UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
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. [] Yes [X] 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 April 30, 2000, the aggregate market value of the voting common equity
held by non-affiliates of the registrant was $13,750,000.
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 April 30, 2000
------------------------------------ --------------------------------
$.001 PAR VALUE CLASS A COMMON STOCK 10,300,000 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<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 from Capital General
Corporation. The $.50 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 particular 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 over the past two fiscal years on
research and development activities, of which $107,000 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 Company has also initiated discussions which are nearing the contract
stage, with SysDem, Inc. ("SysDem"), a Canadian corporation based in
Longueuil (Quebec) Canada. SysDem is an Internet marketing service bureau
incorporating proprietary server technology that offers a better, faster,
cheaper and simpler way of marketing with personalized email. The
integration of the best database marketing practices into high volume mail
merge functionality allows the massive delivery of highly personalized
messages to permission- granted customers. Since the product launch in
April 1999, this system has delivered double digit response rates for
clients. QTTM's management believes that the combination of Softguard's
technology with SysDem's personalized email delivery system would be a
major development for on-line marketing.
4
<PAGE>
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.
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 USD. 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 Bulletin Board 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 April 30, 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.
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 April 30, 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 $734,639 for the fiscal year ended December
31, 1999 compared with a loss of $162,543 for the six months ended December
31, 1998. In view of the fact that the periods taken into consideration are
not for the same period of time, the increased loss of $572,096 from 1998
was attributable to an increase of $93,405 in research and development
costs and an increase of $478,691 in general and administrative costs.
The increase in general and administrative expenses is primarily due to
consulting fees of $125,788 related to project management and $288,019 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 April 30, 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. Audited financial statements are not yet
available. They will be filed as soon as they are available.
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, 199 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, 200 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: June 16, 2000 By: ______________________________________
ROBERT L. SEAMAN, President and Director
Dated: June 16, 2000 By: __________________________________________
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: June 16, 2000 By: ______________________________________
ROBERT L. SEAMAN, President and Director
Dated: June 16, 2000 By: __________________________________________
HELGA LEUTHE, Secretary/Treasurer and Director
10
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Index
Independent Auditor's Report F-2
Unaudited Consolidated Financial Statements:
1) Unaudited Balance Sheets - December 31, 1999 and 1998 F-3
2) Unaudited Statements of Operations Fiscal Years ended December
31, 1999, December 31, 1998, and June 30, 1998 and from Date of
Inception to December 31, 1999 F-4
3) Unaudited Statements of Cash Flows Fiscal Years ended December
31, 1999, December 31, 1998, and June 30, 1998 and from Date of
Inception to December 31, 1999 F-5
4) Unaudited Statements of Stockholders' Equity Fiscal Years ended
December 31, 1999, December 31, 1998, and June 30, 1998 and from
Date of Inception to December 31, 1999 F-6
Notes to Unaudited Consolidated Financial Statements F-7
<PAGE>
Independent Auditors' Report
Not yet available.
F-2
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------- ---------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ - $ 1,395
Accounts receivable 27,412 23,490
Income tax recoverable 111,185 355,005
Prepaid expenses 2,778 5,620
------------- -------------
TOTAL CURRENT ASSETS 141,375 385,510
PLANT & EQUIPMENT 50,816 66,259
------------- -------------
OTHER ASSETS
Patents and trademarks 30,576 37,099
Deferred tax benefit 55,997 -
------------- -------------
86,573 37,099
------------- -------------
TOTAL ASSETS $ 278,764 $ 488,868
============= =============
LIABILITIES & EQUITY
CURRENT LIABILITIES
Bank indebtedness $ 34,411 $ -
Bank loan 75,000 25,000
Accounts payable and accrued expenses 328,236 152,689
Current portion of long-term debt 13,705 33,333
------------- -------------
TOTAL CURRENT LIABILITIES 451,352 211,022
LONG-TERM DEBT 127,621 133,606
------------- -------------
578,973 344,628
STOCKHOLDERS' EQUITY
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding
10,300,000 shares 15,475 -
Additional paid-in capital 1,851,072 1,466,360
Deficit accumulated during the development stage (2,166,756) (1,322,120)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (300,209) 144,240
------------- -------------
$ 278,764 $ 488,868
============= =============
</TABLE>
F-3
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year Ended Six Months Ended Year Ended Date of Inception
December 31, December 31, June 30, to December 31,
1999 1998 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SALES $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- -------------
General Administrative expenses
Professional fees 42,203 29,196 20,384 138,741
Consulting 420,685 27,997 21,202 699,691
Salaries and fringe benefits 61,418 12,745 69,756 344,616
Rent 24,680 10,718 26,438 101,655
Traveling and business promotion 16,154 7,993 19,354 99,916
Office expenses 8,206 4,998 5,559 43,827
Research and development 98,371 4,966 25,777 98,371
Telephone and communication 8,656 4,430 17,593 91,607
Car expenses - 986 7,003 18,235
Insurance, taxes and licenses 6,952 2,536 1,663 23,686
Interest and bank charges 5,042 2,486 21,508 21,192
Interest on bank loan 13,741 3,062 6,724 68,175
