SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 23, 2001 (April 11, 2000)
Empire Energy Corporation
----------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Utah 1-10077 87-0401761
--------------------------- ---------------------- -------------------
(State or other jurisdiction) (Commission file number) (IRS Employer ID No.)
7500 College Boulevard, Suite 1215
Overland Park, Kansas 66210
-------------------------------------- --------
(address of principal executive offices) (zip code)
(913) 469-5615
-----------------------------
(Registrant's telephone number,
including area code)
Item 2. Acquisition or Disposition of Assets
On April 11, 2000, Empire acquired substantially all the operating assets of,
and assumed certain liabilities of Talisman Marketing, Inc. in exchange for
562,150 shares of newly issued Empire common stock. The market value of the
common stock issued by Empire was determined to be $1,967,525 based on the
market closing price of $3.50 per share on the date of the acquisition. Fair
values of the operating assets and assumed liabilities were determined to be
similar to their book values. This acquisition will be accounted for as a
purchase and is a step to broaden the company's businesses from its dependency
on the natural resources industry.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
Audited financial statements of Talisman Marketing, Inc. are filed herewith for
years ending December 31, 1999 and 1998 and unaudited financial statements are
included for the three month periods ending March 31, 2000 and 1999.
(b) Pro forma Financial Statements
Pro forma financial information of Registrant and Talisman Marketing, Inc. are
filed herewith.
(c) Exhibits
2.04 Asset acquisition agreement.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by the
undersigned duly authorized officer.
Empire Energy Corporation
(Registrant)
Dated: March 23, 2001 By: /s/ Norman L. Peterson
---------------------------------
Norman L. Peterson,
Chairman
EMPIRE ENERGY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Attached are the historical audited financial statements of Talisman Marketing,
Inc. (Talisman) for the acquisition of the selected operating assets and
selected liabilities of Talisman by Empire Energy Corporation ("Empire") (a
development stage company). The unaudited pro forma consolidated condensed
financial statements have been prepared utilizing the historical financial
statements of Empire. The unaudited pro forma consolidated condensed financial
statements should be read in conjunction with the historical financial
statements of Empire on Form 10-KSB/A and the attached historical financial
statements of Talisman.
The following unaudited pro forma consolidated condensed statements of
operations for the year ended December 31, 1999, for the three months ended
March 31, 2000 and the unaudited pro forma consolidated condensed balance sheet
as of March 31, 2000 give effect to the acquisition of the selected operating
assets and liabilities of Talisman, including the related pro forma adjustments
described in the notes thereto. The unaudited pro forma consolidated condensed
statements of operations for the year ended December 31, 1999 and the three
months ended March 31, 2000 give effect to the acquisition by Empire as if the
acquisition, accounted for as a purchase, had occurred on January 1, 1999 for
the year ended December 31, 1999 and January 1, 2000 for the three months ended
March 31, 2000. The unaudited pro forma consolidated condensed balance sheet as
of March 31, 2000 gives effect to the acquisitions as if they had occurred on
March 31, 2000. The pro forma financial statements reflect the preliminary
allocation of the purchase price. The purchase price will be finalized upon the
completion of management's review and resolution of the purchase contingencies.
The unaudited pro forma consolidated condensed financial statements may not be
indicative of the results that actually would have occurred if the acquisitions
had been effective on the dates indicated or which may be obtained in the
future.
