Until the sale of the Subsidiaries on September 28, 2006, the Company was a holding company and the shares of the Subsidiaries held by the Company constituted substantially all of the Company’s assets. Accordingly, since the sale of the Subsidiaries, the Company has existed as a development stage company with no subsidiaries and no business operations. The plan of operation of the Company is to seek a target company with which to merge or to complete a business combination. In any transaction, management expects that the Company would be the surviving legal entity and the shareholders of the Company would retain a percentage ownership interest in the post-transaction company. The amount of the retained equity ownership by the existing shareholders will be negotiated by management and the target company. The Company may not be required to obtain stockholder approval prior to any such transaction.
The Company does not plan to restrict its search to any specific business, industry or geographic location, and it may participate in a business venture of virtually any kind or nature.
The Company may seek a business opportunity with entities which have recently commenced operations, or that desire to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. The Company may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries.
On July 10, 2007, the Company entered into a nonbinding letter of intent for the acquisition of RPT, a New York-based limited liability company consisting of several companies in the real estate information business. RPT has over 30 years of experience servicing customers in the Title Insurance Industry.
The letter of intent states that the Company agrees to purchase 100% of the capital stock of RPT for the issuance of 40,000,000 shares of common stock of the Company and 80 shares of Series C Preferred Stock of the Company. The acquisition is subject to the completion of a due diligence review and execution of definitive agreements.
The letter of intent was filed as an exhibit to the Company’s current report on Form 8-K, filed with the Commission on July 13, 2007.
The Company can give no assurance that this transaction or any such transaction will occur, or that if such transaction were to occur, it would enhance the Company’s future operations or financial results, or specifically that the Company would become and remain profitable as a result of such transaction.
On July 25, 2007, the Company entered into an agreement with Network 1 Financial Securities, Inc. (“Network 1”) to act as the Company’s financial advisor for the Company’s finance and acquisition program with respect to its acquisition of RPT.
The agreement was filed as an exhibit to the Company’s current report on Form 8-K, filed with the Commission on July 27, 2007.
RESULTS OF OPERATIONS
As compared with the quarter and three quarters ended September 29, 2006, the quarter and three quarters ended September 28, 2007 reflect that the Company has had no operations since the sale of the Subsidiaries on September 28, 2006. As a result of the sale of the Subsidiaries, the Company is currently in the development stage and exists as a shell company.
NET SALES AND GROSS PROFIT
There were no sales for the quarter and three quarters ended September 28, 2007 compared to sales of $3,509,706 for the quarter ended September 29, 2006 and $10,698,277 for the three quarters ended September 29, 2006 from which the Company realized a gross profit percentage of 39.3% and 38.5%, respectively. Net sales for EHC for the quarter and three quarters ended September 29, 2006 were $1,506,013 and $4,682,171, respectively, which realized a gross profit percentage of 53.1% and 54.0%, respectively. Net sales for SSI for the quarter and three quarters ended September 29, 2006 were $2,003,693 and $6,016,106, respectively, which realized a gross profit percentage of 28.8% and 26.4%, respectively.
OPERATING EXPENSES
Selling
Selling expenses for the quarter and three quarters ended September 28, 2007 were $0 as compared to $506,979 and $1,425,462 for the quarter and three quarters ended September 29, 2006, respectively. EHC’s selling expenses for the quarter and three quarters ended September 29, 2006 were $302,479 and $800,825, respectively. SSI’s selling expenses for the quarter and three quarters ended September 29, 2006 were $192,541 and $595,145, respectively.
General, and Administrative Expenses
General and administrative expenses for the quarter and three quarters ended September 28, 2007 were $41,615 and $193,339, respectively, as compared to $784,927 and $2,684,581 for the quarter and three quarters ended September 29, 2006, respectively. The decrease of $743,312 and $2,491,242 is a result of the sale of the Subsidiaries on September 28, 2006. As a result of the sale, the Company currently is in the development stage and exists as a shell company with only minimal general and administrative expenses. During the three quarters ended September 28, 2007, the Company had accounting fees of $87,000 and legal fees of approximately $50,000 in connection with the annual and quarterly SEC filings. In addition, there was a non-cash charge of $15,000 related to the issuance of stock warrants to the three officers/directors of the Company as compensation for their services, $13,500 for director’s fees, $14,000 in office expenses and $6,000 for insurance. EHC’s general and administrative expenses for the quarter and three quarters ended September 29, 2006 were $285,049 and $816,774, respectively. SSI’s general and administrative expenses for the quarter and three quarters ended September 29, 2006 were $274,120 and $827,361, respectively. ISSI’s general and administrative expenses for the quarter and three quarters ended September 29, 2006 were $225,758 and $1,040,309, respectively. Going forward, general and administrative expenses should remain relatively constant unless the Company makes an acquisition in which legal and accounting expenses would significantly increase.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company’s total assets as of September 28, 2007 were $1,296,502, which is comprised of $715,868 cash, a $523,253 certificate of deposit with a maturity of six months, $7,381 in prepaid expenses and a $50,000 note receivable. The Company has approximately $5,600 in current liabilities which consists mainly of legal bills and office expenses. The Company presently anticipates that cash requirements during the next twelve months will relate to maintaining the corporate entity, complying with the periodic reporting requirements of the Commission, evaluating and reviewing possible business ventures and acquisition opportunities and potentially negotiating and consummating any such transactions. The Company believes that it has sufficient cash on hand to meet these cash requirements over a period of twelve months.
