SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 21, 2001
CORPORATE VISION, INC.
(Exact name of registrant as specified in its charter)
Oklahoma | 0-18824 | 73-1380820 |
(State or other jurisdiction of incorporation) | (Commission file number) | (I.R.S. Employer Identification Number) |
3540 East 31st Street, Suite 1
Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
(918) 749-2400
(Registrant's telephone number, including area code)
Item 1. Changes in Control of Registrant.
Pursuant to a Share Exchange Agreement (the "Agreement") dated June 21, 2001, Corporate Vision, Inc. (the "Company"), an Oklahoma corporation, acquired all the issued and outstanding shares of common stock of Southeastern Research and Recovery, Inc. ("SRR"), a South Carolina corporation, from the sole shareholder thereof, Global Eco-Logical Services, Inc. ("Global"), a Florida corporation, in exchange for 22,500,000 shares (the "CVIA Shares") of common stock of the Company. The shares issued in the acquisition bear a restrictive legend in accordance with Rules 144 and 502 promulgated under the Securities Act of 1933. As further consideration for the SRR shares, the Company agreed to assume Global's accounts payable obligations to Mottern, Fisher and Goldman, P.C. and Tauber and Balser, P.C.
The number of CVIA Shares is subject to adjustment six and twelve months (an "Adjustment Date") after the acquisition date based on the future market price of the CVIA Shares. Specifically, in the event the CVIA Shares held by Global on each Adjustment Date do not have a fair market value equal to or greater than $2,250,000, then the Company shall be obligated to issue Global additional shares of Company common stock sufficient to result in the fair market value of the CVIA Shares held by Global on the Adjustment Date, plus the additional shares issued as of the Adjustment Date, having a total value equal to $2,250,000. At each Adjustment Date, the fair market value of the Company's common stock shall be the average of the high and low price of the common stock for the twenty business days prior to the Adjustment Date, provided that if the Company's common stock is not traded during such period, the fair market value of the common stock shall instead be the book value per share of the Company's common stock determined as of the date of the last financial statements prepared by Company. In addition, if the fair market value of the Company's common stock determined in the manner set forth above on the twenty-first business day before an Adjustment Date would result in the issuance of additional shares of Company common stock to Global if such date were an Adjustment Date, then Global, and no officer, director or affiliate thereof may sell shares of the Company's common stock during the subsequent twenty business days.
As a result of and pursuant to the Agreement, the Company agreed to reduce the number of voting directors to four, two of which shall be nominees of Global. The four voting directors will be A. Leon Blaser, Gary Mays, William Tuorto, and Ted Fenn. All previous directors of the Company, other than Mr. Blaser and Mr. Mays, are to be reclassified as nonvoting directors. Those directors are Curtis Swart and Cynthia Cox.
Pursuant to the Agreement, a Management and Operations Agreement (the "Management Agreement") was executed among the Company, Global and SRR. Under the Management Agreement, Global agreed to provide management and operational support services to SRR for a five-year period, in exchange for fifty percent of the net cash flow generated by the Company's operating activities. Under the Management Agreement, the net cash flow from SRR will be determined on a quarterly basis from the "net cash provided by operating activities" of SRR's financial statements utilized for the Company's consolidated financial statements, less the amount of any management fee paid by SRR for the quarter. The Company may terminate the Management Agreement prior to the expiration of its term upon thirty (30) days advance notice and the payment to Global of a termination fee equal to the lesser of a) $250,000, or b) the average monthly management fee paid or payable to Global for the twelve months prior to the date of such notice of termination times the number of months remaining in the term of the Management Agreement.
Pursuant to the Agreement, an Options Agreement was executed between the Company and Global. Under the Option Agreement, the Company granted Global an option to repurchase all of the issued and outstanding common stock of SRR in exchange for 22,500,000 shares of the Company common stock and $200,000 cash. The option is exercisable at any time from January 1, 2002 to August 1, 2002. While the option is outstanding, the Company has agreed not to transfer, assign, pledge, hypothecate or convey the shares of SRR common stock in any manner without the express without the express written consent of Global.