F-1
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
- ----------------------------------------------------------------------------------------------------
ASSETS
------
Unaudited
Historical March 31, 2000 Pro Forma
-------------------------- Pro Forma March 31,
Empire Talisman Adjustments 2000
----------- ----------- ----------- -----------
CURRENT ASSETS
Cash $ 126,723 $ 76,430 (a) $ (76,430) $ 126,723
Accounts receivable, net 57,773 15,193 (a) (15,193) 57,773
Inventories -- 210,099 -- 210,099
Prepaids and deposits 18,500 77,634 (a) (77,634) 18,500
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 202,996 379,356 (169,257) 413,095
PROPERTY AND EQUIPMENT, NET 8,462 94,852 (a) (18,841) 84,473
OIL AND GAS PROPERTIES, NET -- -- -- --
OTHER ASSETS:
Marketable securities -- 81,190 -- 81,190
Goodwill -- -- (b) 1,852,927 --
(c) (1,852,927)
Receivables related party 101,675 -- -- 101,675
----------- ----------- ----------- -----------
TOTAL ASSETS $ 313,133 $ 555,398 $ (188,098) $ 680,433
=========== =========== =========== ===========
LIABILITIES
-----------
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 17,745 $ 60,204 (a) $ (60,204) $ 17,745
Capital leases -- 18,841 (a) (18,841) --
Notes payable related parties 8,500 841,976 (a) (589,274) 261,202
Convertible debentures 25,000 -- -- 25,000
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 51,245 921,021 (668,319) 303,947
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
Common stock 12,140 1,970,758 (a) (1,970,758) 12,702
(b) 562
Additional paid in capital 4,299,833 760,390 (a) (760,390) 6,266,796
(b) 1,966,963
Accumulated other comprehensive
loss -- 46,704 (a) (46,704) --
Previous accumulated deficit (1,867,999) -- -- (1,867,999)
Accumulated deficit (2,182,086) (3,143,475) (a) 3,143,475 (4,035,013)
(c) (1,852,927)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 261,888 (365,623) 480,221 376,486
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 313,133 $ 555,398 $ (188,098) $ 680,433
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated condensed financial statements
F-2
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
------------------------------------------------------------
Pro Forma Unaudited
Empire Talisman Adjustments Pro Forma
------------ ------------ ------------ -----------
OIL AND GAS SALES $ 69,401 $ -- $ -- $ 69,401
MARKETING SALES -- 845,728 -- 845,728
EXPENSES
Lease operating 1,100 -- -- 1,100
Cost of sales -- 1,134,378 -- 1,134,378
Depreciation, depletion, amortization
and impairment 90,802 36,488 (c) 1,852,927 1,980,217
Interest, net 76,750 (5,265) -- 71,485
General and administrative 570,838 1,703,401 -- 2,274,239
------------ ------------ ------------ ------------
TOTAL EXPENSES 739,490 2,869,002 1,852,927 5,461,419
------------ ------------ ------------ ------------
OPERATING LOSS (670,089) (2,023,274) (1,852,927) (4,546,290)
Provision for income taxes -- (128,865) -- (128,865)
------------ ------------ ------------ ------------
Net Loss $ (670,089) $ (2,152,139) $ (1,852,927) $ (4,675,155)
============ ============ ============ ============
Net loss per common share (0.41)
============
Weighted Average Shares Outstanding 11,444,935
============
- -------------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated condensed financial statements
F3
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 2000
--------------------------------------------------------
Pro Forma Unaudited
Empire Talisman Adjustments Pro Forma
----------- ----------- ----------- -----------
OIL AND GAS SALES $ 122,053 $ -- $ -- $ 122,053
MARKETING SALES -- 86,916 -- 86,916
EXPENSES
Lease operating 2,032 -- -- 2,032
Cost of sales -- 130,645 -- 130,645
Depreciation, depletion, amortization
and impairment 1,682,822 9,007 (c) 1,852,927 3,544,756
Interest, net 6,700 6,793 -- 13,493
General and administrative 134,529 199,675 -- 334,204
----------- ----------- ----------- -----------
TOTAL EXPENSES 1,826,083 346,120 1,852,927 4,025,130
----------- ----------- ----------- -----------
OPERATING LOSS (1,704,030) (259,204) (1,852,927) (3,816,161)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net Loss $(1,704,030) $ (259,204) $(1,852,927) $(3,816,161)
=========== =========== =========== ===========
Loss Per Share:
Net loss per common share $ (0.32)
===========
Weighted Average Shares Outstanding 12,047,208
===========
- ---------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated condensed financial statements
F-4
EMPIRE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Acquisition of specified assets and liabilities of Talisman
On April 11, 2000, Empire entered into an agreement to acquire substantially all
the operating assets of, and assume certain liabilities of Talisman Marketing,
Inc. in exchange for 562,150 shares of newly issued Empire common stock.
