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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended January 31, 2000.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from _______ to ________
Commission file number 0-29248
SmarTire Systems Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
British Columbia, Canada Not Applicable
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
150-13151 Vanier Place, Richmond, British Columbia, V6V 2J1
(Address of Principal Executive Offices)
(604) 276-9884
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
As of February 29, 2000, the Company had 12,582,447 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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SMARTIRE SYSTEMS INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED) -
JANUARY 31, 2000 AND JULY 31, 1999
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED) -
THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 2000 AND
JANUARY 31, 1999.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - SIX
MONTHS ENDED JANUARY 31, 2000 AND JANUARY 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements of SmarTire Systems Inc. and its
wholly owned subsidiaries, SmarTire USA Inc., SmarTire (Europe) Limited and
SmarTire Technologies Inc. (the "Company" or "SmarTire") as of January 31, 2000
for the three month and six month periods ended January 31, 2000 and January 31,
1999 are attached hereto.
SMARTIRE SYSTEMS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
(Unaudited)
January 31, July 31,
2000 1999
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ASSETS
Current assets
Cash and cash equivalents $ 1,285,382 $ 422,982
Short-term investments -- 2,062,013
Receivables 225,152 1,104,456
Inventory 61,097 225,514
Prepaid expenses 445,033 128,988
Investment 293,825 --
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2,310,489 3,943,953
Capital assets 795,327 523,481
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$ 3,105,816 $ 4,467,434
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 1,164,659 $ 1,892,503
Shareholders' equity
Share capital 42,822,680 38,640,478
Equity component of warrants 2,420,677 2,420,677
Deficit (43,302,200) (38,486,224)
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1,941,157 2,574,931
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$ 3,105,816 $ 4,467,434
=====================================================================================
On behalf of the Board
"ROBERT V. RUDMAN" "KEVIN A. CARLSON"
/s/ Robert V. Rudman, Director /s/ Kevin A. Carlson, Director
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SMARTIRE SYSTEMS INC.
Consolidated Statements of Loss and Deficit
(Expressed in Canadian Dollars)
(Unaudited)
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Three Months Ended Six Months Ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
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Revenue $ 294,227 $ 530,595 $ 589,153 $ 1,223,981
Cost of goods sold 146,664 417,457 313,461 1,006,694
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147,563 113,138 275,692 217,287
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Expenses and other
Marketing 805,476 871,927 1,500,532 1,573,063
General and administrative 1,233,654 1,099,404 2,225,816 2,039,437
Engineering, research and
development 810,021 397,715 1,209,561 672,103
Depreciation and amortization 80,414 202,638 122,964 406,719
Foreign exchange loss (gain) 64,713 284,208 80,939 184,485
Interest income (25,266) (85,502) (48,144) (191,421)
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2,969,012 2,770,390 5,091,668 4,684,386
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Net loss 2,821,449 2,657,252 4,815,976 4,467,099
Deficit, beginning of period 40,480,751 23,109,823 38,486,224 21,299,976
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Deficit, end of period $ 43,302,200 $ 25,767,075 $ 43,302,200 $ 25,767,075
============================================================================================================
Loss per share $ 0.22 $ 0.28 $ 0.42 $ 0.47
============================================================================================================
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SMARTIRE SYSTEMS INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)
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Six Months Ended
January 31, January 31,
2000 1999
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Cash provided by (used in)
Operating activities
Net loss $(4,815,976) $(4,467,099)
Items not affecting cash
Depreciation and amortization 122,964 406,719
Remuneration in shares 22,680 --
Changes in non-cash working capital
Receivables 879,304 (27,080)
Inventory 164,417 (1,128,589)
Prepaid expenses (316,045) 407,415
Accounts payable and accrued liabilities (727,844) 167,764
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Net cash used in operating activities (4,670,500) (4,640,870)
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Investing activities
Purchase of capital assets (394,810) (233,845)
Purchase of investment (238,380) --
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Net cash used in investing activities (633,190) (233,845)
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Financing activities
Redemption of short-term investments 2,062,013 --
Issuance of common shares 4,104,077 601,475
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Net cash used in financing activities 6,166,090 601,475
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Net increase (decrease) in cash 862,400 (4,273,240)
Cash and cash equivalents, beginning of period 422,982 8,718,258
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Cash and cash equivalents, end of period $ 1,285,382 $ 4,445,018
===================================================================================
Supplementary information
Non-cash investing activities
Purchase of investment 55,445 --
Non-cash financing activities
Conversion of warrants into common shares -- 1,594,323
Remuneration in shares 22,680 --
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
Statements contained in this Report that are not based on historical facts are
forward-looking statements subject to uncertainties and risks including, but not
limited to, product demand and acceptance, economic conditions, the impact of
competition and pricing, results of financing efforts, and other risks.
