SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 2, 2001
e-Synergies, inc.
-------------------------------------------
(Exact name of registrant as specified in its charter)
California 000-30071 91-2021595
- -------------------------------- ------------ ----------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3 Corporate Plaza, Suite 250
Newport Beach, California 92660
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949)219-0169
--------------
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
This Form 8-K/A is an amendment to the Form 8-K filed on April 25, 2001,
relating to the acquisition by e-Synergies, inc. ("e-Synergies") of all of the
issued and outstanding shares of Salesmation, Inc. pursuant to a Share Exchange
Agreement dated April 11, 2001. The purpose of this amendment is to file the
consolidated financial statements of Salesmation.com, Inc. and its subsidiaries
for the years ended August 31, 1999 and August 31, 2000.
1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Exhibits
Exhibit No. Description of Exhibit
- --------------- ------------------------------------------
1* Share Exchange Agreement dated as of
April 11, 2001 by and between e-Synergies,
inc. and Salesmation.com, Inc.
2 Consolidated financial statements of
Salesmation.com, Inc. and its subsidiaries
for the years ended August 31, 1999 and
August 31, 2000
__________________
* Incorporated by reference to the same numbered
Exhibit to the Report on Form 8-K, as filed on
April 25, 2001
ITEM 8. CHANGE IN FISCAL YEAR.
e-Synergies has determined to change its fiscal year. This determination was
made by the Board of Directors of e-Synergies on June 21, 2001. The date of
the new fiscal year end is August 31st. Form 10-Q will be filed covering the
transition period. It is anticipated that the Form 10-Q will be filed on or
before July 17, 2001.
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 hereunto duly authorized.
e-Synergies, inc.,
a California corporation
By: _________________________________
Name: _________________________________
Title: _________________________________
Date: June _____, 2001
2
SALESMATION.COM, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
TABLE OF CONTENTS
-----------------
Page
Numbers
-------
Independent Auditor's Report. . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . 2-3
Consolidated Statement of Stockholders' Equity (Deficit). . 4
Consolidated Statements of Operations . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . 6-7
Notes to Consolidated Financial Statements. . . . . . . . . 8-18
To the Officers and Board of Directors
Salesmation.com, Inc.
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of
Salesmation.com, Inc. and subsidiaries as of August 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the year ended August 31, 2000 and the period ended August
31, 1999 (see Note 1 to the financial statements). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
3
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Salesmation.com,
Inc. and subsidiaries as of August 31, 2000 and 1999, and the results of its
operations and its cash flows for the periods then ended, in conformity with
accounting principles generally accepted in the United States of America.
January 3, 2001 (except for those portions of Note 12 pertaining to
stock exchanges with HealthStar Corp. and e-Synergies, inc., as to
which the dates are April 2, 2001 and April 11, 2001, respectively)
Gross, Mendelsohn & Associates, P.A.
- ----------------------------------------
By: Gross, Mendelsohn & Associates, P.A.