As part of the acquisition of SRR, the Company has entered into employment agreements with Richard D. Tuorto, Jr. and William L. Tuorto, and anticipates entering into employment/independent contractor agreements in the near future with other key members of management of SRR, including James Sease and Tom Strenth.
Prior to the acquisition of SRR, the Company had 19,564,850 shares of common stock issued and outstanding, and 42,064,850 shares immediately following the reorganization. Thus, as part of the acquisition of SRR, Global obtained a controlling interest in the Company.
Item 2. Acquisition Or Disposition Of Assets
As described in Item 1 herein, on June 21, 2001 the Company acquired all of the issued and outstanding common stock of SRR. SRR operates a non-hazardous waste facility on 3.25 acres of land in Erhardt, South Carolina, that processes industrial sludge for commercial and industrial customers in the South Carolina/Georgia area prior to its disposal in traditional municipal solid waste landfills. Specifically, SRR solidifies non-hazardous liquid waste by mixing it with sawdust, and then disposes of it by hauling it to a traditional solid waste site. The Company hauls its waste with a fleet of seven company-owned trucks and additional rental trucks when needed. The land is leased pursuant to a lease with a remaining term of approximately 20 years. All permits are in effect for at least the term of lease.
Risk Factors Relating to Business of SRR
Competition. The waste collection/disposal business is both highly competitive and requires substantial amounts of capital. If permitted and operational, the Company's facilities would compete with numerous enterprises, many of which have significantly larger operations and greater resources than the Company. The Company would also compete with those counties and municipalities that maintain their own waste collection and disposal operations. Forward Looking Statements assume that the Company will be able to effectively compete with these other entities.
The Company may not be able to acquire existing waste companies. The Company plans to acquire additional waste companies to complement its ownership of SRR, and its acquisition program is a key element of its expansion strategy. There can be no assurance, however, that the Company will succeed in locating appropriate acquisition candidates that can be acquired at price levels that the Company considers appropriate, or that the Company will be able to raise the necessary capital to begin its acquisition program.
Economic Conditions. The Company's potential waste collection/disposal business would be affected by general economic conditions. There can be no assurance that an economic downturn would not result in a reduction in the potential volume of waste that might be disposed of at the Company's potential facilities and/or the price that the Company would charge for its services.
Weather Conditions. Protracted periods of inclement weather may adversely affect the Company's operations by interfering with collection and landfill operations, and/or reducing the volume of waste generated by the Company's potential customers. In addition, particularly harsh weather conditions may result in the temporary suspension of certain of the Company's potential operations. The Forward Looking Statements do not assume that such weather conditions will occur.
Dependence on Senior Management. The Company is highly dependent upon its senior management team. In addition, as the Company continues to grow, its requirements for operations management with franchising and waste industry experience will also increase. The future availability of such experienced management cannot be predicted. The Forward Looking Statements assume that experienced management will be available when needed by the Company at compensation levels that are within industry norms. The loss of the services of any member of senior management or the inability to hire experienced operations management could have a material adverse effect on the Company.
Influence of Government Regulation. The Company's potential operations are subject to and substantially affected by extensive federal, state and local laws, regulations, orders and permits, which govern environmental protection, health and safety, zoning and other matters. These regulations may impose restrictions on operations that could adversely affect the Company's results, such as limitations on the expansion of disposal facilities, limitations on or the banning of disposal of out-of-state waste or certain categories of waste or mandates regarding the disposal of solid waste. Because of heightened public concern, companies in the waste management business may become subject to judicial and administrative proceedings involving federal, state or local agencies. These governmental agencies may seek to impose fines or to revoke or deny renewal of operating permits or licenses for violations of environmental laws or regulations or to require remediation of environmental problems at sites or nearby properties, or resulting from transportation or predecessors' transportation and collection operations, all of which could have a material adverse effect on the Company. Liability may also arise from actions brought by individuals or community groups in connection with the permitting or licensing of operations, any alleged violations of such permits and licenses or other matters. The Forward Looking Statements assume that there will be no materially negative impact on its operations due to governmental regulation.
