SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________.
Commission File No. 000-30947
MARKETING SYSTEMS USA, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-3461879
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1130 South Harbor City Boulevard, Melbourne, FL 32901
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(Address of principal executive offices)
(321) 956-0555
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(Registrant's telephone number, including area code)
POWER FLUIDS, INC.
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(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act 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
[ ]
As of May 15, 2001, the Company has 14,000,500 shares of Common Stock and
413,000 shares of Preferred Stock issued and outstanding.
MARKETING SYSTEMS USA, INC.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 2001 ...................................1
Statements of Operations - For the three
months ended March 31, 2001 and March 31, 2000......................2
Statements of Cash Flows - For the three
months ended March 31, 2001 and March 31, 2000......................3
Notes to Financial Statements.......................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................5
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................6
SIGNATURES ...................................................................7
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Marketing Systems USA, Inc.
Balance Sheet
March 31, 2001
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 48,221
Accounts receivable 11,262
Prepaid marketing expenses 353,810
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Total current assets 413,293
-----------
Property and equipment, net 176,020
Other assets
Deposits 60,039
Goodwill 776,793
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Total other assets 836,832
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Total assets $ 1,426,145
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Liabilities less Stockholders' Deficit
Current liabilities
Accounts payable and accrued expenses $ 131,669
Refundable travel deposits 835,337
Acquisition debt 40,000
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Total current liabilities 1,007,006
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Stockholders' deficit
Preferred stock, $2 par value, 5,000,000 shares
authorized, 413,000 shares issued and outstanding 826,200
Common Stock, $.001 par value, 50,000,000 shares 14,001
authorized, 14,000,500 shares issued and outstanding 12,250
Accumulated deficit (433,112)
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Total Stockholders' deficit 419,339
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Total Liabilities & Stockholders' Deficit $ 1,426,345
===========
See accompanying notes to financial statements.
1
Marketing Systems USA, Inc.
Statements of Operations
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
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Sales $ 2,143,125 $ --
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Costs and Expenses
Cost of services 2,047,892 --
Selling, general and administrative 512,060 184
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Total operating expenses 2,559,952 184
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Loss from operations (416,827) (184)
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Net loss $ (416,827) $ (184)
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Basic and diluted loss per share $ (0.04) $ --
Weighted average number of shares outstanding 9,467,722 4,050,500
See accompanying notes to financial statements.
2
Marketing Systems USA, Inc.
Statements of Cash Flows
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
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Cash flows from operating activities:
Net loss $(416,827) $ (184)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 8,698 16
Changes in operating assets and liabilities
(Increase) in accounts receivable (11,262) --
(Increase) in prepaid marketing costs (353,810) --
Increase in accounts payable and accrued expenses 131,669 --
Increase in refundable travel deposits 835,337 --
(Increase) in deposits (60,039) --
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Net cash provided by (used in) operating activities 133,766 (168)
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Cash flows from investing activities:
Increase in goodwill (776,793) --
Purchase of property and equipment (184,718) --
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Net cash used in investing activities
(961,511) --
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Cash flows from financing activities:
Increase in acquisition debts 40,000 --
Additional paid-in capital -- 150
Preferred stock issued for acquisitions 826,000 --
Common stock issued 9,951 --
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Net cash provided by financing activities
875,951 150
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Net increase (decrease) in cash and cash equivalents 48,206 (18)
Cash and cash equivalents, beginning of period 15 65
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Cash and cash equivalents, end of period $ 48,221 $ 47
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ -- $ --
Cash paid for income taxes during the period $ -- $ --
See accompanying notes to financial statements
3
Notes to Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions incorporated in Regulation SB of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments and accruals) considered necessary for a fair
presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
2. Corporate History
Power Fluids, Inc. (PFI) was incorporated in Florida on August 19, 1997. On
February 10, 2001 PFI entered into a merger agreement with Marketing Systems
USA, Inc., a Nevada corporation. On April 27, 2001 the articles of merger were
filed in the office of the Secretary of State of Florida. Subsequently, Power
Fluids, Inc. amended its articles of incorporation to change its name to
Marketing Systems USA, Inc. and is traded under the Symbol MSYS on the NASD
OTCBB. The Company is authorized to issue up to 50,000,000 shares of Common
Stock having a par value of $0.001 per share, and 5,000,000 Preferred shares
having a par value of $2 per share.
Marketing Systems USA, Inc. (the "Company" or "MSUSA") was incorporated in
Nevada on August 28, 2000 as Member's Choice Holdings, Inc. On December 11, 2000
the Company changed its name to Marketing Systems USA, Inc. In December 2000
MSUSA purchased the assets of Member's Choice, Inc., a Florida corporation,
("MC") for 9 million shares of its Common Stock and assumed $826,000 of MC's
debt. Subsequently such unsecured debt was converted into 413,000 shares of
preferred stock. The Company also purchased the assets of Studentmember.com,
Inc. for 800,000 shares of Common Stock. In January 2001 MSUSA purchased the
assets of J. Sine, Inc. d/b/a Atlantis Travel for $50,000, which was represented
by a purchase-money promissory note.
3. Description of Business
Marketing Systems USA, Inc. has three operating divisions:
The Member's Choice (MC) division is developing a "cooperative shopping network"
that will market goods via the Internet, television and direct mail. A
"Cooperative Shopping Network" combines the purchasing power of the membership
base to negotiate better pricing from manufacturers and, therefore, increases
profit sharing amongst its members. MC offers two membership levels: (i)
"Premier Members" are network marketers who participate in profit sharing
distributions based on the sales that they generate; (ii) "Associate Members"
purchase goods and services through MC's cooperative shopping network and earn
"MCN Dollars" that can be used for future purchases. MCN Dollars are earned at
the rate of 25% of the gross margin realized.
