The following is from ISMR's 10-QSB:
MANAGEMENT'S PLANS Management has decided to address the company's financial situation by the following:
Sale of 133,334 additional shares of Common stock for $72,000 as part of its foreign private placement, expected to be received in July 1999.
The note payable stockholder has been restructured and will not be satisfied until the Company has an acceptable working capital.
An SB-2 is expected to be filed with the United States Securities and Exchange Commission, which would provide for the Company to raise up to $5,000,000 from the general public.
Acquisition of at least two, possibly four, additional companies in the computer and internet fields for a better vertical integration and to spread general and administrative costs over a broader base. In that regard, three letters of intent have been signed and the Company is in the process of drafting agreements and performing its due diligence.
Increase promotional expenditures in an effort to increase revenues.
10. SUBSEQUENT EVENTS AND MATERIAL CONTINGENCIES
In September of 1999, the Company filed with the Securities Exchange Commission a registration statement pursuant to a contemplated offering the Company's securities. Through this proposed secondary public offering, the Company anticipates raising as much as $5,000,000. With respect to this offering, the Company has entered into a "best efforts" underwriting agreement whereby a qualified broker/dealer will participate in the sale of the securities that are the subject of the offering. Management has no information regarding an "effective date" for the offering, nor does it have
any assurance that, even if the registration statement is duly qualified, the offering will be successful.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
On August 17, 1998, the Company changed its name to Internet Stock Market Resources, Inc. and subsequently announced that it had merged with the private, close Florida corporation Internet Stock Market Corp. The financial statements herewith presented of the Surviving Corporation reflect the effect of the "pooling of interests" of the private corporation (the "Non-surviving Corporation") with that of the Company (the "Surviving Corporation" of the merger/acquisition). The effective date of the merger coincides with the first day (September 1, 1998) of the second quarter of the Company's previous fiscal year. The discussion that follows (and all future discussions) will exclusively address the financial statements of the "pooled," Surviving Corporation. The Company's fiscal year ends on May 31; as such, the financial statements herein presented are for the Company's first quarter, ended August 31, of the current fiscal year. Care should be taken when comparing the results of the just-ended first quarter with those of the previous year, as latter information is presented herein on a pro forma basis as if the merger/acquisition noted above occurred during the first quarter of last year, rather than in the second quarter. As such, analyses below will be weighted more substantially toward comparisons of the August 31, 1999 results with those of the quarter ended May 31, 1999.
Revenues for the Company's first quarter were $147,892, constituting an increase of 133% over revenues for the previous quarter, and 204% over pro forma revenues for the first quarter of the previous fiscal year. Management attributes the majority of this increase to its aggressive strategy of acquiring new business for its core business as an Internet portal for displaying information about client corporations. Significant additions to its book of business have afforded the Company a number of opportunities to provide news releases about clients; these, in turn, have brought the Company's services to the attention of even more prospective clients.
While revenues increased by more than 200% over the prior-year's first quarter, expenses grew by less than 35%, reflecting the previous dominance of the Company's fixed costs of operation that have now been overcome by increasing revenues and the relatively modest nature of the Company's variable costs. It is the belief of Management that, provided revenues can be sustained and increased quarter-over-quarter, concommitant increases in expenses will not challenge increases in profitability for the foreseeable future. Year-over-year, the most significant changes in expenses came in the two distinguishable categories: the first includes bad debts, which rose from no recognition to almost $4,900, and interest, which rose 53% on service load to the note payable; the second includes variable costs typically associated with increasing corporate activity. In this latter category, commissions rose by almost 31%, payroll taxes rose by 236%, salaries and wages rose by 145%, supplies rose by 1048%, and telephone expense rose by 42%. The component of these variable costs attributable to increased compensation to Comapny personnel rose by $13,916; this was offset by a decline of $20,978 in professional fees as the Company utilize internal human resources to carry out some duties previously handled by outside professionals. Management is mindful that this trade-off can be carried only to a certain extent, but believes that this gives clear evidence of the success of aggressive expense management policies being promoted internally.
Although net income for the fourth quarter of the Company's previous year was positive, this was almost entirely the result of tax credit effects. The net income for the period just ended is entirely the result of revenues exceeding expenses, and may be viewed as a watershed for the Company. Whereas for the year-previous first quarter, the Company had a net loss of more than $26,000, the Company now has achieved a net income of almost $57,000. On an earnings-per-share basis (and adjusting the year-previous earnings for the effect of a recent one-for-nine reverse split of all Common stock shares), the Company earned $0.087 cents per share for the quarter just ended against a loss of $0.095 for the year-previous first quarter.
