UNITED STATES
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 Three Months Ended March 30, 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 NUMBER: 001-14753
CHINAB2BSOURCING.COM, INC.
(Exact Name of Small Business Issuer as specified in its charter)
Delaware 11-3423157
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Broad Hollow Road
Farmingdale, NY 11735
(Address of principal executive offices)
(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 _____
As of May 9, 2001, the Registrant had 3,725,934 shares of its Common Stock,
$0.001 par value, issued and outstanding.
CHINAB2BSOURCING.COM, INC. AND SUBSIDIARIES.
FORM 10-QSB
MARCH 30, 2001
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis or
Plan of Operation 5-6
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 7
Item 2 - Changes in Securities and Use of Proceeds 7
Item 3 - Defaults upon Senior Securities 7
Item 4 - Submission of Matters to a Vote of Security Holders 7
Item 5 - Other Information 7
Item 6 - Exhibits and reports on Form 8-K 7
SIGNATURE 8
CHINAB2BSOURCING.COM, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL SMART SOURCING, INC.)
CONSOLIDATED BALANCE SHEET
MARCH 30, 2001
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 174,902
Accounts receivable - net of allowance for
doubtful accounts of $14,800 1,175,638
Notes receivable-related party 75,586
Inventories 1,335,774
Prepaid expenses and other current assets 253,244
--------------
TOTAL CURRENT ASSETS 3,015,144
Property and Equipment - net 781,688
Note receivable-related party 151,599
Other assets 270,034
--------------
$ 4,218,465
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,452,592
Due to related party 79,168
Deferred revenue 104,229
Current portion of long tem debt (including
$202,150 to officer/shareholders) 272,201
Current portion of obligations under capital leases 79,945
--------------
TOTAL CURRENT LIABILITIES 1,988,135
Long tem debt (including $150,326 to officer/shareholders) 387,763
Obligations under capital leases 91,463
--------------
TOTAL LIABILITIES 2,467,361
--------------
STOCKHOLDERS' EQUITY:
Common Stock, $0.001 par value, 10,000,000 shares authorized,
issued and outstanding 3,725,934 3,726
Additional paid-in capital 7,715,713
Accumulated deficit (5,968,335)
--------------
TOTAL STOCKHOLDERS' EQUITY 1,751,104
--------------
$ 4,218,465
==============
See notes to consolidated financial statements.
1
CHINAB2BSOURCING.COM, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL SMART SOURCING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------------
March 30, March 31,
2001 2000
---------------- ---------------
NET SALES $ 2,145,966 $ 1,710,159
COST OF GOODS SOLD 1,448,495 1,072,906
---------------- ---------------
GROSS PROFIT 697,471 637,253
---------------- ---------------
OPERATING EXPENSES
Selling and shipping 283,856 327,713
General and administrative 702,521 654,530
---------------- ---------------
TOTAL OPERATING EXPENSES 986,377 982,243
---------------- ---------------
LOSS FROM OPERATIONS (288,906) (344,990)
Interest income 4,314 34,699
Interest expense (18,741) (39,360)
---------------- ---------------
NET LOSS (303,333) (349,651)
================ ===============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.08) $ (0.10)
================ ===============
WEIGHTED AVERAGE COMMON SHARES 3,725,934 3,382,500
================ ===============
See notes to consolidated financial statements.
2
CHINAB2BSOURCING.COM, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL SMART SOURCING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
-------------------------
March 30, March 31,
2001 2000
----------- ------------
Cash flows from operating activities:
Net loss $ (303,333) $ (349,651)
----------- ------------
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation 63,848 50,425
Amortization 942 73,831
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 152,565 (191,720)
Increase in accounts receivable for related parties (16,929) (11,284)
Decrease (Increase) in inventories 23,200 (122,145)
Decrease in prepaid expenses and other current assets 36,835 52,836
Decrease in other assets 17,146 11,966
Decrease in accounts payable and accrued expenses (38,521) (47,433)
Increase in due to related party 17,416 -
Decrease in deferred revenue (3,714) -
----------- ------------
Total adjustments 252,788 (183,524)
----------- ------------
Cash used in operating activities (50,545) (533,175)
----------- ------------
Cash flows from investing activities:
Expenditures for property and equipment (18,497) (184,113)
----------- ------------
Cash used in investing activities (18,497) (184,113)
----------- ------------
Cash flows from financing activities:
Capital lease repayments (22,546) -
Proceeds from borrowings 109,000 100,620
Principal payments and repayment of loans (30,723) (56,666)
----------- ------------
Cash provided by financing activities 55,731 43,954
----------- ------------
Net Decrease in cash (13,311) (673,334)
Cash - beginning of year 188,213 1,992,265
----------- ------------
Cash - end of year $ 174,902 $ 1,318,931
=========== ============
See notes to consolidated financial statements.
