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 13, 2001
GROUP LONG DISTANCE, INC.
-------------------------------------
(Exact name of Registrant as Specified in Charter)
Florida 0-21913 65-0213198
(State or other jurisdiction (Commission (IRS Employer
of organization) File Number) Identification No.)
400 E. Atlantic Boulevard, First Floor, Pompano Beach, Florida 33060
-------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 788-7871
Item 2. Acquisition or Disposition of Assets
As reported on Form 8-K dated April 13, 2001, filed April 27, 2001, Group Long
Distance, Inc. ("the Company") and Quentra Networks, Inc., as debtor in
possession ("Quentra") entered into a Stock Purchase agreement dated February
20, 2001, and approved by the United States Bankruptcy Court for the Central
District of California on March 8, 2001. Pursuant to the Stock Purchase
Agreement, the Company acquired all the outstanding common stock of HomeAccess
Microweb, Inc. ("HomeAccess") in exchange for (i) cash in the amount of $100,000
and (ii) 200,000 shares of Series A Preferred Stock. In addition, on April 13,
2001 the Company acquired 80% of the outstanding common stock of HA Technology,
Inc ("HAT") in exchange for 7,800,000 shares of Common Stock. Simultaneously
with the acquisition of the 80% of HAT, the Company agreed to acquire the
remaining 20% of HAT in exchange for 2,200,000 shares of Common Stock. The
acquisition of the remaining 20% of HAT was subject to certain conditions.
On July 20, 2001 the Company acquired the remaining 20% of HAT in exchange for
2,200,000 shares of Common Stock.
This Form 8-K/A includes the financial statements and pro forma financial
information required by Items 7(a) and 7(b) to Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired The following
financial statements are filed with this report.
(1) HomeAccess Microweb, Inc.
Financial statements as of December 31, 2000 and 1999
and for the year ended December 31, 2000 and for the
Period from January 19, 1999 (inception) to December
31, 1999.
(2) HA Technology, Inc.
Financial statements as of December 31, 2000 and for
the Period from September 29, 2000 (inception) to
December 31, 2000.
(b) Pro Forma Financial Information
The following unaudited pro forma consolidated
financial statements are filed with this report.
2
Unaudited Pro Forma Consolidated Balance Sheet as
of January 31, 2001.
Unaudited Pro Forma Consolidated Statement of
Operations for the year ended April 30, 2000.
Unaudited Pro Forma Consolidated Statement of
Operations for the Nine months ended January 31,
2001.
(c) Exhibits
10.33 Stock Purchase Agreement between the Company and
Quentra Networks, Inc. to acquire HomeAccess
Microweb, Inc. (incorporated herein by reference to
exhibit filed with Form 10-QSB for the nine months
ended January 31, 2001).
10.34 Exchange Agreement dated April 13, 2001 by and
between the Company and Barbara Conrad to acquire 80%
of HA Technology, Inc. (incorporated herein by
reference to exhibit filed with Form 8-K on April 27,
2001).
10.35 Second Exchange Agreement dated April 13, 2001 by and
between the Company and Barbara Conrad to acquire 20%
of HA Technology, Inc. subject to certain conditions
(incorporated herein by reference to exhibit filed
with Form 8-K on April 27, 2001).
3
HOMEACCESS MICROWEB, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND
FOR THE PERIOD FROM JANUARY 19, 1999
(INCEPTION) TO DECEMBER 31, 1999
4
HOMEACCESS MICROWEB, INC.
CONTENTS
December 31, 2000
--------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 6
FINANCIAL STATEMENTS
Balance Sheets 7
Statements of Operations 8
Statements of Shareholder's Equity 9
Statements of Cash Flows 10 - 11
Notes to Financial Statements 12 - 24
5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
HomeAccess MicroWeb, Inc.
We have audited the accompanying balance sheets of HomeAccess MicroWeb, Inc. as
of December 31, 2000 and 1999, and the related statements of operations,
shareholder's equity, and cash flows for the year ended December 31, 2000, and
for the period from January 19, 1999 (inception) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HomeAccess MicroWeb, Inc. as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the year ended December 31, 2000, and for the period from January 19, 1999
(inception) to December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has an accumulated deficit
of $12,842,759 at December 31, 2000 and has been dependent on revenues generated
from affiliates to fund its operations to date. In addition, future revenue and
profitability are dependent upon the success in marketing HomeAccess Technology.
These factors, among other as discussed in Note 2 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 11, 2001
6
HOMEACCESS MICROWEB, INC.