SALESMATION.COM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
August 31, 2000 and 1999
2000 1999
-------- --------
Assets
Current Assets
Cash $339,478 $89,040
Accounts receivable, net of
allowance for doubtful accounts
(2000 - $66,000; 1999 - none) (Note 2) 545,007 209,497
Unbilled services (Note 2) 168,819 25,278
Due from affiliates (Note 9) -0- 120,295
Miscellaneous receivables 57,995 20,856
Prepaid expenses 17,170 -0-
Other current assets 12,271 3,225
-------- --------
Total Current Assets 1,140,740 468,191
--------- --------
Property and Equipment (Notes 2,3 and 7)
Computer equipment 483,651 168,563
Office furniture and equipment 133,159 72,267
Leasehold improvements 20,878 20,336
-------- --------
Total Cost 637,688 261,166
Less: Accumulated depreciation 203,911 139,564
-------- --------
Net Property and Equipment 433,777 121,602
-------- --------
4
Other Assets
Computer software, net of amortization
(2000 - $82,666; 1999 - $49,518) (Note 2) 130,036 25,059
Goodwill, net of amortization of $9,701
in 2000 (Note 2) 112,129 -0-
Investments (Notes 2 and 4) 250,314 -0-
Due from affiliates (Note 9) 142,503 -0-
Refundable deposits 26,291 2,447
-------- --------
Total Other Assets 661,273 27,506
-------- --------
Total Assets $2,235,790 $617,299
========== ========
Liabilities and Stockholders' Equity (Deficit)
2000 1999
--------- ---------
Current Liabilities
Accounts payable and accrued expenses $1,337,028 $ 445,018
Short-term bank borrowings (Note 5) 94,186 95,395
Current maturities of long-term debt (Note 6) 24,597 10,932
Due to affiliates (Note 9) 110,490 -0-
Loans payable (Note 9) 7,097 49,443
Taxes withheld from wages 109,935 114,539
Deferred revenues (Note 2) 93,010 451,306
Other current liabilities 22,080 1,365
--------- ---------
Total Current Liabilities 1,798,423 1,167,998
--------- ---------
Non-Current Liabilities
Long-term debt, net of current
maturities (Note 6) 143,053 17,830
Loans payable (Note 9) -0- 479,489
--------- ---------
Total Non-Current Liabilities 143,053 497,319
--------- ---------
Minority Interest in Subsidiaries (Note 2) (16,992) -0-
--------- ---------
Total Liabilities 1,924,484 1,665,317
--------- ---------
Commitments (Note 10)
Stockholders' Equity (Deficit) (Note 11)
Common stock, $.001 par value:
Authorized - 30,000,000 shares
Issued and outstanding - 8,570,277 shares
(1999 - 200,000 shares) 8,570 200
Additional paid-in capital 3,238,431 79,522
--------- ---------
5
Total Paid-in Capital 3,247,001 79,722
Retained earnings (deficit) (2,917,526) (1,127,740)
Accumulated other comprehensive income (loss) (18,169) -0-
--------- ---------
Total Stockholders' Equity (Deficit) 311,306 (1,048,018)
--------- ---------
Total Liabilities and Stockholders'
Equity (Deficit) $2,235,790 $617,299
=========== ==========
The accompanying notes are an integral part of these financial statements.
6
SALESMATION.COM, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
Year Ended August 31, 2000 and Period Ended August 31, 1999 (Note 1)
Accumulated Total Compre-
Additional Retained Other Stockholders' hensive
Common Paid-in Earnings Comprehensive Equity Income
Stock Capital (Deficit) Income (Loss) (Deficit) (Loss)
------ ---------- --------- ------------- ------------- ---------
Balances -
August 19, 1999
(date of incorporation) $ -0- $ -0- $ -0- $ -0- $ -0-
Adjustment for pooling
of interests (Note 1) 200 79,522 (725,361) -0- (645,639)
------ ---------- --------- ------------- -------------
Balances -
August 19, 1999,
as adjusted 200 79,522 (725,361) -0- (645,639)
Net loss for the
period ended
August 31, 1999 (Note 1) -0- -0- (402,379) -0- (402,379) $(402,379)
Other comprehensive
income (loss) -0-
Total comprehensive ----------
income (loss) for the
period ended
August 31, 1999 $(402,379)
==========
Balances ------ --------- ----------- ------------- ----------
- August 31, 1999 200 79,522 (1,127,740) -0- (1,048,018)
Issuance of common
stock (Note 11) 8,370 3,158,909 -0- -0- 3,167,279
7
Net loss for the year
ended August 31, 2000 -0- -0- (1,789,786) -0- (1,789,786) (1,789,786)
Other comprehensive
income (loss):
Foreign currency
translation adjustments
(Note 2) -0- -0- -0- (18,169) (18,169) (18,169)
Total comprehensive income
(loss) for the year ended
August 31, 2000 $(1,807,955)
============
Balances - ------ ---------- ----------- --------- ---------
August 31, 2000 $8,570 $3,238,431 $(2,917,526) $(18,169) $ 311,306
====== ========== =========== ========= =========
The accompanying notes are an integral part of this financial statement.