Loss on disposal of investment - 34,845 - 34,845
Depreciation of fixed assets 18,342 11,865 27,437 93,935
Depreciation of deferred expenses 10,189 3,720 4,745 28,691
Decrease in value of
software development costs - - 172,682 149,573
------------- ------------- ------------- -------------
Total general and administrative expenses 734,639 162,543 447,825 2,056,756
------------- ------------- ------------- -------------
NET INCOME (LOSS)
BEFORE INCOME TAXES (734,639) (162,543) (447,825) (2,056,756)
------------- ------------- ------------- ------------
INCOME TAXES
DEFERRED - - (20,000) (0)
------------- ------------- ------------- ------------
NET INCOME (LOSS) (734,639) (162,543) (427,825) (2,056,756)
TOTAL COMPREHENSIVE
INCOME (LOSS) $ (734,639) $ (162,543) $ (427,825) $ (2,056,756)
============= ============= ============= ============
Net income (loss) per weighted
average share $ (.07) $ (.02) $ (.44)
============ ============ ============
Weighted average number of common
shares used to compute net income
(loss) per weighted average share 10,300,000 7,650,000 1,000,000
============= ============= =============
</TABLE>
F-4
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
Year Ended Six Months Ended Year Ended Date of Inception
December 31, December 31, June 30, to December 31,
1999 1998 1998 1999
--------------- --------------- --------------- ----------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net earnings (loss) $ ( 734,639) $ ( 162,543) $ ( 427,825) $ ( 2,166,756)
Items not requiring cash outlays:
Loss on disposal of investment - 34,845 - 34,845
Depreciation of fixed assets
and deferred costs 28,531 15,585 32,182 122,626
Deferred income taxes - - ( 20,000) -
Decrease in value of software
development costs - - 172,682 172,682
------------- --------------- ------------- -------------
( 706,108) ( 112,113) ( 242,961) ( 1,836,603)
Changes in non-working capital items 437,291 ( 80,580) 108,480 205,865
------------- ------------- ------------- -------------
NET CASH PROVIDED
BY OPERATING ACTIVITIES ( 268,817) ( 192,693) ( 134,481) ( 1,630,738)
------------- ------------- ------------- -------------
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 ( 6,565) ( 24,611) ( 23,579) ( 204,018)
------------- -------------- ------------- -------------
NET CASH (USED)
BY INVESTING ACTIVITIES ( 6,565) ( 59,456) ( 23,579) ( 411,545)
------------- -------------- ------------- -------------
FINANCING ACTIVITIES
Variation of advances from a shareholder ( 5,985) 133,224 ( 630,319) 127,621
Net proceeds of issuance of shares 290,190 164,463 860,897 1,866,547
Addition to long-term debt - - - 134,680
Repayment of long-term debt ( 19,629) ( 22,223) ( 79,124) ( 120,976)
------------- -------------- ------------- ------------
NET CASH (USED)
BY FINANCING ACTIVITIES 264,576 275,464 151,454 2,007,872
-------------- -------------- ------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ( 10,806) 23,315 ( 6,606) ( 34,411)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR ( 23,605) ( 46,920) ( 40,314) -
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $( 34,411) $( 23,605) $( 46,920) $ ( 34,411)
============= ============= ============= =============
</TABLE>
F-5
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(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)
Issuance of common
stock - stock split
at 06/30/98 and
additional paid-in capital 999,000 0 860,897 0
Net loss for period ( 427,825)
------------- ------------- ------------- ------------
Balance at 06/30/98 1,000,000 1,000 1,300,897 ( 1,159,577)
Issuance of common
stock at $.001 per
share at 12/31/98 and
additional paid-in capital 6,650,000 6,650 157,813 0
Net loss for period ( 162,543)
------------- ------------- ------------- ------------
Balance at 12/31/98 7,650,000 7,650 1,458,710 ( 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 at 01/16/99 500,000 724 0 0
Issuance of common
Stock at $.001 per
Share at 09/01/99 1,000,000 1,447 288,019 0
Net loss for period ( 734,639)
------------- ------------- ------------- ------------
Balance at 12/31/99 10,300,000 $ 15,475 $ 1,851,072 $ ( 2,166,756)
============= ============= ============= ============
</TABLE>
F-6
<PAGE>
QUANTITATIVE METHODS CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, December 31, 1998 and June 30, 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>
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.
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. Such estimates of significant
accounting sensitivity are allowance for doubtful accounts.
F-8
<PAGE>
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 and advances to
common control company included in current assets, trade accounts
payable, accrued liabilities, due to a director 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 1998
Cost Depreciation Net Value
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Computer equipment $ 113,180 $ 76,366 $ 36,814 $ 50,283
Computer programs 9,840 6,295 3,545 3,852
Furniture and fixtures 7,196 4,224 2,972 3,715
Office equipment 14,536 7,051 7,485 8,409
--------------- -------------- --------------- --------------
$ 144,752 $ 93,936 $ 50,816 $ 66,259
=============== ============== =============== ==============
</TABLE>
NOTE 4: DEFERRED EXPENSES
<TABLE>
<CAPTION>
December 31,
Accumulated 1999 1998
Cost Amortization Net Value
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Patent and Trademark $ 48,780 $ 20,204 $ 28,576 $ 34,299
Organization Costs 4,000 2,000 2,000 2,800
--------------- -------------- --------------- --------------
$ 52,780 $ 22,204 $ 30,576 $ 37,099
=============== ============== =============== ==============
</TABLE>
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 $2,145,942. 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 $25,371 to bring
down its value to $55,997. 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:
F-9
<PAGE>
Tax Loss
Federal Provincial
------------ --------------
2003 $ 259,594 $ 259,594
2004 491,949 491,949
2005 215,730 215,730
2006 105,698 105,698
------------ --------------
$ 1,072,971 $ 1,072,971
============ ==============
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.
NOTE 9: 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 subsidiary has an accumulated deficit of
$2,166,756.
At December 31, 1999, current liabilities exceeded current assets by
$309,977. 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 10: 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.
F-10
<PAGE>
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
