UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
Commission File No.33-55254-42
QUANTITATIVE METHODS CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0485310
-------------------------------- ----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
203-6200 Taschereau Boulevard East
Brossard (Quebec) Canada
J4W 3J8
(Address of principal executive offices, including postal code)
Issuer's telephone number, including area code:(888) 713-2222
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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. [X] Yes [] No
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of June 30, 2000
------------------------------------ -------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 10,300,000 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
NONE
1
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QUANTITATIVE METHODS CORPORATION
FORM 10-QSB/JUNE 30, 2000
TABLE OF CONTENTS
General
Index
PART I
Item 1. - Consolidated Financial Statements:
Balance Sheets -
June 30, 2000 (Unaudited) and December 31, 1999 (Audited) F-1
Statements of Operations - (Unaudited)
Three Months ended June 30, 2000
and 1999 Six Months ended June 30, 2000 and 1999
and from Date of Inception to June 30, 2000 F-2
Statements of Cash Flows - (Unaudited)
Six Months ended June 30, 2000 and 1999
and from Date of Inception to June 30, 2000 F-3
Notes to Consolidated Financial Statements F-4
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations 4
2
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PART I
FINANCIAL INFORMATION
ITEM 1. - Financial Statements.
3
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QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ---------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 0 $ 0
Accounts receivable 10,950 12,412
Income tax recoverable 117,007 111,185
Prepaid expenses 21,961 2,778
---------------- ---------------
TOTAL CURRENT ASSETS 149,918 126,375
PLANT & EQUIPMENT 43,717 50,816
---------------- ---------------
OTHER ASSETS
Patents and trademarks 23,698 28,576
---------------- ---------------
23,698 28,576
---------------- ---------------
TOTAL ASSETS $ 217,333 $ 205,767
================ ===============
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Cash overdraft $ 13,855 $ 11,498
Bank loan 16,747 75,000
Accounts payable and accrued expenses 422,427 342,638
Payable - shareholders 222,385 136,132
Current portion of long-term debt 0 13,705
---------------- ---------------
TOTAL CURRENT LIABILITIES 675,414 578,973
STOCKHOLDERS' (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding 10,300,000 shares 15,475 15,475
Additional paid-in capital 1,836,072 1,836,072
Deficit accumulated during the development stage ( 2,309,628) ( 2,224,753)
--------------- --------------
TOTAL STOCKHOLDERS' (DEFICIT) ( 458,081) ( 373,206)
--------------- --------------
$ 217,333 $ 205,767
================ ===============
</TABLE>
F-1
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Date of
Three Months Ended Six Months Ended Inception
June 30, June 30, to June
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SALES $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- -------------
General and Administrative expenses
Professional fees (1,753) 2,452 1,079 8,446 139,820
Consulting 0 64,900 0 126,094 699,691
Salaries and fringe benefits 11,518 20,815 23,116 33,868 367,732
Rent 5,917 5,465 11,905 10,895 113,560
Traveling and business promotion 173 3,045 1,425 3,045 101,340
Office expenses 644 5,916 1,213 7,369 45,044
Research and development 7,486 24,293 23,287 49,299 327,227
Telephone and communication 850 1,861 1,822 4,153 93,429
Car expenses 0 0 0 0 18,235
Insurance, taxes and licenses 409 438 897 915 24,583
Interest and bank charges 457 462 961 2,101 22,153
Interest on bank loan 1,743 (2,467) 7,192 (1,060) 75,368
Loss on disposal of investment 0 0 0 0 34,845
Depreciation of fixed assets 3,550 4,527 7,100 9,054 101,035
Depreciation of deferred expenses 2,439 2,460 4,878 4,920 35,569
----------- ----------- ----------- ----------- -------------
Total general and
administrative expenses 33,433 134,167 84,875 259,099 2,199,631
----------- ----------- ----------- ----------- -------------