Potential Environmental Liability. The Company may incur liabilities for the deterioration of the environment as a result of its potential operations. Any substantial liability for environmental damage could materially adversely affect the operating results and financial condition of the Company. Due to the limited nature of insurance coverage of environmental liability, if the Company were to incur liability for environmental damage, its business and financial condition could be materially adversely affected.
Inflation and Prevailing Economic Conditions. To date, inflation has not had a significant impact on the Company's operations. Consistent with industry practice, most of the Company's contracts will provide for a pass through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. The Company therefore believes it should be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may require the Company to absorb cost increases, resulting from inflation. The Company is unable to determine the future impact of a sustained economic slowdown.
Item 3. Bankruptcy or Receivership.
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not applicable.
Item 5. Other Events.
Not applicable.
Item 6. Resignations Of Directors And Executive Officers.
As disclosed in Item 1, pursuant to the Agreement, the Company agreed to reconstitute its board to create two nonvoting positions. The two nonvoting directors will be Cynthia Cox and Curtis Swart, who formerly were voting directors.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired: Attached hereto as Exhibits A and B are the following financial statements:
Exhibit No. | Description |
A | Audited Financial Statements for Southeastern Research and Recovery, Inc. for the years ended December 31, 2000 and 1999. |
B | Unaudited Financial Statements for Southeastern Research and Recovery, Inc. for the three months ended March 31, 2001 and 2000. |
(b) Pro Forma Financial Information: The following pro forma financial statements are attached hereto as Exhibit C:
(i) Pro forma balance sheet of Corporate Vision, Inc. giving effect to the acquisition of Southeastern Research and Recovery, Inc. as of March 31, 2001, the most recent balance sheet filed by Corporate Vision, Inc. prior to the acquisition pursuant to Item 310(a) or (b);
(ii) Pro forma statement of operations of Corporate Vision, Inc. for the year ended December 31, 2000 and the three months ended March 31, 2001 as if the acquisition of Southeastern Research and Recovery, Inc. had occurred on January 1, 2000.
(c) Exhibits:
Regulation S-B Number | Exhibit |
10.1 | Share Exchange Agreement by and among Southeastern Research and Recovery, Inc., Global Eco-Logical Services, Inc., and Corporate Vision, Inc. |
10.2 | Management and Operations Agreement by and among Global Eco-Logical Services, Inc., Corporate Vision, Inc., and Southeastern Research and Recovery, Inc. |
10.3 | Option Agreement among Global Eco-Logical Services, Inc. and Corporate Vision, Inc. |
24 | Consent of Tauber and Balser, P.C. |
Item 8. Change in Fiscal Year.
Not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S
Not applicable.
SIGNATURE
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.
CORPORATE VISION, INC.
Date: October 2, 2001 By: /s/ Gary L. Mays
Gary L. Mays
Its: President and Chief Executive Officer
EXHIBIT A
SOUTHEASTERN RESEARCH and RECOVERY, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
SOUTHEASTERN RESEARCH and RECOVERY, INC.
TABLE OF CONTENTS
Independent Auditors' Report 1
Balance Sheet 2
Statements of Operations and Retained Earnings 3
Statements of Cash Flows 4
Notes to Financial Statements 6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Southeastern Research and Recovery, Inc.
We have audited the accompanying balance sheet of Southeastern Research and Recovery, Inc. as of December 31, 2000, and the related statements of operations and retained earnings, and cash flows for the years ended December 31, 2000 and 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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 Southeastern Research and Recovery, Inc. as of December 31, 2000 and the results of its operations and its cash flows for the years ended December 31, 2000 and 1999 in conformity with accounting principles generally accepted in the United States.
/s/ Tauber and Balser, P.C.
Atlanta, Georgia
April 11, 2001, except
June 21, 2001 for Note G
SOUTHEASTERN RESEARCH and RECOVERY, INC.
