SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
(Mark One)
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): December 17, 2001
Household Direct.com, Inc.
(Name of Small Business Issuer in its charter)
Delaware 51-0388634
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
HOUSEHOLD DIRECT.com, INC.
3 Glen Road
SANDY HOOK, CONNECTICUT 06482
(Address of Principal Executive Offices)
(203) 426-2312
(Issuer's Telephone Number Including Area Code)
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
On December 17, 2001, the Company announced the acquisition of Eqtima LLC.
Business Description
Eqtima is a leading supplier of metrics-based Employee Relationship Management
(ERM) systems, specifically targeted for contact centers (staff centers handling
customer support, telemarketing calls (inbound and outbound), technical support,
etc.). Eqtima's ERM suite (Value Agent) of products is designed to empower
agents, analyize employee behavior patterns, automate feedback, and lay the
groundwork for a performance-recognition business culture.
Eqtima's strategy for 2002 is to penetrate the mainstream Work Force management
market by redefining Work Force Management. Work Force Management is
historically been nothing more than Forecasting and Scheduling. This is a very
limited vision. Eqtima expands the vision to encompass the whole life cycle of
an agent's experience with the company. Beyond just forecasting and scheduling,
it includes agent development, virtual supervision, and recognition/reward. It
sets the stage for a performance-based culture.
Eqtima's markets include North America, Asia, Europe, South America, and Africa.
We currently have customers in Africa and North America with partnerships that
also include Asia.
Identity of the Persons from which the Assets were Acquired
Individual Members List
None of the persons listed have a material relationship with HouseHold
Direct.com Officers or Directors.
Member
Bob Balenger *
Bryan Baker
Thorsten Belicke
Sandy Biggam
Jim Hall
Chuck Heindel
Bob Netzel *
Kimberly Polak
Tom Rocca
Philip Samson
Brad Taylor
Joel Taylor
Tom Walsh
Notes:
Peter Belanger and Bob Netzel have 25,000 shares each for services rendered in
2000 and early 2001
BCU's shares of Eqtima, LLC will be redeemed at the Closing by Eqtima, LLC
pursuant to Section 13(h) of the Acquisition Agreement prefixed hereto.
Date and Manner of Acquisition
December 17, 2001
Eqtima, LLC is a limited liability company duly organized, validly existing and
in good standing under the laws of State of Delaware, with full power and
authority, and with all licenses, permits, certifications, registrations,
approvals, consents and franchises necessary to own or lease and operate its
properties and to conduct its business as presently being conducted. Llcco is
duly qualified to do business and is in good standing, in each jurisdiction
where the conduct of its business or the ownership of its assets requires such
qualification.
HHD desires to acquire all of the issued and outstanding members capital of
Eqtima in exchange for shares of the Common Stock, $.001 par value, of HHD in a
"B" reorganization pursuant to the Internal Revenue Code; and the members desire
to exchange their membership capital of Eqtima for shares of HHD stock.
Subject to the terms and conditions of the agreement the members shall, at the
Closing, exchange all of the issued and outstanding membership shares of the
capital of Eqtima for shares of HHD stock as provided.
Initial Shares shall be and mean 1,000,000 shares of HHD Stock
All of the shares of HHD Stock to be issued to the Members of Eqtima, LLC
pursuant to this agreement shall be "restricted securities" and may not be
transferred, sold, assigned, conveyed, mortgages, pledged or hypothecated except
in accordance with the applicable provisions of the Securities Act of 1933 and
the rules and regulations promulgated thereunder by the Securities and Exchange
Commission; provided however that the Shareholders shall, at the Closing, be
granted the registration rights with respect to the shares of HHD Stock acquired
by the Members (reference Individual Member List above).
Nature and Amount of Consideration
In consideration for the conveyance of the Eqtima Membership shares to HHD, HHD
shall issue and deliver to the Members (as their respective interest may
appear):
(A) at the Closing (as defined) the Initial Shares (as defined)
(B) within 90 days following the end of the First Measuring Period (period
commencing on the Closing and terminating on December 31, 2002), the First
measuring period Shares (number of shares of HHD Stock determined by dividing
the First Measuring Period Income by the First Target Price)
(C) within 90 days following the end of the Second Measuring Period (calendar
year 2003), the Second Measuring Period Shares (number of shares of HHD
Stock determined by dividing the Second Measuring Period Income by the
Second target Price)
(D) within 90 days following the end of the Third Measuring Period (calendar
hear 2004), the Third Measuring Period Shares (number of shares of HHD
Stock determined by dividing the Third Measuring Period Income by the Third
Target Price)
All employees with the exception of Anton De Plessis (employment contract), and
Dave McLean (part-time employee without any specific employment agreement other
than an agreement on his pay rate) are members of the LLC and are bound by the
terms of the LLC agreement.
