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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended
March 31, 2001 Commission File No. 0-24903
SEEDLING TECHNOLOGIES CORPORATION
---------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 87-046052
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(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
519 SW Third Avenue, Suite 805, Portland, Oregon 97204
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (800) 893-8894
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Former name, former address and former fiscal year,
if changed since last report: N/A
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for a shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
As of May 22, 2001, there were 49,982,826 shares of Common Stock, $.001 par
value outstanding.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
SEEDLING TECHNOLOGIES CORPORATION
THE COMPANY DID NOT OBTAIN A REVIEW OF THESE INTERIM FINANCIAL STATEMENTS BY AN
INDEPENDENT ACCOUNTANT USING PROFESSIONAL REVIEW STANDARDS AND PROCEDURES,
ALTHOUGH THAT REVIEW IS REQUIRED BY PARAGRAPH (b) OF ITEM 310 OF REGULATION S-B.
INDEX
Condensed Consolidated Balance Sheets, as of March 31, 3
2001 (unaudited) and December 31, 2000 (unaudited)
Condensed Consolidated Statement of Operations For the 4
three months ended March 31, 2001 (unaudited) and
March 31, 2000 (unaudited)
Condensed Consolidated Statement of Cash Flows For the 5
three months ended March 31, 2001 (unaudited) and
March 31, 2000 (unaudited)
Condensed Consolidated Statement of Stockholder's Equity 6
For the three months ended March 31, 2001 (unaudited)
Notes to the Condensed Consolidated Financial Statements 7
2
SEEDLING TECHNOLOGIES CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
March 31, December 31,
2001 2000
------------------- -------------------
Assets
Current assets:
Cash and Cash Equivalents $ 277,090 $ 740
Accounts Receivable, net 35,042 -
Short-term Notes Receivable 128,400 115,763
Prepaid Taxes 86,321 -
Prepaid expenses and other current assets 160,794 11,617
------------------- -------------------
Total current assets 687,647 128,120
Property & Equipment, net 322,506 -
Investments 93,876 -
Goodwill, net 388,701 -
------------------- -------------------
Total Assets $1,492,730 $ 128,120
=================== ===================
Liabilities and Stockholders Deficit
Current liabilities:
Accounts payable 1,122,224 569,001
Notes Payable 9,130 -
Accrued payroll and related benefits 470,648 160,960
Accrued Interest Payable 48,000 48,000
Other Current Liabilities 45,968 43,455
Current maturities of long-term debt 155,941
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Total current liabilities 1,851,911 821,416
------------------- -------------------
Obligations under capital leases, net of current portion 4,688 -
Long-term debt, net of current portion 150,000 150,000
Minority Interest (8,881) -
------------------- -------------------
145,807 150,000
------------------- -------------------
Total liabilities 1,997,718 971,416
------------------- -------------------
Stockholders' Deficit
Preferred stock, $.001 par value; 5,000,000 authorized, no
shares issued and outstanding - -
Common stock, $.001 par value; 100,000,000 shares authorized,
49,982,826 and 6,876,779 shares issued and outstanding
at March 31, 2001 and 2000 respectively 49,983 6,885
Additional paid in capital 1,637,722 4,733,394
Treasury Stock (320,847) -
Stock in Escrow (36,563) (36,563)
Subscriptions (Receivable) Deposits (419,000) 129,244
Accumulated deficit (1,416,283) (5,676,256)
------------------- -------------------
Total stockholders' deficit (504,988) (843,296)
------------------- -------------------
Total liabilities and stockholders deficit $1,492,730 $ 128,120
=================== ===================
See accompanying notes to financial statements.
