1
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): JANUARY 31, 2000
-------------------------------
GRACE DEVELOPMENT, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 0-25582 84-1110469
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(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION) NUMBER)
1690 CHANTILLY DRIVE, ATLANTA, GEORGIA 30324
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (678) 222-3030
----------------------------
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INTRODUCTORY NOTE
On January 31, 2000, a wholly-owned subsidiary of the Registrant was
merged with and into WebWizard, Inc., (on January 1, 2000 WebWizard, Inc. became
the successor company to WebWizard II, LLC,) a Delaware corporation
("WebWizard") (the "Merger"). The Merger was consummated in accordance with the
terms and conditions of an Agreement and Plan of Merger dated January 20, 2000
(the "Merger Agreement") by and among the Registrant, Avana Acquisition Sub I,
Inc., a Georgia corporation ("Merger Sub"), WebWizard, and the stockholders of
WebWizard (the "Stockholders"). In its Current Report on Form 8-K dated January
31, 2000 (the "Current Report"), the Registrant advised that it would file the
financial statements required by Item 7 of Form 8-K within sixty days of the
date that the Current Report was due. This Amendment No. 1 to the Current Report
amends Item 7 thereof to include the financial statements called for by such
Item.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired: Filed with this
report.
(b) Pro Forma Financial Information: Filed with this report.
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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.
GRACE DEVELOPMENT, INC.
By: /s/ Benjamin F. Holcomb
-------------------------------------
Benjamin F. Holcomb
Chief Executive Officer
Dated as of April 14, 2000
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WEBWIZARD II, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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WEBWIZARD II, LLC
TABLE OF CONTENTS
PAGE
----
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of changes in members' deficit 4
Statements of cash flows 5
Notes to financial statements 6 - 10
6
INDEPENDENT AUDITORS' REPORT
To the Members of
Webwizard II, LLC
We have audited the balance sheets of WEBWIZARD II, LLC (a Limited Liability
Company) as of December 31, 1999 and 1998 and the related statements of
operations, members' deficit, and cash flows for the year ended 1999 and for the
period November 17, 1998 [date of inception] to December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 WEBWIZARD II, LLC as of
December 31, 1999, and the results of its operations, its changes in members'
deficit, and its cash flows for year ended December 31, 1999 and for the period
November 17, 1998 [date of inception] to December 31, 1998, in conformity with
generally accepted accounting principles.
Atlanta, Georgia
February 24, 2000
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WEBWIZARD II, LLC
BALANCE SHEETS
DECEMBER 31,
ASSETS
------
1999 1998
--------- --------
Current assets
- --------------
Cash $ 6,226 $ 6,580
Accounts receivable,
net of $-0- allowance 4,727 -0-
Accounts receivable - related parties 3,225 -0-
--------- --------
Total current assets 14,178 6,580
--------- --------
Property and equipment, at cost
- -----------------------
Computer equipment 56,461 9,894
Office furniture and fixtures 63,329 -0-
--------- --------
119,790 9,894
Allowance for depreciation (24,252) (437)
--------- --------
95,538 9,457
--------- --------
$ 109,716 $ 16,037
========= ========
LIABILITIES AND MEMBERS' DEFICIT
--------------------------------
Current liabilities
- -------------------
Accounts payable and accrued expenses $ 69,939 $ 18,076
Accrued expenses - related parties 252,276 1,725
Deferred revenue 11,875 -0-
Notes payable - related parties 375,661 49,957
Current portion of obligations under capital lease -
related party 41,258 -0-
--------- --------
Total current liabilities 751,009 69,758
--------- --------
Long-term liabilities
- ---------------------
Obligations under capital lease,
net of current portion - related party 43,495 -0-
--------- --------
Members' deficit (684,788) (53,721)
- ---------------- --------- --------
$ 109,716 $ 16,037
========= ========
See auditors' report and accompanying notes
-2-
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WEBWIZARD II, LLC
STATEMENTS OF OPERATIONS
For the period
For the November 17, 1998
year ended [date of inception]
December 31, to December 31,
1999 1998
------------ -------------------
Revenues $ 75,465 $ -0-
- -------- --------- --------
Expenses
- --------
Cost of services 37,744 -0-
General and administrative 291,356 11,430
Selling 146,911 15,116
Research and development 186,715 26,450
--------- --------
662,726 52,996
--------- --------
Loss from Operations (587,261) (52,996)
--------- --------
Interest expense (43,806) (1,725)
- ---------------- --------- --------