Prior to September 28, 2006, the Company’s liquidity needs arose from working capital requirements, capital expenditures, and principal and interest payments. Historically, the Company’s primary source of liquidity was cash flow generated internally from operations and from borrowings and sales of securities. The Company’s cash decreased to $715,868 at September 28, 2007 from $828,847at December 29, 2006.
Cash flow used in operating activities was $189,726for the three quarters ended September 28, 2007 which included a net loss of $147,569.
Cash provided by investing activities for the three quarters ended September 28, 2007 was $76,747, which consisted of the redemption of $100,000 certificate of deposit less interest earned of $23,253.
There were no financing activities for the three quarters ended September 28, 2007.
On September 28, 2006, in connection with the sale of the Subsidiaries, the Company’s line of credit with Citibank was terminated and all outstanding amounts were repaid.
CAUTIONARY FACTORS REGARDING FUTURE OPERATING RESULTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of September 28, 2007 and for the quarter and three quarters then ended, should be read in conjunction with the audited financial statements and notes thereto set forth in our annual report of Form 10-KSB for the year ended December 29, 2006, filed with the Commission on March 29, 2007.
Certain statements contained in this report, including, without limitation, statements containing the words, “likely”, “forecast”, “project”, “believe”, “anticipate”, “expect”, and other words of similar meaning, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any results, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such factors or to announce publicly the results of any revision of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments. In addition to forward-looking statements contained in this quarterly report on Form 10-QSB, the following forward-looking factors could cause our future results to differ materially from our forward-looking statements: competition, capital resources, credit resources and funding.
13
The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” (as defined in Securities and Exchange Act of 1934 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 “Exchange Act”) is recorded, processed, summarized and reported within time periodsspecified in Commission 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 Exchange 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 Exchange 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 Exchange 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 President and 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 Principal Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this quarterly 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 Commission 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 Exchange 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.
14
Material Weaknesses in Internal Control over Financial Reporting
We are not an accelerated filer (as defined in the 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 generally accepted accounting principles 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 a material weakness (as such term is defined under the Public Company Accounting Oversight Board Auditing Standard No. 2) in our internal controls over financial reporting.
The material weakness is the lack of necessary accounting resources to ensure consistently complete and accurate reporting of financial information. 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. Commencing on September 28, 2006, David Hale ceased to be the Acting Chief Financial Officer and the Company employed Michael Rakusin as the Chief Financial Officer, on a part-time basis. In order to correct this deficiency upon the conclusion of an acquisition, 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. The Company is not presently conducting any operations and does not anticipate conducting operations prior to an acquisition.
We believe that for reasons described above, we will be able to improve our disclosure controls and procedures and remedy this material weakness identified above. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. 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 generally accepted accounting principles under management’s direction and that financial records are reliable to prepare financial statements.
Changes in Internal Controls over Financial Reporting
Subsequent to the sale of its subsidiaries on September 28, 2006, the Company is a shell company with three officers/directors who are responsible for its financial reporting.
15
PART II OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
We are not party to any material legal proceedings, nor to our knowledge, are there any proceedings threatened against us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have not sold any unregistered equity securities within the past three years.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We have not submitted any matters to a vote of security holders during the period covered by this quarterly report.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibits:
| | 31.1 | | Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
| | | | |
| 31.2 | | Rule 13a – 14(a)/15d – 14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
| |
| 32.1 | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
| |
| 32.2 | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
16
SIGNATURES
Pursuant to the requirements of Section 13(a) and 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.
INTERNATIONAL SMART SOURCING, INC.
| November 7, 2007 | | /S/David Hale |
| | | | |
| | |
| Date | David Hale |
| | Chairman, President |
| | (Principal Executive Officer) | |
| |
| |
| November 7, 2007 | | /S/Michael Rakusin |
| | | | |
| | |
| Date | Michael Rakusin |
| | Chief Financial Officer |
17
