| 2001
| 2000
|
| | |
Cash Flows from Operating Activities | | |
Net loss | $(1,817,651) | $(981,167) |
Adjustments to reconcile net loss to net cash used in operating activities: | | |
Depreciation and amortization | 131,799 | 43,244 |
Gain on sale of subsidiary | (1,085,850) | -0- |
Loss on disposal of investments | 250,314 | -0- |
Provision for doubtful accounts | 57,244 | -0- |
Minority interest in loss of subsidiary | (105,261) | -0- |
Changes in operating assets and liabilities: | | |
Accounts receivable | (170,136) | (64,583) |
Unbilled services | (97,007) | (34,836) |
Accounts payable and accrued expenses | 480,881 | 171,482 |
Taxes withheld from wages | 190,770 | 114,113 |
Deferred revenues | 132,120 | (92,526) |
Other | 21,552
| (24,112)
|
Net Cash Used in Operating Activities | (2,011,225)
| (868,385)
|
| | |
Cash Flows from Investing Activities | | |
Acquisition of property and equipment | (238,870) | (367,817) |
Reduction of cash due to sale of subsidiary | (64,014) | -0- |
Increase in bank overdraft | 62,034 | -0- |
Due from affiliates and related parties | -0- | (370,722) |
Other investing activities | 21,071
| (3,113)
|
Net Cash Used in Investing Activities | (219,779)
| (741,652)
|
| | |
Cash Flows from Financing Activities | | |
Proceeds from issuance of common stock | 1,139,645 | 1,439,543 |
Net increase in (reduction of) long-term debt | (23,670) | 50,425 |
Net reduction in short-term bank borrowings | (1,551) | (180) |
Net increase in due to affiliates | 901,532 | 59,088 |
Net increase in loans payable | 46,429
| -0-
|
Net Cash Provided by Financing Activities | 2,062,385
| 1,548,876
|
| | |
Effect of Exchange Rate Changes on Cash | 1,359
| -0-
|
| | |
Net Decrease in Cash | (167,260) | (61,161) |
| | |
Cash at Beginning of Period | 339,478
| 89,040
|
| | |
Cash at End of Period | $172,218
| $27,879
|
| | |
Supplemental Disclosure of Cash Flow Information: | | |
| | |
Interest paid | $28,773
| $36,946
|
| | |
Income taxes paid (refunded) | $-0-
| $-0-
|
e-Synergies, inc. and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 2001
Note 1: Organization and Summary of Significant Accounting Policies
The accounting and reporting policies of e-Synergies, inc.(Company) and its subsidiaries conform to accounting principles generally accepted in the United States of America. Following is a description of the most significant of those policies:
Description of the Business: e-Synergies, inc. (formerly Russian-Caviar.com) was incorporated under the laws of the state of California on February 1, 2000. The purpose for which the corporation was organized was to engage in sales of caviar on the Internet. On April 11, 2001, the Company entered into a stock exchange agreement with Salesmation.com, Inc.(Salesmation), pursuant to which it acquired 100% of the outstanding capital stock of Salesmation in exchange for 11,187,501 shares of its common stock. This transaction resulted in a change in control of the Company. Concurrent with the Stock Exchange Agreement, the Company amended its Certificate of Incorporation changing its name from Salesmation.com, Inc. to Salesmation, Inc.
Salesmation is an application service provider (ASP) which supplies technology-based e-marketing services that enable businesses to deliver customized online marketing messages. Salesmation was organized as a Delaware corporation on August 19, 1999. Salesmation has two wholly-owned subsidiaries, M² Ltd. (M2) and Dotcom Ideas, Inc. (Dotcom). M², a Maryland corporation, mainly provides language translation services to companies that market computer software, hardware, websites, and other services to multiple-language customer bases. Dotcom, a Delaware corporation, is an investment company with investments in the computer, technology, and finance industries in the United States and South Africa.
On April 2, 2001, Salesmation entered into a Share Exchange Agreement with HealthStar Corp. (HealthStar), a Delaware corporation. Under the agreement, HealthStar issued 4,000,000 shares of its voting common stock to Salesmation for all of the outstanding common stock of M2. However, 1,500,000 shares are being held in escrow and will be released to Salesmation only if M2 meets certain financial performance goals in the future. In the event that M2 fails to achieve the required goals, the 1,500,000 shares will be returned to HealthStar for cancellation. The 4,000,000 shares, which represent approximately 48% of the outstanding shares of HealthStar common stock, are subject to a lock-up provision and have voting restrictions placed on them. The lock-up provision prohibits Salesmation from selling, transferring, pledging, or otherwise disposing of the shares for a period of one year from the date of the agreement. Additionally, Salesmation executed an irrevocable proxy relative to the 4,000,000 shares whereby they vested all of the rights to vote the shares with the HealthStar board of directors for as long as they hold the shares.
Basis of Presentation: The accompanying unaudited consolidated financial statements of e-Synergies, inc. and subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for a complete financial statement presentation. In the opinion of management, such unaudited interim financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the Company’s financial position and results of operations for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full fiscal year. It is suggested that these consolidated financial statements be read in conjunction with e-Synergies, inc.’s audited financial statements included in their annual report on Form 10-KSB for the year ended December 31, 2000, as well as the audited consolidated financial statements of Salesmation.com, Inc. and its subsidiaries for the year ended August 31, 2000. On June 21, 2001, the Board of Directors elected to change the fiscal year-end of the Company from December 31st to August 31st. This change was reported on Form 8-K/A, which was filed on June 25, 2001.
Principles of Consolidation and Accounting for Investments: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company classifies its investment in marketable equity securities as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities". The securities are carried at fair market value, with unrealized gains and losses reported in stockholders' equity as a component of other comprehensive income (loss). The fair market value of the shares of HealthStar Corp. has been discounted due to the restrictions on the stock.