The fair value of the common stock issued by Empire was determined to be
$1,967,525 based on the closing price of $3.50 per share on the date of the
agreement. Fair values of the operating assets and assumed liabilities were
determined to be similar to their book values. Due to the lack of historical
profitability, the excess of the fair value of the common stock issued over the
net fair value of the assets acquired will not be capitalized as goodwill but
will be impaired and immediately charged to operations. Because of this
immediate impairment, no additional adjustments will be made to operations
related to depreciation or amortization of asset values.
The unaudited pro forma adjustments are as follows:
a. To record the deletion from the balance sheet of assets not
specifically acquired, liabilities not specifically assumed and equity
of Talisman unaffected by this asset purchase transaction.
b. To record the issuance of common stock to purchase selected assets and
assume certain liabilities of Talisman under the purchase method:
Net assets acquired at fair value:
Current assets $ 210,099
Property and equipment 76,011
Other assets 81,190
Goodwill 1,852,927
Current liabilities (252,702)
-----------
$1,967,525
===========
Consideration comprised of 562,150 common shares
of Empire at $3.50 $1,967,525
==========
c. To record and charge against operations the impairment of the excess
of the fair value of the common stock issued over the fair value of
the net assets acquired.
F-5
EMPIRE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
Earnings per share:
The following is a reconciliation of historical to pro forma weighted average
shares outstanding:
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- --------------
Historical 10,882,785 11,485,058
Shares issued to acquire
Talisman (assumed to
be at beginning of period) 562,150 562,150
---------- ----------
Pro forma 11,444,935 12,047,208
========== ==========
Basic earnings per share of common stock was computed by dividing loss
applicable to common stockholders, by the weighted average number of common
shares outstanding for the year. Diluted loss per share is not presented because
all potential common shares are anti-dilutive.
F-6
The Board of Directors and Shareholders
Talisman Marketing, Inc.
Green Valley, Arizona
I was engaged to audit the accompanying balance sheets of Talisman Marketing,
Inc. as of December 31, 1999, and the related statements of operations,
stockholders equity and cash flows for the year then ended. These statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
These standards require that I 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 amount 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Talisman Marketing, Inc. as of December 31, 1999, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Robert W. Howell
-------------------------
Robert W. Howell
February 12, 2000 (except for Note 5, as to which date is April 24, 2000)
Wichita, Kansas
F-7
TALISMAN MARKETING, INC.
BALANCE SHEET
December 31, 1999
ASSETS
Current assets:
Cash $ 86,693
Accounts receivable 10,547
Inventories 295,493
Prepaid expenses 8,917
Deposits 20,000
Marketable securities Notes 1 and 4 89,556
-----------
Total current assets 511,206
Property and equipment, at cost Notes 1 and 3: 103,730
-----------
Total assets $ 614,936
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,326
Payroll and sales taxes payable 20,432
Accrued payroll 5,242
Capital leases, current Note 3 9,227
-----------
Total current liabilities 85,227
Longterm liabillities:
Capital leases Note 3 10,287
Other liabilities:
Advances from stockholders and affiliates Note 2 617,476
Stockholder's equity:
Common stock, no par or stated value:
100,000,000 shares authorized
3,362,900 shares issued and outstanding 1,970,758
Paid in capital 760,390
Retained earnings (deficit) (2,884,271)
Accumulated other comprehensive income Note 4:
Unrealized gain on securities classified as
available forsale 55,069
-----------
Total stockholders' equity (98,054)
-----------
Total liabilities and stockholder' equity $ 614,936
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-8
TALISMAN MARKETING, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
Sales $ 845,728
Costs and expenses:
Cost of sales $ 1,134,378
Consulting and professional services 229,686
Selling and administrative 1,473,715
Interest 6,812
Depreciation 36,488
-----------
Total costs and expenses 2,881,079
-----------
Net income (loss) from operations (2,035,351)
-----------
Other income (expense)
Interest 11,260
Other income 321
Gain on sale of securities 496
-----------
Total other income 12,077
-----------
Income (loss) before income tax expense (2,023,274)
Income tax expense Note 1:
Deferred (128,865)
-----------
Net income (loss) $(2,152,139)
===========
Loss per share $ (0.32)
===========
Weighted average shares outstanding 6,745,998
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-9
TALISMAN MARKETING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1999