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
CURRENT ASSETS | |
Cash | $ 15,242 |
Accounts receivable, less allowance of $128,987 | 143,977 |
Prepaid expenses | 70,117 |
TOTAL CURRENT ASSETS | 229,336 |
PROPERTY AND EQUIPMENT | |
Buildings and improvements | 8,250 |
Equipment | 500,545 |
508,795 | |
Less: accumulated depreciation | (191,041) |
TOTAL PROPERTY AND EQUIPMENT, NET | 317,754 |
OTHER ASSETS | |
Goodwill, net of accumulated amortization of $16,170 | 145,537 |
Deferred income taxes | 8,000 |
153,537 | |
TOTAL ASSETS | $ 700,627 |
SOUTHEASTERN RESEARCH and RECOVERY, INC.
BALANCE SHEET
DECEMBER 31, 2000
LIABILITY AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES | |
Accounts payable and accrued expenses | $ 228,767 |
Accrued payroll and payroll taxes | 6,342 |
Notes payable - current portion | 26,767 |
Due to related party | 210,068 |
Income taxes payable | 15,000 |
Capital leases - current | 37,005 |
TOTAL CURRENT LIABILITIES | 523,949 |
LONG-TERM DEBT | |
Capital Leases, net of current portion | 85,874 |
Notes payable, net of current portion | 58,820 |
TOTAL LONG-TERM DEBT | 144,693 |
STOCKHOLDERS' EQUITY | |
Common stock | 100 |
Retained earnings | 31,885 |
TOTAL STOCKHOLDERS' EQUITY | 31,985 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 700,627 |
SOUTHEASTERN RESEARCH and RECOVERY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 | 1999 | |
REVENUES | $1,599,737 | $1,437,136 |
OPERATING COSTS AND EXPENSES | ||
Cost of sales | 378,345 | 355,968 |
Selling, general, and administrative | 993,596 | 970,270 |
Depreciation and amortization | 111,051 | 69,694 |
TOTAL COST AND EXPENSES | 1,482,992 | 1,395,932 |
OPERATING INCOME | 116,745 | 41,204 |
OTHER INCOME (EXPENSE) | ||
Gain on sale of assets | 608 | - |
Interest expense | (17,143) | (36,572) |
Other income | 18,643 | - |
TOTAL OTHER INCOME (EXPENSE) | 2,108 | (36,572) |
INCOME BEFORE TAXES | 118,853 | 4,632 |
INCOME TAX EXPENSE | (91,500) | - |
NET INCOME | 27,353 | 4,632 |
RETAINED EARNINGS, BEGINNING OF YEAR | 4,632 | - |
REATINED EARNINGS, END OF YEAR | $ 31,985 | $ 4,632 |
SOUTHEASTERN RESEARCH and RECOVERY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 | 1999 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 27,353 | $ 4,632 |
Adjustments: | ||
Depreciation | 102,965 | 61,608 |
Amortization | 8,085 | 8,085 |
Changes in: | ||
Decrease (increase) in accounts receivable | 29,260 | (173,237) |
Decrease (increase) in prepaid expenses and deposits | 11,013 | (81,130) |
(Decrease) increase in accounts payable | ||
and accrued expenses | (75,849) | 304,616 |
(Decrease) increase in accrued payroll and payroll taxes | (839) | 7,181 |
Increase in deferred income taxes | (8,000) | - |
Increase in income taxes payable | 15,000 | - |
Total adjustments | 81,635 | 127,123 |
Net cash used by operating activities | 108,988 | 131,755 |
CASH FLOWS USED BY INVESTING ACTIVITIES | ||
Purchases of property and equipment | (108,823) | (352,033) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from issuance of notes payable | 39,622 | 78,800 |
Payments for capital leases | (41,757) | (18,543) |
Change in due to related party | 43,646 | 166,422 |
Payments on notes payable | (22,788) | (10,047) |
Net cash provided by financing activities | 18,723 | 216,632 |
NET INCREASE (DECREASE IN CASH | 18,888 | (3,646) |
CASH, BEGINNING OF YEAR | (3,646) | - |
CASH, END OF YEAR | $ 15,242 | $ (3,646) |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||
Cash paid during the year for interest | $ 17,143 | $ 29,324 |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
The acquisition of the Company was included in a group of companies purchased by Global during 1999. The allocation of the stock issued and the cash paid was made based on the net assets obtained and the goodwill established in the acquisition.
