UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No.33-55254-42
QUANTITATIVE METHODS CORPORATION
(Name of small business issuer in its charter)
NEVADA 87-0485310
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--------------
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12 (g) of the Exchange Act: None
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
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
As of August 4, 2000, the aggregate market value of the voting common equity
held by non-affiliates of the registrant was $11,853,360 USD, based on 3,912,000
shares and a bid price of $3.03 USD.
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 August 4, 2000
$.001 PAR VALUE CLASS A COMMON STOCK 10,300,000 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
NONE
1
<PAGE>
QUANTITATIVE METHODS CORPORATION
1999 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
General
Index
PART I
Item 1. Description of Business 3
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis or Plan of Operation 6
Item 7. Financial Statements 7
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons 7
Item 10. Executive Compensation 8
Item 11. Security Ownership of Certain Beneficial Owners and
Management 8
Item 12. Certain Relationships and Related Transactions 9
Item 13. Exhibits and Reports on Form 8-K 9
2
<PAGE>
PART I
ITEM 1. Description of Business.
Quantitative Methods Corporation ("QTTM" or the "Company") was incorporated on
July 26th, 1990 under the laws of the State of Nevada, to engage in potential
business ventures which, in the opinion of management, would provide an eventual
profit for the Company, including but not limited to selected mergers and
acquisitions.
In November 1995, the Company, in consideration of the issuance of 150,000
authorized but unissued shares, received $75,000 USD from Capital General
Corporation. The $.50 USD per share sales price was arbitrarily decided upon by
both parties. After the completion of the stock purchase, Capital General became
the holder of approximately 49.6% of the outstanding shares of the Company.
The Company had been in the development stage from inception until December
1998, and its operations had been limited to the aforementioned sale of shares
to Capital General Corporation and the gift of shares to the minority
shareholders. During this period, the Company had continued to actively search
for potential business opportunities, which might have involved the acquisition,
consolidation or reorganization of an existing business in any industry or
geographical location.
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.
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.
3
<PAGE>
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 incurred substantial research and development costs for the core
architecture of the SLNS product prior to the January 1999 purchase. Softguard
spent approximately $240,000 CDN over the past two fiscal years on research and
development activities, of which $163,000 CDN are expenses borne directly by the
Company after the reduction of investment and deferred tax credits. Currently,
five individuals are engaged in various capacities relating to the development
of the Softguard product.
Softguard hopes to be able 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.
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, these
potential business ventures would provide a source of eventual profit to the
Company.
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 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.
4
<PAGE>
ITEM 2. Description of Property.
QTTM's Softguard subsidiary owns various computer and office equipment,
furnishings, etc., acquired at a cost not exceeding $200,000 CDN. Softguard
leases a total of approximately 1,800 square feet of office space in Brossard
(Quebec) Canada, a suburb of Montreal where the majority of the Company's
research and development operations have been conducted. At the present time,
this location also serves as the principal executive offices of QTTM.
ITEM 3. Legal Proceedings.
Legal proceedings relating to the previous officers and directors of
Quantitative Methods Corporation are outlined in detail in the Company's 10K
filing for the year ending December 31, 1997.
Management does not feel that the legal problems of the former officers and
directors of QTTM will have any adverse effect in the future. Current management
has no past legal problems and intends to comply with all applicable laws.
There are no material legal proceedings pending against the Company.
Softguard has been involved in several minor legal proceedings during 1999 from
past operations. This routine litigation occurred in the ordinary course of
business and the majority of these claims have been settled and are incidental.
Management believes that these claims will have no negative impact on the
Company.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year ending
December 31, 1999 to a vote of the Company's security holders.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock is traded on the OTC Pink Sheets under the symbol
"QTTM". The Company's authorized capital stock consists of 25,000,000 shares of
common stock, $.001 par value, of which 10,300,000 shares were issued and
outstanding as of July 31, 2000.
As of December 31, 1998 there was no public trading market for the Company's
$.001 par value common stock nor was there an established trading market for the
Company's stock prior to that date. The Company's common stock commenced trading
on January 27, 1999. The aggregate market value of the stock held by non-
affiliates on that date was $6,750,000 USD.