Members:
Bryan Baker Joel Taylor
Thorsten Belicke Tom Rocca
Sandy Biggam Philip Sampson
Chuck Keindel Tom Walsh
Jim Hall
Description of Assets
1. Exclusive Marketing Agreement for Value Agent (aka Call Center management
System from Call Tech).
2. Ownership of all enhancements and modifications to Value Agent
3. Nine (9) computers with corresponding licensed software
4. Furniture in office and corporate apartments
Real Estate Titles or Leases; Insurance Policies
1. Office lease with BC Tower
2. Pending contract with SG Solutions in South Africa for on-going support and
development of Agent Care and Value Agent (Value of contract is $30,000 per
month for 10 developers with bonus of up to $12,500 for meeting or
exceeding deliverables and timeframes)
3. Pending contract with Ethos and IDC of South Africa for the acquisition of
the intellectual property formerly known as Agent Care version 5.4.
4. Undefined commitment to adopt a profit-sharing plan for employees based on
exceeding forecast by 20%
Financial Statements
Within 30 days of the date of the acquisition the Shareholders of Eqtima will
deliver to HouseHold Direct the audited financial statement for the period from
inception through October 31, 2001 prepared in accordance with generally
accepted accounting principals applied on a consistent basis including, a
statement of the results of operations for the period ended October 31, 2001, a
source and application of funds and a balance sheet as of October 31, 2001. The
financials of Eqtima will be consolidated into the audited year-end financial
statements of HouseHold Direct.
INDEPENDENT AUDITORS' REPORT
The Members
Eqtima, LLC
We have audited the accompanying balance sheets of Eqtima, LLC (a development
stage enterprise), as of October 31, 2001 and December 31, 2000, and the related
statements of operations, members' capital, and cash flows for the ten month
period ended October 31, 2001 and for the three month period from October 1,
2000 (date of inception) to December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about weather the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eqtima, LLC (a development
stage enterprise), as of October 31, 2001 and December 31, 2000, and the results
of its operations and its cash flows for the ten month period ended October 31,
2001 and for the three month period from October 1, 2000 (date of inception) to
December 31, 2000, in conformity with generally accepted accounting principles.
Without qualifying our opinion, we draw attention to Note 1 in the financial
statements. The company has incurred operating losses of $891,496 to date and
has an accumulated capital deficit of $125,196. These factors, along with other
matters as stated in Note 1, raise substantial doubt that Eqtima, LLC (a
development stage enterprise) will be able to continue as a going concern.
/s/ Jessup Group, P.C.
December 19, 2001
AUDITED FINANCIALS
EQTIMA, LLC
(a development stage enterprise)
BALANCE SHEETS
October 31, December 31,
2001 2000
ASSETS
CURRENT ASSETS:
Cash $ 61,052 $ 13,575
Accounts receivable 6,250 -0-
Deposits 3,053 1,400
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Total current assets 70,355 14,975
PROPERTY AND EQUIPMENT - Net of
Accumulated depreciation 36,498 14,480
OTHER ASSETS 2,171 2,633
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TOTAL ASSETS $ 109,024 $ 32,088
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LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 48,162 $ 3,923
Accrued liabilities 46,058 28,918
Notes payable to bank 75,000 -0-
Notes payable to third party 5,000 175,000
Notes payable to member 60,000 -0-
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TOTAL LIABILITIES 234,220 207,841
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MEMBERS' CAPITAL:
Total members' capital ( 125,196) (175,753)
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TOTAL LIABILITIES AND MEMBERS' CAPITAL $ 109,024 $ 32,088
========= ========
The accompanying notes are an integral part of these financial statements.