NET INCOME (LOSS)
BEFORE INCOME TAXES ( 33,433) ( 134,167) ( 84,875) ( 259,099) ( 2,199,631)
---------- ---------- ---------- ---------- ------------
INCOME TAXES 0 0 0 0 0
----------- ----------- ----------- ----------- -------------
NET INCOME (LOSS) $( 33,433) $( 134,167) $( 84,875) $( 259,099) $( 2,199,631)
========= ========= ========= ========= ===========
Net income (loss) per weighted
average share $( .00) $( .01) $( .01) $( .03)
========= ========= ========= =========
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 10,300,000 9,300,000 10,300,000 9,300,000
=========== =========== =========== ===========
</TABLE>
F-2
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Date of
Six Months Ended Inception
June 30, to June 30,
2000 1999 2000
---------------- --------------- ------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings (loss) $( 84,875) $( 259,099) $( 2,199,631)
Items not requiring cash outlays:
Stock issued for services 0 0 290,190
Loss on disposal of investment 0 0 34,845
Depreciation of fixed assets
and deferred costs 11,978 13,974 136,604
Decrease in value of software
development costs 0 0 172,682
---------------- --------------- ------------------
( 72,897) ( 245,125) ( 1,565,310)
Changes in non-working capital items ( 2,008) 257,893 289,255
--------------- --------------- ------------------
NET CASH PROVIDED (REQUIRED)
BY OPERATING ACTIVITIES ( 74,905) 12,768 ( 1,276,055)
--------------- --------------- -----------------
INVESTING ACTIVITIES
Acquisition of investment 0 0 ( 100,747)
Proceeds of disposal of investment 0 0 65,902
Increase in software development costs 0 0 ( 172,682)
Acquisition of fixed assets
and deferred expenses 0 ( 8,536) ( 204,018)
---------------- -------------- -----------------
NET CASH (USED)
BY INVESTING ACTIVITIES 0 ( 8,536) ( 411,545)
---------------- -------------- -----------------
FINANCING ACTIVITIES
Variation of advances from shareholders 86,253 ( 957) 222,385
Net proceeds of issuance of shares 0 500 1,451,360
Addition to long-term debt 0 0 134,680
Repayment of long-term debt ( 13,705) ( 16,667) ( 134,680)
--------------- -------------- -----------------
NET CASH (USED)
BY FINANCING ACTIVITIES 72,548 ( 17,124) 1,673,745
---------------- -------------- ------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ( 2,357) ( 12,892) ( 13,855)
Cash and cash equivalents
at beginning of PERIOD ( 11,498) ( 42,556) 0
--------------- -------------- ------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $( 13,855) $( 55,448) $( 13,855)
============== ============= ================
CASH PAID FOR INTEREST $ 1,743 $ 1,041 $ 75,368
</TABLE>
F-3
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QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
The unaudited consolidated financial statements for the quarter ended
June 30, 2000, have been prepared in accordance with the instructions
to Form 10-QSB and, therefore, do not include all information and
footnotes necessary for a complete presentation of financial position,
results of operations, cash flows and stockholder's deficit for the
quarter then ended, in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered
necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a
normal recurring nature. The results of operations for interim periods
are not necessarily indicative of results to be achieved for full
fiscal years. For further information, refer to the Company's annual
consolidated financial statements and related footnotes included on
Form-10KSB for the year ended December 31, 1999.
NOTE 1: INCORPORATION AND NATURE OF BUSINESS
Quantitative Methods Corporation, a development stage enterprise, was
incorporated under the laws of the State of Nevada on July 26, 1990.
The Company acquired 100% ownership of Softguard Enterprises, Inc.,
incorporated in June 23, 1995, to engage in the technical product
research and development and commercialization of the "SLNS" and
"QUORUM" products for use in the field of information systems
management and security. Softguard is a development stage enterprise
and has had no revenues to date.
The historical financial statements prior to December 31, 1998 are
those of Softguard Enterprises Inc.
