<PAGE>   1

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                               AMENDMENT No. 2 to
                                  FORM 10-QSB


(Mark One)

[X]  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934


For the quarterly period ended           March 31, 2000
                               ---------------------------------------------

[ ]  Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from                        to
                              -----------------------    --------------------

Commission file number                      33-1933 3-D
                      -------------------------------------------------------

                             SMARTSOURCES.COM, INC.
            ---------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)

                               Colorado  84-1073083
            ---------------------------------------------------------
      (State or Other Jurisdiction of  (I.R.S. Employer Identification No.)
                         Incorporation or Organization)

 2030 Marine Drive, Suite 100 North Vancouver, British Columbia V7P 1V7, CANADA
            ---------------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (604) 986-0889
            ---------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


     Check whether the issuer: (1) filed all reports 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 [ ]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes [X]   No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 12,312,963 shares of Common
Stock

     Transitional Small Business Disclosure Format (check one):

Yes [ ]   No [X]


<PAGE>   2


                         PART I - FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


The financial statements included herein have been prepared by the Company,
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.

The March 31, 2000 condensed consolidated financial statements included in this
filing on Form 10-QSB have been reviewed by Moss Adams LLP, independent
certified public accountants, in accordance with established professional
standards and procedures for such review. The report of Moss Adams LLP
commenting upon their review accompanies the condensed financial statements
included in Item 1 of Part I.
<PAGE>   3
                         INDEPENDENT ACCOUNTANT'S REPORT





To the Board of Directors
SmartSources.com, Inc.

We have reviewed the consolidated condensed financial statements of
SmartSources.com, Inc. and Subsidiaries as of March 31, 2000 and for the three
and six months then ended. These financial statements are the responsibility of
the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.


As discussed in Note 4 to the financial statements, subsequent to issuance of
our report, management reassessed the use of certain facts surrounding a share
exchange agreement resulting in an increase in previously reported minority
interest and decrease in previously reported common stock as of March 31, 2000.
Accordingly, the March 31, 2000 financial statements have been restated.


We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1999 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein), and in our report dated
March 14, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of September 30, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.



/S/ MOSS ADAMS LLP

Bellingham, Washington
May 10, 2000

<PAGE>   4

                     SMARTSOURCES.COM INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                     MARCH 31, 2000 AND SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
                                                                      March 31, 2000
                                                   Sept. 30, 1999        Unaudited
                                                   --------------     --------------
<S>                                                  <C>               <C>
                                   ASSETS

CURRENT ASSETS
Cash and cash equivalents ........................   $   164,200       $ 4,326,000
Trade accounts receivable, net ...................       184,800           369,000
Prepaid expenses .................................        12,300            35,000
                                                     -----------       -----------
         Total current assets ....................       361,300         4,730,000

CAPITALIZED SOFTWARE COSTS and PURCHASED SOFTWARE
  RIGHTS, net.....................................     1,550,500         1,386,000
PROPERTY AND EQUIPMENT, net ......................       764,300           808,000
OTHER ASSETS .....................................        33,300           154,000
                                                     -----------       -----------
         TOTAL ASSETS ............................   $ 2,709,400       $ 7,078,000


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable and accrued liabilities .........   $   140,000       $   230,000
Income tax payable ...............................        78,300            79,000
Current portion of long-term debt ................        58,700            47,000
                                                     -----------       -----------
         Total current liabilities ...............       277,000           356,000

LONG-TERM LIABILITIES
Due to stockholder ...............................        24,700            19,000
Interest payable .................................            --            33,000
Long-term debt, net of current portion ...........       414,800         3,786,000
Deferred tax liability ...........................        64,200            69,000
                                                     -----------       -----------
         Total liabilities .......................       780,700         4,263,000

COMMITMENTS AND CONTINGENCIES


MINORITY INTEREST ................................     3,441,100         3,407,000


STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, 50 million shares...................     1,821,300         6,238,000
   Authorized, 11,563,200 and 11,855,600 shares
   outstanding at September 30, 1999 and March 31,
   2000 respectively

Accumulated other comprehensive income ...........       124,500           133,000
Accumulated deficit ..............................    (3,210,700)       (6,488,700)
Deferred compensation ............................      (247,500)         (474,300)
                                                     -----------       -----------

         Total stockholders' equity (deficit).....    (1,512,400)         (592,000)

                                                     -----------       -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   (DEFICIT)......................................   $ 2,709,400       $ 7,078,000

</TABLE>


       See accompanying notes to these consolidated financial statements.



                                       2




<PAGE>   5


                     SMARTSOURCES.COM INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED
              Quarter and Six months ended March 31, 2000 and 1999

<TABLE>
<CAPTION>
                                         FOR THE THREE MONTHS ENDED       FOR THE SIX MONTHS ENDED
                                       ------------------------------  ------------------------------
                                       MARCH 31, 1999  MARCH 31, 2000  MARCH 31, 1999  MARCH 31, 2000
                                       --------------  --------------  --------------  --------------
<S>                                      <C>             <C>             <C>             <C>
REVENUES EARNED ......................   $  188,500      $  427,200      $  350,100      $  639,000

COST OF SALES ........................       20,200          46,200          49,500          99,700
                                         ----------      ----------      ----------      ----------

GROSS PROFIT .........................      168,300         381,000         300,600         539,300

OTHER EXPENSES, EXCLUSIVE OF
   DEPRECIATION AND AMORTIZATION
   Research & Development.............       62,000         243,200          85,200         497,000
   Sales and Marketing ...............      101,000         231,900         156,300         372,600
   General and Administrative ........      240,900         563,200         352,500       1,127,700
                                         ----------      ----------      ----------      ----------
                                            403,900       1,038,300         594,000       1,997,300
                                         ----------      ----------      ----------      ----------

OPERATING LOSS BEFORE DEPRECIATION AND
  AMORTIZATION .......................     (235,600)       (657,300)       (293,400)     (1,458,000)

Depreciation and amortization ........       42,000         141,400          72,900         283,700
                                         ----------      ----------      ----------      ----------

OPERATING EARNINGS (LOSS) ............     (277,600)       (798,700)       (366,300)     (1,741,700)
                                         ----------      ----------      ----------      ----------