3
SEEDLING TECHNOLOGIES CORPORATION
Condensed Consolidated Statement of Operations (Unaudited)
Three Months Ended
2001 2000
--------------------- ----------------------
Revenues
Service Income $ 39,892 $ -
Gains from sale of Investment Assets 354,056 -
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Total revenue 393,948 -
Cost of Service 63,147 -
--------------------- ----------------------
Gross Profit 330,801 -
Expenses:
Operations 48,619 -
General and administrative 374,821 254,548
Selling and Marketing 22,405 -
Depreciation and amortization expense 22,176 -
--------------------- ----------------------
Total expenses 468,021 254,548
--------------------- ----------------------
Loss from operations (137,220) (254,548)
Other Income (expense)
Interest Income 844 -
Interest Expense (605) -
Other Expense (77,323) -
Other Income 1,947 -
Minority Interest in Net Loss 1,690 -
--------------------- ----------------------
Loss before income taxes (210,667) (254,548)
Provision for income taxes - -
--------------------- ----------------------
Net loss attributable to common stockholders $ (210,667) $ (254,548)
Other Comprehensive Income (loss)
Unrealized gains (losses) on securities (31,757) $ 22,900
Foreign Currency Translation Adjustments 4,521 -
--------------------- ----------------------
$ (237,903) $ (231,648)
===================== ======================
Basic and diluted loss per share $(0.01) $ (0.05)
--------------------- ----------------------
Weighted-average common shares outstanding 28,424,193 4,637,729
===================== ======================
See accompanying notes to financial statements.
4
SEEDLING TECHNOLOGIES CORPORATION
Statements of Cash Flows (Unaudited)
Three Months ended
March 31, March 31,
2001 2000
------------------- --------------------
Cash flows from operating activities:
Net Loss $ (237,903) $ (231,648)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 22,176 -
Minority Interest (8,881)
Changes in operating assets and liabilities net of effects from
purchase of Subsidiaries
Accounts Receivable 247 -
Short term Notes Receivable 25,036 -
Prepaid and other assets (28,879) -
Accounts payable and accrued liabilities (55,145) (80)
Notes Payable (27,813) -
Compensation and employee benefits (33,083) 252,517
Other liabilities 4,245 179,691
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Net cash provided (used) in operating activities (340,000) 200,480
------------------- --------------------
Cash flows from investing activities:
Investments - available for sale (4,699) (202,829)
Payment for acquisitions of subsidiaries, net of cash received (123,570) -
Purchase of property and equipment (2,298) -
------------------- --------------------
Net cash provided (used) in investing activities (130,567) (202,829)
------------------- --------------------
Cash flow from financing activities:
Proceeds from issuance of common stock net 1,589,538 137,000
Repayment of long-term debt and capital leases (162,809) -
Acquisition of treasury Stock (320,847) -
Subscriptions Receivable (358,965) -
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Net cash provided by financing activities 746,917 137,000
------------------- --------------------
Net increase in cash 276,350 134,651
Cash and Cash Equivalents beginning of period 740 6,565
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Cash and Cash Equivalents ending of period $ 277,090 $ 141,216
=================== ====================
See accompanying notes to financial statements.
5
SEEDLING TECHNOLOGIES CORPORATION
Consolidated Statement of Stockholders' Deficit (Unaudited)
Period from December 31, 2000 to March 31, 2001
Common Additional Retained Treasury Subscription Stock In
Shares stock Paid-in Capital Earnings Stock Receivable escrow Total
---------- -------- --------------- ---------- --------- ----------- ---------- ----------
Predecessor Balance
at December 31, 2000 6,876,779 6,877 493,379 (1,178,380) - (678,124)
Sale of Common Stock 1,182,874 1,183 235,392 (49,922) 186,653
Issuance of common
stock for acquisitions 124,163 124 307,832 307,956
---------- -------- ---------- ---------- --------- ---------- --------- ----------
Balance at February 24, 2001 8,183,816 8,184 1,036,603 (1,178,380) - (49,922) (183,515)
Effect of reverse acquisition (261,519) (261) (927,316) (369,078) (36,563) (1,333,218)
Issuance of shares in
connection with the
acquisition of Seedling
Technology Ventures 40,968,867 40,968 710,780 751,748
Sale of Common Stock 1,091,662 1,092 817,655 (320,847) 497,900
Net loss (237,903) - - (237,903)
---------- -------- ---------- ---------- --------- ---------- --------- ----------
Balance at March 31, 2001 49,982,826 $ 49,983 $1,637,722 (1,416,283) $(320,847) $ (419,000) $ (36,563) $ (504,989)
========== ======== ========== ========== ========= ========== ========= ==========
See accompanying notes to financial statements.