NOTE 2: BASIS OF FINANCIAL STATEMENT PRESENTATION AND GOING CONCERN
ASSUMPTION
The consolidated financial statements are expressed in Canadian dollars
and have been prepared in accordance with accounting principles
generally accepted in the United States of America.
The Company has incurred operating losses since inception. At June 30,
2000, the Company has an accumulated deficit of $2,309,628.
In view of these matters, the Company's continued existence is
dependent upon its ability to generate sufficient cash flow to cover
operating expenses and to invest in future operations.
Management's goals are to increase revenues and shareholder value
through acquisitions of business opportunities in the technology
sector. QTTM's management believes that actions presently being taken
to obtain additional capital investments through private placement or
other financing will provide adequate working capital over the next
twelve months and enable the Company to continue as a going concern,
without creating new debt.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting Method
The Company recognizes income and expenses based on the accrual method
of accounting.
Consolidation
The consolidated financial statements for June 30, 2000 include the
accounts of the Company and its wholly owned subsidiary, Softguard
Enterprises, Inc. ("Softguard").
Softguard is currently the main line of business for the Company. All
significant inter-company transactions have been eliminated on
consolidation.
F-4
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QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly
liquid investment with an original maturity of three months or less
when purchased to be cash equivalents.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends.
Earnings (Loss) Per Share
Earnings or loss per common and common equivalent share is computed by
dividing net earnings (loss) by the weighted average common shares
outstanding during each period.
Fixed Assets and Deferred expenses
Depreciation and Amortization
Fixed assets and deferred expenses are accounted for at cost. The
Company depreciates its fixed assets and deferred expenses according to
the following methods and annual rates:
Computer equipment Declining-balance method 30%
Computer software Declining-balance method 30%
Furniture and fixtures Declining-balance method 20%
Office equipment Declining-balance method 20%
Leasehold Improvements Straight-line method 33%
Deferred expenses Straight-line method 20%
The carrying value of the property and equipment is evaluated whenever
significant events of changes occur that might indicate an impairment
through comparison of the carrying value to the net recoverable amount.
Revenue Recognition
The Company has not recognized any revenue to date.
Research and Development Costs
All research and development costs, which establish technological
advancement, are charged to operations in the year in which they are
incurred.
Income Taxes
The Company records the income tax effect of transactions in the same
year that the transactions enter into the determination of income,
regardless of when the transactions are recognized for tax purposes.
Tax credits are recorded in the year realized.
The Company uses the assets and liabilities approach for financial
accounting and reporting of income taxes. Under this method, deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial
statements or tax returns. Deferred tax assets and liabilities are
measured using tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period in which
the change occurs.
F-5
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QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Use of Estimates
The financial statements have been prepared in conformity with
generally accepted accounting principles, and as such, requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses during the
reporting period. Estimates also affect the disclosure of contingent
assets and liabilities at the date of the financial statements. Actual
results could differ from the estimates.
The fair value of these financial instruments is not significantly
different than their carrying amounts.
Credit Risk
The Company's exposure to credit risk is nil.
Interest Rate Risk
The subsidiary is exposed to interest rate risk on the bank loan.
Changes in the interest rate of 1% would not have a significant effect
on the net loss, deficit or financial position of the Company.
Translation of Foreign Currencies
Monetary assets and liabilities are translated at the month-end
exchange rate. Any gain or loss due to exchange fluctuation is charged
to the statement of loss.
F-6
<PAGE>
ITEM. 2- Management's Discussion and Analysis of Financial Condition and
Results of Operations
History and Purpose
Quantitative Methods Corporation ("QTTM" or the "Company") was incorporated
under the laws of the State of Nevada on July 26th, 1990. The Company's common
stock is currently traded on the OTC Pink Sheets under the symbol "QTTM".