OTHER INCOME (EXPENSE)
   Realized gain (loss) on investments         --              --           (48,800)           --
   Interest income ...................         --            35,600            --            35,600
   Interest expense ..................      (11,400)     (1,646,700)        (23,800)     (1,657,600)
                                         ----------      ----------      ----------      ----------
                                            (11,400)     (1,611,100)        (72,600)     (1,622,000)
                                         ----------      ----------      ----------      ----------

INCOME (LOSS) BEFORE PROVISION FOR
  INCOME TAXES .......................     (289,000)     (2,409,800)       (438,900)     (3,363,700)

PROVISION FOR (BENEFIT FROM) INCOME
  TAXES...............................       80,200         (85,700)         20,200         (85,700)
                                         ----------      ----------      ----------      ----------
NET INCOME (LOSS) ....................   $ (369,200)    $(2,324,100)     $ (459,100)    $(3,278,000)
                                         ----------      ----------      ----------      ----------


Basic earnings (loss) per share ......   $    (0.05)    $     (0.20)     $    (0.07)    $     (0.28)
Diluted earnings (loss) per share ....   $    (0.05)    $     (0.20)     $    (0.07)    $     (0.28)

Weighted average common share
  outstanding (basic and diluted).....    6,688,300      11,838,500       6,688,300      11,746,000


</TABLE>


       See accompanying notes to these consolidated financial statements.


                                       3


<PAGE>   6



                     SMARTSOURCES.COM INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
                    Six months ended March 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                      March 31, 1999   March 31, 2000
                                                      --------------   --------------
<S>                                                    <C>              <C>
CASH FROM OPERATING ACTIVITIES
   Net Income (Loss) ...............................   $  (459,100)     $(3,278,000)
Adjustments to reconcile net income (loss) to
   net cash from operating activities
   Depreciation and amortization ...................        72,900          283,700
   Loss on disposal of assets ......................        48,800             --
   Stock-based compensation ........................          --            144,700
   Realized gains (losses) on sale of investments ..        (7,200)            --
   Accrued interest expense from long-term debt ....          --             30,200
   Accrued interest expense from intrinsic
      value of conversion feature of long-term debt           --          1,604,300
Changes in operating assets and liabilities
   Trade accounts receivable .......................       226,900         (181,200)
   Other assets ....................................       (14,100)        (126,000)
   Accounts payable and other current liabilities ..        64,800           94,200
   Administrative fees payable .....................        39,000             --
   Income taxes payable and refundable .............        (7,000)            --
   Sale deposit ....................................       (98,700)            --
                                                       -----------      -----------
      Net cash flows from operating activities .....      (133,700)      (1,428,100)

CASH FROM INVESTING ACTIVITIES
   Purchase of property and equipment ..............       (39,500)         (50,700)
   Purchase of capitalized software ................          --            (60,700)
   Refund of deposit on property and equipment .....          --             16,000
   Proceeds from sale of Familyware ................       163,200             --
   Proceeds from sale of investments ...............        17,400
                                                       -----------      -----------
      Net cash flows from investing activities .....       141,100          (95,400)

CASH FROM FINANCING ACTIVITIES
   Repayment of note payable, net ..................       (13,800)            --
   Principal repayments of long-term debt ..........       (32,000)         (34,000)
   Principal repayments of capital lease obligations          --             (5,400)
   Repayment of advances from stockholder ..........       (97,300)          (5,500)
   Proceeds from long-term debt and stock warrants..                      4,552,000
   Proceeds from issuance of common stock ..........       300,000        1,184,200
   Dividends .......................................      (140,300)            --
                                                       -----------      -----------
      Net cash flows from financing activities .....        16,600        5,691,300

EFFECT OF CHANGES IN EXCHANGE RATES ................          (500)          (6,000)
                                                       -----------      -----------
NET CHANGE IN CASH .................................        23,500        4,161,800
CASH AND CASH EQUIVALENTS, beginning of period .....         1,700          164,200
                                                       -----------      -----------
CASH AND CASH EQUIVALENTS, end of period ...........   $    25,200      $ 4,326,000

Supplemental disclosure of Cash Flow information:

      Interest paid ................................   $    23,800       $   23,200
      Income taxes paid (received) .................   $    19,000       $  (85,700)

</TABLE>


       See accompanying notes to these consolidated financial statements.


                                       4


<PAGE>   7



NOTE I - ORGANIZATION, REVERSE ACQUISITION, AND OPERATIONS


Organization

     SmartSources.com, Inc. (the Company) was incorporated in 1987 in the State
     of Colorado as Cody Capital Corporation. The Company completed a public
     offering in 1988. In 1989, it acquired Telco of Baton Rouge, Inc., which
     was merged into the Company, and the Company changed its name to Telco
     Communications, Inc. In 1994, the Company filed for Chapter 11 bankruptcy
     protection. The Bankruptcy Court (the Court) subsequently converted the
     status of the filing to Chapter 7 and appointed a Trustee to manage the
     affairs of the Company.

     In 1996, under direction of the Court, all authorized but unissued shares
     were sold to an individual, and the Company emerged from bankruptcy with no
     assets, liabilities, and subject to no claims or litigation. In 1997, the
     Company name was changed to Innovest Capital Sources Corporation, and
     control of the Company was obtained by Intrepid International, S.A., a
     Panamanian corporation, through purchase of approximately 85% of the
     Company's outstanding shares.

     From the date of its emergence from bankruptcy on April 12, 1996 until
     December 11, 1998, the date of the acquisition discussed below, the Company
     operated as a development stage company. Prior to the acquisition, the
     Company had no material amount of assets or liabilities.


Reverse Acquisition

     Effective December 11, 1998, the Company completed the acquisition of Nifco
     Investments Ltd. (Nifco Investments) and Subsidiaries. The acquisition was
     effected by exchanging six million shares of common stock for all
     outstanding shares of Nifco Investments. In connection with the
     transaction, the stockholders of Nifco Investment obtained control of the
     Company; and, accordingly, the transaction is characterized as a reverse
     acquisition. However, because the Company had no material amount of assets
     or liabilities, the transaction was accounted for as a recapitalization of
     Nifco Investments, rather than a business combination. The capital
     structure presented in the accompanying financial statements reflects the
     capital structure of the Company subsequent to a one for 75 reverse stock
     split authorized on October 15, 1998 and the six million shares issued in
     connection with the acquisition.