Net loss $(631,067) $(54,721)
========= ========
See auditors' report and accompanying notes
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WEBWIZARD II, LLC
STATEMENTS OF CHANGES IN MEMBERS' DEFICIT
DECEMBER 31, 1999 AND 1998
Balance, November 17, 1998 [date of inception] $ -0-
Capital contributed 1,000
Net loss (54,721)
---------
Balance, December 31, 1998 (53,721)
Net loss (631,067)
---------
Balance, December 31, 1999 $(684,788)
=========
See auditors' report and accompanying notes
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WEBWIZARD II, LLC
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
For the period
For the November 17, 1998
year ended [date of inception]
December 31, to December 31,
1999 1998
------------ -------------------
Cash flows from operating activities
- ------------------------------------
Net loss $(631,067) $(54,721)
--------- --------
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation 23,815 437
Changes in assets and liabilities
Accounts receivable (4,727) -0-
Accounts receivable - related parties (3,225) -0-
Accounts payable and accrued expenses 51,863 18,076
Accrued expenses - related parties 250,551 1,725
Deferred revenue 11,875 -0-
--------- --------
Total adjustments 330,152 20,238
--------- --------
Net cash used by operating activities (300,915) (34,483)
--------- --------
Cash flows from investing activities
- ------------------------------------
Acquisition of property and equipment (25,143) (9,894)
--------- --------
Cash flows from financing activities
- ------------------------------------
Proceeds from notes payable - related parties 325,704 49,957
Proceeds of contributed capital -0- 1,000
--------- --------
Net cash provided by financing activities 325,704 50,957
--------- --------
Net increase (decrease) in cash (354) 6,580
Cash, beginning of period 6,580 -0-
--------- --------
Cash, end of period $ 6,226 $ 6,580
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid for interest $ -0- $ -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
- ------------------------------------------------------
During 1999, property and equipment totaling $84,752 was purchased under capital
lease obligations.
See auditors' report and accompanying notes
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WEBWIZARD II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
WebWizard II, LLC (the "Company" or "WW") licenses software, which is used to
create web sites. Additionally, the Company charges customers for hosting the
web sites developed using the Company's web site development software. The
Company's customer base includes both individuals and businesses located
throughout the United States.
Property and Equipment:
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
Depreciation is provided using both straight-line and accelerated methods over
the estimated useful lives of the assets, which are as follows:
Computer equipment 3 - 5 years
Office furniture and fixtures 5 - 7 years
Software Development Costs:
The Company expenses research and development costs as incurred. Statement
of Financial Accounting Standard No. 86 "Accounting for the costs of computer
software to be sold, leased or otherwise marketed" does not materially affect
the Company.
Income Taxes:
The Company is a Limited Liability Corporation (LLC) and is being taxed as a
partnership. In lieu of federal corporate income taxes, the members of the LLC
are taxed on their proportionate share of the Company's taxable income.
Therefore, no provision for federal, state or deferred income taxes have been
included in the financial statements.
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WEBWIZARD II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Revenue Recognition:
Revenue consists primarily of consulting services, licensing fees, and post
contract customer support. The Company accounts for such revenue in accordance
with the American Institute of Certified Public Accountants' (AICPA) Statement
of Position 97-2, "Software Revenue Recognition," as follows:
License revenue Revenue from the
license of software is
recognized after shipment
of the product and
fulfillment of acceptance
terms, provided no
significant obligations
remain and collection of
the resulting receivable is
deemed probable.
Installation, consulting and
education When services are provided.
Support contract Ratably over the life of
the contract from the
effective date.
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 and disclosures. Actual results could differ from
those estimates.
Advertising:
The Company's policy is to expense advertising costs as incurred. Advertising
expenses for the years ended December 31, 1999 and 1998, were approximately
$13,574 and $0, respectively.
NOTE B
ACCOUNTS RECEIVABLE
The Company does not have a secured interest in their accounts receivable. The
maximum accounting loss from the credit risk associated with accounts receivable
is the amount of the receivable recorded, which is the face amount of the
receivable.