3
CHINAB2BSOURCING.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and disclosures
required for annual financial statements. These financial statements should
be read in conjunction with the consolidated financial statements and
related footnotes included in the Company's annual report on form 10-KSB
for the year ended December 29, 2000.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's
financial position as of March 30, 2001 and the results of operations and
cash flows for the three month periods ended March 30, 2001 and March 31,
2000 have been included.
The results of operations for the three-month period ended March 30, 2001,
are not necessarily indicative of the results to be expected for the full
year ended December 28, 2001.
2. NOTES PAYABLE - RELATED PARTIES
During the quarter ended March 30, 2001, the Company obtained two loans
aggregating $109,000 from two of its principal stockholders. Such loans are
unsecured and are due on demand with interest at 10% per annum.
3. BANK DEBT
In April 2001, the Company closed on a revolving line of credit agreement
with a bank that provides for a maximum borrowing of up to $1,500,000,
subject to certain conditions, at an interest rate of prime plus 1.75%. The
loan is secured by substantially all the assets of the company and is
unconditionally guaranteed by three officers/shareholders, each limited to
$250,000. The agreement provides that, among the other requirements, the
Company maintain a tangible net worth of at least $1,750,000 from the date
of the agreement to and including December 30, 2001 and $2,000,000 through
April 2003, when the outstanding balance is due.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
ChinaB2Bsourcing.com, Inc. (formerly International Smart Sourcing, Inc.) was
organized as a holding company for its three wholly-owned subsidiaries
International Plastic Technologies, Inc. (IPT) which does business as
International Smart Sourcing and ChinaB2Bsourcing, Electronic Hardware Corp.
(EHC) and Compact Disc Packaging Corp. (CDP) (collectively, the "Company").
IPT specializes in assisting small to mid-size companies substantially reduce
their cost of manufacturing by out sourcing work to China. Through its offices
in the United States and China, IPT has put in place the infrastructure
necessary to simplify the transition of moving work to China. The Company's
product specialization includes tooling, injection molding and secondary
operations, castings, mechanical assemblies, electromechanical assemblies and
metal stampings.
The Company has established an office in Shanghai, with engineering, quality,
production control and administrative personnel who provide project management,
source selection, engineering coordination, quality assurance, logistics and
cost reduction. There are twenty-four manufacturers in China presently providing
products for our clients. The Company believes that its service provides its
clients with significant competitive advantages. Savings for customers range
from fifteen percent to as much as seventy five percent. The more labor
intensive the product, the more savings realized. Due to the low cost of tooling
the client's return on investment is improved, and its overhead costs are
reduced. However, there can be no assurance that the Company will be able to
consummate, maintain or establish additional manufacturing relationships in
China, continue to experience cost savings for its clients, or achieve any of
its growth strategies.
Electronic Hardware Corporation, the Company's principal subsidiary, has over 29
years of experience in the design, marketing and manufacture of injection molded
plastic components used in industrial, consumer, and military products. The
Company believes that its long-term experience in the manufacture and assembly
of injection molded plastic components, coupled with direct access to
manufacturing facilities in China, will enable the Company to provide improved
products at lower prices with improved profit margins.
EHC meets a full range of its clients' needs by maintaining early and total
involvement, from the design and development to the ultimate manufacture and
packaging of the product. When a custom-made product is initially requested,
experienced EHC application engineers assist the customer during the concept
design stage, which the Company considers critical to the success of the
manufacturing process. During this stage, EHC application engineers draw upon
the Company's experience, expertise and technological innovation to assist
clients in reducing costs, meeting accelerated market schedules and ensuring
high quality workmanship.