     Concurrent with the acquisition, the Company name was changed to
     SmartSources.com, Inc., and it adopted the September 30 fiscal year-end of
     Nifco Investments.


Operations

     Nifco Investments was incorporated in the province of British Columbia,
     Canada in September 1998 for the purpose of holding all outstanding shares
     of SmartSources.com Technologies, Inc. ((Technologies), formerly Nifco
     Synergy Ltd.); Intelli Trade Corporation (Intelli Trade); Infer
     Technologies, Inc. (Infer Technologies); and Origin Software Corporation
     (Origin Software).

     Technologies is a British Columbia corporation organized in 1990.
     Operations are located in Vancouver, British Columbia where it is engaged
     in developing and marketing computer and internet-based knowledge
     management software. Over the past five years, efforts have focused
     primarily on international trade compliance applications, which help
     businesses qualify for preferential tariff treatment under the North
     American Free Trade Agreement (NAFTA).

     Intelli Trade is a British Columbia corporation organized in 1994.
     Operations are located in Toronto, Ontario, where it provides international
     trade consulting services.

     Infer Technologies is a Delaware corporation organized in 1999 to exploit
     the Company's knowledge-management applications software known as kServer.
     Operations are located in Silicon Valley.

     Origin Software is a British Columbia corporation organized in September
     1998 to hold the rights to certain software products (see Note 3).



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - The preceding financial statements are presented in
     accordance with U.S. generally accepted accounting principles.


     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
     SmartSources.com, Inc. and Subsidiaries include the accounts of its direct
     and indirect wholly-owned subsidiaries: Nifco Investments, Inc.;
     SmartSources.com, Technologies, Inc.;


                                       5

<PAGE>   8

     Intelli Trade, Inc.; Infer Technologies, Inc.; and Origin Software
     Corporation. All material intercompany accounts and transactions have been
     eliminated in consolidation.

     USE OF ESTIMATES - The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the amounts reported in the
     consolidated financial statements and accompanying notes. Examples of
     estimates subject to possible revision based upon the outcome of future
     events include amortization and valuation of capitalized software costs,
     depreciation of property and equipment, and income tax liabilities. Actual
     results could differ from those estimates.

     REVENUE RECOGNITION - The Company recognizes revenue in accordance with
     American Institute of Certified Public Accountants Statement of Position
     (SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP
     97-2 with Respect to Certain Transactions. Revenue from packaged software
     products is recognized when shipped. Maintenance and subscription revenue
     is recognized ratably over the contract period. Revenue attributable to
     significant support is based on the price charged for the undelivered
     elements and is recognized ratably over the related product's life cycle.
     Revenue from fixed-price service contracts and software development
     contracts requiring significant production, modification, or customization
     are recognized using the percentage-of-completion method. Revenue from
     service contracts that are based on time incurred is recognized as work is
     performed.

     CASH AND CASH EQUIVALENTS - All highly liquid investments, with a maturity
     of three months or less at the time of purchase, are considered to be cash
     equivalents.

     ACCOUNTS RECEIVABLE - The Company extends credit to customers on an
     unsecured basis. Management establishes allowances for doubtful accounts
     based on evaluation of historical and current payment trends as well as
     consideration of specific collection issues that may require additional
     specific allowances.


     CAPITALIZED SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS - Costs incurred
     prior to establishing the technological feasibility of software products
     are charged to research and development expense. Costs incurred once
     technological feasibility has been established, but prior to release of
     product to customers, are capitalized and amortized on a product-by-product
     basis. Annual amortization is the greater of the amount computed using (a)
     the ratio that current gross revenues for a product bear to total current
     and estimated future revenues or (b) the straight-line method over the
     remaining estimated economic life of the product. Management periodically
     compares unamortized costs to net realizable value and writes off any
     excess. It is reasonably possible that estimates of future gross revenues,
     the remaining economic useful life of the products, or both will be
     significantly revised. As a result, the carrying amount of the capitalized
     software costs may be reduced materially in the near term.


     PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
     Depreciation is computed using straight-line and accelerated methods over
     estimated useful lives of the assets. Estimated useful lives by major asset
     category are as follows: Buildings and improvements - 20 years, computer
     equipment and software - four to ten years, furniture and fixtures - five
     years.


     INTANGIBLE ASSETS - Costs of perfecting and protecting patents and
     trademarks are capitalized and amortized using the straight-line method
     over 20 years.


     VALUATION OF LONG-LIVED ASSETS - The Company periodically reviews
     long-lived assets, including identifiable intangible assets, whenever
     events or changes in circumstances indicate that the carrying amount of an
     asset may be impaired and not recoverable. Adjustments are made if the sum
     of the expected future undiscounted cash flows is less than the carrying
     amount.

     INCOME TAXES - Income taxes are provided for the tax effect of transactions
     reported in the financial statements and consist of taxes currently due
     plus deferred taxes. Deferred taxes are recognized for differences between
     the basis of assets and liabilities for financial statement and income tax
     purposes. Deferred tax assets and liabilities represent the future tax
     consequences of those differences, which will either be taxable or
     deductible when the assets or liabilities are settled. Amounts are computed
     using enacted tax rates.

     FOREIGN CURRENCY TRANSLATION - Assets and liabilities of Canadian
     operations, where the functional currency is the local currency, are
     translated into U.S. dollars at current exchange rates. Revenues and
     expenses are translated using average exchange rates prevailing during the
     year. Foreign currency translation adjustments are reported as a component
     of accumulated other comprehensive income.

     NEW ACCOUNTING STANDARD - In June 1998, the Financial Accounting Standards
     Board issued SFAS No. 133, Accounting for Derivative Instruments and
     Hedging Activities. Among other provisions, SFAS No. 133 requires that
     entities recognize all derivatives as either assets or liabilities in the
     balance sheet and measure those financial instruments at fair value.
     Accounting for changes in fair value is dependent on the use of the
     derivatives and whether such use qualifies as hedging activity. The new
     standard, as amended, becomes effective for the Company in fiscal 2001 and
     management is currently assessing the impact, if any, it may have on
     financial position and results of operations.



