.5333 1.4305 1.3706
Average for the period 1.4720 1.4858 1.4831 1.3844 1.3636
Range 1.4641-1.5070 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. During the
quarter ended September 30, 2000, SUMmedia.com announced a new strategic focus
where the company would become an application service provider. Under this new
direction, SUMmedia.com will market its eCoupon services under the SUMsolutions
(TM) banner to businesses that want to increase their ability to target and
reach new customers and to improve existing customer relationships. The
SUMsolutions (TM) product will allow business to extend SUMmedia.com internet
based marketing tools, such as web sites and web-based and wireless coupons to
their customers. SUMmedia.com will seek joint ventures and other collaboration
with business directory publishers and similar companies which maintain a large
sales force and can act as re-sellers of SUMmedia.com's products and services to
their business customers.
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Pursuant to a Settlement Agreement dated July 25, 2000, related to a legal
action against the company by a former officer and director for unfair
dismissal, the company has been informed that the former officer and director
17
<PAGE>
SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
has commenced a new legal action for non-performance with regards to the
settlement agreement. Specifically, the former officer and director of the
company is claiming that the company did not fulfill its obligation under the
settlement agreement to find a placee for 200,000 restricted SUMmedia.com shares
held by the former officer and director at a price equal to $4.00 per share. The
former officer and director of the company is claiming damages of $800,000 and
costs. The company's management believes the claim to be unfounded and expects
to be successful in defending the legal action.
ITEM 2 - CHANGES IN SECURITIES
All sales of unregistered securities issued by SUMmedia.com were denominated in
U.S. dollars.
In July 2000, SUMmedia.com issued 27,200 units to CEDAR International Advantage
Ltd. for gross cash proceeds of $68,000. 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 $3.50 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.
In July 2000, SUMmedia.com issued 70,000 units to Valdar Enterprises Ltd. for
gross cash proceeds of $175,000. 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 $3.50 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.
In July 2000, SUMmedia.com issued 28,000 units to CEDAR International Advantage
Ltd. for gross cash proceeds of $70,000. 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 $3.50 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.
In July 2000, SUMmedia.com issued 32,500 units to Caribbean Avionics for gross
cash proceeds of $73,125. Each unit consisted of one share of common stock and
common stock purchase warrant. The per share price was determined by reducing
18
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SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
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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 $3.25 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.
In July 2000, SUMmedia.com issued 25,000 units to Industrial Equity Fund Ltd.
for gross cash proceeds of $50,000. 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 $3.00 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.
In August 2000, SUMmedia.com issued 31,111 units to Industrial Equity Fund Ltd.
for gross cash proceeds of $70,000. 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 $3.25 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.
In August 2000, SUMmedia.com issued 200,000 units to Affaires Financiers S.A.
for gross cash proceeds of $400,000. 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 $3.00 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.
In August 2000, SUMmedia.com issued 20,000 units to Pemberly Ltd. for gross cash
proceeds of $40,000. Each unit consisted of one share of common stock and common
stock purchase warrant. The per share price was determined by reducing the
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SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
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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 $3.00 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.
In August 2000, SUMmedia.com issued 20,000 units to Pemberly Ltd. for gross cash
proceeds of $50,000. 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 $3.50 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.
In August 2000, SUMmedia.com issued 20,000 units to CEDAR International
Advantage Ltd. for gross cash proceeds of $50,000. 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 $3.50 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.
In August 2000, SUMmedia.com issued 24,000 units to Industrial Equity Fund Ltd.
for gross cash proceeds of $60,000. 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 $3.50 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.
In August 2000, SUMmedia.com issued 29,000 units to CEDAR International
Advantage Ltd. for gross cash proceeds of $65,250. Each unit consisted of one
share of common stock and common stock purchase warrant. The per share price was
20
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SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
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 $3.25 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.
In September 2000, SUMmedia.com issued 150,000 units to Affaires Financiers S.A.
for gross cash proceeds of $300,000. 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 $2.75 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
On July 17, 2000, the Company held its Annual Meeting of Shareholders. At the
meeting, the shareholders elected as directors Grant M. Petersen (with
10,887,269 affirmative votes and 8,012,431 votes abstaining), John E. Veltheer
(with 10,887,269 affirmative votes and 8,012,431 votes abstaining), Arvid C.
Petersen (with 10,887,269 affirmative votes and 8,012,431 votes abstaining),
Philip Kunsberg (with 10,887,269 affirmative votes and 8,012,431 votes
abstaining), Johnson Chan (with 10,887,269 affirmative votes and 8,012,431 votes
abstaining), and Frank Palmer (with 10,887,269 affirmative votes and 8,012,431
votes abstaining). The shareholders did not elect Derrick Bulawa a director
(with 0 affirmative votes, 10,887,269 negative votes, and 8,012,431 votes
abstaining).
The shareholders also ratified the appointment of PricewaterhouseCoopers as the
independent accountants for the Company for the year ending December 31, 2000
(with 10,887,269 shares voting for and 8,012,431 abstaining).
The shareholders also approved the 1999 Stock Option Plan (with 9,399,094 shares
voting for, 1,000 against and 9,499,606 abstaining).
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 27 Financial Data Schedule
21
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SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
b) Reports on Form 8 - K
On July 27, 2000, the Company filed a report on Form 8-K which announced that
John Veltheer, President, David Lewis, Chief Financial Officer and Secretary,
and Al Szajman, Vice President of Marketing, had resigned their executive
positions. The Company explained that each resigning executive remains committed
to the Company and retains a significant shareholder stake. The Company
announced that it is entering a new development stage and will seek a senior
management group with more operational experience over the next three months.
22
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SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
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.
December 8, 2000
By: /s/ Grant M. Petersen
---------------------
Grant M. Petersen
Chairman and CEO
23
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SUMmedia.com Inc. - Form 10 - QSB (September 30, 2000)
--------------------------------------------------------------------------------
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
24