OVERVIEW
The following discussion of the financial condition, results of operations and
cash flows of the Company for the three months and six months ended January 31,
2000 and 1999 should be read in conjunction with the consolidated financial
statements of the Company.
The Company's consolidated financial statements are stated in Canadian Dollars
(CDN$) and are prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP), the application of which, in the case of the
Company, conforms in all material respects for the periods presented with United
States GAAP.
Herein all references to the "$" and "CDN$" refer to Canadian Dollars; and all
references to "US$" refer to United States Dollars.
In this Report, unless otherwise specified, all dollar amounts are expressed in
Canadian Dollars. The Government of Canada permits a floating exchange rate to
determine the value of the Canadian Dollar against the U.S. Dollar.
Set forth below is the rate of exchange for the Canadian Dollar at the end of
the most recent fiscal year ended July 31, 1999 and the six months ended January
31, 2000 and 1999, average rates for the periods, and the range of high and low
rates for the periods. For purposes of this table, the rate of exchange means
the noon buying rate in New York City for the cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York. The table below
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sets forth the number of Canadian Dollars required under that formula to buy one
U.S. dollar. The average rate means the average of the exchange rates on the
last day of each month during the period.
U.S. Dollar/Canadian Dollar
Average Close High Low
------- ----- ---- ---
Six Months Ended 01/31/00 1.47 1.45 1.48 1.43
Six Months Ended 01/31/99 1.53 1.51 1.58 1.50
Fiscal Year Ended 07/31/99 1.43 1.51 1.58 1.37
SmarTire is engaged in developing and marketing technically advanced Tire
Monitoring Systems (TMS) designed for improved vehicle safety, performance,
reliability and fuel efficiency. During the six months ended January 31, 2000,
the Company earned revenues from the sale of TMS for passenger cars and
motorsport applications.
The Company is focused on developing and marketing technically advanced tire
monitoring products in response to an increasing demand from the transportation
industry for improved vehicle safety, performance, reliability and fuel
efficiency. After developing its proprietary TMS technology for application in
the industrial and commercial vehicle markets plus a specialized tire monitoring
product for motorsports, the Company turned to developing its technology for use
by the automotive industry to address the escalating demand for passenger car
TMS. In support of the tire industry's introduction of the innovative run-flat
or extended mobility tire, the Company developed the SmarTire(TM) system and
established North American and European sales, marketing, and distribution
networks. The Company plans to complete the development and launch of its next
generation of TMS products, including a new commercial TMS product.
The Company is promoting the SmarTire(TM) system to both run-flat and
conventional tire aftermarkets worldwide. Additional target markets included in
the Company's plans are commercial, industrial and recreational vehicles as well
as expanded product lines for the motorsport industry. The Company's alliance
partner, TRW Inc., is marketing TMS to the original equipment vehicle
manufacturers of passenger vehicles.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2000 AND JANUARY 31, 1999
Gross revenue for the three months ended January 31, 2000 was $294,227 compared
to $530,595 for the three months ended January 31, 1999. The decrease
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in revenue for the three months ended January 31, 2000 from the three months
ended January 31, 1999 was a result of the following:
Sales of aftermarket passenger car systems decreased to $134,900 for the three
months ended January 31, 2000 compared to $212,016 for the three months ended
January 31, 1999. Sales of OEM passenger car systems decreased to $39,562 for
the three months ended January 31, 2000 compared to $172,449 for the three
months ended January 31, 1999. Sales of motorsport TMS decreased to $119,765 for
the three months ended January 31, 2000 from $134,324 in the three months ended
January 31, 1999. Sales of industrial TMS systems decreased to $nil during the
three months ended January 31, 2000 from $11,806 in the comparable period of the
previous year.