                                       6

<PAGE>   9


     UNAUDITED INTERIM FINANCIAL STATEMENTS - The accompanying unaudited
     condensed consolidated financial statements have been prepared in
     accordance with generally accepted accounting principles for interim
     financial reporting and in accordance with the instructions for Form 10-QSB
     and Article 10 of Regulation S-X. Accordingly, they do not include all of
     the information and disclosures normally required by generally accepted
     accounting principles for complete financial statements or those normally
     reflected in the Company's Annual Report on Form 10-KSB. The financial
     information included herein reflects all adjustments (consisting of normal
     recurring adjustments) that are, in the opinion of management, necessary
     for a fair presentation of results for interim periods. Results of interim
     periods are not necessarily indicative of the results to be expected for a
     full year.


NOTE 3 - LONG-TERM DEBT AND PRIVATE PLACEMENT

     LONG-TERM DEBT -

     Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                 September 30,  March 31, 1999
                                                                                     1999            2000
                                                                                 -------------  --------------
<S>                                                                               <C>            <C>
     Convertible debentures, interest at 7% payable at maturity or upon
     conversion or redemption, due February 2005, see further
     description below ............................................               $      --      $ 3,326,300

     Capital lease obligations payable in aggregate monthly installments of
     $4,580, including imputed interest at rates ranging from 9.7% to 11.94%,
     due at dates from November 1999 to March 2003  ...........................          --           63,500

     Note payable to a Canadian bank in monthly installments of $4,400 plus
     interest at prime plus 1.25%, collateralized by general assets of
     Technologies, due August 2000  ...........................................        44,400         18,000

     Mortgage payable to a Canadian bank in monthly installments of $1,700
     including interest at 8.75%, collateralized by real estate of Technologies
     and assignment of rents, guaranteed by the majority stockholder, due in
     2011  ....................................................................       155,500        153,500

     Mortgages payable to two Canadian finance companies in aggregate monthly
     installments of $2,200, including interest at rates of 7% and 9%,
     collateralized by real estate of Technologies and guaranteed by the
     majority stockholder, due January 2001 and June 2002  ....................       273,600        271,700
                                                                                  -----------    -----------
     Total debt ...............................................................       473,500      3,833,000

     Less current portion .....................................................       (58,700)       (47,000)
                                                                                  -----------    -----------
     Long-term portion ........................................................   $   414,800    $ 3,786,000
                                                                                  ===========    ===========
     Long-term debt matures as follows:

</TABLE>

<TABLE>
<CAPTION>

                Year Ending
               September 30,
               -------------
               <S>                                   <C>
                   2000...........................   $   47,000
                   2001...........................       51,600
                   2002...........................       55,700
                   2003...........................       60,200
                   2004...........................       65,800
                Thereafter........................    3,505,700
                                                     ----------
                                                     $3,786,000
</TABLE>


     PRIVATE PLACEMENT OF CONVERTIBLE DEBENTURES AND WARRANTS -

     On February 24, 2000, the Company issued $5 million of convertible
     debentures and detachable stock purchase warrants. The debentures mature in
     February 2005 and bear interest at 7%, which is payable upon maturity, or
     upon conversion or redemption. The detachable warrants entitle holders to
     purchase 330,000 shares of the Company's common stock over a five-year term
     at an exercise price of $11.10 per share.



                                       7

<PAGE>   10

     In connection with issuing the debentures and warrants, the Company paid
     $325,000 of placement fees, $93,000 of legal costs, and $30,000 to the
     holders of the debentures for reimbursement of a portion of their legal
     costs. The Company also issued 25,000 warrants in lieu of placement fees.
     The warrants entitle the holders to purchase an equal number of shares of
     common stock at a price of $11.10 per share. The term of the 25,000
     warrants is two years.

     Concurrent with placing the debentures and warrants, the Company entered
     into a Registration Rights Agreement (the Registration Agreement) with the
     holders of the debentures. The Registration Agreement requires that the
     Company file a registration statement with the Securities and Exchange
     Commission by March 24, 2000 to register the shares of common stock that
     may be acquired upon conversion of the debentures.

     The debentures are convertible in whole or in part into common stock any
     time before maturity at a conversion price that floats with the market
     price of the stock, not to exceed a fixed conversion price of $9.71. After
     August 24, 2000, if the debentures are submitted for conversion and the
     conversion price is below $9.71, the Company has the right to redeem the
     debentures for cash at an amount equal to the value of the converted
     shares. For each share of common stock issued upon conversion, the holders
     of the debentures have the option to purchase one additional share at the
     fixed conversion price of $9.71. The number of shares issued upon
     conversion of the debentures and exercise of the additional purchase option
     is limited in that the total number of shares beneficially owned by the
     holders of the debentures and their affiliates may not exceed 4.9% of
     outstanding common shares. Any issuance of shares in excess in of this
     limitation must be approved by a majority of the Company's common
     stockholders.

     In the event that certain circumstances pertain, including without
     limitation the following, the conversion price will be adjusted downward:

     1.   The Company's common stock is not listed on the American Stock
          Exchange or the Nasdaq Small Cap Market by October 24, 2000 or on the
          Nasdaq National Market by February 24, 2001.

     2.   The Company is in default of the requirements of the Registration
          Agreement.

     In the event the Company fails to comply with certain terms of the
     debentures, holders may elect for the debentures to be redeemed for cash at
     an amount equal to 120% of the conversion price that would otherwise apply,
     plus interest and default payments. If the rules of the National
     Association of Securities Dealers (NASD) apply, in the event the number of
     shares to be issued upon conversion exceeds 20% of shares outstanding at
     the time the debentures were issued, the Company must obtain stockholder
     approval to issue shares in excess of this limit. If stockholder approval
     is not obtained, the debentures underlying the shares in excess of the 20%
     limit would become redeemable for cash.