Details of acquisition by Global in 1999: | |
Fair value of assets acquired by Global | $ 145,350 |
Goodwill established | 161,707 |
Liabilities assumed | (61,657) |
Stock issued | (121,124) |
Debt issued | (124,276) |
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company and Basis of Presentation
Southeastern Research and Recovery ("SRR" or the "Company") operates a non-hazardous waste facility on 3.25 acres of land in Ehrhardt, South Carolina, that processes industrial sludge for commercial and industrial customers in the South Carolina/Georgia area prior to its disposal in Subtitle D landfills. Specifically, SRR solidifies non-hazardous liquid waste by mixing it with sawdust, and then disposes of it by hauling it to a traditional solid waste site.
The Company is a wholly-owned subsidiary of Global Eco-Logical Services, Inc. ("Global") acquired during 1999.
Goodwill and other assets and liabilities related to the operations of SRR were recorded "pushed down" in the financial statements although such assets and liabilities were acquired with the Parent's common stock.
Concentration of Credit Risk
Concentration of credit risk with respect to receivables is limited due to the large number of customers comprising the Company's customer base.
The Company does not require collateral to support customer receivables. The Company did not establish an allowance for doubtful accounts for 1999 because it expensed as bad debts all December 31, 1999 receivables that were not collected from year end through April 11, 2001. Total bad debt expense charged to operations in 2000 and 1999 were $0 and $128,987, respectively.
Revenue Recognition
Revenue is recognized when services are provided.
Prepaid Expenses
Prepaid expenses consist of prepaid insurance premiums.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from 1 to 12 years.
Goodwill
Goodwill represents the excess of cost over the fair value of assets acquired at dates of acquisition and is amortized using the straight-line method over a period of 20 years. Amortization expense of $8,085 was charged to operations in 2000 and 1999.
Cost of Sales
Cost of sales consist of transportation and disposal costs.
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 certain assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.
Income taxes
The Company is included in the consolidated federal income tax return filed by the Parent. Federal income taxes are calculated as if the companies filed on a separate return basis, and the amount of current tax or benefit calculated is either remitted to or received from the Parent. Deferred income tax expenses or benefits are recognized in the financial statements for the changes in deferred tax liabilities or assets between years.
NOTE B - OPERATING LEASES
The Company conducts its operations in facilities under operating lease agreement which expired in March 2001. The lease was subsequently extended at $2,000 per month on a month to month basis.
Rental expense under the operating leases was approximately $24,000 for the years ended December 31, 2000 and 1999.
NOTE C - NOTES PAYABLE
Notes payable consisted of the following at December 31, 2000:
Various equipment notes, interest rates ranging from 9.06% to 13.5%, maturity dates ranging from June 16, 2000 to July 2005. Notes are secured by underlying equipment. | $ 85,587 |
Less current portion | (26,767) |
$ 58,820 |
The above notes have the following maturities:
2001 | $ 26,768 |
2002 | 21,237 |
2003 | 15,423 |
2004 | 12,118 |
2005 | 10,042 |
$ 85,587 |
NOTE D - CAPITAL LEASES
The Company is the lessee of equipment under capital leases expiring in 2003 and 2004. The assets and liabilities under capital leases are recorded at the present value of the minimum lease payments. The assets are depreciated over their estimated useful lives. Depreciation of assets under capital leases is included in depreciation expense for 2000 and 1999. Minimum future discounted lease payments under capital leases as of December 31, 2000 are:
2001 | $ 37,005 |
2002 | 38,698 |
2003 | 38,576 |
2004 | 10,600 |
122,879 |
Leased equipment amounted to $191,145 at December 31, 2000 and 1999. Accumulated depreciation amounted to $49,577 and $14,336 at December 31, 2000 and 1999, respectively.