Common Additional Retained
Stock Paid in Earnings
Amount Capital (Deficit)
----------- ----------- -----------
Balance, December 31, 1998 $ 639,677 $ 760,390 $ (732,132)
Net loss -- -- (2,152,139)
Common stock issued for cash 1,331,081
----------- ----------- -----------
Balance, December 31, 1999 $ 1,970,758 $ 760,390 $(2,884,271)
=========== =========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-10
TALISMAN MARKETING, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
Cash flows from operating activities:
Net income (loss) $(2,152,139)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation $ 36,488
Gain on sale of marketable securities (496)
Decrease in deferred income tax asset 128,865
Changes in assets and liabilities:
Accounts receivable 3,165
Inventories 263,524
Deposits and prepaid expenses 25,418
Accounts payable and accrued liabilities 42,169
Other (1,133)
-----------
Total adjustments 498,000
-----------
Net cash provided (used) by operating activities (1,654,139)
Cash flows from investing activities:
Purchase of equipment (7,961)
Proceeds from sale of equipment 27,798
Proceeds from sales of availableforsale securities 38,452
Purchase of availableforsale securities (34,488)
Advances from stockholders' and affiliates 307,362
-----------
Net cash provided (used) by investing activities 331,163
Cash flows from financing activities:
Principal payments of capital leases (20,965)
Proceeds from issuance of common stock 1,331,081
-----------
Net cash provided (used) by investing activities 1,310,116
-----------
Net increase (decrease) in cash (12,860)
Cash and equivalents, beginning of year 99,553
-----------
Cash and equivalents, end of year $ 86,693
===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 6,812
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-11
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operation
The Company may be described as a producer and marketer of consumer
oriented products, and has developed a marketing strategy to distribute its
products. The growth strategy of the Company is focused on creating a
marketing organization of Company licensed, independent distributors that
sell its products through a trained sales force. It is primarily engaged in
the health and wellness field through the sale of nutritional and medical
foods.
Accounting Method
The Company's policy is to present its financial statements on the accrual
method of accounting in accordance with generally accepted accounting
principles.
Uses of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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
these estimates.
Statement of Cash Flows
The Company considers all short term deposits with a maturity of less than
three months to be cash equivalents.
Concentration of Credit Risk
The Company has a large number of associates and customers dispersed over a
large geographic area (the entire U.S.). Its products are sold primarily
for cash or via credit card charges. No single associate or customer
accounts for a significant amount of the Company's sales, thus, there is no
concentration of credit. Likewise, credit card charge-backs are virtually
non-existent and insignificant. The Company does not expect to be
materially affected by any other inflationary or economic factors.
F-12
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by use of the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided for on the straight-line method over the following estimated
lives:
Furniture and equipment 5 to 10 years
Equipment under capital leases 5 to 7 years
When property is retired from service, the related cost and accumulated
deprecation are removed from the accounts and any resulting gain or loss is
included in income.
A summary of property and equipment is:
1999
Furniture and equipment $ 69,155
Computer equipment and software 130,739
---------
199,894
Accumulated depreciation 96,164
---------
Net $ 103,730
=========
Depreciation expense was $36,488 for the year.
Income Taxes
SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns, including net operating loss carryovers. There
are no timing differences between the financial statements and tax returns,
except for operating loss carryovers.
Net operating loss carryovers as of December 31, 1999, total $2,873,273.
The operating losses expire during the years 2001 to 2018.
F-13
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
In prior years the Company has provided for a deferred tax asset with the
expectation the asset would be utilized over the next several years. It has
now been determined the deferred tax assets will not be utilized.
Therefore, the amount is being charged to income tax expense in the current
year financial statements.
Financial instruments:
The fair values of cash and cash equivalents, accounts receivable,
marketable securities. accounts payable, accrued expenses and capital
leases approximate their carrying value due to the short-term nature of
these financial instruments.