     A total of $1,330,000 of the $5,000,000 gross proceeds from the private
     placement was allocated to the detachable stock warrants, based upon the
     relative fair value of the warrants and the debentures. The value ascribed
     to the warrants was recorded as a debt discount and an increase in common
     stock. The debt discount is recognized as interest expense over the
     five-year term of the debentures using the effective interest method.

     Total issue costs, including the fair value of stock warrants issue in lieu
     of finder's fees, were $502,300, of which $368,700 was allocated to the
     debentures and $133,600 was allocated to the detachable warrants. The
     portion of the issue costs attributable to the debentures was recorded as
     an offset against the gross proceeds allocated to the debentures and is
     being amortized over the five-year term of the debt using the effective
     interest method. The portion of the costs attributable to the warrants was
     recorded as an offset against the gross proceeds allocated to the warrants.

     At the date of issue, the conversion price of the debentures was less than
     the fair value of the Company's common stock. The intrinsic value of this
     conversion feature was $1,575,800, which was recorded as a charge to
     interest expense and an increase to common stock.

NOTE 4 - CAPITAL STOCK

     COMMON STOCK - The Company has a single class of common stock. Authorized
     shares total 50 million. During the three months ended March 31, 2000, the
     Company issued 100,300 shares for total proceeds of $498,200. During the
     remainder of the six months ended March 31, 2000, the Company issued
     another 192,100 shares for total proceeds of $686,000.

     At March 31, 2000, a total of 3,732,700 common shares are reserved to honor
     the conversion rights, investments options, and stock purchase warrants
     issued in connection with the private placement described in Note 3.
     Another 5,610,000 common shares are reserved to honor other outstanding
     stock warrants and grants made under the Company's stock incentive
     compensation plan.

     EXCHANGE OF CLASS B REDEEMABLE, EXCHANGEABLE PREFERRED STOCK OF ORIGIN
     SOFTWARE CORPORATION-



                                       8

<PAGE>   11




     In connection with the repurchase of certain software rights from Columbia
     Diversified Software Fund Limited Partnership (Columbia), the Company's
     subsidiary, Origin Software, issued 5 million shares of Class B preferred
     stock. Concurrent with the issuance of the preferred shares, Origin
     Software and the Company entered into a Share Exchange Agreement (the
     Agreement) with Columbia. Under the Agreement, subsequent to October 1,
     1999, Columbia has the right to exchange all or part of the Class B
     preferred shares for an amount of common shares of the Company with market
     value of Cdn $5 million (not to exceed 5 million common shares reserved for
     the exchange), based on average trading price during the fourteen-day
     period immediately prior to exercise. Common Shares issued are to be
     "freely tradable" but 80% of the shares will be held in trust and
     released ratably to Columbia over the following four years.

     Effective January 26, 2000, Columbia notified the Company that it wished to
     exercise its exchange rights, and on January 27, 2000 the Company accepted
     the notice. The exchange ratio was based on a $7.60 share price of the
     Company's common stock, and on February 15, 2000, the Company issued
     457,400 shares of common stock in the name of Columbia to be exchanged for
     the 5 million Class B preferred shares of Origin Software Corporation.
     Columbia has not yet tendered the Class B shares to the Company, and the
     Company has not yet delivered the 457,400 shares of common stock. Pursuant
     to the Agreement only 20% or 91,480 shares of common stock would be
     delivered directly to Columbia. The remaining 80% or 365,920 shares would
     be held in trust and released ratably to Columbia over the following four
     years. The Company and Columbia have not yet entered into a definitive
     escrow agreement for the shares that would be held in trust.

     Columbia has subsequently contended that the Company has not performed in
     accordance with the Agreement because the shares of common stock issued in
     Columbia's name are currently restricted from resale pursuant to applicable
     securities laws. Based on its contention, Columbia has indicated that it is
     withdrawing its notice of exchange and has requested that the Company amend
     the Agreement. Management believes the possibility exists that the Company
     may negotiate an amendment to the Agreement and ultimately issue additional
     shares, though at present, management is unable to determine what the terms
     of such an amendment might entail or estimate how many additional shares
     may be issued.

     Based on Columbia's issuing and the Company's accepting the notice of
     exchange, management believed that both parties were legally bound to
     complete the exchange, and the transaction was reported as occurring during
     the three-month period ended March 31, 2000. As a result, minority interest
     decreased by $3,407,000 and common stock increased by the same amount.
     Management has subsequently reassessed the status of the pending exchange
     and Columbia's contentions and believes that uncertainty exists about the
     ultimate outcome of this matter. Accordingly, the March 31, 2000 financial
     statements have been restated, and the $3,407,000 amount continues to be
     presented as minority interest.


     ACQUISITION OF CLASS A PREFERRED STOCK OF INFER TECHNOLOGIES, INC. --

     In July 1999, the Company's subsidiary, Infer Technologies, entered into a
     subscription agreement to sell its chief engineer all shares of Infer
     Technologies' Class A preferred stock for $0.01 per share. Holders of the
     shares have the right to exchange each preferred share for approximately 18
     shares of the Company's common stock. The subscription rights accrued
     ratably over 24 months at 312.5 shares per month. As the rights accrue, the
     Company recognizes stock-based compensation using the intrinsic value
     method, based on the difference between the $0.01 sales price and the
     market value of the 18 shares of common stock of the Company for which each
     preferred share can be exchanged. Through December 31, 1999, the Company
     recognized $113,000 of stock-based compensation related to this
     arrangement.

     Effective January 1, 2000, the Company and the employee cancelled the
     agreement and the Company acquired all outstanding Class A preferred shares
     of its subsidiary in exchange for agreeing to issue the employee 300,000
     stock options. The exercise price of the options committed to be awarded
     will approximate the fair value of the Company's shares on the grant date.
     As a result of the cancellation of the agreement and acquisition of the
     subsidiary's preferred shares, minority interest decreased by $113,000 and
     common stock increased by the same amount. No gain or loss was recognized
     as a result of the Company acquiring the subsidiary's preferred shares.


     STOCK WARRANTS --
     During the three months ended March 31, 2000, in conjunction with the
     private placement of convertible debentures described in Note 3, the
     Company issued detachable stock purchase warrants that allow holders to
     purchase 330,000 of the Company's common stock for $11.10 per share. The
     term of the warrants is five years. A total of $1,330,000 of the $5,000,000
     gross proceeds from the private placement was allocated to the detachable
     stock warrants, based on the relative fair value of the warrants and the
     debentures. The value ascribed to the warrants was recorded as a debt
     discount and an increase in common stock.