On January 8th, 1999, the board of directors of QTTM entered into an Agreement
with Softguard Enterprises Inc. ("Softguard"), a private Canadian corporation,
whereby the Company issued and delivered 7,650,000 shares of its Common Stock
bearing a restrictive legend, in exchange for which issuance; QTTM acquired all
of the outstanding shares of Softguard. The transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof.
Following the transaction the former shareholders of Softguard owned 82% of the
outstanding shares of the Company. No material relationship exists between the
former management and directors of Quantitative Methods Corporation and the
current management and directors.
Business Activities
Since its incorporation in June 1995, Softguard Enterprises Inc. has dedicated
itself to the research and product development of technologies for use in the
field of information systems management and security. To ensure that customer
security, performance and robustness of purpose requirements will be met at all
times; Softguard has engineered a unique Internet client/server system
technology based on a series of Master, Sub-Station and Proxy servers.
Softguard is a development stage enterprise and has had no revenues to date.
Softguard's resources have been committed to the implementation of
state-of-the-art Internet protocols to create leading-edge software security
solutions in the development of a discreet, non-intrusive, intelligent and
universal architecture. The system was developed in a Unix environment, based on
Linux. The free POSIX operating system architecture is robust, efficient and
stable.
Reaching the final development stages of the system and core architecture, this
work has primarily consisted of the creation of two products that fall under the
following categories: A) Software License Notification Service ("SLNS"), and B)
Quorum Document Authentication System.
The working prototype of SLNS was designed to provide customers with a secure,
private and efficient means of verifying the origin, legality or integrity of
software within their computing environment. It also provides timely access to
product upgrade and security information.
Quorum provides technology for document validation, version control, and
distributed annotation and approval for organizations that need to verify that a
given file is an authentic replica of an original.
Softguard has submitted a patent application for SLNS to the U.S. Department of
Commerce, Patent and Trademark Office. The application has been examined and
allowed for issuance. Softguard also has patent pending for the SLNS in Canada
and the contracting state of the European Patent Convention.
Softguard's objective is to expand the core technology and the majority of the
existing code to support numerous applications in the secure circulation of
digital information, including sound and image files, online copyright control,
document security and confidentiality audit, as well as virus protection; in
short, supporting the intellectual property protection of every kind of
computerized data.
Management is of the opinion that the Company's SLNS technology, while as yet
untested in the marketplace, represents a viable business opportunity. The SLNS
will enable the corporate or other users to ascertain if their systems contain
unlicenced, unauthorized or other "rogue" software. Management believes that the
market for this product is significant. Management is unaware of any other
product currently available that addresses this need.
At the present time, the Company's main focus is to take advantage of the
tremendous growth of the multi- billion dollar Internet industry that is
creating virtually unlimited acquisition and merger possibilities. To meet the
objectives of its business plan in the short-term and to invest in and ensure
sustainable growth of a diversified portfolio of emerging e-business, the
following potential business venture would provide a source of eventual profit
to the Company.
4
<PAGE>
During 1999, the Company entered into a verbal agreement to acquire 100%
interest in SolarPro Reg'd (Gestion Danpe Inc.) ("SolarPro"), a Canadian-based
solar technology equipment manufacturer and distributor located in Asbestos
(Quebec) Canada. With this acquisition, the Company would receive manufacturing
equipment, prototypes, inventory, accounts receivable and an established market
presence in Canada and the United States. Gestion Danpe, Inc. was incorporated
in March 1991 and has operated under the registered name of SolarPro since
August 1996.
The Company hopes to finalize this acquisition in the third quarter of 2000,
pending the approval and markings from the Canadian Standards Association (CSA)
for the National Recognized Testing Laboratories (NRTL) certification for the
solar units. SolarPro is the top-line and unique manufacturer using anodized
extruded aluminum in the construction of high-end solar units that have minimal
assembly requirements. The primary advantage of these units is the durable, high
quality finish that extends the useful life of the product line for commercial
use.