NOTE E - CONTINGENCIES
Legal
In the normal course of business and as a result of the extensive governmental regulation of the waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving Federal, state, or local agencies. In these proceedings, an agency may seek to impose fines on the Company or to revoke, or to deny renewal of, an operating permit held by the Company. In addition, the Company may become party to various claims and suits pending for alleged damages to persons and property, alleged violation of certain laws and for alleged liabilities arising out of matters occurring during operations of the waste management business.
The SEC has subpoenaed documents from Global, its officers, and certain shareholders of the Company and WasteMasters, Inc. (WMI), the Company from which Global purchased SRR. In addition, the SEC has requested testimony from such persons. The Company believes that the investigation relates to the Company's transactions with WMI, and the circumstances surrounding the initial acquisition of control of the Company by Global. The Company has produced the documents requested by the SEC, and is fully cooperating in the investigation.
NOTE F - INCOME TAXES
SRR is included in the consolidated federal income tax return filed by its Parent. Federal income taxes are calculated as if SRR filed a separate federal income tax return. SRR files its own state income tax returns.
The current and deferred portions of the income tax (expense) benefit included in the statement of income as determined in accordance with FASB Statement No. 109, Accounting for Income Taxes, are as follows:
2000 | 1999 | |
Federal income tax (expense) benefit | ||
Current | $(84,500) | $ - |
Deferred | - | - |
$(84,500) | - | |
State income tax (expense) benefit | ||
Current | $(15,000) | $ - |
Deferred | 8,000 | - |
$(7,000) | $ - | |
Total provision for income taxes | $(91,500) | $ - |
The primary reason that recorded income taxes differ from income taxes normally expected results from then on deductible allowance for doubtful accounts.
Significant components of the Company's deferred income tax assets as of December 31, 2000 are as follows:
Deferred tax assets: | |
Allowance for doubtful accounts: | $ 51,600 |
Valuation allowance | (43,600) |
Net deferred tax asset reported | $ 8,000 |
No valuation allowance was recorded at December 31, 1999.
At December 31, 2000, approximately $84,500 was due to the Parent for federal income taxes.
NOTE G - SUBSEQUENT EVENT
On June 21, 2001, Global sold all of the common stock of SRR to Corporate Vision, Inc. (CVIA) in exchange for 22,500,000 restricted unregistered shares of common stock of CVIA. The shares of CVIA stock are subject to increase six and twelve months after the closing date. In the event the CVIA common stock held by SRR does not have a fair market value equal to or greater than $2,250,000 on those dates, then CVIA will be obligated to issue additional shares of common stock sufficient to result in that value.
A Management and Operations Agreement (the "Management Agreement") was executed among CVIA, Global and SRR. Under the Management Agreement, Global agreed to provide management and operational support services to SRR for a five-year period, in exchange for fifty percent of the net cash flow generated by SRR's operating activities. Under the Management Agreement, the net cash flow from SRR will be determined on a quarterly basis from the "net cash provided by operating activities" of SRR's financial statements utilized for CVIA's consolidated financial statements, less the amount of any management fee paid by SRR for the quarter. SRR may terminate the Management Agreement prior to the expiration of its term upon thirty (30) days advance notice and the payment to Global of a termination fee equal to the lesser of a) $250,000, or b) the average monthly management fee paid to Global for the twelve months prior to the date of such notice of termination times the number of months remaining in the term of the Manager Agreement.
In addition, an Option Agreement was executed between CVIA and Global. Under the Option Agreement, CVIA granted Global an option to repurchase all of the issued and outstanding common stock of SRR in exchange for 22,500,000 shares of CVIA common stock and $200,000 cash. The option is exercisable at any time from January 1, 2002 to August 1, 2002. While the option is outstanding, CVIA has agreed not to transfer, assign, pledge, hypothecate or convey the shares of SRR common stock in any manner without the express written consent of Global.
Prior to the acquisition of SRR, CVIA entered into employment agreements with Richard D. Tuorto, Jr. and William L. Tuorto, and anticipates entering into employment/independent contractor agreements in the near future with other key members of management of SRR, including James Sease and Tom Strenth.