     In connection with the private placement, the Company issued additional
     warrants, in lieu of finder's fees, to purchase another 25,000 shares of
     common stock at $11.10 per share. The term of the warrants is two years.
     The fair value of the stock warrants was allocated between the convertible
     debentures and detachable stock warrants and recorded as an offset against
     the gross proceeds received for the securities.


     STOCK OPTION INCENTIVE COMPENSATION PLAN --
     Effective June 21, 1999, the Company adopted the 1999 Stock Incentive
     Compensation Plan (the Plan). Under the Plan, the Company may make grants
     of incentive stock options, nonqualified stock options, and stock awards to
     employees, officers, directors and consultants of the Company and its
     subsidiaries for an amount of common shares equal to 10% of issued and
     outstanding shares, not to exceed 4,000,000 shares. The Company has granted
     1,819,000 options. The exercise price of incentive stock options and
     nonqualified stock options can be no less than the fair value of the
     Company's common stock on the date of grant. The maximum term of options is
     ten years; and, unless otherwise modified by the Plan administrator, they
     vest over four years. Options granted to senior management during 1999 vest
     over two years.

     A summary of the status of the Plan at March 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                                       Weighted-
                                                      Number            Average
                                                    Of Shares       Exercise Price
                                                    ---------       --------------
<S>                                                 <C>             <C>
     Options outstanding at September 30, 1999 ..       919,000        $   5.50
        Granted .................................       890,000            7.09
        Exercised ...............................          --              --
        Forfeited ...............................      (105,000)           5.86
     Options outstanding at March 31, 2000 ......     1,704,000        $   6.51
     Options exercisable at March 31, 2000 ......          --          $   --

</TABLE>


     A summary of stock options outstanding at March 31, 2000 is as follows:



                                       9

<PAGE>   12

<TABLE>
<CAPTION>
                                    Options Outstanding                   Options Exercisable
                         -----------------------------------------     -------------------------
                                          Weighted-
                                           Average       Weighted-                     Weighted-
         Range of                         Remaining       Average                       Average
         Exercise           Number       Contractual      Exercise        Number        Exercise
          Prices         Outstanding         Life          Price        Exercisable      Price
     ----------------    -----------     -----------     ---------      -----------    ---------
    <S>                  <C>             <C>              <C>              <C>          <C>
     $5.50 to $10.25      1,704,000       4.3 years        $6.51            --           $  --

</TABLE>

     The Company applies the provision of APB Opinion No. 25, Accounting for
     Stock Issued to Employees, and related interpretations to account for its
     stock-based awards. Accordingly, costs for employee stock options or
     issuance of shares is measured as the excess, if any, of the fair value of
     the Company's common stock at the measurement date over the amount the
     employee must pay to acquire the stock. No compensation expense was
     recognized for grants of awards under the Plan in the quarter ended March
     31, 2000.


     STOCK OPTIONS -- OTHER

     1.
     During the six months ending March 31, 2000 the Company issued 200,000
     options to purchase the same number of the Company's common shares as
     follows: 50,000 shares at an exercise price of $5.25, 50,000 shares at an
     exercise price of $6.00, 50,000 shares at an exercise price of $7.50 and
     50,000 shares at an exercise price of $8.00. The options expire on December
     14, 2002. The options were issued at no cost in connection with the Company
     entering into a consulting agreement with Continental Capital & Equity
     Corporation (Continental). Under the agreement, Continental will assist and
     advise the Company with respect to investor relations professional
     services.

     As required by SFAS No. 123, Accounting for Stock-Based Compensation, the
     Company has applied the fair value method to account for issuance of the
     options. The Company used the Black-Scholes option pricing model to compute
     estimated fair value of the warrants, based on the following assumptions:

<TABLE>

        <S>                                                           <C>
         Risk-free interest rate                                           6.0%
         Price volatility                                                 52.5%
         Average expected life of options                              1.5 years

</TABLE>


     Total compensation cost computed for the options issued to Continental is
     $188,000. The cost is being recognized ratably over the three-year term of
     the options.

     2.
     In January 2000 the Company issued 100,000 options to purchase the same
     number of the Company's common shares at an exercise price of $5.50. The
     options expire on January 2002 and were issued at no cost in connection
     with the Company entering into a consulting agreement with Peter Sanders
     under which Mr. Sanders will assist and advise the Company in respect to
     investor relations professional services.

     As required by SFAS No. 123, Accounting for Stock-Based Compensation, the
     Company has applied the fair value method to account for issuance of the
     options. The Company used the Black-Scholes option pricing model to compute
     estimated fair value of the warrants, based on the following assumptions:

<TABLE>

        <S>                                                           <C>
         Risk-free interest rate                                           6.0%
         Price volatility                                                 33.7%
         Average expected life of options                              1.5 years

</TABLE>

     Total compensation cost computed for the options issued to Peter Sanders is
     $105,000. The cost is being recognized ratably over the two-year term of
     the options.


NOTE 5 -- NON-CASH TRANSACTIONS


     As described in Note 4, the Company acquired 1,600 shares of Class A
     preferred stock of its subsidiary, Infer Technologies, Inc., in connection
     with an employee compensation arrangement. As a result of this transaction,
     a total of $113,000 of minority interests was reclassified as common stock.

     During the six months ended March 31, 2000, the Company also acquired
     $21,000 of equipment under capital lease agreements. In connection with its
     entering into the lease agreements, the Company refinanced $6,000 of trade
     accounts payable.


NOTE 6 -- SEGMENT INFORMATION


                                       10

<PAGE>   13


     SEGMENT INFORMATION --
     The Company's primary operations consist of the development and sale of
     trade compliance software products to entities subject to the North
     American Free Trade Agreement and the development and implementation of
     internet-based content management software. Other services include
     international trade consulting. Management assesses the operations of its
     software sales and development activities and its consulting activities as
     separate segments. The following tables and schedules summarize certain
     information about these segments.


