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 27, 1999
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
INTERNATIONAL SMART SOURCING, 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)
(516) 293-0750
(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 4, 1999, the Registrant had 3,195,000 shares of its Common Stock,
$0.001 par value, issued and outstanding.
INTERNATIONAL SMART SOURCING, INC.
FORM 10-QSB
MARCH 27, 1999
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 Managements Discussion and Analysis or
Plan of Operation 5-6
PART II OTHER INFORMATION
Item 6 Exhibits and reports on Form 8-K 7-8
SIGNATURE 9
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 27, 1999
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash in Banks $ 86,446
Accounts Receivable 486,330
Accounts Receivable - Related Party 587,687
Inventory 765,207
Prepaid Expenses 99,891
---------------
TOTAL CURRENT ASSETS 2,025,561
---------------
Property and Equipment (net) 589,020
Goodwill 1,694,703
License Agreement 487,499
Deferred Offering Costs 392,697
Other Assets 65,702
---------------
TOTAL ASSETS $ $5,255,182
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $932,086
Current portion of long tem debt 1,708,572
Current portion of obligations under capital lease 67,277
---------------
TOTAL CURRENT LIABILITIES 2,707,935
---------------
Long tem debt 498,914
Obligations under capital lease 95,242
---------------
TOTAL LIABILITIES 3,302,091
---------------
STOCKHOLDERS' EQUITY
Common Stock, $0.001 par value, authorized 10,000,000
shares, issued and outstanding 1,945,000 1,945
Additional Paid-in Capital 1,904,297
Retained Earnings 46,849
---------------
TOTAL STOCKHOLDERS' EQUITY 1,953,091
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,255,812
===============
See Notes to Financial Statements
P. 1
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
-----------------------------------
March 27, 1999 March 28, 1998
(Unaudited)
-----------------------------------
NET SALES $1,333,191 $1,438,443
------------ ------------
COST OF GOODS SOLD 872,588 901,632
------------ ------------
GROSS PROFIT 460,603 536,811
------------ ------------
OPERATING EXPENSES
Selling and Shipping 104,749 136,846
General and Administrative 389,643 295,964
TOTAL OPERATING EXPENSES 494,392 432,810
------------ ------------
INCOME (LOSS) BEFORE INTEREST EXPENSE (33,789) 104,001
INTEREST EXPENSE 57,717 50,254
NET INCOME (LOSS) ($91,506) $53,747
------------ ------------
NET INCOME (LOSS) PER SHARE - BASIC ($0.05) $0.04
------------ ------------
WEIGHTED AVERAGE COMMON SHARES 1,945,000 1,500,000
============ ============
See Notes to Financial Statements
P. 2
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
---------------------------------
March 27, 1999 March 28,1998
(Unaudited)
Cash Flows from Operating Activities
Net Income (Loss) (91,506) 53,747
---------- -----------
Adjustments to Reconcile Net Income (Loss) to Net Cash
provided by operating activities:
Depreciation 72,170 63,460
Amortization 55,950 0
Changes in Assets and Liabilities:
Decrease in Accounts Receivable 25,192 61,020
Decrease in Accounts Receivable from Related Parties 47,374 0
(Increase) Decrease in Inventory 19,793 (10,118)
(Increase) Decrease in Prepaid Expenses 9,740 (55,113)
(Increase) Decrease in Other Assets 8,118 (111,080)
Increase (Decrease) In Accounts Payable and (41,603) 49,509
---------- -----------
Accrued Expenses
Total Adjustments 196,734 (2,322)
---------- -----------
Net Cash Provided by Operating Activities 105,228 51,425
---------- -----------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (68,470) (73,167)
---------- -----------
Net Cash Used in Investing Activities (68,470) (73,167)
---------- -----------
Cash Flows from Financing Activities:
Deferred Offering Costs (45,838) 0
Proceeds from Loans 185,000 40,000
Payments on Loans (105,620) (116,812)
---------- -----------
Net Cash Provided by (Used in) Financing Activities 33,542 (76,812)
---------- -----------
Net Increase (Decrease) in Cash 70,300 (98,554)
---------- -----------
Cash - Beginning of Period 16,146 351,740
---------- -----------
Cash - End of Period $86,446 $253,186
========== ===========
See Notes to Financial Statements
P. 3
INTERNATIONAL SMART SOURCING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 27, 1999
(Unaudited)
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 and
Article 10 of Regulation S-X. 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 for the year ended December 26,
1998 included in the Company's registration statement on Form SB-2.