8
SALESMATION.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended August 31, 2000 and
Period Ended August 31, 1999 (Note 1)
2000 1999
------------------- ---------- ------
Revenues (Note2) $4,338,415 100.0% $2,515,572 100.0%
---------- ------ ---------- ------
Costs and Expenses
Cost of products sold 992,493 22.9 -0- -
Direct expenses 2,725,344 62.8 1,541,515 61.3
Sales and marketing expenses 429,636 9.9 280,461 11.1
General and administrative
expenses 1,913,797 44.1 1,057,458 42.0
---------- ------ ---------- ------
Total Costs and Expenses 6,061,270 139.7 2,879,434 114.5
---------- ------ ---------- ------
Operating Loss (1,722,855) (39.7) (363,862) (14.5)
---------- ------ ---------- ------
Other Income (Expense)
Equity in income (loss)
of investees (Note 2) (686) - -0- -
Miscellaneous income 7,531 .2 10,018 .4
Interest expense (61,626) (1.4) (48,535) (1.9)
---------- ------ ---------- ------
Net Other Expense (54,781) (1.3) (38,517) (1.5)
---------- ------ ---------- ------
Net Loss Before Minority Interest (1,777,636) (41.0) (402,379) (16.0)
Minority Interest in Income
of Subsidiaries (Note 2) (12,150) (.3) -0- -
---------- ------ ---------- ------
Net Loss $(1,789,786) (41.3%) (402,379) (16.0)%
============ ======= ========== ======
The accompanying notes are an integral part of these financial statements.
9
SALESMATION.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended August 31, 2000 and
Period Ended August 31, 1999 (Note 1)
2000 1999
--------- ---------
Cash Flows from Operating Activities
Net loss $(1,789,786) $(402,379)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 114,915 44,901
Equity in (income) loss of investees 686 -0-
Provision for doubtful accounts 66,035 -0-
Minority interest in income of subsidiaries 12,150 -0-
Changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable (260,421) (31,317)
Unbilled services (143,541) (16,857)
Accounts payable
and accrued expenses 769,812 82,575
Taxes withheld from wages (4,604) 81,241
Deferred revenues (358,296) 22,876
Other (29,669) 21,073
--------- ---------
Net Cash Used in Operating Activities (1,622,719) (197,887)
--------- ---------
Cash Flows from Investing Activities
Proceeds from sale of property and equipment 121,260 -0-
Acquisition of property and equipment (351,893) (44,658)
Acquisition of computer software (138,136) (5,879)
Acquisition of business, net of
cash acquired (22,030) -0-
Advances to affiliates (256,720) (120,295)
Other investing activities (41,498) (19,313)
--------- ---------
Net Cash Used in Investing Activities (689,017) (190,145)
--------- ---------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 1,867,279 4,779
Proceeds of long-term debt 37,386 -0-
Reduction of long-term debt (192,073) (10,150)
Net reduction in short-term bank borrowings (1,209) (1,046)
Loans payable (current) (42,346) 996
Loans payable (non-current) 820,511 479,489
Advances from affiliates 92,088 -0-
--------- --------
Net Cash Provided by Financing Activities 2,581,636 474,068
--------- ---------
Effect of Exchange Rate Changes on Cash (19,462) -0-
--------- ---------
10
Net Increase in Cash 250,438 86,036
Cash at Beginning of Period 89,040 3,004
--------- ---------
Cash at End of Period $339,478 $89,040
======== =======
The accompanying notes are an integral part of these financial statements.
SALESMATION.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Year Ended August 31, 2000 and Period Ended August 31, 1999 (Note 1)
Supplemental Disclosure of Cash Flow Information:
2000 1999
------- --------
Interest paid $ 46,663 $ 49,003
======= ========
Income taxes paid (refunded) $ -0- $(21,849)
======= ========
Noncash investing and financing activities:
Capital lease obligations incurred
in connection with acquisition
of equipment $ 32,926 $ 21,089
======== ========
Reduction of loans payable
(non-current) through issuance
of common stock (Note 9) $1,300,000 $ -0-
========== =========
Fair value of investment assigned
to Company in payment of receivable
from related party (Note 9) $ 250,000 $ -0-
========== =========
Long-term debt assumed/incurred in
connection with the purchase of businesses $ 262,414 $ -0-
========== =========
The accompanying notes are an integral part of these financial statements.