From the previous fiscal year's fourth quarter to the first quarter herewith reported, total assets fell from $192,301 to $120,316, representing a decline of 37.4%, this erosion almost entirely due to a precipitous decline in net cash from more than $120,000 to slightly less than zero, offset to some extent by a rise of almost $60,000 in accounts receivable. Management is mindful of this significantly tight cash position, and is instituting cash management policies to prevent such short-term liquidity situations from arising again. Current liabilities declined from the previous quarter by 61%, although a substantial portion of this decline, $113,550, is the result of the previous quarter's recognition of the current portion of a note payable; excluding this item, current liabilities declined by slightly less than 31%, although accounts payable rose by almost 80% to more than $20,000.
As previously noted by Management, the Company's current ratio continues to improve, rising to 0.75 from the quarter-previous value of 0.58. Nevertheless, the slightly negative cash level at August 31, 1999 should be considered a qualification on the otherwise-improving current ratio.
From the previous quarter, the Company's deficiency in assets declined by more than 18%, confirming for the quarter Management's prior assertions that the asset deficiency would be steadily decreased, quarter ove quarter, until gone. Although at the current rate, the deficiency would be eliminated in approximately five quarters, Management cautions that a deficiency may remain
somewhat longer.
During the quarter ended August 31, 1999, Management continued to focus attention on two areas of Company activity: the Internet business, as described above, and the acquisition of other, related enterprises. The Company has entered into a memorandum of understanding with one such acquisition target, Delcor Industries, a closely-held, Florida corporation that manufactures and assembles electronic components. The closing of this deal is predicated on the availability of funds from an offering of the Company's securities.
The Company is negotiating with Micro Bytes Computer Center, Inc. for the purchase of business assets and inventory and has executed a Letter of Intent dated June 16, 1999. The purchase would be accomplished in part by the issuance of restricted common stock by the Company, which would be given "piggy-back" registration rights.
On June 30, 1999, a letter of intent was signed by the Company and Delcor Industries, Inc. (Delcor) to acquire 100% of Delcor for cash and debt. The letter of intent gives the parties until August 1, 1999 to sign a purchase agreement to finalize the acquisition. Delcor manufactures and assembles electronic components, and employs approximately 75 people. This agreement includes a requirement for cash payment that the Company will be able to make only if the proceeds from a contemplated offering of Company securities is successful (see the next paragraph).
In late September, 1999, the Company filed with the Securities and Exchange Commission a registration statement on Form SB-2 pursuant to a contemplated offering of securities. Management is obligated to restrict Company activities to the normal course during this period, and to not discuss certain matters related to the offering.
MANAGEMENT'S PLANS Management is addressing address the Company's financial situation by the following:
Continuation of growth in revenues in its core business.
As anticipated by Management, the Company has demonstrated by the current quarter's results that it can increase revenues through aggressive marketing of its Internet-related services. Furthermore, this growth in quarter-over-quarter revenues has been attended by a less-than comensurate increase in expenditures, resulting in first-time-ever pre-tax positive net income. Management does not anticipate expenses in the foreseeable future again challenging the revenues' ability to create profitability. Moreover, any extraordinary expenditures the Company anticipates incurring will only be made when and if the funds from a contemplated offering (see above) are available.
Sale of 133,334 additional shares of Common stock for $72,000 as part of its foreign private placement was received in July 1999.
A note payable stockholder has been restructured and will not be satisfied until the Company has an acceptable level of working capital. Further restructuring of this obligation, including a debt-for-equity exchange, may be instituted. Although Management has not made a final decision with regard to this possibility, the result would be to substantially reduce the long-term liabilities of the Company, as well as to remove the outflow of cash required to service this debt.
In September, 1999, a registration statement on Form SB-2 was filed with the United States Securities and Exchange Commission; the anticipated proceeds would provide for the Company with as much as $5,000,000 from the general public. Such proceeds would not only increase considerably the liquidity of the Company, but they would also afford the Company to complete anticipated acquisitions that would also provide long-term cash flow enhancements for the
Company.
Management believes that, even in the absence of the net proceeds from an offering of its securities, the Company has the ability at this time to continue operations, particularly in light of its growth in revenues. No material, adverse contingencies are perceived at this time, other than those arising from the intensely competitive environment in which the Company operates. Provided the Company can stay abreast of the changes in technology, and provided the Company can continue to offer its existing and prospective clients a level of services they cannot find elsewhere, the Company can remain a going concern and be a permanent part of the information technology landscape in the 21st Century.
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