NOTE H - RELATED PARTY ADVANCES
At December 31, 2000, the Company owes Global a total of $210,068, which consisted of advances received for working capital purposes. These advances are non-interest bearing, unsecured, and due on demand.
Certain overhead costs incurred by the parent, such as certain officers' salaries, that benefit SRR's operations, have not been allocated to SRR and have not been included in these financial statements.
EXHIBIT B
SOUTHEASTERN RESEARCH and RECOVERY, INC.
BALANCE SHEET
MARCH 31, 2000 and MARCH 31, 2001
ASSETS | 2000 | 2001 |
CURRENT ASSETS | ||
Cash | 5,830 | $ (2,243) |
Accounts receivable, net of allowance for bad debt | 122,819 | 300,941 |
Related company receivables, net | 16,191 | |
Prepaid expenses | 56,790 | 25,171 |
TOTAL CURRENT ASSETS | 201,630 | 323,869 |
TOTAL PROPERTY AND EQUIPMENT, NET | 121,173 | 193,863 |
TOTAL ASSETS | $ 322,803 | $ 702,943 |
LIABILITY AND STOCKHOLDERS' EQUITY | ||
CURRENT LIABILITIES | ||
Accounts payable and accrued liabilities | 336,040 | $ 296,191 |
LONG-TERM LIABILITIES | ||
Notes payable | 29,718 | 114,314 |
TOTAL LIABILITIES | 365,758 | 410,505 |
STOCKHOLDERS' EQUITY | ||
Paid in capital | 0 | 0 |
Retained earnings | (42,955) | 107,227 |
TOTAL STOCKHOLDERS' EQUITY | (42,955) | 317,437 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 322,803 | $ 517,732 |
SOUTHEASTERN RESEARCH and RECOVERY, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001
2000 | 2001 | |
REVENUES | $ 323,173 | $506,785 |
Cost of Sales | 311,070 | 341,973 |
GROSS PROFIT | 12,103 | 164,812 |
OPERATING EXPENSES | ||
Selling, General and Administrative Expenses | 48,181 | 60,263 |
OPERATING INCOME (LOSS) | (36,078) | 104,549 |
OTHER INCOME (EXPENSE) | ||
Interest income | 0 | 422 |
Interest expense | 1,051 | 1,315 |
TOTAL OTHER INCOME (EXPENSE) | (1,051) | (894) |
INCOME BEFORE TAXES | (37,129) | 103,656 |
INCOME TAX EXPENSE | - | - |
NET INCOME | (37,129) | 103,656 |
SOUTHEASTERN RESEARCH and RECOVERY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2000 | 2001 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | (37,129) | 103,656 |
Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||
Depreciation and amortization | 15,560 | 21,840 |
Changes in: | ||
(Increase) decrease in trade receivable | 74,757 | (156,964) |
(Increase) decrease in related party receivables | (20,905) | (75,747) |
(Decrease) increase in accrued expenses | 6,093 | 93,420 |
(Increase) decrease in other assets | 0 | (2,604) |
Increase (decrease) in current liabilities | (18,547) | 9,701 |
Net cash provided (used) by operating activities | 19,829 | (6,698) |
CASH FLOWS USED BY INVESTING ACTIVITIES | ||
Purchases of property and equipment | (8,015) | (39,515) |
Net cash provided (used) by investing activities | (8,015) | (39,515) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Paydown of liabilities | (2,338) | (8,788) |
Proceeds from debt | 0 | 37,516 |
Net cash provided (used) by financing activities | (2,338) | 28,728 |
NET INCREASE (DECREASE) IN CASH | 9,476 | (17,485) |
CASH, BEGINNING OF PERIOD | (3,646) | 15,242 |
CASH, END OF PERIOD | 5,830 | (2,243) |
EXHIBIT C
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2001
Corporate | ||||
Vision | SRR | Pro Forma | Pro Forma | |
March 31, 2001 | March 31, 2001 | Adjustments | Consolidated | |
Assets | ||||
Current Assets | $ 1,100,106.00 | $ 323,869.19 | $ - | $ 1,423,975.19 |
Property and Equipment | 31,393.00 | 193,862.48 | - | 225,255.48 |
Goodwill | - | - | 1,289,032.35 | 1,289,032.35 |
Other Assets | 3,000.00 | - | - | 3,000.00 |
Total Assets | $ 1,134,499.00 | $ 517,731.67 | $ 1,289,032.35 | $ 2,941,263.02 |
Liabilities and Stockholders' Equity | ||||
Current Liabilities | $ 215,015.00 | $ 296,190.50 | $ - | $ 511,205.50 |
Long-Term Debt | - | 114,314.17 | - | 114,314.17 |
Contingencies | 30,000.00 | - | - | 30,000.00 |
Capital stock | 9,115,800.00 | 100.00 | 1,662,087.50 | 10,777,987.50 |
Retained earnings (deficit) | (8,226,316.00) | 107,127.00 | (373,055.15) | (8,492,244.15) |
$ 1,134,499.00 | $ 517,731.67 | $ 1,289,032.35 | $ 2,941,263.02 |
Notes to the Unaudited Pro Forma Combined Balance Sheet
Note 1:
The pro forma balance sheet assumes that the acquisition of SRR occurred on March 31, 2001.