Basic Loss Per Share:
Basic earnings per share of common stock was computed by dividing loss
applicable to common stockholders, by the weighted average number of common
shares outstanding for the year. Diluted loss per share is not presented
because all potential common shares are anti-dilutive.
2. RELATED PARTY TRANSACTIONS
Advances from stockholders and affiliates at December 31, 1999, were:
Stockholders $364,774
Affiliated company 252,702
--------
Total $617,476
========
3. LEASES
The Company leases office and warehouse facilities and equipment under both
capital and operating leases. Lease expense under operating leases was
$137,663.
F-14
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. LEASES (CONTINUED)
Some equipment is leased under agreements that are classified as capital
leases. The leases have purchase options at the end of the original lease.
Leased capital assets included in property and equipment at December 31,
1999:
Equipment $42,029
Accumulated amortization 16,743
-------
$25,286
=======
Future minimum payments, by year, under capital leases with remaining terms
of one year or more consisted of the following at December 31, 1999:
Capital
Leases
-------
2000 $11,268
2001 8,858
2002 2,513
-------
Total minimum lease payments 22,639
Less amount representing interest 3,125
-------
Present value of minimum lease payments $19,514
=======
4. COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, effective in 1998, requires disclosure of
comprehensive income to reflect changes in equity that result from changes
is equity and economic events from nonowner sources. Other comprehensive
income for the current year is from unrealized gain of securities
classified as available-for-sale.
5. SUBSEQUENT EVENT:
Effective April 11, 2000, the Company reached an agreement to sell its
certain of its assets to Empire Energy Corporation. The consideration to be
paid for the assets includes 562,150 shares of newly issued restricted
common stock of Empire and the assumption of certain liabilities.
F-15
The Board of Directors and Shareholders
Talisman Marketing, Inc.
Green Valley, Arizona
I was engaged to audit the accompanying balance sheets of Talisman Marketing,
Inc. as of December 31, 1998, and the related statements of operations,
stockholders equity and cash flows for the year then ended. These statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
These standards require that I 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 amount 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Talisman Marketing, Inc. as of December 31, 1998, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Robert W. Howell
------------------------------
Robert W. Howell
February 11, 1999
Wichita, Kansas
F-16
TALISMAN MARKETING, INC.
BALANCE SHEET
December 31, 1998
ASSETS
Current assets:
Cash $ 99,533
Accounts receivable 13,712
Inventories 559,016
Prepaid expenses 12,997
Deposits 41,338
Marketable securities Note 1 37,986
-----------
Total current assets 764,582
Property and equipment, at cost Notes 1 and 3: 159,235
-----------
Other assets:
Deferred income tax benefits Note 1 128,865
-----------
Total assets $ 1,052,682
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,603
Payroll and sales taxes payable 6,228
Capital leases, current Note 3 11,291
-----------
Total current liabilities 45,122
Longterm liabillities:
Capital leases Note 3 29,188
Other liabilities:
Advances from stockholders and affiliates Note 2 310,114
Stockholder's equity:
Common stock, no par or stated value:
100,000,000 shares authorized
6,225,000 shares issued and outstanding $ 639,677
Paid in capital 760,390
Retained earnings (deficit) (731,809)
-----------
Total stockholders' equity 668,258
-----------
Total liabilities and stockholder' equity $ 1,052,682
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-17
TALISMAN MARKETING, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
Sales $ 323,719
Costs and expenses:
Cost of sales $ 106,525
Consulting and professional services 231,476
Selling and administrative 589,105
Interest 4,755
Depreciation 30,683
-----------
Total costs and expenses 962,544
-----------
Income (loss) before income tax expense (638,825)
Income tax expense Note 1:
Deferred 93,979
-----------
Net income (loss) $ (544,846)
===========
Loss per share $ (0.13)
===========
Weighted average shares outstanding 4,117,630
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-18
TALISMAN MARKETING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1998
Common Additional Retained
Stock Paid-in Earnings
Amount Capital (Deficit)
--------- --------- ---------
Balance, December 31, 1997 $ 541,700 $ -- $ 186,962)
Net loss -- -- (544,846)
Common stock issued for cash 97,977 760,390 --
--------- --------- ---------
Balance, December 31, 1998 $ 639,677 $ 760,390 $(731,808)