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WEBWIZARD II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE C
COMMITMENTS AND CONTINGENCIES
Operating Leases:
The Company leases office space from a company owned by a member of the Company.
Rent expense for the office space was $42,983 and $0 for the years ended
December 31, 1999 and 1998, respectively.
At December 31, 1999, minimum future lease payments under non-cancelable leases
having remaining terms in excess of one year are as follows:
December 31, Amount
------------ ------
2000 $ 72,183
2001 57,746
2002 57,746
2003 57,746
2004 43,310
--------
$288,731
========
NOTE D
OBLIGATION UNDER CAPITAL LEASE - RELATED PARTY
The Company entered into a lease agreement for various property and equipment in
1999, with a company owned by a member of Webwizard. Amortization on the
equipment was $16,895 and $0 for the years ended December 31, 1999 and 1998,
respectively. The amortization is included in accumulated depreciation on the
balance sheet. The cost and accumulated amortization on the equipment are as
follows:
1999 1998
-------- ----
Cost $ 84,752 $-0-
Less: Accumulated amortization (16,895) -0-
-------- ----
$ 67,857 $-0-
======== ====
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WEBWIZARD II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Future minimum lease payments under capital leases as of December 31, 1999, for
each of the next five years and in aggregate are:
2000 $ 52,719
2001 33,296
2002 13,873
--------
Total minimum lease payments 99,888
Less amount representing interest (15,135)
-------
Present value of minimum lease payments 84,753
Current maturities of capital lease (41,258)
--------
Long-term capital lease less current maturity $ 43,495
========
NOTE G
NOTES PAYABLE - RELATED PARTIES
The Company has notes payable to employees of the Company. The notes are due on
demand and bear interest at a rate of 15% per annum. The balance of the notes
was $375,661 and $49,357 at December 31, 1999 and 1998, respectively. The notes
are unsecured. Interest expense on the notes was $38,759 and $1,725 for the
years ended December 31, 1999 and 1998, respectively. Accrued interest on the
notes at December 31, 1999 and 1998, respectively was $40,484 and $1,725, and
was included in accrued expenses - related parties on the balance sheets.
NOTE H
RETIREMENT PLAN
The employees of the Company may participate in a 401(K) savings plan whereby
employees may elect to make contributions pursuant to a salary reduction
agreement after meeting age and length-of-service requirements. The Company may
make a discretionary matching contribution. For the years ended December 31,
1999 and 1998, the Company did not make any matching contributions.
NOTE I
RELATED PARTY TRANSACTIONS
The Company had sales to several related companies, which have the same or
similar ownership structures. Sales to these related parties were $23,370 and $0
for the years ended December 31, 1999 and 1998, respectively. Additionally,
included in operating expenses are expenses incurred through transactions with
related parties totaling $186,234 and $9,598 for the years ended December 31,
1999 and 1998, respectively.
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WEBWIZARD II, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE J
DEVELOPMENT STAGE ENTERPRISE
During 1998, the Company was considered a development stage enterprise. In 1999,
the Company began licensing its software and stopped being a development-stage
enterprise.
NOTE K
ECONOMIC DEPENDENCY
Sales to AIM, your way web, Netvision and City Direct LLC were $41,372 for the
year ended December 31, 1999, and accounted for 55% of revenues.
NOTE L
SUBSEQUENT EVENTS
On January 1, 2000, the Company converted its organizational structure to a
Delaware C-corporation. Additionally, on January 20, 2000, the Company was
acquired by Grace Development, Inc. ("Grace") (OTC symbol GCDV)
-10-
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UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the Web Wizard Merger. The Web Wizard Merger was
accounted for under the purchase method of accounting in accordance with APB
Opinion No. 16. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Estimates of the fair values of the assets and
liabilities of Web Wizard have been combined with the recorded values of the
assets and liabilities of Grace in the unaudited pro forma combined condensed
consolidated financial statements.
The unaudited pro forma combined condensed consolidated balance sheet has been
prepared to reflect the Web Wizard Merger as if it occurred on January 1, 1999.
The unaudited pro forma combined condensed consolidated statements of operations
reflect the results of operation of Grace and Web Wizard for the year ended
December 31, 1999.
The unaudited pro forma condensed consolidated financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined condensed consolidated financial position or results of operations
in future periods or the results that actually would have been realized had
Grace and Web Wizard been a combined company during the specified periods. The
unaudited pro forma combined condensed consolidated financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements of Grace, included in its annual report on Form 10-K for the year
ended December 31, 1999.