5
<PAGE>
The following table lists the high and low sales prices for the common stock of
the Company during the two most recent fiscal years:
High Sales Low Sales
Price Price
1998 First Quarter $ 0.00 $ 0.00
Second Quarter 0.00 0.00
Third Quarter 0.00 0.00
Fourth Quarter 0.00 0.00
1999 First Quarter 1.875 0.00
Second Quarter 3.50 0.75
Third Quarter 1.625 0.53125
Fourth Quarter 2.75 0.65625
As of July 31, 2000, the approximate number of holders of record of the common
stock of the Company was 397.
The Company has not declared or paid any dividends on its common stock in the
past. The Company intends to retain all of its earnings, if any, to finance
growth and to meet working capital requirements and does not anticipate
declaring any dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
As of December 31, 1998, the Company had no operational history and had not
engaged in business of any kind. All risks inherent in new and inexperienced
enterprises were, and still are, inherent in the Company's business.
As a consequence of the Agreement dated January 8, 1999, the management and
operations of the Company changed to give effect to the new business of the
Company as described in Item I.
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.
Softguard is 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 the association,
Softguard's research and development staff would be transferred to their
premises in order to oversee the project management and provide necessary
leadership and technical expertise.
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.
6
<PAGE>
The Company had a net loss of $792,636 CDN for the fiscal year ended December
31, 1999 compared with a loss of $375,509 CDN for the year ended December 31,
1998. The increased loss of $417,127 CDN from 1998 was mainly attributable to an
increase in consulting expenses related to developing viable operations.
The increase in general and administrative expenses is primarily due to
consulting fees of $125,788 CDN related to project management and $290,190 CDN
for both financial and investor relations. 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.
The significant reduction in scientific research and experimental development
grants has made a substantial contribution to the increase in losses.
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.
While management believes, although there can be no assurance, that the Company
is sufficiently capitalized to continue operations for the next twelve months,
management is currently seeking additional capital investment to fulfill
research and development requirements which could have a material impact on
short-term growth objectives.
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.
ITEM 7. Financial Statements.
The Company's Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the independent auditor's report, with respect thereto, referred
to in the Index to Financial Statements, appear in Item 13 in this Form-10KSB.
ITEM 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth information concerning the executive officers and
directors of the Company, including their ages and positions with the Company
during the year ended December 31, 1999.
On January 12, 1999, following the resignation of Ms. Nielson and Ms. Belliston,
new directors and officers were appointed who will serve until the next annual
meeting of the Company's stockholders.
Name Age Position
---- --- --------
Robert L. Seaman 58 President/Director
Helga Leuthe 40 Secretary/Treasurer/Director
7
<PAGE>
Robert L. Seaman
Mr. Seaman, 58, has been President and Director of QTTM since January 12, 1999.
For the past six years Robert L. Seaman has been engaged in the private practice
of law maintaining his office, at Suite 3200, 515 Madison Avenue, New York, N.Y.
10022. Mr. Seaman also serves as a director of United Energy Corporation of
Secaucus, N.J.
Helga Leuthe
Ms. Leuthe, 40, has been Secretary/Treasurer and Director of QTTM since January
12, 1999. Over the past five years, Ms. Leuthe has served as Secretary/Treasurer
and Director of Softguard. She is responsible for human resources,
administration and internal operations at QTTM and Softguard. Previously, Ms.
Leuthe held corporate positions in finance and accounting in industry, including
information technology, publishing, tourism, pulp and paper and investments. Ms.
Leuthe's educational background is in management and accounting. Ms. Leuthe is
also an officer and director of Egret, Inc., a public company.
Directors are appointed annually and serve until the next annual meeting of the
Company's stockholders, and until their successors have been elected and have
qualified. Officers are appointed to their positions, and continue in such
positions, at the discretion of the directors. There are no family relationships
among the directors or executive officers of QTTM.
ITEM 10. Executive Compensation.
During the year ended December 31, 1999 the Company had no arrangements for the
remuneration of its officers and directors, except that they were entitled to
receive reimbursement for actual, demonstrable out-of- pocket expenses,
including travel expenses, if any, made on the Company's behalf on the
investigation of business opportunities.
The Company will pay compensation to the officers and directors elected in 2000,
if at all, at a rate yet to be determined by the board of directors.