BALANCE SHEETS
December 31,
===================================================================================================================
ASSETS
2000 1999
------------ ------------
Current assets
Cash $ 290,999 $ 75,096
Accounts receivable -- 120,000
Prepaid expenses and other current assets 36,614 --
------------ ------------
Total current assets 327,613 195,096
Property and equipment, net 249,933 40,955
Deposits 57,640 312,883
Restricted cash 204,201 --
Goodwill, net 1,733,750 --
------------ ------------
Total assets $ 2,573,137 $ 548,934
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current portion of capital lease obligations $ 19,258 $ 14,741
Accounts payable and accrued expenses 157,387 50,166
Due to related parties 58,509 4,927
Customer deposits 368,969 400,000
------------ ------------
Total current liabilities 604,123 469,834
Capital lease obligations, net of current portion -- 8,636
------------ ------------
Total liabilities 604,123 478,470
------------ ------------
Commitments
Shareholder's equity
Common stock, no par value
1,000 and 833,333 shares authorized
1,000 and 500,000 shares issued and outstanding 14,811,773 5,000
Subscriptions receivable -- (5,000)
Retained earnings (accumulated deficit) (12,842,759) 70,464
------------ ------------
Total shareholder's equity 1,969,014 70,464
------------ ------------
Total liabilities and shareholder's equity $ 2,573,137 $ 548,934
============ ============
The accompanying notes are an integral part of these financial statements.
7
HOMEACCESS MICROWEB, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000 and
for the Period from January 19, 1999 (Inception) to December 31, 1999
===================================================================================================================
For the
Period from
January 19,
For the 1999
Year Ended (Inception) to
December 31, December 31,
2000 1999
------------ ------------
Revenues
Revenues - affiliates $ 192,900 $ 816,700
Revenues - non-affiliates -- 331,896
------------ ------------
Total revenues 192,900 1,148,596
------------ ------------
Costs and expenses
Operating expenses 754,472 170,694
Cost of revenues 255,530 668,533
Research and development expenses 807,514 230,642
Impairment of goodwill 11,930,077 --
Amortization of goodwill 91,250 --
------------ ------------
Total costs and expenses 13,838,843 1,069,869
------------ ------------
Income (loss) from operations (13,645,943) 78,727
Other expense, net (8,886) (7,463)
------------ ------------
Income (loss) before provision for income taxes (13,654,829) 71,264
Provision for income taxes 1,600 800
------------ ------------
Net income (loss) $(13,656,429) $ 70,464
============ ============
Less losses prior to merger $ (813,670)
============
Net loss subsequent to merger $(12,842,759)
============
The accompanying notes are an integral part of these financial statements.
8
HOMEACCESS MICROWEB, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
For the Year Ended December 31, 2000 and
for the Period from January 19, 1999 (Inception) to December 31, 1999
====================================================================================================================================
Retained
Preferred Stock Common Stock Earnings
----------------------- ------------------------ Subscriptions (Accumulated
Shares Amount Shares Amount Receivable Deficit) Total
--------- ------------ --------- ------------ -------- ------------ ------------
Balance, January 19, 1999
(Inception) -- $ -- -- $ -- $ -- $ -- $ --
Sale of common stock -- -- 500,000 5,000 (5,000) -- --
Net income -- -- -- -- -- 70,464 70,464
--------- ------------ --------- ------------ -------- ------------ ------------
Balance, December 31, 1999 -- -- 500,000 5,000 (5,000) 70,464 70,464
Cash received on subscription
receivable -- -- -- -- 5,000 -- 5,000
Issuance of preferred stock 333,333 1,750,000 -- -- -- -- 1,750,000
Capital contribution -- -- -- 250,000 -- -- 250,000
Distribution to shareholder -- -- -- -- -- (655,098) (655,098)
Net loss prior to merger -- -- -- -- -- (813,670) (813,670)
Acquisition by Quentra Networks,
Inc (333,333) (1,750,000) (500,000) (255,000) -- 1,398,304 (606,696)
Issuance of common stock of
newly formed subsidiary
(Note 6) -- -- 1,000 14,811,773 -- -- 14,811,773
--------- ------------ --------- ------------ -------- ------------ ------------
Balance upon merger -- -- 1,000 14,811,773 -- -- 14,811,773
Net loss subsequent to merger -- -- -- -- -- (12,842,759) (12,842,759)
--------- ------------ --------- ------------ -------- ------------ ------------
Balance, December 31, 2000 -- $ -- 1,000 $ 14,811,773 $ -- $(12,842,759) $ 1,969,014
========= ============ ========= ============ ======== ============ ============
The accompanying notes are an integral part of these financial statements.