<TABLE>
<CAPTION>
                                           Software Sales
                                           and Development
                                      --------------------------  International
                                      International                   Trade
                                          Trade         kServer    Consulting        Total
                                      -------------   ----------  -------------  -----------
<S>                                     <C>           <C>           <C>           <C>
     Three months ended March 31,
        1999
     External revenues ..............   $   30,800    $   71,700    $   86,000    $  188,500
     Intersegment revenues ..........         --            --            --            --
     Segment income (loss) before tax     (251,800)         --        (29,200)      (222,600)
     Segment assets .................      726,600          --         96,000        822,600

        2000
     External revenues ..............       26,900      258,000       142,300        427,200
     Intersegment revenues ..........          --            --           --              --
     Segment income (loss) before tax     (184,100)     (25,000)       36,000       (173,100)
     Segment assets .................    1,872,500      542,500       148,500      2,563,500

     Six months ended March 31,
        1999
     External revenues ..............       62,400       71,700       184,500         318,600
     Intersegment revenues ..........       31,500                                     31,500
     Segment income (loss) before tax     (423,200)         --         50,700        (372,500)
     Segment assets .................      726,600          --         96,000         822,600

        2000
     External revenues ..............       91,000      292,000       256,000         639,000
     Intersegment revenues ..........          --            --           --              --
     Segment income (loss) before tax     (322,800)    (305,000)       68,700        (559,100)
     Segment assets .................    1,872,500      542,500       148,500       2,563,500

</TABLE>





<TABLE>
<CAPTION>

                                 Three months ended March 31,
                                                                       1999          2000
                                                                   ------------  ------------
<S>                                                                <C>           <C>
     Total income (loss) before tax for reportable segments.....   ($  222,600)  ($  173,100)
     Corporate headquarters expenses............................   ($   66,400)  ($2,236,700)
                                                                   ------------  ------------
     Consolidated total.........................................   ($  289,000)  ($2,409,800)
                                                                   ============  ============
</TABLE>




<TABLE>
<CAPTION>

                                  Six months ended March 31,
                                                                       1999          2000
                                                                   ------------  ------------
<S>                                                                <C>           <C>
     Total income (loss) before tax for reportable segments.....   ($  372,500)  ($  559,106)
     Corporate headquarters expenses............................   ($   66,400)  ($2,804,600)
                                                                   ------------  ------------
     Consolidated total.........................................   ($  438,900)  ($3,363,700)
                                                                   ============  ============
</TABLE>


NOTE 7 -- CONTINGENCIES

     CANADIAN TAX IMPLICATIONS OF SALE AND PURCHASE OF SOFTWARE RIGHTS --
     During 1995 and 1996, the Company's subsidiary, Technologies, sold the
     rights to its primary software product to Columbia Diversified Software
     Fund Limited Partnership (Columbia). During 1999, another of the Company's
     subsidiaries, Origin Software, repurchased these rights. During the same
     time frame, Technologies purchased and sold an interest in certain other
     software rights. These transactions all included a significant noncash
     component that employed the issuance, receipt, and settlement of long-term
     promissory notes. Although these notes were not recognized for financial
     reporting purposes, they did increase significantly the value assigned to
     the software rights in question for tax reporting purposes in Canada.



                                       11

<PAGE>   14


     Revenue Canada has been reviewing various software transactions, including
     those to which Technologies was a party. In October 1999, the Company
     submitted a proposed settlement to Revenue Canada that would limit the
     amount of tax it must pay on the net gain from these transactions to the
     net amount of cash received. Effective January 7, 2000, Revenue Canada
     agreed to the terms of the settlement; and, as a result, during the three
     months ended March 31, 2000, the Company received an $85,700 Canadian
     federal income tax refund.


     EXCHANGE OF CLASS B PREFERRED SHARES OF ORIGIN SOFTWARE --

     As described in Note 4, effective January 26, 2000, Columbia Diversified
     Software Fund Limited Partnership (Columbia) notified the Company that it
     wished to exercise the exchange rights associates with the 5 million
     outstanding shares of Class B preferred stock of Origin Software
     Corporation. On February 15, 2000, the Company issued 457,400 shares of
     common stock in the name of Columbia to be exchanged for the Class B shares
     stock. Columbia has not yet tendered the Class B shares to the Company, and
     the Company has not yet delivered the 457,400 shares of common stock. Only
     20% or 91,480 shares of the shares of common stock would be delivered
     directly to Columbia. The remaining 80% or 365,920 shares would be held in
     trust pursuant to the terms of the Share Exchange Agreement (the
     "Agreement") and be released ratably to Columbia over the following four
     years. The Company and Columbia have not yet entered into a definitive
     escrow agreement for the shares that would be held in trust.

     Columbia has subsequently contended that the Company has not performed in
     accordance with the Agreement because the shares of common stock issued in
     Columbia's name and currently restricted from resale pursuant to applicable
     securities laws. Based on its contention, Columbia has indicated that it is
     withdrawing its notice of exchange and has requested that the Company amend
     the Agreement. Management believes the possibility exists that the Company
     may negotiate an amendment to the Agreement and ultimately issue additional
     shares, though at present, management is unable to determine what the terms
     of such an amendment might entail or estimate how many additional shares
     may be issued.



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


OPERATIONS ANALYSIS

During the quarter ended March 31,2000 we had consolidated revenues of $427,200
operating expenses of $1,038,300 and a net loss before interest and depreciation
of $657,300. For the six months ending March 31,2000, revenues were $639,000,
operating expenses were $1,997,300 and the net loss before depreciation,
amortization and interest was $1,458,000.

Revenues for the three months ended March 31, 2000 increased 127% as compared to
1999 revenues for the same period, which totaled $188,500. The increase is a
result of new revenues generated by kServer(TM) launched during the current
fiscal year and an increased client base for the International Trade products
and services. A kServer(TM) contract entered into with the Government of Canada
was the main contributor to the increase in revenues. The Company has not
recognized any revenue from the Uniglobe contract as of March 31,2000.

Operating expenses include research and development, sales and marketing, and
general and administrative expenses. The aggregate of these costs increased
considerably as compared to the previous period. The increase was due to a
significant increase in staffing and activity levels across all our departments.