ITEM 11. Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 31, 2000, information with respect to
(a) any person (including any "group") who is known to the Company to be the
beneficial owner of more than five percent (5%) of any class of the Company's
voting securities (b) security ownership by management (i) each of the officers
and directors named in Item 9 above and, (ii) the officers and directors of the
Company as a group. The Company believes that, unless otherwise indicated, each
of the shareholders has sole voting and investment power with respect to the
shares beneficially owned.
8
<PAGE>
HOLDERS OF GREATER THAN 5% OF CLASS
<TABLE>
<CAPTION>
Name and Address Amount of
Title of Class of Beneficial Owner Beneficial Ownership Percent of Class
-------------- ------------------- -------------------- ----------------
<S> <C> <C> <C>
Common Stock Haven Trading Ltd. 4,500,000 43.7%
Sea Meadow House
Blackburne Highway
P.O. Box 116
Roadtown, Tortola BWI
Common Stock Capital General Corporation 538,000 5.22%
8661 S. Highland Drive
PMB 150
Sandy, UT 84093
Common Stock Versa Capital Inc. 550,000 5.33%
Tradewinds Building
PO Box N-9645
Nassau, Bahamas
TOTAL OF ALL SHAREHOLDINGS
OF GREATER THAN 5% 5,588,000 54.25%
------------------
DIRECTORS AND OFFICERS
Common Stock Robert L. Seaman 400,000 3.88%
515 Madison Avenue
Suite 3200
New York, N.Y. 10022
(Director and Officer)
Common Stock Helga Leuthe 400,000 3.88%
6200 Taschereau Blvd East
Suite 203
Brossard (Quebec) Canada J4W 3J8
(Director and Officer)
TOTAL SHAREHOLDINGS OF
DIRECTORS AND OFFICERS 800,000 7.76%
</TABLE>
ITEM 12. Certain Relationships and Related Transactions.
As of July 31, 2000, no director, officer, nominee for election as a director,
or associate of such director, officer or nominee is, or was, in debt to the
Company or engaged in any other transactions with the Company.
ITEM 13. Exhibits and Reports on Form 8-K.
Documents filed as part of the report:
1) The financial statements filed for the fiscal period ended December
31, 1999 as part of this report are listed separately in the Index to
Financial Statements.
9
<PAGE>
2) Reports on Form 8-K:
a) There were no reports on Form 8-K filed during the fourth quarter
of the fiscal year ended December 31, 1999.
b) The Company filed a Form 8-K on January 21, 1999 which disclosure
required by Item 1 - Change in control of the Registrant; and
Item 6 - Resignations of Registrant's Directors and Officers.
c) The Company filed a Form 8-K/A on March 14, 2000 which disclosure
required by Item 7 - Audited Financial Statements of Softguard
Enterprises Inc. for the six months ending December 31, 1998 and
the year ended June 30, 1998. Audited Schedule of Expenses for
the year ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
Dated: August 21, 2000 By: /s/ Helga Leuthe
-----------------------------------------------
HELGA LEUTHE, Secretary/Treasurer and Director
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: August 21, 2000 By: /s/ Robert L. Seaman
ROBERT L. SEAMAN, President and Director
Dated: August 21, 2000 By: /s/ Helga Leuthe
HELGA LEUTHE, Secretary/Treasurer and Director
10
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index
Independent Auditor's Report F-2
Consolidated Financial Statements:
1) Balance Sheet - December 31, 1999 F-3
2) Statements of Operations
Fiscal Years ended December 31, 1999 and 1998,
and from Date of Inception to December 31, 1999 F-4
3) Statements of Cash Flows
Fiscal Years ended December 31, 1999 and 1998,
and from Date of Inception to December 31, 1999 F-5
4) Statements of Changes in Stockholders' Equity (Deficit)
Fiscal Years ended December 31, 1999 and 1998,
and from Date of Inception to December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Smith
&
Company
A Professional Corporation of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Quantitative Methods Corporation
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Quantitative
Methods Corporation (a development stage company) and subsidiary as of December
31, 1999, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years ended December 31,
1999 and 1998, and for the period of July 26, 1990 (date of inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quantitative Methods
Corporation (a development stage company) and subsidiary as of December 31,
1999, and the results of their operations, changes in stockholders' equity
(deficit), and their cash flows for the years ended December 31, 1999 and 1998,