EQTIMA, LLC
(a development stage enterprise)
STATEMENTS OF OPERATIONS
Total
During
Development
Ten Months Three Months Stage
Ended Ended Through
October 31, December 31, October 31,
2001 2000 2001
REVENUES:
Product sales $ 24,500 $ -0- $ 24,500
EXPENSES:
Cost of sales 115,463 2,574 120,134
Marketing expenses 401,559 123,995 525,554
Administration and management 213,963 49,445 263,408
Depreciation and amortization 5,363 539 5,902
Interest 998 -0- 998
------- ------- -------
Total expenses 739,443 176,553 915,996
------- ------- -------
NET LOSS $ (714,943) $ (176,553) $ (891,496)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
EQTIMA, LLC
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Total
During
Development
Ten Months Three Months Stage
Ended Ended Through
October 31, December 31, October 31,
2001 2000 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (714,943) $ (176,553) $ (891,496)
ADJUSTMENTS TO RECONCILE
NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES:
Depreciation and amortization 5,363 539 5,902
Increase in receivables ( 6,250) -0- ( 6,250)
Increase in deposits ( 1,653) ( 1,400) ( 3,053)
Increase (decrease) in:
accounts payable 44,238 3,923 48,161
accrued liabilities 17,140 28,918 46,058
------- ------- -------
TOTAL CASH USED
IN OPERATING ACTIVITIES (656,105) (144,573) (800,678)
INVESTING ACTIVITES
Purchases of property and equipment( 26,918) ( 14,880) ( 41,798)
Investment in organizational costs -0- ( 2,772) ( 2,772)
------ ------- -------
TOTAL INVESTING ACTIVITIES ( 26,918) ( 17,652) ( 44,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to banks 75,000 -0- 75,000
Increase (Decrease) in amount due
to third party (170,000) 175,000 5,000
Increase in amount due to members 60,000 -0- 60,000
Partners' contributions 765,500 800 766,300
-------- ------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 730,500 175,800 906,300
-------- ------- --------
NET INCREASE (DECREASE) IN CASH 47,477 13,575 61,052
CASH AND CASH EQUIVALENTS:
Beginning of period 13,575 -0- -0-
-------- ------- --------
CASH AND CASH EQUIVALENTS:
End of period... $ 61,052 $ 13,575 $ 61,052
======== ======= ========
The accompanying notes are an integral part of these financial statements.
EQTIMA, LLC
(a development stage enterprise)
STATEMENTS OF PARTNERS' CAPITAL
Total
During
Development
Ten Months Three Months Stage
Ended Ended Through
October 31, December 31, October 31,
2001 2000 2001
CAPITAL CONTRIBUTIONS:
Bryan Baker $ 163,000 $ 800 $ 163,800
Kent Bowen 280,000 280,000
BCU 310,000 310,000
Other employees 12,500 12,500
Other investors -0- -0- -0-
-------- ----- --------
Total capital contributions 765,500 800 766,300
NET LOSS:
Bryan Baker (271,150) (176,553) (447,703)
Kent Bowen (148,734) -0- (148,734)
BCU (169,299) -0- (169,299)
Other employees (114,958) -0- (114,958)
Other investors ( 10,802) -0- ( 10,802)
-------- ------- --------
Total Net Loss (714,943) (176,553) (891,496)
TOTAL MEMBERS CAPITAL:
Bryan Baker (108,150) (175,753) (283,903)
Kent Bowen 131,266 -0- 131,266
BCU 140,701 -0- 140,701
Other employees (102,458) -0- (102,458)
Other investors ( 10,802) -0- ( 10,802)
-------- -------- --------
Total members capital $ 50,557 $ (175,753) $ (125,196)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
EQTIMA, LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of the Company
In October of 2000, Eqtima, LLC registered a certificate of formation as a
Delaware Limited Liability Company. Eqtima, LLC was formed to identify, market
and develop software products to support high volume, sophisticated, call center
service organizations.
Bryan Baker formed the company and was an initial member if Eqtima, LLC. The
company paid Intelligent Contact management Systems (ICMS) $172,562 to acquire
the assets of ICMS and to reimburse ICMS for certain marketing and production
costs ICMS had incurred. Concurrently the company made a verbal agreement with
Call Tech, LLC, a software development company, to sell its products under terms
similar to agreement previously made with ICMS. Bryan Baker was also the sole
owner of ICMS (a Delaware Corporation).
Going Concern
These financial statements have been prepared on a "going concern" basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of operations. There is substantial doubt about
the Company's ability to continue as a "going concern" based on the present
financial position of Eqtima, LLC as described below.