11
SALESMATION.COM, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2000 and 1999
Note 1: Organization
Salesmation.com, Inc. (the Company) is an application service provider
(ASP) which supplies technology-based e-marketing services that enable
businesses to deliver customized online marketing messages. The Company was
organized as a Delaware corporation on August 19, 1999. However, prior to
operating in corporate form, initial operations were conducted through a
related company (see Note 9). The Company has two wholly-owned subsidiaries,
M2 Ltd. (M2) and Dotcom Ideas, Inc. (Dotcom). M2, a Maryland corporation,
mainly provides language translation services to companies that market
computer software, hardware, websites, and other services to multiple-language
customer bases. Dotcom, a Delaware corporation, is an investment company with
investments in the computer, technology, and finance industries in the United
States and South Africa.
The Company acquired M2 on April 5, 2000 in a stock-for-stock merger
accounted for as a pooling of interests. The Company issued 200,000 shares of
its common stock to the stockholders of M2 in exchange for 66,200 shares of
common stock of M2, representing all of that company's outstanding shares. The
merger resulted in M2's becoming a wholly-owned subsidiary. M2 is engaged in
language translation, globalization, and localization that enables businesses
to communicate and market to their customers in their native language. In
connection with the merger, the Company agreed to make a capital contribution
to M2 in the amount of $500,000.
The accompanying consolidated financial statements include the financial
position, results of operations, and cash flows of M2 for both periods
presented, resulting in the inclusion of M2's operations for the entire year
ended August 31, 1999 as well as for the year ended August 31, 2000. The
revenues and net income (losses) of the separate companies and the combined
amounts presented in the accompanying consolidated statements of operations
are as follows:
Year Ended Year Ended
August 31, 2000 August 31, 1999
--------------- ---------------
Revenue:
Salesmation.com, Inc. $ 1,166,642 $ -0-
M2 Ltd. 3,171,773 2,515,572
--------------- ---------------
Combined $ 4,338,415 $ 2,515,572
=============== ===============
Net income (loss):
Salesmation.com, Inc. $ (1,673,556) $ (338,595)
M2 Ltd. (116,230) (63,784)
--------------- ---------------
Combined $ (1,789,786) $ (402,379)
=============== ===============
12
Results of operations of the separate enterprises from the beginning of the
period in which the merger took place to the date of the merger are not
available.
Dotcom was organized as a Delaware corporation on March 10, 2000, at
which time the Company acquired 1,500 shares, representing 100% of the
outstanding common stock. Dotcom was formed for the purpose of making
strategic investments in e-commerce and internet-based businesses. Dotcom owns
100% of Bolder Investment Trust, which was created with the intention of
acquiring and managing various venture capital investments in South Africa.
During the year ended August 31, 2000, the trust acquired a 46% interest in
Quanteco (Pty) Ltd., a holding company owning 100% of Data Kinetics (Pty)
Ltd., a computer hardware distributor, and Information and Image (Pty) Ltd., a
provider of network solutions to small businesses. All of these entities are
based in South Africa.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, recent development of the Internet
advertising market, unproven acceptance and effectiveness of web advertising,
an unproven business model, risks associated with technological change, and
the limited history of commerce on the Internet. The Company's success depends
in part upon the emergence of the Internet as a communications medium,
prospective product development efforts, and the acceptance of the Company's
services by the marketplace.
Note 2: Summary of Significant Accounting Policies
The accounting and reporting policies of the Company and its wholly-owned
subsidiaries conform to accounting principles generally accepted in the United
States of America. Following is a description of the most significant of those
policies:
PRINCIPLES OF CONSOLIDATION: AND ACCOUNTING FOR INVESTMENTS: The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in companies in which the
Company has significant influence, but less than a controlling interest, are
accounted for by the equity method. Under the equity method, only the
Company's share of the equity of the investee is included in the consolidated
balance sheet, and only the Company's share of the investee's earnings is
included in consolidated operating results. Investments in companies in which
the Company has neither a controlling interest nor the ability to exercise
significant influence are accounted for at cost.