9
HOMEACCESS MICROWEB, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2000 and
for the Period from January 19, 1999 (Inception) to December 31, 1999
===================================================================================================================
For the
Period from
January 19,
For the 1999
Year Ended (Inception) to
December 31, December 31,
2000 1999
------------ ------------
Cash flows from operating activities
Net income (loss) $(13,656,429) $ 70,464
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 71,205 15,779
Amortization 91,250 --
Impairment of goodwill 11,930,077 --
(Increase) decrease in
Accounts receivable 120,000 (120,000)
Prepaid expenses and other current assets (36,614) --
Other assets 255,243 (312,883)
Increase (decrease) in
Accounts payable and accrued expenses 107,221 50,166
Due to related parties 53,582 4,927
Customer deposits (31,031) 400,000
------------ ------------
Net cash provided by (used in) operating activities (1,095,496) 108,453
------------ ------------
Cash flows from investing activities
Increase in restricted cash (204,201) --
Purchase of property and equipment (267,628) (14,255)
------------ ------------
Net cash used in investing activities (471,829) (14,255)
------------ ------------
Cash flows from financing activities
Capital contributions 250,000 --
Distributions to shareholder (655,098) --
Payments on capital leases (16,674) (19,102)
Proceeds from the issuance of preferred stock 1,750,000 --
Proceeds from advances from Quentra Networks, Inc. 450,000 --
Cash received on subscription receivable 5,000 --
------------ ------------
Net cash provided by (used in) financing activities 1,783,228 (19,102)
------------ ------------
The accompanying notes are an integral part of these financial statements.
10
HOMEACCESS MICROWEB, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2000 and
for the Period from January 19, 1999 (Inception) to December 31, 1999
===================================================================================================================
For the
Period from
January 19,
For the 1999
Year Ended (Inception) to
December 31, December 31,
2000 1999
------------ ------------
Net increase in cash $ 215,903 $ 75,096
Cash, beginning of period 75,096 --
------------ ------------
Cash, end of period $ 290,999 $ 75,096
============ ============
Supplemental disclosures of cash flow information
Interest paid $ 9,666 $ 8,934
============ ============
Supplemental schedule of non-cash investing and financing activities
During the period ended December 31, 1999, the Company acquired capital lease
equipment of $42,479.
During the year ended December 31, 2000, 100% of the Company was acquired by
Quentra Networks, Inc. for a purchase price in excess of the book value of the
Company's net assets. The Company has pushed down the purchase transaction and
the associated goodwill into the financial statements of the Company, resulting
in an increase in goodwill of $13,755,077 and a restatement of shareholder's
equity (see Note 6) as of the acquisition date.
The accompanying notes are an integral part of these financial statements.
11
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 1 - BUSINESS
Nature of Business and Organization
-----------------------------------
In 1999, HomeAccess MicroWeb, Inc. (the "Company") started focusing
primarily on continuing the development of certain technology known as
"HomeAccess," a technology that has been in a development stage since
1995. This technology was acquired from Quantitative Data Systems, Inc.
an affiliate through common ownership and management. HomeAccess
Technology consists of code, programs, software, hardware, and other
inventions relating to a system designed for use on screen telephones
or other communication devices which would allow consumers to shop, pay
bills, and find information online. The Company believes that once this
technology is successfully marketed, it will be the source of
substantially all of the Company's revenues.
During 1999, the Company was primarily engaged in the development of a
software program and business method known as "DepositSaver" for an
affiliate under the terms of a development, license, and technology
agreement (see Note 3). This agreement was assigned to another related
party in April 2000.
The Company also had engaged in software maintenance and system and
network maintenance services in 2000 and 1999 for Predictive Data, Inc.
and non-affiliated companies as well. Revenues from these services for
the year ended December 31, 2000 and for the period from January 19,
1999 (inception) to December 31, 1999 aggregated to $122,900 and
$192,900, respectively. The Company discontinued these services during
the year ended December 31, 2000.
In October 2000, the Company licensed its HomeAccess Technology for all
states, excluding Washington, Nevada, Oregon, and Pennsylvania, to HA
Technology, Inc., a company affiliated through common management and
ownership (see Note 6).