========= ========= =========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-19
TALISMAN MARKETING, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1998
Cash flows from operating activities:
Net income (loss) $ (544,846)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation $ 30,683
Increase in deferred income tax asset (93,979)
Changes in assets and liabilities:
Accounts receivable 8,788
Inventories (448,151)
Deposits and prepaid expenses (50,255)
Accounts payable and accrued liabilities 31,480
-----------
Total adjustments (521,434)
-----------
Net cash provided (used) by operating activities (1,066,280)
Cash flows from investing activities:
Purchase of equipment (68,626)
Proceeds from sale of equipment --
Proceeds from sales of availableforsale securities --
Purchase of availableforsale securities (37,986)
Advances from stockholders' and affiliates net 358,492
-----------
Net cash provided (used) by investing activities 251,880
Cash flows from financing activities:
Principal payments of capital leases (6,824)
Proceeds from issuance of common stock 858,367
-----------
Net cash provided (used) by investing activities 851,543
-----------
Net increase (decrease) in cash 37,143
-----------
Cash and equivalents, beginning of year 62,390
-----------
Cash and equivalents, end of year $ 99,533
===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 4,755
===========
Equipment acquired by assumption of capital lease $ 32,139
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-20
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operation
The Company may be described as a producer and marketer of consumer
oriented products, and has developed a marketing strategy to distribute its
products. The growth strategy of the Company is focused on creating a
marketing organization of Company licensed, independent distributors that
sell its products through a trained sales force. It is primarily engaged in
the health and wellness field through the sale of nutritional and medical
foods.
Accounting Method
The Company's policy is to present its financial statements on the accrual
method of accounting in accordance with generally accepted accounting
principles.
Uses of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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
these estimates.
Statement of Cash Flows
The Company considers all short term deposits with a maturity of less than
three months to be cash equivalents.
Concentration of Credit Risk
The Company has a large number of associates and customers dispersed over a
large geographic area (the entire U.S.). Its products are sold primarily
for cash or via credit card charges. No single associate or customer
accounts for a significant amount of the Company's sales, thus, there is no
concentration of credit. Likewise, credit card charge-backs are virtually
non-existent and insignificant. The Company does not expect to be
materially affected by any other inflationary or economic factors.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by use of the first-in, first-out method.
F-21
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided for on the straight-line method over the following estimated
lives:
Furniture and equipment 5 to 10 years
Equipment under capital leases 5 to 7 years
When property is retired from service, the related cost and accumulated
deprecation are removed from the accounts and any resulting gain or loss is
included in income.
A summary of property and equipment is:
Furniture and equipment $ 80,025
Computer equipment and software 148,304
---------
228,329
Accumulated depreciation 69,094
---------
Net $ 159,235
=========
Depreciation expense was $30,683 for the year.
Income Taxes
SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns, including net operating loss carryovers. There
are no timing differences between the financial statements and tax returns,
except for operating loss carryovers.
Net operating loss carryovers as of December 31, 1998, total $856,519. The
operating losses expire during the years 2000 to 2014.
F-22
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
The deferred tax asset balances included in the financial statements at
December 31, 1998 are:
Deferred tax asset $257,730
Valuation allowance 128,865
--------
Net deferred tax asset $128,865
========
Financial instruments:
The fair values of cash and cash equivalents, accounts receivable,
marketable securities. accounts payable, accrued expenses and capital
leases approximate their carrying value due to the short-term nature of
these financial instruments.
Basic Loss Per Share:
Basic earnings per share of common stock was computed by dividing loss
applicable to common stockholders, by the weighted average number of common
shares outstanding for the year. Diluted loss per share is not presented
because all potential common shares are anti-dilutive.