BUSINESS COMBINATIONS: Business combinations accounted for under the
purchase method of accounting include the results of operations of the
acquired business from the date of acquisition. Under the purchase method, net
assets of the companies acquired are recorded at their estimated fair value at
the date of acquisition. In the case of business combinations accounted for
under the pooling-of-interests method of accounting, the assets, liabilities,
and stockholders' equity of the acquired entity are combined with the
Company's respective accounts at recorded values and prior period financial
statements are restated to give effect to the merger.
13
MINORITY INTEREST IN SUBSIDIARIES: The minority interest included in the
consolidated statements of operations represents the minority shareholders'
share of the income or loss of consolidated subsidiaries. The minority
interest included in the consolidated balance sheets reflects the original
investment by the minority shareholders in the consolidated subsidiaries,
along with their proportionate share of the earnings and losses of the
subsidiaries.
USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Actual results could differ from those
estimates.
ACCOUNTS RECEIVABLE: Provision is made for doubtful accounts based on
anticipated collection losses. Estimated losses are determined from historical
collection experience and a review of outstanding receivables. Collateral or
other security is not required to support accounts receivable.
REVENUE RECOGNITION: Revenues are recognized when the services are
rendered. Services provided prior to the actual billings for such services are
recorded as "unbilled services." Billings made in advance of services rendered
are recorded as "deferred revenues."
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed under the straight-line
method over the estimated useful lives of the assets. Expenditures for
maintenance and routine repairs are charged to expense as incurred;
expenditures for improvements and major repairs that materially extend the
useful lives of assets are capitalized.
COMPUTER SOFTWARE: The cost of purchased software is capitalized and
amortized under the straight-line method based on the estimated useful life of
the software. Statement of Position (SOP) 98-1 of the American Institute of
Certified Public Accountants requires that, under certain circumstances, the
costs associated with computer software obtained or developed for internal use
be expensed. SOP 98-1 also requires that, once certain criteria relative to
the software's stage of development have been met, various internal costs
incurred in connection with the development of the software be capitalized. It
is management's opinion that the nature of the Company's software development
is such that the criteria set forth in SOP 98-1 cannot be clearly applied.
Therefore, no costs of software purchased have been expensed, nor have any
internal software development costs been capitalized.
GOODWILL: The excess of the acquisition cost over the net assets of a
subsidiary acquired in a transaction accounted for as a purchase was recorded
as goodwill and is being amortized on a straight-line basis over forty years.
ADVERTISING: Costs associated with advertising and promotion are expensed
in the year incurred and included in operating expenses. Total advertising and
promotion expense for the years ended August 31, 2000 and 1999 was $76,555 and
$37,454, respectively.
14
INCOME TAXES: Deferred income taxes and deferred income tax benefits are
provided to reflect the tax effect of temporary differences between financial
and income tax reporting.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at year-end exchange
rates; revenues and expenses are translated at average rates prevailing during
the year. Translation adjustments are included as a component of stockholders'
equity.
Note 3: Property and Equipment
Accumulated depreciation as of August 31, 2000 and 1999, respectively,
for each classification of depreciable property is as follows:
2000 1999
--------- ---------
Computer equipment $ 155,157 $ 102,386
Office furniture and equipment 43,838 33,406
Leasehold improvements 4,916 3,772
---------- ---------
Total $ 203,911 $ 139,564
========== =========
Depreciation expense for the year ended August 31, 2000 and the period
ended August 31, 1999 was $72,065 and $30,494, respectively.
Note 4: Investments
The Company's investments as of August 31, 2000 consisted of the
following:
Suprafin Partners I, LLC $ 314
Imporex Investment Corp 250,000
-------
Total $ 250,314
=========
On March 22, 2000, Dotcom Ideas, Inc. (Dotcom) (see Note 1) purchased a
10% membership interest in Suprafin Partners I, LLC, a limited liability
company in which a stockholder of the Company also holds a membership
interest. Due to these ownership interests, the Company has the ability to
significantly influence the financial and operating policies of Suprafin
Partners I, LLC and therefore uses the equity method to account for the
investment. In March, 2000, Suprafin Partners I, LLC acquired a 30% interest
in USAuto Finance, Inc., representing its only investment as of August 31,
2000. USAuto Finance provides floor-plan financing for used car dealers.
Dotcom also acquired 1,424,245 restricted shares of common stock in Imporex
Investment Corp.