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 27, 1999 and the results of operations and
cash flows for the three month periods ended March 27, 1999 and March 31,
1998 have been included.
The results of operations for the three month period ended March 27, 1999,
are not necessarily indicative of the results to be expected for the full
year ended December 26, 1999. Certain prior year amounts have been
reclassified to conform with the current year's presentation.
INITIAL PUBLIC OFFERING
On April 23, 1999 the Company offered for sale to the public 1,250,000
shares of its common stock at $4.50 per share and 1,250,000 redeemable
warrants at $0.10 to purchase one share of common stock at $5 per share.
The Company received approximately $4,300,000 of net proceeds from the
initial public offering.
P. 4
Item 2.
Management?s Discussion and Analysis or Plan of Operations
General
The Company was formed for the purpose of developing or acquiring domestically
manufactured injection molded plastic products or assemblies, redesigning the
products to improve function and appearance and by using the relationships with
vendors in China, to manufacture the products offshore in order to deliver them
at lower prices and improved profit margins. EHC, the Company's principal
subsidiary, has over 28 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.
The Company, through CDP a wholly-owned subsidiary, has entered into an
exclusive international licensing agreement to manufacture, market, sell and
sub-license the Pull Pack TM, a proprietary Disc packaging system. The Pull Pack
TM is a redesigned Jewel Box, the packaging currently utilized for Compact
Discs, CD ROMs and DVD.
Results of Operations
For the three months ended March 27, 1999 compared to the three months ended
March 28, 1998:
Net Sales
Net sales decreased $ 105,252, or 7 %, to $ 1,333,191 for the three months ended
March 27, 1999 from $ 1,438,443 for the three months ended March 28, 1998. The
decrease in sales was attributed to generally lower industry bookings and not
attributable to one customer or product line.
Gross Profits
The Company realized an overall gross profit margin percentage for the quarter
ended March 27, 1999 of 35 %, which represents a decrease from the 37 %
experienced during the quarter ended March 28, 1998. This decrease can be
attributed to the increased sales of molded plastic components which have a
lower gross profit margin than products which
are molded and have value added operations.
P. 5
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $ 61,582, or 14%, to
$494,392 for the quarter ended March 27, 1999 from $ 432,810 for the quarter
ended March 28, 1998.
The increase can be attributed to an increase in office salaries to support the
additional engineering consultants and employees hired to facilitate the new
business with the Company's manufacturing relationship located in China.
Additionally, there was an increase in engineering consulting fees for new
products designed by EHC to compliment the knob line.
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 borrowing's and long term equipment financing.
The Company's cash decreased to $ 86,446 on March 27, 1999 from $ 215,903 on
December 26, 1998. Cash flow provided by operating activities was $ 105,228 for
the three months ended March 27, 1999 on a net loss of $ 91,506. The decrease in
accounts receivable and decrease in accounts payable were the result of a
decreased volume of business.
Cash used in investing activities for the three months ended March 27, 1999 and
March 28, 1998 was $ 68,470 and $ 73,167, respectively, which consisted of cash
for the purchase of tooling, molds, machinery and equipment. The Company plans
to invest approximately $ 725,000 in tooling molds and facilities during 1999.
Net cash provided by financing activity for the three months ended March 27,
1999 was $ 33,542. Cash of $ 185,000 was provided from borrowings on available
credit lines and shareholders' loans, which was offset by principal payments on
loans of $105,620.
P. 6
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed as part of this report:
Exhibit Description
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 27, 1999.
P. 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.
INTERNATIONAL SMART SOURCING, INC.
May 28, 1999 /s/ Andrew Franzone
- ------------ -----------------------
Date Andrew Franzone
Chief Executive Officer
May 28, 1999 /s/ Steven Sgammato
- ------------ -----------------------
Date Steven Sgammato
Chief Financial Officer
P. 9