UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from _______ to _______ |
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| COMMISSION FILE NUMBER: 001-14753 |
INTERNATIONAL SMART SOURCING, INC. | ||
(Exact Name of Small Business Issuer as specified in its charter) | ||
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Delaware |
| 11-3423157 |
(State or other jurisdiction of |
| (I.R.S. Employer |
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320 Broad Hollow Road | ||
(Address of principal executive offices) | ||
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(631) 293-4650 | ||
(Issuer’s telephone number) | ||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes o | No x |
As of May 12, 2006, the Registrant had 18,899,435 shares of its Common Stock, $0.001 par value, issued and outstanding.
EXPLANATORY NOTE
This amendment to our quarterly report on Form 10-QSB is being filed in response to guidance that we have received from staff at the Securities and Exchange Commission during the review of the proxy report originally filed on May 8, 2006. The revisions that are included in this amendment consist of changes to Item 3, Controls and Procedures.
Except where specifically noted to the contrary, this Form 10-QSB/A does not reflect events occurring after the filing of the original Form 10-QSB, or modify or update the disclosure therein in any way other than as required to reflect the amendments set forth herein.
Pursuant to SEC rules, included as Exhibits 31.1 and 32.1 to this Form 10-QSB/A are currently dated certifications of the Company’s President and Acting Chief Financial Officer.
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ITEM 3: Controls and Procedures
The term “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Act”) is recorded, processed, summarized and reported within time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
The Company has designed its disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports that it files under the Act is recorded, processed, summarized and reported within time periods specified in SEC rules and forms. The Company has also designed its disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation and the material weaknesses described below, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Report on Form 10-QSB our disclosure controls and procedures were not effective to enable us to accurately record, process, summarize and report certain information required to be included in the Company’s periodic SEC filings within the required time period. Additionally, the Company’s principal executive officers and principal financial officers have concluded that such controls and procedures were not effective in ensuring that information required to be disclosed by the Company in the reports that the Company files or submits under the Act is accumulated and communicated to management of the Company, including the Company’s respective principal executive officers and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROLS
We are not an accelerated filer (as defined in the Securities Exchange Act) and are not required to deliver management’s report on control over financial reporting until our fiscal year ended December 28, 2007. The Company’s management is responsible for designing and maintaining an effective system of internal control over financial reporting. We designed this system to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with GAAP under management’s direction and that financial records are reliable to prepare financial statements. Nevertheless, our independent public accountants have identified certain matters that would constitute material weaknesses (as such term is defined under the Public Company Accounting Oversight Board Auditing Standard No. 2) in our internal controls over financial reporting.
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One such material weakness is the lack of necessary accounting resources to ensure consistently complete and accurate reporting of financial information which included an inventory pricing error, sales cutoff adjustment and a nondisclosure of a related party transaction.
During the first quarter of 2005, our independent public accountants identified a lack of complete disclosure in reporting of financial information in respect to certain related party transactions.
In 2004, the Company commenced a due diligence examination in connection with preliminary discussions to acquire Rencol but ultimately concluded that it was not able to do so. Upon the decision of the Company to terminate discussions to acquire Rencol, a group of investors, including Mr. Hale, Mr. Franzone, Mr. Kassel, and Mr. Mandel, acquired Rencol through Rencol Acquisitions, LLC. Rencol Acquisitions, LLC agreed to reimburse the Company for all expenses incurred in the Company’s pursuit of the acquisition of Rencol. In March 2005, Rencol Acquisitions, LLC paid the Company approximately $161,000 for the Company’s expenses incurred by the Company as a result of its pursuit of the acquisition of Rencol. This sum was included in the Company’s prepaid expenses and other current assets as of December 31, 2004. While the Company disclosed the financial information surrounding the reimbursement, it had not provided complete disclosure with respect to the related nature of the transaction.
In addition, during the December 30, 2005 year-end audit and the quarter ended March 31, 2006, adjustments were identified, which needed to be recorded related to sales cut-off and inventory pricing at the end of the fiscal year.
The Company was carrying an item in inventory at a cost above its net realizable value. The item was originally purchased in anticipation of the renewal of the government contract. When the contract was not renewed, the Company had no other customers for this particular item. The Company attempted to sell the item to the recipient of the new government contract for this item. The recipient agreed to purchase the item at a substantially reduced price. The Company recorded an audit adjustment to reduce the item to its net realizable value.
Additionally, in December 2005, the Company directly shipped products from China to a customer. It is the general practice of the Company to invoice the customer once it confirms receipt of the goods by the customer. Due to the holidays, the Company was unable to obtain confirmation from the customer that the goods were received until after the end of the fiscal year. The Company billed the customer for the shipment in 2006 and an entry was made to record the sale in the proper period.
The Company does not employ a full time in-house controller or chief financial officer. Consequently, the financial reporting function is decentralized and the effectiveness of the disclosure control procedures for financial reporting are limited. In order to correct this deficiency in the future, management plans to seek additional qualified in house accounting personnel to ensure that management will have adequate resources in order to attain complete reporting of financial information disclosures in a timely matter.
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We believe that for reasons described above, we will be able to improve our disclosure controls and procedures and remedy the material weaknesses identified above. We believe that these new management plans related to controls and procedures will provide reasonable assurance that assets are safeguarded from loss or unauthorized use, that transactions are recorded in accordance with GAAP under management’s direction and that financial records are reliable to prepare financial statements.
There were no significant changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INTERNATIONAL SMART SOURCING, INC. |
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August 25, 2006 |
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| /s/ David Hale |
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| David Hale |
| Chairman, President (Chief Executive Officer) |
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