15
(Imporex), a publicly-traded company, on March 22, 2000 (see Note 9),
representing approximately 6% of the company's outstanding common stock.
Imporex has developed various technologies that improve voice, data, and image
transmissions and reception over the Internet. Dotcom uses the cost method to
account for its investment in Imporex.
Note 5: Short-Term Bank Borrowings
M2 Ltd. (M2) (see Note 1) has a $100,000 line of credit with Potomac
Valley Bank. Borrowings under the line of credit bear interest at the bank's
prime rate plus 1.75% (11.25% as of August 31, 2000). M2 has granted the bank
a continuing security interest in all of its assets, both tangible and
intangible, as collateral. The line of credit is personally guaranteed by two
of M2's former stockholders and is also secured by a deed of trust on certain
real property owned by them. The amount due under the credit facility at
August 31, 2000 was $94,186 (August 31, 1999 - $95,395).
Note 6: Long-Term Debt
Long-term debt as of August 31, 2000 and 1999, respectively, consists of
the following obligations:
2000 1999
-------- -------
Note payable - Potomac Valley Bank, inter-
est at bank's prime rate plus 2% (11.5% as
of August 31, 2000), payable in monthly
principal installments plus interest through
October, 2000, collateralized by a security
interest in all tangible and intangible
property of M2 Ltd. $ 1,228 $ 9,165
Note payable - former stockholder of M2 Ltd.,
unsecured, interest at 9.75%, payable in
equal monthly installments of principal and
interest totaling $1,000 through October,
2003 32,831 -0-
Capital lease obligations (see Note 7) 47,321 19,597
Due under purchase agreement for acquisi-
tion of subsidiary by Quanteco (Pty) Ltd.
(see Note 1), payable March 31, 2002 86,270 -0-
------- -------
Total 167,650 28,762
Less: Current maturities 24,597 10,932
-------- -------
Non-Current Maturities $143,053 $17,830
======== =======
16
The aggregate annual maturities of long-term debt, including capital
lease obligations, subsequent to August 31, 2000 are as follows:
Year ending August 31:
2001 $ 24,597
2002 113,298
2003 24,755
2004 5,000
---------
$ 167,650
=========
Note 7: Capital Leases
The Company and M2 Ltd. (see Note 1) lease office equipment under various
noncancelable capital leases. Office equipment having a cost of $54,014 had
been acquired under capital leases as of August 31, 2000 (1999 - $21,089). The
charge to income resulting from amortization of the cost of the equipment is
included in depreciation. Accumulated amortization of leased equipment as of
August 31, 2000 was $6,872 (1999 - $1,757). As of August 31, 2000, future
minimum lease payments under the capital leases, summarized by fiscal year,
are as follows:
Year ending August 31:
2001 $ 24,517
2002 22,819
2003 16,160
2004 2,829
---------
Total 66,325
Less: Amount representing interest 19,004
---------
Present value of future minimum lease
payments $ 47,321
=========
Note 8: Income Taxes
The Company and its subsidiaries compute deferred income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, which
requires the use of an asset and liability method of accounting for income
taxes. Statement No. 109 provides for the recognition and measurement of
deferred income tax benefits based on the likelihood of their realization in
future years. A valuation allowance must be established to reduce deferred
income tax benefits if it is more likely than not that a portion of the
deferred income tax benefits will not be realized. Because of the uncertainty
regarding the realization of the deferred income tax benefits in future years,
a valuation allowance for the entire amount of the net deferred tax benefit
was recorded as of both August 31, 2000 and 1999.