6
SEEDLING TECHNOLOGIES CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company
Seedling Technologies Corporation (Seedling or the Company) has traditionally
operated in the buying, selling and installation of computer, communications and
industrial networks, predominantly in the People's Republic of China (PRC)
though offices in the United States, Hong Kong and the PRC. On February 20, 2001
the Company completed a Securities Exchange Agreement ("Agreement") with the
shareholders of Seedling Technology Ventures, Inc., ("Ventures") an Oregon
Corporation incorporated in June 1999 in which Seedling acquired all of the
issued and outstanding shares of Ventures. In connection with the Agreement,
Seedling issued 40,968,051 common shares to Venture's shareholders representing
approximately 85% of Brighton's common stock and common stock equivalents. For
accounting purposes, Ventures is the deemed accounting acquirer, and its
acquisition has been accounted for under the purchase method of accounting.
Seedling and its consolidated subsidiaries develop and operate technology
companies and projects. Seedling identifies technology projects and acts as a
catalyst for them to grow and prosper. Our client projects take various courses,
from consulting engagements through outright acquisition of companies.
Seedling's consultative projects assist our client companies in preparations for
fundraising, structuring their balance sheets, perfecting their technology
plans, choosing appropriate business paths, and assisting them in creating
liquidity and revenues. Seedling also assists select clients in raising funds
from private and institutional sources. We only assist projects in gaining
funding when we believe these projects are well positioned for growth and
profitability.
Seedling also will acquire a project, where our analysis of the strategic value
of the project and available cash resources provide an opportunity to maximize
the value of the project. Seedling expects to make additional acquisitions as
market conditions allow. Often upon completion of an acquisition, the new
subsidiary requires an immediate capital infusion. In these instances, Seedling
either provides the capital, or seeks outside funding sources. In the event
Seedling itself provides that cash, it may be structured either as paid-in
capital or short-term bridge debt for the subsidiary. As wholly owned
subsidiaries develop we may utilize these as a platform for additional
acquisitions in related markets, or sell them to other parties engaged in
complimentary businesses. The Company's strategy also envisions and promotes
opportunities for synergistic business relationships among its companies.
Significant Accounting Policies
Principles of consolidation and organization
The accompanying consolidated financial statements include the accounts of
Seedling its wholly-owned subsidiaries, Brighton Electronics Corporation Limited
("BECL"), a Hong Kong company BAA SouthernPlanet ("SouthernPlanet"), and its
majority-owned subsidiary, e-Ference, Inc. The consolidated financial statements
include all
7
of Seedling's subsidiaries and partnerships in which the Company has a
controlling interest. Investments in companies over which the Company has
influence but not a controlling interest are accounted for using the equity
method. All inter company accounts and transactions are eliminated in
consolidation.
BECL is located in and incorporated in Hong Kong and is an investment and
holding company for PRC entities. BECL's entities, which include two joint
ventures, are involved in the buying, selling and installation of computer,
communications and industrial equipment. The Company accounts for its equity
interest in Brighton - STAQ under the equity method of accounting as control was
not held by the Company.
BAA SouthernPlanet, a Delaware corporation, was acquired by Seedling in a stock
merger that was effective January 31, 2001. The company's principal operations
are in Latin America where it operates SouthernPlanet, LTD, a Chilean Company.
SouthernPlanet is a technology integrator that provides comprehensive,
integrated network and Internet solutions to businesses in Latin America
(primarily Chile) with services focused on the small and medium-sized business
market. SouthernPlanet offers infrastructure services that produce reoccurring,
contracted revenue streams and aims to capitalize on the rapid expansion of
Internet growth in Latin America, where Internet penetration is still relatively
low while efficiency needs driving businesses to the Internet are high.
On March 1, 2001 Seedling Technology Ventures, Inc. acquired a 70% interest in
e-Ference, Inc., a software development company based in Oregon. E-ference's
primary product is LANscaperTM, a computer network-mapping tool. LANscaperTM
produces a dynamically updating, automatically-generated map of a particular
subnet, which places the entire network topology at the administrator's
fingertips.
Basis of Presentation
The unaudited condensed consolidated interim financial statements reflect all
adjustments (which include only normal, recurring adjustments), which are, in
the opinion of management, necessary to state fairly the results for the periods
presented. The results for the three months ended March 31, 2001 are not
necessarily indicative of the results expected for the full fiscal year or for
any future period. The unaudited historical financial statements included herein
have been prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include all information and footnotes necessary for a complete
presentation of the Company's results of operations, financial position and cash
flows. These financial statements should be read in conjunction with the
consolidated financial statements and related note included in the Company's
Annual Report on Form 10-KSB for the years ended December 31, 1999 and 1998.
