Item  1.

   

Financial Statements

    2
  

Condensed Consolidated Balance Sheets at September 30, 2007 and December 31, 2006

    3
  

Condensed Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2007 and 2006

    4
  

Condensed Consolidated Statements of Shareholders’ Equity (Deficiency) for January 1, 2006 through September 30, 2007

    5
  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006

    6
  

Notes to the Condensed Consolidated Financial Statements

    7

Item 2.

   

Management’s Discussion and Analysis or Plan of Operations

    9

Item 3.

   

Controls and Procedures

    12

PART II

   

OTHER INFORMATION

    12

Item 6.

   

Exhibits and Reports on Form 8-K

    12
  

SIGNATURES

    13
  

EXHIBITS

    14

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

The unaudited condensed consolidated balance sheet of the Registrant at September 30, 2007, the audited balance sheet at December 31, 2006, and the unaudited condensed consolidated statements of operations, shareholders’ equity (deficiency), and cash flows for the nine months and three months ended September 30, 2007 and September 30, 2006 follow. The unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of the results for the periods presented.

 

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e-SMART TECHNOLOGIES, INC. and SUBSIDARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     [Unaudited]
September 30,
2007		     [Audited]
December 31,
2006		  

Assets

     

Current assets -

     

Cash

    $ 92,795     $ 49,845  

Prepaid expenses

      22,797       7,558  
                

Total current assets

      115,592       57,403  

Equipment, net

      67,948       41,446  

License of smart card technology, net of amortization

      88,038       92,860  

Officers’ advances

      —         11,549  

Due from IVI Smart Technologies, Inc.

      170,112       —    

Lease deposit

      147,405       79,713  
                

Total assets

    $ 589,095     $ 282,971  
                

Liabilities and Shareholders’ Equity (Deficiency)

     

Current liabilities -

     

Current portion of notes payable

    $ 59,927     $ 509,927  

Accounts payable

      1,904,717       1,286,904  

Accrued officer’s compensation

      47,500       544,285  

Accrued expenses

      194,057       76,660  
                

Total current liabilities

      2,206,201       2,417,776  

Note payable – long-term

      222,545       1,946,394  
                

Total liabilities

      2,428,746       4,364,170  
                

Shareholders’ Equity (Deficiency) -

     

Preferred Stock, $0.001 par value, 20 million shares authorized; 17.5 million and -0- shares issued and outstanding in 2007 and 2006, respectively

      17,500       —    

Common shares, $0.001 par, 730 million shares authorized; 703,918,509 and 242,540,441 shares issued and outstanding in 2007 and 2006, respectively

      703,918       242,540  

Additional paid in capital

      94,748,131       70,954,225  

Deficit accumulated during development stage

      (97,309,200 )     (75,277,964 )
                

Total shareholders’ equity (deficiency)

      (1,839,651 )     (4,081,199 )
                

Total liabilities and shareholders’ equity (deficiency)

    $ 589,095     $ 282,971  
                

See notes to condensed consolidated financial statements.

 

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e-SMART TECHNOLOGIES, INC. and SUBSIDARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

[Unaudited]

 

    

 

 

Nine Months Ended September 30,

    

 

 

Three Months Ended September 30,

     January 1, 2001
(inception of
development
period) to
September 30,
2007		  
     2007     2006     2007     2006    

Revenue

    $       $ —       $       $ —       $ —    
                                        

Operating expenses:

           

Research and development

      3,135,909       447,575       469,039       120,001       18,286,218  

Marketing, general and administrative

      18,780,813       2,773,878       4,062,622       1,075,417       78,548,651  

Interest

      112,864       163,996       953       62,988       463,881  
                                        

Total operating expenses

      22,029,586       3,385,449       4,532,614       1,258,406       97,298,750  
                                        

Loss before provision for Income taxes

      (22,029,586 )     (3,385,449 )     (4,532,614 )     (1,258,406 )     (97,298,750 )

Provision for income taxes

      1,650       2,000       350       500       10,450  
                                        

Net Loss

    $ (22,031,236 )   $ (3,387,449 )   $ (4,532,964 )   $ (1,258,906 )   $ (97,309,200 )
                                        

Loss per share

    $ (0.05 )   $ (0.02 )   $ (0.00 )   $ (0.00 )   $ (0.48 )
                                        

Weighted average number of common shares outstanding

      451,178,569       200,000,000       657,668,509       200,000,000       202,391,260  
                                        

See notes to condensed consolidated financial statements.