The Student Member (SM) division a provider of spring and summer break vacation
packages to college and high school students. SM intends to expand its student
travel business and develop a membership program for students that will offer
well-known products via Members Choice and discounts at campus merchants. An
interactive Website designed for students will be utilized to inform, market and
transact business.
The Member's Travel division is a licensed, full service travel agency. Member's
Travel provides reservation services for MC and SM members thereby earning
commission revenues that otherwise would be lost to outside providers.
4. Significant Business Risks
Member's Choice--There are inherent risks in utilizing television and the
Internet for marketing and sales. In addition, with implementation of a
comprehensive sales and marketing plan, and the development of a membership base
the company will not realize its financial goals. The Company's success is
dependent on the timely performance by third-party suppliers, vendors and
shippers.
Student Member & Member's Travel--Travel service providers are exposed to
numerous financial, legal and performance risks and liabilities. A travel
package encompasses numerous services that are provided to the traveler
including transportation, lodging, entertainment and meals. The Company is
dependent on numerous vendors and suppliers such as airlines, hotels and
restaurants. Given such reliance, the Company's performance under its travel
packages maybe adversely affected by the performance of those vendors.
Additionally, failure to comply with the terms of the respective travel packages
creates exposure to legal liability. These risk factors could have a materially
adverse effect on the business operations and financial condition of the Company
and may harm the goodwill of the Company in the marketplace.
5. Loss Per Share
Basic loss per share was computed using the weighted average number of common
shares outstanding.
6. Goodwill
$642,000 of the intangible assets classified as goodwill originates from a
transaction with Alan Brooks, a director of MSUSA. There was no independent
valuation of the assets purchased and no independent verification of the value
of goodwill associated with the purchase.
4
Item 2. Management's Discussion and Analysis
FORWARD LOOKING STATEMENTS
This Report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based
on management's beliefs and assumptions, and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth under
the heading "Management's Discussion and Analysis of Financial Condition or Plan
of Operation." Forward-looking statements also include statements in which words
such as "expect," "anticipate," "intend," "plan," "believe," "estimate,"
"consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
1. Results of Operations
On February 10, 2001, MSUSA entered into a merger agreement with Power Fluids,
Inc., a publicly traded Florida corporation. On April 27, 2001 the articles of
merger were filed in the office of the Secretary of State of Florida. The merger
agreement provided that MSUSA stockholders would receive 9,800,000 shares of PFI
and the former stockholders of PFI would retain 4,050,500 shares. Post merger,
the Company has 14,000,500 shares of Common Stock and 413,000 shares of
Preferred Stock issued and outstanding.
Prior to the transaction, PFI was a development stage company that since its
inception had experienced no significant change in liquidity or capital
resources or stockholders equity. During the six-month period ending December
31, 2000, Power Fluids, Inc. had not engaged in any significant operations and
had assets of $15 and stockholders equity of $15. There were no liabilities.
The Company has total assets of $1,426,605 as of March 31, 2001. This is
principally represented by $776,993 of goodwill, $176,020 of property and
equipment, and $60,039 of deposits all of which resulted from the asset
acquisitions by MSUSA as descibed above. $642,000 of the goodwill originates
from a transaction with Alan Brooks, a director of MSUSA. There was no
independent valuation of the assets purchased and no independent verification of
the value of goodwill associated with the purchase. Prepaid marketing expenses
of $353,810 represent expenses incurred toward the sale of travel packages that
are expected to generate revenue subsequent to March 31, 2001.
The Company experienced a net loss of $416,827 or $0.04 per share during the
three month period ending March 31, 2001. This loss is principally due to the
fact that the Company expensed $371,603 of advances made to the prior owners of
one of the companies whose assets were acquired. The advance was necessary to
satisfy claims against assets of the company and there is no reasonable
assurance that the advance will be repaid.. While the company had no legal
obligation to pay the debt or advance the funds, not making the advance would
have impeded an orderly transition.
2. Liquidity and Capital Requirements
The Company's capital requirements have been and will continue to be significant
due to, among other things, maintaining its Websites, fulfillment and
distribution of goods, and marketing costs associated with its method of
operations. Although the Company has a positive cash position for the period
ending March 31, 2001, the Company will be required to seek additional financing
to continue the successful implementation of its business plan. The Company's
continued existence is dependent upon its ability to resolve its liquidity
problems, principally by funding from sales, and generating sufficient revenues
to become profitable. During the interim, the company will continue to operate
on internally generated cash flow as it contemplates various debt and equity
financings. There can be no assurance that any additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company's business, financial condition and
results of operations.
5
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending legal proceedings, and the Company is not aware of any
threatened legal proceedings, to which the Company is a party or to which its
property is subject.
Item 2. Changes in Securities.
There have been no material modifications in any of the instruments defining the
rights of the holders of any of the Company's securities.
None of the rights evidenced by any class of the Company's securities have been
materially limited or qualified by the issuance or modification of any other
class of the company's securities.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Shareholders of both MSUSA and Power Fluids approved the merger transaction.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No exhibits as set forth in Regulation SB are considered necessary for this
filing.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
6
Signature
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.
By: /s/ Mark Seyforth
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Mark Seyforth
President, CEO
Date: May 21, 2001