Gross margin on product sales increased to 50% for the three months ended
January 31, 2000 from 21% for the three months ended January 31, 1999. The
Company's profit margin on passenger car systems increased in 2000 due to the
reduction in carrying value of inventory in the third quarter of the 1999 fiscal
year.
Expenses and other increased to $2,969,012 for the three months ended January
31, 2000 from $2,770,390 for the three months ended January 31, 1999 as
increases in general and administration and engineering, research and
development expenses were partially offset by reduced marketing expenses,
depreciation and amortization and a smaller foreign exchange loss.
Marketing expenses decreased to $805,476 for the three months ended January 31,
2000 from $871,927 for the three months ended January 31, 1999. Increases in
wages and public relations costs were more than offset by decreases in
advertising, travel and market development costs.
General and administrative expenses increased to $1,233,654 for the three months
ended January 31, 2000 as compared to $1,099,404 for the three month period
ended January 31, 1999. The increase was attributed to increases in wages,
investor relations activities and professional fees for legal and other
consulting services.
Engineering, research and development expenses were $810,021 for the three
months ended January 31, 2000 as compared to $397,715 for the three month period
ended January 31, 1999. The increase was attributed to increased expenditures on
prototype development including supplies and materials and
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higher engineering wages, reflecting increased staff for product development
activities.
Depreciation and amortization expense decreased to $80,414 for the three months
ended January 31, 2000 from $202,638 for the same period in the prior year. The
reduction reflects the write-down of certain assets in the third quarter of the
1999 fiscal year.
The company earned interest income of $25,266 for the three months ended January
31, 2000 as compared to $85,502 for the three months ended January 31, 1999.
This decrease was due to lower average cash balances during the current fiscal
year.
SIX MONTHS ENDED JANUARY 31, 2000 AND JANUARY 31, 1999
Gross revenue for the six months ended January 31, 2000 was $589,153 compared to
$1,223,981 for the six months ended January 31, 1999. Sales of aftermarket
passenger car systems were $334,681 for the six months ended January 31, 2000
compared to $764,981 for the six months ended January 31, 1999. Sales of the OEM
passenger car system decreased to $89,209 for the six months ended January 31,
2000 compared to $287,529 for the comparable period of the previous year. Sales
of motorsport TMS increased to $165,263 for the six months ended January 31,
2000 from $150,355 in the six months ended January 31, 1999. Sales of industrial
TMS decreased to $nil during the six months ended January 31, 2000 from $21,116
in the comparable period of the previous year.
Gross margin increased from 18% for the six months ended January 31, 1999 to 47%
for the six months ended January 31, 2000. The Company's profit margin on
passenger car systems increased in 2000 due to the reduction in carrying value
of inventory in the third quarter of the 1999 fiscal year.
Expenses and other increased to $5,091,668 for the six months ended January 31,
2000 from $4,684,386 for the comparable period of the previous fiscal year, due
to higher engineering, research and development and general and administrative
expenses.
Marketing expenses decreased from $1,573,063 for the six month period ended
January 31, 1999 to $1,500,532 for the comparable period of 2000. Increases in
wages and public relations costs were more than offset by decreases in
advertising, travel and market development costs.
General and administrative expenses were $2,225,816 for the six months ended
January 31, 2000 as compared to $2,039,437 for the six month period ended
January 31, 1999. Increases in investor relations activities and professional
fees for
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legal and other consulting services were partially offset by decreases in filing
fees and travel costs.