Note 2:
The calculation of goodwill resulting from the purchase of SRR is as follows:
Estimated value of CVI stock issued | $ 1,662,187.50 |
Estimated fair value of net assets acquired | 373,155.15 |
Purchase price in excess of net assets acquired | $ 1,289,032.35 |
Note 3:
The adjustments to capital stock and retained deficit are as follows:
Capital stock: | $ 1,662,187.50 |
Estimated value of CVI stock issued | (100.00) |
Elimination of SRR capital stock in consolidation | $ 1,662,087.50 |
Retained deficit: | |
Elimination of SRR pre-business combination retained earnings | $ (373,055.15) |
Unaudited Pro Forma Consolidated Income Statement
For the Three Months Ended March 31, 2001
Corporate | ||||
Vision | SRR | |||
Three months | Three months | |||
Ended | Ended | Pro Forma | Pro Forma | |
March 31, 2001 | March 31, 2001 | Adjustment | Consolidated | |
Operating Revenue | $ 58.00 | $ 506,784.93 | $ - | $ 506,842.93 |
Operating Expenses | 194,171.00 | 402,235.14 | 10,359.40 | 606,765.54 |
Income (Loss) from Operations | (194,113.00) | 104,549.79 | (10,359.40) | (99,922.61) |
Other Income (Expenses) | - | (893.64) | - | (893.64) |
Net Income (Loss) | $ (194,113.00) | $ 103,656.15 | $ (10,359.40) | $ (100,816.25) |
Unaudited Pro Forma Consolidated Income Statement
For the Year Ended December 31, 2000
Corporate | ||||
Vision | SRR | |||
Year Ended | Year Ended | |||
December 31, | December 31, | Pro Forma | Pro Forma | |
2000 | 2000 | Adjustment | Consolidated | |
Operating Revenue | $ 42,565.00 | $ 1,599,737.00 | $ - | $ 1,642,302.00 |
Operating Expenses | 1,604,386.00 | 1,347,078.00 | 41,436.39 | 2,992,900.39 |
Income (Loss) from Operations | (1,561,821.00) | 252,659.00 | (41,436.39) | (1,350,598.39) |
Other Income (Expenses) | (1,213,288.00) | 2,108.00 | - | (1,211,180.00) |
Income (Loss) Before Income Taxes | (2,775,109.00) | 254,767.00 | (41,436.39) | (2,561,778.39) |
Income Tax Expense | - | (15,000.00) | - | (15,000.00) |
Net Income (Loss) | $ (2,775,109.00) | $ 239,767.00 | $ (41,436.39) | $ (2,576,778.39) |
Notes to the Unaudited Pro Forma Consolidated Income Statements
Note 1-- The pro forma income statements assume that the acquisition of SRR occurred on January 1, 2000.
Note 2--The pro forma adjustments represent the amortization of goodwill over 40 years.