and for the period of July 26, 1990 (date of inception) to December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has an accumulated deficit of $2,224,753 at December 31, 1999 and
has no revenue. The Company has suffered losses from operations and has a
substantial need for working capital. This raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 11 to the financial statements. The accompanying
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
/s/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
July 19, 2000
10 West 100 South, Suite 700 o Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 o Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants
o Utah Association of Certified Public Accountants
F-2
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
December 31,
1999
----------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ --
Accounts receivable 12,412
Income tax recoverable 111,185
Prepaid expenses 2,778
----------------
TOTAL CURRENT ASSETS 126,375
PLANT & EQUIPMENT (Note 3) 50,816
----------------
OTHER ASSETS
Patents and trademarks (Note 4) 28,576
----------------
28,576
----------------
TOTAL ASSETS $ 205,767
================
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Cash overdraft $ 11,498
Bank loan (Note 9) 75,000
Accounts payable and accrued expenses 342,638
Payable - shareholders (Note 10) 136,132
Current portion of long-term debt (Note 9) 13,705
----------------
TOTAL CURRENT LIABILITIES 578,973
STOCKHOLDERS' (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding
10,300,000 shares 15,475
Additional paid-in capital 1,836,072
Deficit accumulated during the
development stage (2,224,753)
----------------
TOTAL STOCKHOLDERS' (DEFICIT) (373,206)
----------------
$ 205,767
================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year Ended Year Ended Date of Inception
December 31, December 31, to December 31,
1999 1998 1999
--------------- ----------------- ---------------
<S> <C> <C> <C>
SALES $ 0 $ 0 $ 0
--------------- ----------------- ---------------
General and Administrative expenses
Professional fees 42,203 44,471 138,741
Consulting 420,685 32,896 699,691
Salaries and fringe benefits 61,418 4,384 344,616
Rent 24,680 26,295 101,655
Traveling and business promotion 16,154 7,825 99,916
Office expenses 8,206 2,467 43,827
Research and development 154,368 149,573 303,941
Telephone and communication 8,656 10,302 91,607
Car expenses - 1,959 18,235
Insurance, taxes and licenses 6,952 5,008 23,686
Interest and bank charges 5,042 12,915 21,192
Interest on bank loan 13,741 7,369 68,175
Loss on disposal of investment - 34,845 34,845
Depreciation of fixed assets 18,342 26,769 93,935
Depreciation of deferred expenses 12,189 8,431 30,691
------------- ------------- -------------
Total general and administrative expenses 792,636 375,509 2,114,753
------------- ------------- -------------
NET INCOME (LOSS)
BEFORE INCOME TAXES ( 792,636) ( 375,509) ( 2,114,753)
------------ ------------- -------------
INCOME TAXES - - ( 0)
------------- ------------- -------------
NET INCOME (LOSS) $ ( 792,636) $ ( 375,509) $ ( 2,114,753)
============ ============= =============
Net income (loss) per weighted
average share $ ( .08) $ ( .05)
============ ============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 9,581,233 7,650,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year Ended Year Ended Date of Inception
December 31, December 31, to December 31,
1999 1998 1999
--------------- --------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings (loss) $ ( 792,636) $ ( 375,509) $ ( 2,114,753)
Items not requiring cash outlays:
Loss on disposal of investment - 34,845 34,845
Stock issued for services 290,190 -- 290,190
Depreciation of fixed assets
and deferred costs 30,531 35,200 124,626
Decrease in value of software
development costs - 172,682 172,682
------------- ------------- -------------
( 471,915) ( 132,782) ( 1,492,410)
Changes in non-working capital items 504,023 ( 42,977) 291,261
------------- ------------- -------------
NET CASH PROVIDED (REQUIRED)
BY OPERATING ACTIVITIES 32,108 ( 175,759) ( 1,201,149)
------------- ------------- -------------
INVESTING ACTIVITIES
Acquisition of investment - ( 100,747) ( 100,747)
Proceeds of disposal of investment - 65,902 65,902
Increase in software development costs - - ( 172,682)
Acquisition of fixed assets
and deferred expenses ( 2,899) ( 56,747) ( 204,018)
------------- ------------- -------------
NET CASH (USED)