Engineering, research and development expenses increased to $1,209,561 for the
six months ended January 31, 2000 from $672,103 for the six months ended January
31, 1999 due to increases in costs for prototype development and engineering
wages.
Depreciation and amortization expense decreased to $122,964 for the six months
ended January 31, 2000 from $406,719 for the same period in the prior year. The
reduction reflects the write-down of certain assets in the third quarter of the
1999 fiscal year.
The Company earned interest income of $48,144 for the six months ended January
31, 2000 as compared to $191,421 for the six months ended January 31, 1999. This
decrease was due to lower average cash balances during the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities primarily through the issuance and sale
of securities. The Company has incurred net losses in each year since inception
and, as of January 31, 2000, had an accumulated deficit of $43,302,200.
Shareholders' equity was $1,941,157 and the Company's working capital was
$1,145,830 at January 31, 2000.
The Company's cash position at January 31, 2000 was $1,285,382 as compared to
$422,982 at July 31, 1999. This increase was due to the net of the Company's
operating, financing and investing activities described below.
For the six months ended January 31, 2000, the Company raised $6,166,090 from
financing activities. The Company received net proceeds of $4,104,077 from the
issuance of 1,505,000 shares of common stock through a private placement and
$2,062,013 from the redemption of short-term investments. The Company used
$633,190 for investing activities during the six months ended January 31, 2000
for the purchase of capital assets and an investment in Transense Technologies
plc ("Transense"). The Company used $4,670,500 for operating activities during
the six months ended January 31, 2000. The net loss of $4,815,976 was reduced by
non-cash charges of $145,644 and a $168 decrease in non-cash working capital.
Subsequent to January 31, 2000 the Company disposed of the common share portion
of its investment in Transense for net cash proceeds of $ 1,443,596. The Company
will record a gain of $1,149,771 on this disposition. The Company still retains
an investment in Transense in the form of 250,000 share purchase warrants.
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The Company has not experienced any difficulties as a result of the Year 2000
issue.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In December 1999, the Company issued 25,000 shares of common stock at a value of
US$1.50 per share to Transense Technologies plc ("Transense") pursuant to a
license agreement. Under the agreement, SmarTire purchased 250,000 units of
Transense, each comprised of one share and one two-year purchase warrant, for a
total purchase price of L150,000 (Pounds Sterling). The purchase price was
paid two-thirds in cash and one-third in SmarTire shares. The offer and sale of
these Securities was made in reliance on the exemption from registration under
Section 4(2) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The following exhibits are filed hereunder:
10.1 Management Agreement between SmarTire USA Inc. and Mark Desmarais
and SmarTire Systems Inc. dated as of June 1, 1999 (Revised)
10.2 Management Agreement between SmarTire Systems Inc. and Shawn
Lammers dated as of August 1, 1999
10.3 Management Agreement between SmarTire Systems Inc. and Robert
Rudman dated as of August 1, 1999
10.4 Service Agreement between SmarTire Europe Limited and Ian Bateman
dated as of December 9, 1999
10.5 ASIS Development/Purchase Agreement dated as of December 13, 1999
between Sensonor ASA and SmarTire Systems Inc.
10.6 License Agreement dated September 30, 1999 between Transense
Technologies plc and SmarTire Systems Inc.
11 Statement re: computation of per share earnings
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27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K - Three months ended January 31, 2000:
Form 8-K, filed on November 29, 1999, pursuant to Item 5 attaching press release
regarding private placement
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SIGNATURES
In accordance with the requirements for the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SMARTIRE SYSTEMS INC.
-----------------------------------
(Registrant)
Date March 16, 2000 /s/ ROBERT V. RUDMAN
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Robert V. Rudman
President and
Chief Executive Officer
Date March 16, 2000 /s/ KEVIN A. CARLSON
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Kevin A. Carlson
Chief Financial Officer (Principal
Financial Officer)
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