Use of Estimates and Assumptions
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
8
Foreign Currencies
For BECL subsidiaries, whose functional currency is the Hong Kong Dollar or the
PRC Renminbi, and for BAA SouthernPlanet subsidiaries whose functional currency
is the Chilean Peso, balance sheet accounts are translated at exchange rates in
effect at the end of the year and income statement accounts are translated at
average exchange rates for the year. The Company does not enter into foreign
currency forward exchange contracts to hedge foreign currency exposures.
Cash Equivalents
Seedling considers all highly liquid debt instruments with maturity of three
months or less at the date of purchase to be cash equivalents
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
respective assets or the term of the lease, if shorter. Estimated useful lives
of furniture and equipment range from three to five years. When assets are sold
or otherwise retired, the cost and related accumulated depreciation are removed
from the accounts, and the resulting gain or loss is included in operations.
Revenue Recognition
Seedling generates revenue from fees for professional services and from the
realization of investments made in other companies. Seedling bills for its
services on a fixed-fee basis on completion of the project. Contingent fee
arrangements are based on the capital or loan raises effected by Seedling on
behalf of it's clients, and revenue is recognized when a fee is earned based on
the completion of the fund raising round for a client, and the amount of revenue
is reasonably estimable.
Revenue also consists of monthly fees for Internet connection, server hosting,
systems administration, application rentals, and web-site management services.
Revenue for these services (other than installation fees) is generally billed
and recognized monthly as service is provided, over the term of the contract,
generally one to three years, based on actual usage. Installation fees are
typically recognized at the time the installation occurs.
Income Taxes
Seedling utilizes the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
recorded to adjust net deferred tax assets to the amount which management
believes will more likely than not be recoverable. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
9
Concentration of Credit Risk
Financial instruments that subject Seedling to concentrations of credit risk
consist primarily of notes receivable under contracts from customers. The
Company's clients are primarily technology companies. Concentrations of credit
risk with respect to receivables are limited due to Seedling's credit evaluation
policy and the nature of its clients. Historically, the Company has not required
collateral or incurred significant credit related losses. Seedling maintains its
cash accounts primarily with one bank. The total cash balances are insured by
the F.D.I.C.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, notes receivable,
accounts receivables and accounts payable, approximate fair value due to the
short-term nature of these instruments. The market interest rates, which the
company could obtain on notes payable and long-term debt, are not readily
determinable.
Investments
Marketable securities held by Seedling, which meet the criteria for
classification as available-for-sale, are carried at fair value, net of market
discount to reflect any restrictions on transferability. Unrealized holding
gains and losses on securities classified as available-for-sale are carried as a
component of accumulated other comprehensive loss in stockholders' deficit.
Other investments in which the Company's interest is less than 20% and which are
not classified as available-for-sale securities are carried at the lower of cost
or net realizable value unless it is determined that Seedling exercises
significant influence over the investee company, in which case the equity method
of accounting is used.
Seedling assesses the need to record impairment losses on investments and
records such losses when the impairment of an investment is determined to be
more than temporary in nature.
Stock-Based Compensation
The Company accounts for stock compensation to employees under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Compensation related to stock options is the difference between the grant
price and the fair market value of the underlying common shares at the grant
date. Generally, Seedling issues options to employees with a grant price equal
to or greater than the market value of the common stock on the grant date.
Accordingly, no compensation expense has been recognized related to stock option
plans.
Goodwill and Other Intangibles
Goodwill represent the excess of the purchase price of acquired companies over
the estimated fair value of the tangible and intangible net assets acquired.
Goodwill and other intangible assets are being amortized on a straight-line
basis principally over the periods expected to be benefited, ranging from two to
five years.
10
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of assets may not be
recoverable. Recoverability of assets to be held is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Earnings (Loss) Per Share
Basic loss per share excludes the dilutive effects of options and convertible
securities, if any, and is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. For the periods reported, there were no differences between basic and
diluted earnings per share.