BY INVESTING ACTIVITIES ( 2,899) ( 91,592) ( 411,545)
------------- ------------- -------------
FINANCING ACTIVITIES
Variation of advances from
shareholders 2,526 ( 670,937) 136,132
Net proceeds of issuance of shares -- 1,010,360 1,451,360
Addition to long-term debt - - 134,680
Repayment of long-term debt ( 19,628) ( 62,334) ( 120,976)
------------- ------------- -------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES ( 17,102) 277,089 1,601,196
------------- ------------- ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 12,107 9,738 ( 11,498)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR ( 23,605) ( 33,343) -
------------- ------------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $( 11,498) $( 23,605) $( 11,498)
============= ============ ===========
CASH PAID FOR INTEREST $ 13,741 $ 7,369 $ 68,175
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
Shares $ Amount Capital Stage
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at 06/23/95
(Date of inception) 0 $ 0 $ 0 $ 0
Issuance of common
stock at $1.00 per
share at 07/27/95 1 1 0 0
Issuance of common
stock at $1.00 per
share at 11/01/95 999 999 0 0
Additional paid-in capital
at 06/30/96 0 0 440,000 0
Net loss for period ( 268,329)
------------- ------------- ------------- -------------
Balance at 06/30/96 1,000 1,000 440,000 ( 268,329)
Net loss for period ( 463,423)
------------- ------------- ------------- -------------
Balance at 06/30/97 1,000 1,000 440,000 ( 731,752)
Net loss for period ( 214,859)
------------- ------------- ------------- -------------
Balance at 12/31/97 1,000 1,000 440,000 ( 946,611)
Issuance of common
stock - stock split
at 06/30/98 and
additional paid-in capital 999,000 0 845,897 0
Issuance of common
stock at $.02 per
share at 12/31/98 and
additional paid-in capital 6,650,000 6,650 157,813 0
Net loss for period ( 375,509)
------------- ------------- ------------- -------------
Balance at 12/31/98 7,650,000 7,650 1,443,710 ( 1,322,120)
Amount transferred to deficit ( 109,997)
Re-capitalization on 01/09/99 1,150,000 5,654 104,343 0
Issuance of common
Stock at $.001 per
Share for services at 01/16/99 500,000 724 0 0
Issuance of common
Stock at $.29 per
Share for services at 09/01/99 1,000,000 1,447 288,019 0
Net loss for period ( 792,636)
------------- ------------- ------------- -------------
Balance at 12/31/99 10,300,000 $ 15,475 $ 1,836,072 $ ( 2,224,753)
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
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 on 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.
On January 8th, 1999, the board of directors of QTTM entered into an
Agreement with Softguard Enterprises Inc. ("Softguard"), incorporated
under the Canadian Business Corporations Act, 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.
For accounting purposes, the transaction is treated as an issuance of
shares by Softguard Enterprises Inc. for the net monetary assets of the
Company (nil at January 8, 1999), accompanied by a re-capitalization.
The transaction was exempt from the registration of the Securities Act
of 1933 by virtue of Section 4(2) thereof. Following the above
transaction the former shareholders of Softguard owned 82% of the
outstanding shares of the Company.
The historical financial statements prior to December 31, 1998 are
those of Softguard Enterprises Inc.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
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.
Consolidation
The consolidated financial statements for December 31, 1999 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.
Accounting Method
The Company recognizes income and expenses based on the accrual method
of accounting.
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.
F-7
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
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-8
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
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.
Fair Value of Financial Instruments
Due to their short-term maturity, the carrying values of certain
financial instruments were assumed to approximate their fair values.
The financial instruments include: sales tax receivable included in
current assets, trade accounts payable, accrued liabilities, due to
shareholders and demand loans included in current liabilities.
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 year-end exchange
rate. Any gain or loss due to exchange fluctuation is charged to the
statement of loss.