Business Combinations: Business combinations accounted for under the purchase method of accounting include the results of operations of the acquired business from the date of acquisition. Under the purchase method, net assets of the companies acquired are recorded at their estimated fair value at the date of acquisition. In the case of business combinations accounted for under the pooling-of-interests method of accounting, the assets, liabilities, and stockholders’ equity of the acquired entity are combined with the Company’s respective accounts at recorded values and prior period financial statements are restated to give effect to the merger.
Minority Interest in Subsidiary: The minority interest included in the consolidated statements of operations represents the minority shareholders’ share of the income or loss of the consolidated subsidiary. The minority interest included in the consolidated balance sheets reflects the original investment by the minority shareholders in the consolidated subsidiary, along with their proportionate share of the earnings and losses of the subsidiary.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Accounts Receivable: Provision is made for doubtful accounts based on anticipated collection losses. Estimated losses are determined from historical collection experience and a review of outstanding receivables. Collateral or other security is not required to support accounts receivable. The Company has not recorded an allowance for doubtful accounts at May 31, 2001 since, in the opinion of management, all outstanding accounts receivable are collectible.
Revenue Recognition: Revenues are recognized when the services are rendered. Services provided prior to the actual billings for such services are recorded as “unbilled services.” Billings made in advance of services rendered are recorded as “deferred revenues.”
Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed under the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and routine repairs are charged to expense as incurred; expenditures for improvements and major repairs that materially extend the useful lives of assets are capitalized.
Computer Software: The cost of purchased software is capitalized and amortized under the straight-line method based on the estimated useful life of the software. Statement of Position (SOP) 98-1 of the American Institute of Certified Public Accountants requires that, under certain circumstances, the costs associated with computer software obtained or developed for internal use be expensed. SOP 98-1 also requires that, once certain criteria relative to the software’s stage of development have been met, various internal costs incurred in connection with the development of the software be capitalized.
Goodwill: The excess of the acquisition cost over the net assets of a subsidiary acquired in a transaction accounted for as a purchase was recorded as goodwill and is being amortized on a straight-line basis over fifteen years. The Company periodically reviews goodwill to evaluate whether events or changes have occurred that would suggest an impairment of carrying value.
Foreign Currency Translation: Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at year-end exchange rates; revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are included as a component of stockholders’ equity.
Earnings (Loss) Per Share: In accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. The Company has no issuable shares qualified as dilutive to be included in the earnings per share calculation.
Note 2: Due to Affiliates
As of May 31, 2001 the Company was indebted to Suprafin, Inc., a stockholder, in the amount of $720,024 as a result of advances made to the Company. Additionally, the Company is indebted to a stockholder, and officer of one of its subsidiaries, for advances to the Company in the amount of $21,785. The advances from the stockholders are unsecured, non-interest bearing, and have no specific terms for repayment.
Item 2. Management’s Discussion and Analysis or Plan of Operation
The Company was engaged in the business of selling caviar on the Internet via its e commerce web site. The Company had not generated any revenue since its inception of February, 2000. On April 11, 2001, as described in Note 1 to the financial statements, the Company entered into a stock exchange agreement with Salesmation.com, Inc., pursuant to which it acquired 100% of its outstanding stock. The transaction was accounted for as a pooling of interests. The consolidated balance sheet of the Company as of May 31, 2001 primarily reflects the assets and liabilities of Salesmation, Inc. and its subsidiaries at that date, and the stockholders’ equity reflects the capital structure of e-Synergies, inc. adjusted for the issuance of additional shares of common stock as a result of the stock exchange agreement.
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of the Company for future operations. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based on the assumption that the Company’s entry into the computer industry will be successful, that competitive conditions within the computer industry will not change materially or adversely, and that there will be no material adverse change in the Company’s operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, as well as future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements included herein are reasonable, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the objectives and plans of the Company will be achieved.
Results of Operations
A comparison of the three and nine months ended May 31, 2001 to the three and nine months ended May 31, 2000 is not relevant for various reasons. The results of operations for the three and nine months ended May 31, 2001 reflect not only the transactions for Salesmation, Inc. for those periods but also the transactions of subsidiaries it had acquired during the nine month period. In March, 2000, Salesmation acquired 100% of the common stock of Dotcom Ideas, Inc., who acquired an interest in commerceSwitch, a South African based computer technology company. There were no significant transactions for this company during the period ended May 31, 2000. In April, 2000, Salesmation acquired 100% of the common stock of M2, a translation, globalization, and localization company based in the United States.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
| |
| Not applicable. |
| |
Item 2. | Changes in Securities |
| |
| Not applicable. |
| |
Item 3. | Defaults Upon Senior Securities |
| |
| Not applicable. |
| |
Item 4. | Submission of Matters to a Vote of Security Holders |
| |
| Not applicable. |
| |
Item 5. | Other Information |
| |
| Not applicable. |
| |
Item 6. | Exhibits and Reports on Form 8-K |
| |
| (a) Exhibits |
| |
| None. |
| |
| (b) The following reports were filed on Form 8-K: |
| |
| (1) | On April 25, 2001, the Company filed a current report on Form 8-K disclosing the acquisition by e-Synergies, inc. of all of the issued and outstanding shares of Salesmation, Inc. pursuant to a Share Exchange Agreement dated April 11, 2001. |
| | |
| (2) | On June 25, 2001, the Company filed Form 8-K/A, submitting the consolidated financial statements of Salesmation.com, Inc. and its subsidiaries for the years ended August 31, 1999 and 2000. |
| | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| e-Synergies, inc. |
| |
| | /s/ Thomas Ronk |
| By: |
|
| |
| |
| | July 25, 2001 |
| Date: |
|
| | | |