The Company, which was incorporated in the state of California on
January 19, 1999 as Predictive Data, Inc., changed its name to Primary
Knowledge, Inc. on February 25, 1999, and then changed its name again
on June 12, 2000 to HomeAccess MicroWeb, Inc.
The Company was formed to develop the DepositSaver software program for
Predictive Data, Inc. ("Predictive Data"), which is affiliated with the
Company through common management. (Predictive Data was formerly known
as E-Commerce Access, Inc., Predictive Data, Inc., and Insurance
Masters Agency, Inc.) The Company is affiliated with Object Development
Corporation ("ODC"), Primary Knowledge, Inc. ("Primary Knowledge"), and
HA Technology, Inc. through common ownership and management. (Primary
Knowledge was incorporated in March 2000 under the name of HomeAccess
MicroWeb, Inc., but its name was changed in June 2000). On October 19,
2000, the Company was acquired by Quentra Networks, Inc. ("Quentra"), a
publicly traded company.
12
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 1 - BUSINESS (Continued)
Assignment of Assets and Liabilities
------------------------------------
On April 30, 2000, the Company assigned certain assets and liabilities
unrelated to HomeAccess Technology to Primary Knowledge for $7,500 and
the assumption of certain liabilities. These assets and liabilities
consisted of the following:
o The Development Agreement (see Note 3)
o Any receivables, unpaid earnings, and claims, up to $600,000,
and any right to future earnings on the Development Agreement
o The Sharing Agreement (see Note 8)
o Computer hardware and software of approximately $15,000
o A receivable from the then President of the Company of $12,000
o All liabilities incurred in connection with the assigned
assets, including but not limited to, obligations under the
Development Agreement and a payable owed to Predictive Data of
$156,098
o Any and all liability for any federal, state, or local taxes
incurred by the Company through April 30, 2000
o Other trade payables, which aggregated to approximately $6,640
Merger with Quentra
-------------------
On October 5, 2000, the Company entered into an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") with Quentra, DQE
Enterprises, Inc., ("DQE," a shareholder of Predictive Data), the
spouse of the Company's Chairman of the Board (and also the shareholder
of the Company), and the Company's Chairman of the Board. The Merger
Agreement amended prior merger agreements between the parties that were
entered into in May 2000 and July 2000. Under the Merger Agreement,
HomeAccess became Quentra's wholly owned subsidiary on October 19, 2000
through the merger of HomeAccess Acquisition Corp., a wholly owned
subsidiary of Quentra. The transaction has been accounted for on a
pushdown basis, which requires the allocation of the consideration paid
over the respective net assets (see Note 6).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern and Basis of Presentation
---------------------------------------
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, future revenue
and profitability are dependent upon the success in marketing
HomeAccess Technology. In addition, revenues from software development
and computer maintenance accounted for 64% and 71% of the Company's
revenues during the year ended December 31, 2000 and for the period
from January 19, 1999 (inception) to December 31, 1999, respectively.
13
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Going Concern and Basis of Presentation (Continued)
---------------------------------------
Further, the only software development agreement as of April 30, 2000
was assigned to an affiliate, for which the Company no longer performs
software development or computer maintenance services. The Company's
ability to remain as a going concern is dependent upon obtaining
adequate financing to fulfill its marketing and developmental
activities and achieving sufficient revenues from the sale of its
HomeAccess Technology to adequately support its cost structure. These
factors raise substantial doubt about the Company's ability to continue
as a going concern.
Management continues to look for strategic partners and additional
sources of capital to fund its operations, to which there can be no
assurance that such capital will be obtained.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue its existence. The recovery of the
Company's assets is dependent upon continued operations of the Company.
Revenue Recognition
-------------------
As described in Note 1, during 1999, the Company had a software
development contract with Predictive Data, an affiliate. Revenue on the
contract is recognized in accordance with Statement of Position ("SOP")
97-2, "Software Revenue Recognition," which was issued by the American
Institute of Certified Public Accountants, and Accounting Research
Bulletin No. 45, "Long-Term Construction-Type Contracts," using
relevant guidance from SOP 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." Accordingly,
the Company recognizes revenue on its software development agreement
with Predictive Data on the percentage-of-completion method of
accounting, using the achievement of certain milestones as the
measurement towards progress.
Revenue from software maintenance and system and network maintenance
are recognized over the period in which the services are performed.
14
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from
non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency
translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in
the Company's financial statements as the Company did not have any of
the items of comprehensive income in any period presented.