Based on funding from QTTM, SolarPro will develop a significant
business-to-business e-model and relocate their manufacturing facilities in
order to expand operations and focus resources on product development, sales and
distribution.
The Company intends to implement a cost-effective marketing strategy by
developing a public relations campaign to take advantage of the opportunities
that are being presented in the technology industry with emphasis on
Internet-related businesses. The Company plans to prepare detailed marketing
material, and intends to step-up its marketing activities in 2000 to solicit new
business.
Operating Results
As a result of the foregoing, the Company incurred losses from continuing
operations of $33,433 (CDN) and $84,875 (CDN) for the three months and six
months ended June 30, 2000, respectively, as compared to losses of $134,167
(CDN) and $259,099 (CDN) for the corresponding periods in 1999.
The decrease between years, for the second quarter, in general and corporate
expenses is primarily due to expenses for consulting fees related to project
management of $126,094 (CDN) and research and development costs of $26,012
(CDN).
The majority of the losses incurred by the Company during this quarter were the
result of the on-going efforts of the Company's subsidiary Softguard to advance
the development of its software security and document authentication programs.
Management believes that by substantially reducing the corporate overhead costs
the Company will be able to provide additional cash flow for the Company's
growth phase.
Softguard is currently finalizing a business alliance with a highly reputable
Montreal-based information technology solution provider specializing in the
field of security. Established in 1988, this firm has an excellent track record
and well established client base that consists of major organizations in a
multitude of industries. The objective of this arrangement is to complete the
development activities and customize Softguard's Quorum product to fulfil each
of their client's specific requirements. As a result of this association,
Softguard's research and development staff has been relocated to their premises
where their personnel will oversee the project management and provide necessary
leadership and technical expertise.
Liquidity and Capital Resources
The Company is currently in negotiations with a major investor to raise
additional equity financing capital to meet its short and long-term growth
objectives, including the acquisition of potentially favorable business
opportunities. Although there can be no assurance that the Company will be
successful in its endeavors, management is also seeking additional capital
investment through other sources to fulfill research and development
requirements.
The significant reduction in scientific research and experimental development
grants has made a substantial impact on the Company's cash flow. Softguard's
eligibility status to qualify for these investment tax credits has changed
because it is no longer a Canadian controlled corporation. In addition, the
reduction of research and development staff was a result of Softguard focusing
efforts on the final development stage of the SLNS product. The majority of the
development of the Quorum product was put on hold until more outside funding is
available.
5
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Marketing Plan
The Company intends to implement a cost-effective marketing strategy through a
process of developing a public relations campaign to take advantage of the
opportunities that are being presented in the technology industry with emphasis
on Internet-related businesses. The Company plans to prepare detailed marketing
material, and intends to step-up its marketing activities in 2000 to solicit new
business.
Conclusion
Management's goals are to increase revenues and shareholder value through the
acquisition of potentially favorable business opportunities. To realize its
business plan, QTTM will need to obtain additional capital through private
placements or other financing to pursue acquisitions in the technology sector
and increase sales that will permit the Company to satisfy its working capital
requirements and to continue as a going concern.
The market for the Company's Internet products is highly competitive, and QTTM
expects to encounter an increase in competition. More and more companies are
turning their interests and resources towards security issues since the
resolution of the Y2K problem. It is likely that the competing entities will
have significantly greater experience, resources, facilities, contacts and
managerial expertise and as a result will be in a better position than the
Company to obtain access and engage in the proposed business. The Company may
not be in a position to compete with larger and more experienced entities.
Consequently, business opportunities in which the Company may ultimately
participate are likely to be very risky and extremely speculative. Many of the
Company's competitors have significantly greater research and development,
marketing and financial resources and therefore, represent substantial
competition.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUANTITATIVE METHODS CORPORATION
Dated: August 21, 2000 By: \s\ Robert L. Seaman
--------------------------------------------
ROBERT L. SEAMAN, President and Director
6