Research and development costs for the three months ended March 31, 2000 totaled
$243,200 as compared to $62,000 for the same period in the previous fiscal year.
This was a direct result of continued costs incurred in the development of the
kServer(TM) line of products, including higher payroll costs due to the
increased number of engineers working on kServer(TM) and the establishment of an
engineering office in California.



                                       12

<PAGE>   15


Sales and marketing costs increased 130% during the quarter, from $101,000 to
$231,900 as a result of higher payroll expense and costs associated with more
sales, marketing and support personnel, and increased travel expenses incurred
in the promotion of our lines of products.

General and Administrative expenses increased 134%, from $240,900 to $563,200.
The increase was partially due to higher payroll costs resulting from the
addition of three new senior managers in August 1999. Furthermore, travel
expense, shareholder relations costs and professional fees all increased as
compared to the previous year.

Amortization and depreciation costs increased from $42,000 to $141,400, mainly
as a result of the amortization costs for the ORIGIN(TM) software acquired in
May 1999.

Interest expense for the three months ending March 31, 2000 was $1,646,700, a
significant increase as compared to previous years period. The increase was
primarily due to the fact that at the date of issue of the convertible
debenture, the conversion price of the debentures was less than the fair value
of the Company's common stock. The intrinsic value of this conversion feature
was determined to be $1,575,800 and was recorded as a charge to interest expense
and an increase to common stock.

Net loss during the quarter was $2,324,100. In the quarter ended March 31,1999,
we reported a net loss of $369,200. The increase in the net loss was primarily
due to higher interest expense and an increase in operating costs.


INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY:

On March 31, 2000, our cash and cash equivalent balance totaled $4,326,000. This
is a significant increase in cash as compared to the September 30, 1999 cash
position of $164,200. The increase resulted from the issuance on February 24,
2000, of convertible debentures in the aggregate principal amount of $5,000,000.
The debentures bear interest at a rate of 7% per annum commencing February 24,
2000 and mature on February 24, 2005. The principal amount of the debentures
(plus all accrued interest and any additional amounts owed) is convertible, in
whole or in part, at the option of the holders, into shares of Common Stock. In
connection with this issuance, we paid a placement fee of $325,000 and issued
25,000 warrants.

A total of $1,330,000 of the $5,000,000 gross proceeds from the private
placement was allocated to the detachable stock warrants, based upon the
relative fair value of the warrants and the debentures. The value ascribed to
the warrants was recorded as a debt discount and an increase in common stock.
The debt discount is recognized as interest expense over the five-year term of
the debentures using the effective interest method.

Total issue costs, including the fair value of stock warrants issued in lieu of
finder's fees, were $502,300, of which $368,700 was allocated to the debentures
and $133,600 was allocated to the detachable warrants. The portion of the issue
costs attributable to the debentures was recorded as an offset against the gross
proceeds allocated to the debentures and is being amortized over the five-year
term of the debt using the effective interest method. The portion of the costs
attributable to the warrants was recorded as an offset against the gross
proceeds allocated to the warrants.

At the date of issue, the conversion price of the debentures was less than the
fair value of the Company's common stock. The intrinsic value of this conversion
feature was $1,575,800, which was recorded as a charge to interest expense and
an increase to common stock.

On March 31, 2000, the Company had a working capital of $4,374,000 and a current
ratio of 13.3 to 1. The working capital position has increased significantly as
compared to the balance at September 30, 1999 when working capital was $84,300
with a current ratio of 1.3 to 1. The current working capital position was
achieved through the issuance of additional equity capital during the six months
ended March 31, 2000 for gross proceeds of approximately $1,184,000 and the
issuance of convertible debentures in the aggregate principal amount of
$5,000,000.


                                       13

<PAGE>   16



Investing activities during the six months ended March 31, 2000 have consisted
primarily of purchases of property and equipment, principally computer hardware
and software. Capital expenditures, including those under capital leases,
totaled $46,600 in 1998, $139,500 in 1999 and $162,900 in the six months ended
March 31,2000. We expect that capital expenditures will increase with our
anticipated growth in operations, infrastructure and personnel.


To date, we have not invested in derivative securities or any other financial
instruments that involves a high level of complexity or risk. We expect that in
the future, cash in excess of current requirements will continue to be invested
in high credit-quality, interest-bearing securities.

We believe that the net proceeds of the debentures, together with cash and cash
equivalents, will be sufficient to meet our working capital requirements for at
least the next 12 months. Thereafter, we may require additional funds to support
our working capital demand or for other purposes and may seek to raise
additional funds through public or private equity financings or from other
sources. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results.

There are no legal or practical restrictions on the ability of the subsidiaries
to transfer funds to the parent company (Smartsources.com Inc.)

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal quarters
beginning with the quarter ending December 31, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including other
contracts, and for hedging activities. We will adopt SFAS No. 133 in the quarter
ending December 31, 2000 and do not expect its adoption to have an impact on our
results of operations, financial position or cash flows.


MATERIAL COMMITMENTS:

The Company has not undertaken any material commitments for expenditures as of
March 31, 2000.


TRENDS OR UNCERTAINTIES:

There are no known trends or uncertainties that will have a material impact on
revenues.


                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

None.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



                                       14

<PAGE>   17


In January 2000, the Company issued 99,605 shares of common stock at $5.00 per
share to six private investors for cash in the aggregate amount of $498,025.




In February 24, 2000 the Company issued convertible debentures in the aggregate
principal amount of $5,000,000. These debentures are convertible in whole or in
part, at the option of the holders, into shares of common stock.

There were no underwriters involved in these transactions. A placement fee of
$325,000 and 25,000 warrants were issued in connection with the issuance of the
convertible debenture. The sales were made in reliance upon the exemption from
registration afforded by Section 4(2) of the 1933 Act and Rule 506 of Regulation
D thereunder.


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


(11) Computation of per share earnings

(27) Financial Data Schedule


                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                   SMARTSOURCES.COM, INC.


Date:  May 12, 2000                By: /s/ Nathan Nifco
--------------------               ---------------------------------------
                                   Chairman and C.E.O.



                                       15