RESULTS OF OPERATIONS
For the three months ended March 30, 2001 compared to the three months ended
March 31, 2000.
NET SALES
Net sales increased $435,807, or 25 %, to $2,145,966 for the three months ended
March 30, 2001 from $1,710,159 for the three months ended March 31, 2000. The
increase in sales was attributed to the commencement of the contract with the
Defense Supply Center in Philadelphia (DSCP) and an increase in volume by IPT.
GROSS PROFITS
The Company realized an overall gross profit margin percentage for the three
months ended March 30, 2001 of 33 %, which represents a decrease from the 37 %
experienced during the three months ended March 31, 2000. This decrease can be
attributed to a change in the product mix for the quarter. The Company relied
more heavily on molded products, which do not have secondary operations. These
types of products are different from the standard Product line, which require
secondary operations such as assembly, machining, painting, printing and
finishing and consequently earn a higher profit.
5
OPERATING EXPENSES
Operating expenses increased $4,134, or 1%, to $986,377 for the three months
ended March 30, 2001 from $982,243 for the three months ended March 31, 2000.
The minimal increase is reflective of Managements belief that costs will
continue to decrease as EHC's production is shifted off shore and the full
effect of cost reduction programs instituted in the later part of the quarter
ended March 30, 2001 are fully realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements, capital
expenditures, and principal and interest payments. Historically, the Company's
primary source of liquidity has been cash flow generated internally from
operations, supplemented by bank borrowings and long term equipment financing.
The Company's cash decreased to $174,902 on March 30, 2001 from $188,213 on
December 29, 2000.
Cash flows used in operating activities was $50,545 for the quarter ended March
30, 2001 on a net loss of $303,333. The decrease in accounts receivable is the
result of controlled collection efforts. The decrease in inventory is the result
of the Company's continued control and monitoring of government components at a
sufficient level to properly respond to government orders on a timely basis
without an increased buildup in inventory. Cash used in investing activities for
the quarter ended March 30, 2001 was $18,497 which consisted of cash for the
purchase of machinery and equipment.
Net cash provided by financing activities for the quarter ended March 30, 2001
was $55,731.
Cash of $109,000 was provided from borrowings from related parties. Cash of
$30,723 was used to make principal payments on loans and $22,546 to make capital
lease repayments.
In April 2001, the Company closed on a revolving line of credit agreement with a
bank that provides for a maximum borrowing of up to $1,500,000, subject to
certain conditions, at an interest rate of prime plus 1.75%. The loan is secured
by substantially all the assets of the company and is unconditionally guaranteed
by three officers/shareholders, each limited to $250,000. The agreement provides
that, among the other requirements, the Company maintain a tangible net worth of
at least $1,750,000 from the date of the agreement to and including December 30,
2001 and $2,000,000 through April 2003, when the outstanding balance is due.
CAUTIONARY FACTORS REGARDING FUTURE OPERATING RESULTS
The matters discussed in this form 10-QSB other than historical material are
forward-looking statements. Any such forward-looking statements are based on
current expectations of future events and are subject to risks and uncertainties
which could cause actual results to vary materially from those indicated. Actual
results could differ due to a number of factors, including negative developments
relating to unforeseen order cancellations or push outs, the Company's strategic
relationships, the impact of intense competition and changes in our industry.
The Company assumes no obligation to update any forward-looking statements as a
result of new information or future events or developments.
6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been brought as a defendant in two employment discrimination
actions before the Division of Human Rights of the State of New York. The
Company is vigorously defending both actions,
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
None
Reports on 8-K:
No reports on Form 8-K were filed during the quarter ended March 30,
2001.
7
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.
CHINAB2BSOURCING.COM, INC.
MAY 15, 2001 /S/Andrew Franzone
--------------------------------
- ------------ Andrew Franzone
Date Chief Executive Officer
MAY 15, 2001 /S/Steven Sgammato
--------------------------------
- ------------ Steven Sgammato
Date Chief Financial Officer
8