Eqtima, LLC has incurred operating losses of $891,496 to date and has an
accumulated capital deficit of $125,196. Eqtima, LLC's activities have been
primarily financed through private placements of equity interests and short term
financing arrangements. Eqtima, LLC may need to raise additional capital through
the issuance of debt or additional equity security interests. This financing may
not be available on terms satisfactory to Eqtima, LLC, if at all. If this
financing does not materialize, realization of assets and discharge of
liabilities are subject to significant uncertainty.
Basis of Presentation
The Company expects to emerge from its development stage by the end of 2002. The
accompanying financial statements have been prepared on the accrual basis of
accounting in conformity with generally accepted accounting principles in the
United States.
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 reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Other Assets
Other Assets consists of the unamortized amount of organizational costs.
Income Taxes
The company is taxed as a partnership, and Federal and state income taxes are
the direct responsibility of each partner. Accordingly, no income taxes have
been recorded within the accompanying financial statements.
Revenue Recognition
The company derives its revenues from software licenses and professional
services. Revenues are recognized when products are shipped or when customers
have accepted the products, depending on contractual terms. Service revenues are
recognized as such services are rendered. Based on this policy the company has
not recognized any revenue for two customers software installations at October
31, 2001 that are still subject to final customer acceptance. Such revenue will,
if ever, only be recorded after such contractually negotiated acceptance and
approval.
Segment Information
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segment of an Enterprise and Related Information",
establishes standards for reporting financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The company's operations for at this stage
are a single segment, and further segmentation under SFAS No. 131 is not
required.
Research and Development
Costs incurred in the development of new software products are expensed as
incurred until technological feasibility, in the form of a working model, has
been established. To date all company developed projects have been completed
concurrent with the establishment of technological feasibility, and, accordingly
all software development costs have been charged to operating expense in the
accompanying financial statements.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the assets, generally five to ten years.
Equity Based Compensation
Eqtima, LLC has an employee option plan, which is referred to in the member
agreement as the "Option Plan". The compensation committee has reserved a
certain number of options for each employee that they may be eligible to
exercise in the future. Once each year at the employee's evaluation, the
compensation committee releases a certain amount of options to be granted in
lieu of salary, based on performance toward stated goals.
(2) RELATED PARTY TRANSACTIONS
Intelligent Contact Management Company LLC (ICMS) is the predecessor of Eqtima,
LLC. Eqtima, LLC acquired the assets of ICMS effective 1/1/01. At that time,
both LLC's had a single member, Bryan Baker.
ICMS had arranged to resell and enhance software products developed and owned by
Call Tech, LLC. Eqtima retains ownership of the enhancements, and Call Tech
retains ownership of the original software. The Call Tech contract includes
language that gives them a right to cancel the contract if certain sales targets
are not met, and they were not met in this period. At the time of audit the
contract had not been revised or amended to transfer the licensing rights to
Eqtima, or to waive the cancellation provisions of the contract. Management
expects the Call Tech contract to be executed in the near future.
A member and executive of Call Tech, LLC is also a member of Eqtima, LLC.
(3) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
October 31, December 31,
2001 2000
Computer equipment $ 24,353 $ 12,068
Office furniture 17,446 2,813
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Total 41,799 14,881
Less accumulated depreciation ( 5,301) ( 401)
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PROPERTY AND EQUIPMENT - Net of
accumulated depreciation $ 36,498 $ 14,480
======== ========
Depreciation has been provided for on a straight-line basis over the estimated
useful lives of five to ten years.
(4) SHORT TERM DEBT
Short-term debt consists of the following:
The Company secured a commercial revolving note in October 2001 with a
$75,000 maximum limit, secured by any property of the Company or it's
member in the possession of the bank, and is further guaranteed by one
of the Company's members. The note is payable on demand with an
interest rate of 1.75% over prime which was 5.5% on October 31, 2001.
The balance on this note was $75,000 on October 31, 2001.
A loan from a third party, an employee, with no due date, and no
stated interest, of $5,000 in period ended October 31, 2001. Terms of
repayment: Employee sold shares of stock and loaned $5,000 to the
Company. The Company has agreed to pay back the greater of $5,000 or
the market value of the sold shares at the time of repayment.
A loan from a third party of $175,000, with no due date, and no stated
interest rate, in period ended December 31, 2000. Loan was
subsequently converted to membership interests in January 2001.