Comprehensive Income
Components of comprehensive income include net earnings (loss), foreign currency
translation adjustments, unrealized gains and losses on available-for-sale
securities, changes in minimum pension liability, and any other items, which are
recorded directly against equity. The company reports comprehensive income in
the Consolidated Statements of Stockholders Deficit.
Segment Reporting
Seedling has adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS"
131"). SFAS 131 supersedes SFAS 14, Financial Reporting for Segments of a
Business Enterprise, replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal reporting
that is used by management for making operating decisions and assessing the
performance as the source of Seedling's reportable segments. The adoption of
SFAS 131 did not have an impact for the reporting and display of segment
information as Seedling operates in one business segment.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
which is effective for financial statements for all fiscal quarters of all
fiscal quarters beginning after June 15, 2000. SFAS No. 133 requires the
recognition of all derivatives as either assets or liabilities in the Company's
balance sheet and measurement of those instruments at fair value. To date,
Seedling has not entered into any derivative or hedging activities, and, as such
does not expect that the adoption of SFAS No. 133 did not have a material effect
on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB 101") that broadly addresses how
companies report revenues in their financial statements. The adoption of SAB 101
did not have a material impact on the Company's financial position or the
results of operations.
11
In March 2000 the Financial Accounting Standards Board issued Interpretation No
44 (FIN 44), "Accounting for Certain Transactions involving Stock Compensation,
an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of APB
No 25. for certain issues, including the definition of an employee, the
treatment of the acceleration of stock options and the accounting treatment for
options assumed in business combinations. FIN 44 became effective on July 1,
2000 but is applicable for certain transactions dating back to December 1998.
The adoption of FIN 44 did not have a material impact on the Company's financial
position or the results of operations.
Stockholders' Equity
Private Placements
During the month of February 2001 the company issued an aggregate of 1,037,641
shares in connection with a private sale of our securities. Each investor
represented to us that they were "accredited investors." The shares were issued
under the exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended.
On February 20, 2001 the company issued an aggregate of 40,968,051 shares of
common stock in connection with the acquisition of Seedling Technology Ventures,
Inc. Mr. Douglas Spink, Seedling's Chief Executive Officer and Chairman,
received 24,404,657 shares and Mr. Paul Peterson, Seedling's President and
Director, received 625,760 shares. The issuance of these shares was claimed to
be exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) of said Act.
On March 9, 2001 the company sold to Stonepath Group, Inc. 1,091,662 shares of
common stock for $0.75 per share. Stonepath paid $452,900 in cash and forgave a
total of $320,847 in indebtedness and claims against Seedling Technology
Ventures, Inc. and its shareholders. Stonepath represented to us that they were
an "accredited investor." The shares were issued under the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
Concurrently 427,796 shares held by Douglas B. Spink were returned into the
company's treasury as payment for his obligations to Stonepath included in their
forgiveness.
Stock Issued for Services
During 2000, Seedling entered into an agreement and a subsequent amendment, with
Synergistic Connections, a consulting firm, and its principal Jeff Dunster for
fund raising advisory services in return for the issuance of 100,000 shares of
common stock to Synergistic Connections. The values ascribed to the shares were
based on the fair market value of the Company's stock on the agreement date.
During 2000, Seedling entered into an agreement and a subsequent amendment, with
Komatsu Investments a consulting firm, and its representatives Jeff Dunster and
Darrell Fox, for fund raising advisory services in return for the issuance of
295,000 shares of common stock to Komatsu Investments. The values ascribed to
the shares were based on the fair market value of the Company's stock on the
agreement date.
12
Stock Purchase Warrants
On March 13, 2000, Seedling entered into an agreement with Synergistic
Connections, a consulting firm and its principal Jeff Dunster for fund raising
advisory services in return for the issuance of 1 common stock purchase warrant
(the "Warrants") raised. The Warrants are exercisable into 175,000 of the
Company's common shares at any time and from time to time and in whole or in
part from the exercise date until (a) as to 87,500 shares, March 13, 2002 and
(b) as to 87,500 March 13, 2003. The exercise price is $0.25 per share.