 

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e-SMART TECHNOLOGIES, INC. and SUBSIDARIES

CONDENSED CONSOLIDATED STATEMENT OF

SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

     Preferred Stock    Common Stock    Additional
Paid-in
Capital		     Accumulated
Deficit		     Total  
     Shares    Amount    Shares    Amount       

[Audited]

                   

Balance January 1, 2006

    —      $ —      200,000,000    $ 200,000    $ 63,777,497     $ (67,507,910 )   $ (3,530,413 )

Issuance of shares in relation to related party borrowings

    —        —      20,990,441      20,990      4,150,278       —         4,171,268  

Issuance of shares for services

    —        —      21,550,000      21,550      3,026,450       —         3,048,000  

Net loss

    —        —      —        —        —         (7,770,054 )     (7,770,054 )
                                                

Balance, December 31, 2006

    —        —      242,540,441      242,540      70,954,225       (75,277,964 )     (4,081,199 )
                                                

[Unaudited]

                   

Balance, January 1, 2007

    —        —      242,540,441      242,540      70,954,225       (75,277,964 )     (4,081,199 )

Issuance of shares for services

          155,313,844      155,314      13,441,928       —         13,597,242  

Issuance of shares in relation to related party borrowings

    —        —      177,564,224      177,564      5,497,978       —         5,675,542  

Issuance of shares pursuant to Plan of Reorganization

    17,500,000      17,500    —        —        (17,500 )     —         —    

Issuance of shares in payment of license fee

    —        —      128,500,000      128,500      4,871,500       —         5,000,000  

Net loss

    —        —      —        —        —         (22,031,236 )     (22,031,236 )
                                                

Balance, September 30, 2007

    17,500,000    $ 17,500    703,918,509    $ 703,918    $ 94,748,131     $ (97,309,200 )   $ (1,839,651 )
                                                

See notes to condensed consolidated financial statements.

 

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e-SMART TECHNOLOGIES, INC. and SUBSIDARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

[Unaudited]

 

    

 

 

Nine Months Ended September 30,

     January 1, 2001
(inception of
development)
period to
September 30,
2007		  
     2007     2006    

Cash flows from Operating Activities -

     

Net loss

    $ (22,031,236 )   $ (3,387,449 )   $ (97,309,200 )

Adjustments to reconcile net loss to net cash used in operating activities:

       

Issuance of common stock and common stock options for services

      13,597,242       —         72,593,742  

Issuance of preferred and common stock in payment of license fee

      5,000,000       —         5,000,000  

Depreciation and amortization

      26,827       17,170       104,263  

Bad debt expense

      —         —         312,505  

Changes in assets and liabilities -

       

Increase in prepaid expenses

      (15,239 )     (7,747 )     (22,797 )

Decrease in officers’ advances

      11,549       32,844       —    

Increase in accounts payable

      617,813       463,832       1,904,717  

Increase (decrease) in accrued expenses

      (379,388 )     290,118       513,797  
                        

Net Cash Used in Operating Activities

      (3,172,432 )     (2,591,232 )     (16,902,973 )
                        

Cash Flows from Investing Activities -

       

Acquisition of equipment

      (48,507 )     (11,728 )     (131,649 )

Purchase of technology licenses

      —         —         (128,600 )

Advances to IVI Smart Technologies, Inc.

      (170,112 )     —         (170,112 )

Advances to Biosensor, LLC

      —         —         (312,505 )

(Addition) reduction of lease deposit

      (67,692 )     (4,999 )     (147,405 )
                        

Net Cash Used in Investing Activities

      (286,311 )     (16,727 )     (890,271 )
                        

Cash Flows from Financing Activities -

       

Increase (decrease) in advances from Intermarket Ventures, Inc., a related party

      (2,173,849 )     2,483,118       4,789,406  

Proceeds from other borrowings, net

      —         —         47,500  

Proceeds from issuances of shares

      —         —         7,373,591  

Shares issued in relation to borrowings from related parties

      5,675,542         5,675,542