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NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The pro forma combined condensed consolidated financial statements reflect the
issuance of 1,762,554 shares of Grace common stock, no par value. The pro forma
is prepared as if the organizational restructuring from a limited liability
company to a corporation has taken place as of December 31, 1999. The Web Wizard
Merger was accounted for under the purchase method of accounting in accordance
with APB Opinion No. 16. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Estimates of the fair values of the assets and
liabilities of Web Wizard have been combined with the recorded values of the
assets and liabilities of Grace in the unaudited pro forma combined condensed
consolidated financial statements.
PRO FORMA ADJUSTMENTS
(a) To reflect issuance of 1,762,554 shares of Grace common stock
in exchange for 100% of the outstanding common stock of Web
Wizard and to satisfy Web Wizard officer loans.
Management estimates the value of the 1,762,554 shares to be
$.40 per share. Management has allocated the purchase price to
the assets and liabilities acquired based upon their relative
fair values. The transaction generated goodwill and other
intangibles of $936,921, which will be amortized on a
straight-line basis over a five-year life.
Management continues to study the allocation of the purchase
price; upon completion of such study, the allocation may
change.
(b) To eliminate intercompany balances.
(c) To eliminate equity of Web Wizard.
(d) To reflect one year of amortization of goodwill and other
intangibles.
(e) To reflect incremental compensation related to employment
agreements.
(f) To reflect a reduction of interest expense due to the
satisfaction of officer loans.
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GRACE DEVELOPMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
Grace Development Web Wizard, Inc. Adjustments/ Consolidated
Inc. and subsidiaries Eliminations Statements
--------------------- ---------------- ------------ ------------
Current assets $ 4,040,550 $ 14,178(b) $ (50,000) $ 4,004,728
Property and equipment, net 2,397,889 95,538 2,493,427
Other assets 559,829 559,829
Goodwill and other purchased
Intangibles, net 600,547 (a) 973,665 1,574,212
------------ --------- ----------- ------------
Total Assets 7,598,815 109,716 923,665 8,632,196
============ ========= =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities 5,206,819 751,009(a) (416,145) 5,491,683
(b) (50,000)
Long-Term Debt 1,237,634 43,495 1,281,129
------------ --------- ----------- ------------
Total Liabilities 6,444,453 794,504 (466,145) 6,772,812
STOCKHOLDERS' EQUITY
Common Stock, no par value 4,270,195 - (a) 1,389,810 4,975,217
(c) (684,788)
Accumulated deficit (3,115,833) (684,788)(c) 684,788 (3,115,833)
------------ --------- ----------- ------------
Total Stockholders Equity (Deficit) 1,154,362 (684,788) 1,389,810 1,859,384
------------ --------- ----------- ------------
Total liabilities and stockholders'
equity $ 7,598,815 $ 109,716 $ 923,665 $ 8,632,196
============ ========= =========== ============
Common Stock issued and outstanding 73,871,895 1,762,554 75,634,449
============ ========= ============
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GRACE DEVELOPMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
Grace Development Web Wizard, Inc. Adjustments Consolidated
Inc. and subsidiaries Statements
--------------------- ---------------- ------------ ------------
Revenues 679,415 75,465 754,880
Operating expenses
Cost of Revenue 668,269 37,744
Sales and Marketing expenses 323,830 146,911 470,741
Research and development - 186,715 186,715
General and administrative expenses 2,313,825 291,356 (e) 165,000 2,770,181
Depreciation and amortization 341,412 - (d) 187,385 528,797
---------- -------- -------- ----------
3,647,336 662,726 352,385 3,956,434
Loss from operations (2,967,921) (587,261) (352,385) (3,201,554)
Other income (expense)
Interest income 42,189 42,189
Interest expense (169,360) (43,806)(f) (38,759) (174,407)
---------- -------- -------- ----------
(127,171) (43,806) (38,759) (132,218)
---------- -------- -------- ----------
Net loss (3,095,092) (631,067) (391,144) (3,333,772)
========== ======== ======== ==========
Net loss per share (0.07) (0.07)
========== ==========
Weighted average shares outstanding 44,367,250 46,129,804
========== ==========