On March 13, 2000, Seedling entered into an agreement with Corporate Dynamics, a
consulting firm and its principal Darrell Fox for fund raising advisory services
in return for the issuance of 1 common stock purchase warrant ("the Warrants")
raised. The Warrants are exercisable into 175,000 of the Company's common shares
at any time and from time to time and in whole or in part from the exercise date
until (a) as to 87,500 shares, March 13, 2002 and (b) as to 87,500 March 13,
2003. The exercise price is $0.25 per share
13
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the Condensed
Consolidated Financial Statements and notes thereto and other information set
forth in this report.
OVERVIEW
Seedling Technologies Corporation (Seedling or the Company) has traditionally
operated in the buying, selling, and installation of computer, communications,
and industrial networks, predominantly in the PRC though offices in the United
States, Hong Kong and the PRC. On February 20, 2001 the Company completed a
Securities Exchange Agreement ("Agreement") with the shareholders of Seedling
Technology Ventures, Inc. ("Ventures"), an Oregon Corporation incorporated in
June 1999, in which Seedling acquired all of the issued and outstanding shares
of Ventures. In connection with the Agreement, Seedling issued 40,968,051 common
shares to Venture's shareholders representing approximately 85% of Seedling's
common stock and common stock equivalents. We also changed our corporate name to
Seedling Technologies Corporation. For accounting purposes, Ventures is the
deemed accounting acquirer, and its acquisition has been accounted for under the
purchase method of accounting.
Seedling and its subsidiaries develop and operate technology companies and
projects. The company identifies technology projects and acts as a catalyst for
them to grow and prosper. Our client projects take various routes, from
consulting engagements through outright acquisition of companies.
Seedling's consultative projects assist our client companies in preparing
themselves for fundraising rounds, structuring their balance sheets, perfecting
their technology plans, choosing appropriate business paths, and assisting them
in creating liquidity and revenues.
Seedling also assists select clients in raising funds from private and
institutional sources. We assist only assist projects in gaining funding when we
believe these projects are well positioned for growth and profitability.
Seedling also will seek to acquire a project if our analysis of the strategic
value of a project and available cash resources provide an opportunity to
maximize the value of the project. Seedling expects to make additional
acquisitions as market conditions allow. Often upon completion of an
acquisition, the new subsidiary requires an immediate capital infusion. In these
instances, Seedling either provides the capital or seeks outside funding
sources. In the event Seedling itself provides that cash, it may be structured
either as paid-in capital or short-term bridge debt for the subsidiary. As
wholly owned subsidiaries develop, we may utilize these as a platform for
additional acquisitions in related markets, or sell them to other parties
engaged in complimentary businesses. Our strategy also envisions and promotes
opportunities for synergistic business relationships among its companies
Our operations consist solely of the business of Seedling Technologies and its
subsidiaries. Our subsidiaries consist of the following businesses:
14
We wrote off essentially all of the operations of the former Brighton and its'
wholly owned subsidiary, BECL, as a result of the actions of previous management
in dissipating those operations. Current management is seeking to recover some
of these operations and related assets through the lawsuit filed March 26, 2001.
SouthernPlanet.com is a technology integration that provides comprehensive
integrated network and Internet solutions to businesses in Latin America
(primarily Chile) with services focused on the small and medium sized business
market.
E-Ference, Inc., a network management software developer has developed a simple
and effective solution to the growing need of small business network management.
Their product, LANscaper, provides an effective tool for small network managers
to better manage their network. LANscaper produces a computer-generated map of a
network, which places an entire network at an administrator's fingertips and
gives a user the ability to view and manage a network from a single server.
Period Ended March 31, 2001 Compared With the Period Ended March 31, 2000
RESULTS OF OPERATIONS
Revenues
Revenues for the period ended March 31, 2001 were $393,948 compared to $0 for
the same period in 2000. Revenues associated with SouthernPlanet's integrated
network and Internet solutions were $39,892 for the two months from the date of
acquisition. We expect revenue from SouthernPlanet to increase monthly for 2001.
Revenue consists of monthly fees for Internet connection, server hosting,
systems administration, application rentals and Web site management services.
Revenue for these services (other than installation fees) is generally billed
and recognized monthly as service is provided, over the term of the contract,
generally one to three years, based on actual usage. Installation fees are
typically recognized at the time the installation occurs.
Gains from sales of investments we held were $354,056, which represented sales
on stock in Webmodal and Stonepath. These gains are net of our cost of initial
investment.