17
Following is a summary of the tax effects of temporary differences
between financial and income tax accounting and operating loss carryforwards
as of August 31, 2000 and August 31, 1999, respectively:
2000 1999
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 555,710 $ 90,047
Method of accounting 35,168 116,387
-------- --------
590,878 206,434
Deferred tax liabilities:
Depreciation methods (11,366) (5,728)
-------- --------
Net deferred tax asset 579,512 200,706
Less: Valuation allowance 579,512 200,706
-------- --------
$ -0- $ -0-
========= ========
As of August 31, 2000, the Company and its subsidiaries have available
for income tax purposes net operating loss carryforwards of approximately
$2,600,000, which expire in varying amounts through 2020.
Note 9: Related Party Transactions
DUE FROM/TO AFFILIATES: As of August 31, 2000 and 1999, the following
amounts were due from and due to various affiliates:
2000 1999
-------- --------
Due from Affiliates - Current:
Market Stratagems, Inc. $ -0- $120,295
======== ========
Due from Affiliates Non-Current:
CommerceSWITCH (Pty) Ltd. $142,503 $ -0-
======== ========
Due to Affiliates - Current:
Suprafin, Inc. $ 91,088 $ -0-
Market Stratagems, Inc. 18,402 -0-
Suprafin Partners I, LLC 1,000 -0-
-------- --------
Total $110,490 $ -0-
======== ========
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One of the founding stockholders of the Company owns 100% of the stock of
Market Stratagems, Inc. (MSI). During the initial stage of the Company's
operations, MSI made various disbursements, primarily consulting fees and
salaries plus related costs, on behalf of the Company. As of August 31, 1999,
funds received on behalf of the Company exceeded expenditures on its behalf,
resulting in a receivable from MSI of $120,295. As of March 22, 2000, at which
time the balance of the receivable was $231,598, MSI assigned 1,424,245
restricted shares of common stock of Imporex Investment Corp. (see Note 4) to
the Company in order to liquidate the balance. The estimated fair value of the
stock was $250,000, resulting in a payable to MSI of $18,402.
CommerceSWITCH (Pty) Ltd. is a South Africa-based technology company
which, as a result of the reorganization discussed in Note 12, became a
51%-owned subsidiary of the Company subsequent to August 31, 2000. Suprafin,
Inc. is a stockholder in the Company. Suprafin Partners I, LLC is an investee
company (see Note 4).
All amounts due from and to affiliates are unsecured, non-interest
bearing, and have no specific terms for repayment.
LOANS PAYABLE: As of August 31, 2000, the Company was indebted to certain
former stockholders of M2 Ltd. (see Note 1) in the amount of $7,097 (1999 -
$49,443) as a result of various loans and advances. The loans, are unsecured,
non-interest bearing, and have no specific terms for repayment. The loans
payable in the amount of $479,489 reflected as a non-current liability at
August 31, 1999 were due to an investor, who subsequently became a founding
shareholder, as the result of funds advanced to Market Stratagems, Inc. (see
above) used for Company purposes. As of February 17, 2000, the loans payable
totaled $1,300,000. On that date, the loans were converted into common stock
of the Company (see Note 11). The balance of the loans as of August 31, 1999
are therefore reflected as a non-current liability.
Note 10: Lease Commitments
The Company occupies facilities under two noncancelable leases with
original terms of nineteen months and three years, respectively, both
terminating in December, 2001. M2 Ltd. (see Note 1) occupies facilities under
a noncancelable lease with an original term of three years terminating in
December, 2000. Total rent expense on all leases for the years ended August
31, 2000 and 1999 was $208,650 and $152,942, respectively. There were no
contingent rental payments in either year. Following is a schedule of future
minimum rental commitments under the leases as of August 31, 2000:
Fiscal year ending August 31:
2001 $ 128,090
2002 22,361
-----------
$ 150,451
===========
19
Note 11: Stockholders' Equity
COMMON STOCK: The Company's initial Certificate of Incorporation, dated
August 19, 1999, authorized 1,000,000 shares of common stock with a par value
of one cent ($.01). On January 28, 2000, the Certificate of Incorporation was
amended, changing the number of authorized shares to 30,000,000 at a par value
of one- tenth of one cent ($.001). During February, 2000, 7,750,000 shares of
common stock were sold to the Company's founding shareholders. Other than one
shareholder who acquired 1,300,000 shares at $1.00 per share (see Note 9), the
founding shareholders paid $.001 per share. On April 5, 2000, 200,000 shares
were issued to the former stockholders of M2 Ltd. in connection with the
acquisition of that company (See Note 1). Also in April, 2000, the Company
commenced a public offering of its common stock through the issuance of a
private placement memorandum calling for the sale of 1,000,000 shares at a
price of $3.00 per share. As of August 31, 2000, 620,277 shares had been sold
under the offering, providing additional capital of $1,860,829.