2. RELATED PARTY TRANSACTIONS
Advances from stockholders and affiliates at December 31, 1998, were:
Stockholders $ 13,500
Affiliated company 296,614
--------
Total $310,114
========
3. LEASES
The Company leases office and warehouse facilities and equipment under both
capital and operating leases. Lease expense under operating leases was
$107,891.
Some equipment is leased under agreements that are classified as capital
leases. The leases have purchase options at the end of the original lease.
Leased capital assets included in property and equipment at December 31,
1998:
Equipment $ 57,609
Accumulated amortization 14,428
--------
$43,281
========
F-23
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. LEASES (CONTINUED)
Future minimum payments, by year, under capital leases with remaining terms
of one year or more consisted of the following at December 31, 1998:
Capital
Leases
--------
1999 $ 15,149
2000 15,149
2001 12,739
2002 5,783
--------
Total minimum lease payments 48,820
Less amount representing interest 8,341
--------
Present value of minimum lease payments $ 40,479
========
F-24
Introduction to Unaudited Financial Statements
In the opinion of management, the following unaudited combined financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of Talisman
Marketing, Inc. at March 31, 2000 and the results of its operations and changes
in cash flows for the three months ended March 31, 2000 and 1999.
F-25
TALISMAN MARKETING, INC.
BALANCE SHEETS
March 31, 2000 (Unaudited)
ASSETS
2000
-----------
Current assets:
Cash $ 76,430
Accounts receivable 15,193
Inventories 210,099
Prepaid expenses 7,634
Deposits 70,000
Marketable securities Notes 1 and 4 81,190
-----------
Total current assets 460,546
Property and equipment, at cost Notes 1 and 3: 94,852
-----------
Total assets $ 555,398
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,289
Payroll and sales taxes payable 22,915
Capital leases, current Note 3 9,227
-----------
Total current liabilities 69,431
Longterm liabillities:
Capital leases Note 3 9,614
Other liabilities:
Advances from stockholders and affiliates Note 2 841,976
Stockholder's equity:
Common stock, no par or stated value:
100,000,000 shares authorized
3,362,900 shares issued and outstanding 1,970,758
Paid in capital 760,390
Retained earnings (deficit) (3,143,474)
Accumulated other comprehensive income Note 4:
Unrealized gain on securities classified as available
for-sale 46,703
-----------
Total stockholders' equity (365,623)
-----------
Total liabilities and stockholder' equity $ 555,398
===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-26
TALISMAN MARKETING, INC.
STATEMENTS OF OPERATIONS
Three month periods Ended March 31, 2000 and 1999 (Unaudited)
2000 1999
---- ----
Sales $ 86,916 $ 211,432
Costs and expenses:
Cost of sales $ 130,645 $ 283,594
Selling and administrative 199,675 425,850
Interest 6,793 1,703
Depreciation 9,007 9,122
----------- -----------
Total costs and expenses 346,120 720,269
----------- -----------
Net income (loss) from operations (259,204) (508,837)
Other income (expense)
Interest -- 3,018
----------- -----------
Total other income -- 3,018
----------- -----------
Income (loss) before income tax expense (259,204) (505,819)
Income tax expense Note 1:
Deferred -- (32,216)
----------- -----------
Net income (loss) $ (259,204) $ (538,035)
=========== ===========
Loss per share $ (0.07) (0.15)
=========== ===========
Weighted average shares outstanding 3,362,900 3,540,000
=========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-27
TALISMAN MARKETING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 2000 and 1999 (Unaudited)
Common Additional Retained
Stock PaidiIn Earnings
Amount Capital (Deficit)
----------- ----------- -----------
Balance December 31, 1998 $ 639,677 $ 760,390 $ (732,132)
Net loss -- -- (538,035)
Common stock issued 332,770 -- --
----------- ----------- -----------
Balance March 31, 1999 $ 972,447 $ 760,390 $(1,270,167)
=========== =========== ===========
Balance December 31, 1999 $ 1,970,758 $ 760,390 $(2,884,271)
Net loss -- -- (259,204)
----------- ----------- -----------
Balance March 31, 2000 $ 1,970,758 $ 760,390 $(3,143,475)
=========== =========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
F-28
TALISMAN MARKETING, INC.
STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999 (Unaudited)
2000 1999
---- ----
Cash flows from operating activities:
Net income (loss) $(259,204) $(538,035)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation $ 9,007 $ 6,768
Gain on sale of marketable securities -- --
Decrease in deferred income tax asset -- 32,216
Changes in assets and liabilities:
Accounts receivable (4,646) 791
Inventories 85,393 65,881
Deposits and prepaid expenses (48,717) 6,355
Accounts payable and accrued liabilities (15,795) 10,542
Other -- --
--------- ---------
Total adjustments 25,242 122,553
--------- ---------
Net cash provided (used) by operating activities (233,962) (415,482)
Cash flows from investing activities:
Purchase of equipment (129) --
Proceeds from sale of equipment -- 7,109
Proceeds from sales of available-for-sale securities -- 874
Purchase of available-for-sale securities -- (80)
Advances from stockholders' and affiliates 224,500 76,840
--------- ---------
Net cash provided (used) by investing activities 224,371 84,743
Cash flows from financing activities:
Principal payments of capital leases (672) (5,241)
Proceeds from issuance of common stock -- 332,770
--------- ---------
Net cash provided (used) by investing activities (672) 327,529
--------- ---------
Net increase (decrease) in cash (10,263) (3,210)
Cash and equivalents, beginning of year 86,693 99,533
--------- ---------
Cash and equivalents, end of year $ 76,430 $ 96,323
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ -- $ 6,812
========= =========
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
F-29
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information,
refer to the audited financial statements for December 31, 2000 included
herein. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the three
month periods ended March 31, 2000 and 1999 and are not necessarily
indicative of the results that may be expected for the years ended December
31, 2001 and 2000.
Organization and Operation
The Company may be described as a producer and marketer of consumer
oriented products, and has developed a marketing strategy to distribute its
products. The growth strategy of the Company is focused on creating a
marketing organization of Company licensed, independent distributors that
sell its products through a trained sales force. It is primarily engaged in
the health and wellness field through the sale of nutritional and medical
foods.
Accounting Method
The Company's policy is to present its financial statements on the accrual
method of accounting in accordance with generally accepted accounting
principles.
Uses of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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
these estimates.
Statement of Cash Flows
The Company considers all short term deposits with a maturity of less than
three months to be cash equivalents.
F-30
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
The Company has a large number of associates and customers dispersed over a
large geographic area (the entire U.S.). Its products are sold primarily
for cash or via credit card charges. No single associate or customer
accounts for a significant amount of the Company's sales, thus, there is no
concentration of credit. Likewise, credit card charge-backs are virtually
non-existent and insignificant. The Company does not expect to be
materially affected by any other inflationary or economic factors.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by use of the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided for on the straight-line method over the following estimated
lives:
Furniture and equipment 5 to 10 years
Equipment under capital leases 5 to 7 years
When property is retired from service, the related cost and accumulated
deprecation are removed from the accounts and any resulting gain or loss is
included in income.
A summary of property and equipment is: 2000
Furniture and equipment $ 69,155
Computer equipment and software 130,739
---------
199,894
Accumulated depreciation 105,042
---------
Net $ 94,852
=========
Depreciation expense was $9,007 for the period.
F-31
TALISMAN MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns, including net operating loss carryovers. There
are no timing differences between the financial statements and tax returns,
except for operating loss carryovers.
Financial instruments:
The fair values of cash and cash equivalents, accounts receivable,
marketable securities. accounts payable, accrued expenses and capital
leases approximate their carrying value due to the short-term nature of
these financial instruments.
Basic Loss Per Share:
Basic earnings per share of common stock was computed by dividing loss
applicable to common stockholders, by the weighted average number of common
shares outstanding for the year. Diluted loss per share is not presented
because all potential common shares are anti-dilutive.
2. SUBSEQUENT EVENT
Effective April 11, 2000, the Company reached an agreement to sell its
certain of its assets to Empire Energy Corporation. The consideration to be
paid for the assets includes 562,150 shares of newly issued restricted
common stock of Empire and the assumption of certain liabilities.
F-32