15
Cost of Sales
Cost of Sales for the period ended March 31, 2001 was $63,147 compared to $0 for
the same period in 2000. Costs to deliver SouthernPlanet's integrated network
and Internet solutions were $53,862 for the two months from the date of
acquisition, which represented a Cost of Service of 135% of revenues. We have
invested in Internet and service capability, which is excess to our current
customers needs. We expect this capacity to be sold by increasing our customer
base.
There was $9,285 in expenses associated with the sale of Webmodal stock, which
represented a cost of sale of 5% of gross proceeds.
General and Administrative
Our general and administrative expenses were $423,440 for the period ended March
31, 2001 compared to $254,548 for the same period in 2000. Salaries and related
expenses is the Company's biggest expense at $199,491 or 47.1% of total General
and Administrative expenses for 2001. Of the expenses incurred in 2000, $252,500
was salaries and benefits.
SouthernPlanet continues to invest in infrastructure to support both the
internal administrative and operational needs of the company as well as
solutions and infrastructure for our customers. General and administrative costs
for the period were $51,756 compared to $0 for the same period in 2000,
including salaries and benefits of $40,664. We continue to incur costs to build
our infrastructure in Latin America as well as legal and accounting fees and
technical costs including such items as web development, installation and
maintenance of our servers and communications technology.
Seedling's general and administrative expenses were $366,184 for the period
ended march 31, 2001 including salaries and benefits of $158,829. Much of our
focus on the first quarter was to stabilize our operations and infrastructure
that was in such disarray when the new management team took over.
Professional fees were $119,867 or 28.3% of general and administrative expenses
for the period ended March 31, 2001. We had not filed regulatory reports for
1998, 1999 or 2000 and incurred substantial costs associated with the process of
dealing with these delinquent periods. We have changed stock transfer agents and
determined that the unpaid fees were not recorded or paid by the previous
management team. Additional legal expenses have been and will continue to be
incurred in our efforts to recover our assets misappropriated by the previous
management team. We have created a public relations budget and incurred
approximately $12,000 in our communication to stockholders and the public of our
activities and achievements during the period. We will continue to utilize the
media and public relations firms to promote us in the marketplace.
Rent expense was $17,275 for the period ended March 31, 2001. We opened an
office in Portland and relocated our headquarters in November 2000 and our
expense for the period represent expenses associated with this office.
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Travel and related expenses were $31,523 or 7.4% of general and administrative
expenses for the period ended March 31, 2001. Our operations now include Latin
America, which has increased our travel costs.
Selling and Marketing
Our selling and marketing expenses for the period ended March 31, 2001 were
$22,405 compared to $0 in the same period in 2000. Of this, SouthernPlanet
incurred $21,068. We will continue to budget selling and marketing expenses for
our operations in all subsidiaries and expect these to decrease as a ratio to
revenues over time as our monthly revenues grow.
Other Income and Expense
Our other income and expenses for the period ended March 31, 2001 was $73,447
compared with $0 for the same period in 2000. Of this, $77,323 was classified as
other expense and represented the settlement of a legal dispute.
Net Loss
The net loss for the three months ended March 31, 2001 was $(210,667) or $0.01
per common share (basic and diluted) as compared to $(254,548) or $0.05 per
common share (basic and diluted) for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the past two years, our working capital needs have been satisfied primarily
through our private placement of securities and our borrowings from
shareholders. We reasonably expect to continue to raise operating cash through
private placements in the future. As of March 31, 2001 we had cash and cash
equivalents of approximately $277,000, compared to $740 at December 31, 2000.
Net cash used in operating activities was $340,000 for the three months ended
March 31, 2001 compared with net cash from operating activities of approximately
$200,00 for the corresponding period ended March 31, 2000. The increase in cash
expenditures was related to an increase in G&A and operating expenses as we
expanded our business activities. We hired additional staff, moved to larger
office space and increased investment in working capital compared to the three
months ended March 31, 2000. Changes in our operating assets were the results of
increases in funding, business receipts and prepayments of taxes and other
expenses. During the first quarter of 2001 we acquired Seedling Technology
Ventures Inc., SouthernPlanet and e-Ference, Inc. and their operations used cash
during this period.