STOCK-BASED COMPENSATION PLAN: In December, 1999, the Board of Directors
and stockholders adopted the 2000 Long-Term Incentive Plan of the Company (the
LTIP). The purpose of the LTIP is to reward key individuals for making major
contributions to the success of the Company and its subsidiaries. Options vest
and expire according to terms established at the grant date; however, any
options granted under the LTIP must be exercised within a period not to exceed
10 years from the date of grant. All of the options granted to date have a
vesting period of one year from the date of grant, the earliest of which is
January 1, 2000, and an exercise period of three years from the date of grant.
A total of 800,000 shares of common stock is reserved for awards under the
plan. As of August 31, 2000, 381,032 shares have been granted under the LTIP,
and 418,968 shares are available for future grants.
Following is a summary of outstanding stock options and changes thereto
during the year ended August 31, 2000:
Weighted
Shares Average
Subject to Exercise Options
Options Price Exercisable
---------- -------- -----------
Granted 381,032 $ 1.00 -0-
======== ===========
Exercised -0-
Forfeited -0-
----------
Outstanding at August 31, 2000 381,032
==========
The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
options because, in the opinion of management, the exercise price of the
options is higher than the estimated market price of the underlying stock on
the date of grant. Management has deemed that it is not feasible for the
20
Company to develop pro-forma net income amounts as if the Company had adopted
the fair value method of accounting for stock-based awards.
Note 12: Subsequent Events
In September, 2000, there was a reorganization of the holdings of Bolder
Investment Trust (Bolder) (see Note 1). Bolder, which had previously held a
46% interest in Quanteco (Pty) Ltd. (Quanteco), acquired an additional 5%
interest, giving it a majority interest of 51%. Bolder also acquired a 51%
interest in CommerceSWITCH (Pty) Ltd. (CX), a technology company that provides
e-commerce and related solutions to various corporate customers. Quanteco,
together with its two wholly-owned operating subsidiaries, Data Kinetics (Pty)
Ltd. and Information and Image (Pty) Ltd., merged their operations into a
single entity under the name of CommerceSWITCH (Pty) Ltd.
On April 2, 2001, the Company entered into a Share Exchange Agreement
with HealthStar Corp. (HealthStar), a Delaware corporation. Under the
agreement, HealthStar issued 4,000,000 shares of its voting common stock to
the Company for all of the outstanding common stock of M2 Ltd. (M2). However,
1,500,000 shares are being held in escrow and will be released to the Company
only if M2 meets certain financial performance goals in the future. In the
event that M2 fails to achieve the required goals, the 1,500,000 shares will
be returned to HealthStar for cancellation. The 4,000,000 shares, which
represent approximately 48% of the outstanding shares of HealthStar common
stock, are subject to a lock-up provision and have voting restrictions placed
on them. The lock-up provision prohibits the Company from selling,
transferring, pledging, or otherwise disposing of the shares for a period of
one year from the date of the agreement. Additionally, the Company executed an
irrevocable proxy relative to the 4,000,000 shares whereby the Company vested
all of the rights to vote the shares with the HealthStar board of directors
for as long as the Company holds the shares.
On April 11, 2001, the Company and its stock holders entered into a Stock
Exchange Agreement with e-Synergies, inc. (e-Synergies), a California
corporation. Under the agreement, the Company's stockholders received 1.25
shares of e-Synergies common stock for each share of the Company's common
stock. In total, 9,425,001 shares of the Company's stock, representing all of
the outstanding shares, were exchanged for 11,781,251.25 shares of the common
stock of e-Synergies. Concurrent with the Stock Exchange Agreement, the
Company amended its Certificate of Incorporation changing its name from
Salesmation.com, Inc. to Salesmation, Inc.
21