NOTE 3: FIXED ASSETS
<TABLE>
<CAPTION>
December 31,
Accumulated 1999
Cost Depreciation Net Value
--------------- --------------- ----------------
<S> <C> <C> <C>
Computer equipment $ 113,180 $ 76,366 $ 36,814
Computer programs 9,840 6,295 3,545
Furniture and fixtures 7,196 4,224 2,972
Office equipment 14,536 7,051 7,485
------------- ------------- -------------
$ 144,752 $ 93,936 $ 50,816
============= ============= =============
</TABLE>
NOTE 4: DEFERRED EXPENSES
<TABLE>
<CAPTION>
December 31,
Accumulated 1999
Cost Amortization Net Value
--------------- --------------- ----------------
<S> <C> <C> <C>
Patent and Trademark $ 48,780 $ 20,204 $ 28,576
-------------- ------------- -------------
$ 48,780 $ 20,204 $ 28,576
============= ============= =============
</TABLE>
F-9
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE 5: INCOME TAX
The subsidiary has accumulated losses for income tax purposes from
which the tax benefit is not recorded in the financial statements
totaling approximately $3,116,258. The Company has also accumulated
scientific research and experimental development expenditures available
to reduce income taxes in future years totaling approximately $220,911
at Federal level and $537,825 at Provincial level. The Company
recognized a deferred tax asset of $81,368 related to these items. In
addition, the Company created a valuation allowance of $81,368 to bring
down its value to $0. The undeducted research and development expenses
can be carried forward indefinitely. The non-capital loss can be
deducted from future years' taxable income and expires as follows:
Tax Loss
Federal Provincial
2003 $ 259,594 $ 259,594
2004 491,949 491,949
2005 215,730 215,730
2006 105,698 105,698
2007 485,158 485,158
--------------- ----------------
$ 1,558,129 $ 1,558,129
=============== ================
The Company had a loss of $307,478 for 1999 which expires in 2019.
NOTE 6: CONTINGENCY
The subsidiary, Softguard has been involved in several minor legal
proceedings during 1999 from past operations. This routine litigation
occurred in the normal course of business and the majority of these
claims have been settled and are incidental. Management believes that
the resolution of the litigation in which Softguard is involved will
not have a material adverse effect on the financial condition or
results of operations of the Company.
NOTE 7: CONTRACTUAL OBLIGATIONS
Softguard has signed a rental agreement contract whereby it must pay an
annual rent of $27,065 with a yearly option for renewal that expires in
June 2001. The Company has provided security in favor of the lessor for
an amount of $25,000.
NOTE 8: COMPARATIVE FIGURES
Certain comparative figures of the preceding years have been
reclassified in order to conform to the basis of presentation of the
financial statement adopted for the current year.
F-10
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE 9: BANK LOAN
At December 31, 1999, the Company owes $75,000 on two revolving lines
of credit. The rate is the bank's preferential rate plus 1%. The rate
at December 31, 1999 was 6.5%.
The Company owes $13,705 to another bank at December 31, 1999. The loan
was repaid in March, 2000. The interest rate at December 31, 1999 was
9.5%.
NOTE 10: PAYABLE - SHAREHOLDERS
At December 31, 1999, the Company owes $136,132 to two shareholders.
The amounts are non-interest bearing and the shareholders expect
repayment as soon as the Company has sufficient funds to do so.
NOTE 11: GOING CONCERN
The Company's financial statements have been prepared on the basis that
it is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. At
December 31, 1999 the Company has an accumulated deficit of $2,224,753.
At December 31, 1999, current liabilities exceeded current assets by
$452,598. 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 the opportunity to continue as a going concern.
NOTE 12: YEAR 2000 ISSUE
The Year 2000 Issue concerned the inability of information systems,
whether due to computer hardware or software, to properly recognize and
process data sensitive information relating to the Year 2000 and
beyond. Many of the world's computer systems recorded years in a
two-digit format. Such computer systems may have been unable to
properly interpret dates beyond the year 1999 which could have led to
business disruptions in the United States and internationally.
QTTM believes it is Year 2000 compliant, and there were no adverse
events that occurred and no contingency plans relating to the Year 2000
Issue were required to be implemented at year-end 1999. Although it is
now past January 1, 2000, and we have not experienced any adverse
impact from the transition to the year 2000, we cannot give any
assurance that our operations or our suppliers have not been affected
in a manner that is not yet apparent. As a result, QTTM will continue
to monitor the situation closely.
F-11