Net cash used in investing activities was approximately $130,000 and $203,000
for the three-month periods ended March 31, 2001 and 2000 respectively. Cash
expenditures on investments available for sale decreased and purchase of
property and equipment increased as compared to the similar period in 2000. We
used funds to invest in the acquisition of subsidiaries as investment focus
shifted from minority investments in affiliates to majority interest in target
companies.
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Net cash provided by financing activities was approximately $747,000 and
$137,000 for the three-month periods ended March 31, 2001 and 2000 respectively.
We raised approximately $1,269,000 net of transaction costs and treasury stock
through the private placement of our stock. We reduced our long-term debt, and
collected subscriptions receivable from private placements of our stock.
We incurred net losses of approximately $238,000 and $233,000 for the
three-month periods ended March 31, 2001 and 2000 respectively. At March 31
2001, we had an accumulated deficit of approximately $1.4 million. The
accumulated deficit was that of Seedling Technology Ventures Inc., from its
inception up to our purchase of the company. Approximately $124,000 of the net
losses was attributable to SouthernPlanet. The remainder was incurred by the
parent company as we built out the infrastructure, pursued acquisitions and
recorded expenses associated with our recently discovered financial
irregularities on the part of previous management. We do not foresee having to
make any more substantial investment in our infrastructure. Furthermore we do
not foresee any major changes in our operating expenses moving forward and are
continually reviewing our costs to make sure that we do not incur costs that do
not contribute towards our profitability. We plan on investing in more companies
the rest of this year with the goal of creating liquidity events that will
result in positive cash flow for the company. However there can be no assurance
that we will achieve profitability or that our operating losses will not
increase in the future.
We do not have any long-term commitments that currently require a specified
capital budget other than normal operations. We believe that current cash, cash
equivalents and marketable securities balances will be sufficient to meet our
anticipated operating cash needs for at least the next 12 months. With our
current base of revenue generating activities, we believe that we will be able
to continue to direct our effort towards profitability. We have determined that
we may also need to seek additional capital to sustain our operations, fund
expansion of our business, to develop new or enhanced services or products, to
respond to competitive pressures or to acquire new affiliates which might impact
our liquidity requirements or cause us to issue additional equity or debt
securities. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all. We continually evaluate
opportunities to sell additional equity or debt securities, obtain credit
facilities from lenders for strategic reasons or to further strengthen our
financial position. The sale of additional equity or convertible debt securities
could result in additional dilution to our stockholders.
We cannot assure you that we will be able to achieve and sustain positive cash
flow or profitability or that we will have other sources available to provide
the financial resources necessary to continue our operations. If we are
unsuccessful in generating resources from one or more of the aforementioned
sources and are unable to replace any shortfall with resources from another
source, we may be able to extend the period for which available resources would
be adequate by deferring the creation or satisfaction of various commitments,
deferring the acquisition of affiliates, and otherwise scaling back operations.
If we were unable to generate the required resources, our ability to meet our
obligations and to continue our operations would be adversely affected
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is a party to litigation, which arises,
in the normal course of business. There is no litigation pending, or threatened
that, if determined adversely, would have a material effect upon the business or
financial condition of the company.
On March 26, 2001 we commenced legal action against Mr. Kit Kung, Hung
Yun and Alan Jurewicz, each of who were former officers and/or directors of the
Company and Easi-Link.com, Inc. The complaint alleges that the defendants
converted our property and assets, stole corporate opportunities, breached their
fiduciary duty to the Company and breached their employment contracts. The
action is pending in the Superior Court of New Jersey, Law Division, Bergen
County. We continue to review company documents and based upon the results of
our review and discovery requests, we may expand our lawsuit to include other
parties.
Item 2. Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) None
(d) Not Applicable
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
None
(b) Reports on Form 8-K
On March 7, 2001, we filed a Form 8-K reporting Item 1-Change
of Control, Item 2-Acquisition or Disposition of Assets, Item
5-Other Events and Item 6-Resignation of Registrant Directors.
There were no other Form 8-K's filed during the quarter ended
March 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 6, 2001 SEEDLING TECHNOLOGIES CORPORATION
By: /s/ Douglas B. Spink
-------------------------------------
Douglas B. Spink, CEO and Principal
Executive and Chief Financial Officer
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