A loan from a member, no stated terms on the loan, no due date. The
amount of the loan at October 31, 2001 is $60,000.
(5) COMMITMENTS AND CONTINGENCIES
CALL TECH
The Call Tech, LLC reseller agreement giving ICMS, LLC rights to sell
and enhance Call Tech, LLC product has not been amended to transfer
rights to Eqtima, LLC. In addition, cancellation rights in the
agreement have not been waived. Neither ICMS, LLC, nor Eqtima, LLC
have met the conditions of the agreement which would nullify Call
Tech, LLC's cancellation rights. Management has a verbal agreement to
transfer the agreement rights, for waiver of unmet conditions, and to
execute the agreements in writing.
If the transfer and waiver to the agreement are not made, Eqtima, LLC
may not have enforceable contractual rights to the Call Tech, LLC
product.
The agreement between Call Tech and ICMS granted Call Tech an option,
under certain circumstances, to convert its royalty interest to a 5%
equity position in ICMS. It is not clear how this provision will be
treated in regards to an equity position in Eqtima, LLC under an
assumption of the ICMS license agreement.
LEASE COMMITMENTS
The Company holds a lease with B.C. Tower, L.L.C. for office space. The lease is
an 84-month lease commending March 1, 2001. In addition to the Base Rent, the
Company is responsible for its proportionate share of electric, gas and water
services to the building (which is 1.72%), as well as janitorial services.
Following are the lease rates for the base rent over the life of the lease:
Months PSE Monthly Yearly
1- 6 $ 8.00 $2,123 -
7-12 $ 8.50 $2,255 -
13-24 $ 9.00 $2,388 $ 28,656
25-36 $10.00 $2,653 $ 31,840
37-48 $12.00 $3,184 $ 38,208
49-60 $12.50 $3,317 $ 39,800
61-72 $13.00 $3,449 $ 41,392
73-84 $13.50 $3,582 $ 42,984
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Total lease Commitment: $249,148
=======
(6) MEMBER EQUITY
Eqtima LLC authorized 10,000,000 membership interest units at
inception in October 2000. In January 2001 certain employees were
granted membership interest for no value. In February 2001 one new
member was granted membership units in exchange for cash. In July
2001, the compensation committee granted five employees membership
units, in lieu of salary. In July 2001 three existing members
purchased additional membership interests for cash. In September one
existing member purchased additional membership interests for cash.
See the chart below for a summary of units, related contributions, and options
outstanding.
October 31, 2001 December 31, 2001
Reserved Reserved
Name Amount Units In option Amount Units In option
Contrib. Owned Plan Contrib. Owned Plan
Bryan Baker $ 163,800 2,510,231 0 $ 800 2,088,500 0
Kent Bowen 280,000 1,376,923 0 0 0 0
BCU 310,000 1,567,308 0 0 0 0
Other employees 12,500 918,078 2,395,000 0 0 2,223,000
Other Investors -------- --------- --------- --- --------- ---------
Total $ 766,300 6,522,540 2,395,000 $ 800 2,088,500 2,223,000
======== ========= ========= === ========= =========
The membership agreement gives one member, Battle Creek Unlimited (BCU),
preemptive rights to receive additional membership interests without cost to BCU
in an amount necessary to allow BCU to maintain the same percentage interest as
described in the agreement. This preemptive right will occur if the Company
raises additional capital by issuing membership interests for cash consideration
less than $0.26 per unit. Also, if the Board of Managers determines it is in the
best interest of the Company to raise additional capital by issuing additional
membership interests for a cash consideration equal to or greater than $0.26 per
unit, BCU has first right to purchase those additional membership interests.
The membership agreement gives two members permanent positions on the Board of
Managers until such time as they are no longer members. An exception exists for
one of those members in which their right to a permanent position on the Board
of Managers also terminates if all authorized shares in the Company Option Plan
are exercised.
(7) SUBSEQUENT EVENTS
The Company has entered negotiations with the owners of intellectual property to
purchase the property. The purchase is contingent on terms satisfactory to all
parties, and on financing arrangements.
The Company has also entered negotiations with a publicly traded company to
become a wholly owned subsidiary of that company in exchange for an undetermined
consideration.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Southbury, State of Connecticut, on January 8, 2002.
BY:/s/__________________________