Cash Equivalents
----------------
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Software Development Costs
--------------------------
Software development costs are capitalized in accordance with SFAS No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed." Capitalization of software development costs
begins upon the establishment of technological feasibility and is
discontinued when the product is available for sale. The establishment
of technological feasibility requires considerable judgment by
management. Amortization of capitalized software development costs is
provided on a product-by-product basis on the straight-line method over
the estimated economic life of the products (not to exceed five years).
At December 31, 2000, the Company did not have any capitalized software
costs as its HomeAccess Program, the only software program that it had
any right, title, or interest in, had not yet met the criteria
specified in SFAS No. 86 to require capitalization.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided on
a straight-line basis over an estimated useful life of three years.
Restricted Cash
---------------
On December 31, 2000, the Company had $204,201 of restricted cash
securing 100% of a letter of credit for the purchase of screen phones.
15
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill
--------
Goodwill is amortized on a straight-line basis over an estimated life
of five years. Goodwill at December 31, 2000 is summarized as follows:
Goodwill recognized upon acquisition by Quentra $ 13,755,077
Less impairment loss recognized 11,930,077
----------------
1,825,000
Less accumulated amortization 91,250
----------------
Total $ 1,733,750
================
On October 19, 2000, the Company was acquired for the cancellation of
$450,000 owed to Quentra and Quentra stock valued at $14,361,773, which
resulted in goodwill of $13,755,077. Subsequently, Quentra filed for
Chapter 11 bankruptcy, and the Company was sold to Group Long Distance,
Inc. ("GLDI") on April 12, 2001 for $1,825,000 comprised of GLDI's
stock and cash. For the year ended December 31, 2000, the Company
recognized an impairment loss on goodwill of $11,930,077, which was
based upon the sale price of HomeAccess to GLDI that occurred in April
2001.
Uninsured Cash
--------------
The Company maintains cash balances, including its restricted cash, at
two financial institutions. Accounts at these institutions are insured
by the Federal Deposit Insurance Corporation up to $100,000. The
Company had $266,527 and $0 of uninsured cash at December 31, 2000 and
1999, respectively.
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts receivable,
and accounts payable and accrued expenses, the carrying amounts
approximate fair value due to their short maturities.
16
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Concentrations
--------------
For the year ended December 31, 2000, all of the Company's revenues
were from affiliates. For the period of January 19, 1999 (inception)
through December 31, 1999, 71% of the Company's revenues were from
affiliates.
Estimates
---------
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recently Issued Accounting Pronouncements
-----------------------------------------
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," to provide guidance on the recognition,
presentation, and disclosure of revenue in financial statements.
Changes in accounting to apply the guidance in SAB No. 101 may be
accounted for as a change in accounting principle effective January 1,
2000. Management does not expect that application of SAB No. 101 will
have a material effect on the Company's revenue recognition and results
of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation," (an Interpretation of Accounting
Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44
provides guidance on the application of APB 25, particularly as it
relates to options. The effective date of FIN 44 is July 1, 2000, and
the Company has adopted FIN 44 as of that date.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
17
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
-----------------------------------------
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121."
This statement is not applicable to the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." This statement
is not applicable to the Company.
NOTE 3 - DEVELOPMENT, LICENSE, AND TECHNOLOGY AGREEMENTS WITH AFFILIATE
In January 1999, Predictive Data contracted with the Company for the
purpose of developing the DepositSaver software program. In September
1999, the Company, Predictive Data, and ODC entered into a Technology
Transfer Agreement and a Software Development and License Agreement
(the "Development Agreement"). Under the terms of the Technology
Transfer Agreement, the Company and ODC irrevocably assigned and
transferred all right, title, and interest in the DepositSaver Program
to Predictive Data.
The Development Agreement memorialized the parties' prior
understandings in a formal agreement in connection with the development
of the DepositSaver Program. Under the terms of the agreement, the
Company would continue to develop the DepositSaver Program. The
agreement specified a total development fee for the Company and ODC of
$2,900,000, plus additional amounts at a rate of $180 per hour for
services on the DepositSaver program beyond the "Statement of Work" as
defined in the Development Agreement. Prior to the execution of the
agreement, the Company and ODC had acknowledged payment for services on
the DepositSaver program of $2,100,000.
As of December 31, 1999, the Company and ODC had recognized $738,700
and $1,681,300, respectively, on the Development Agreement. Included in
the $738,700 of revenue recognized by the Company was $120,000 of
charges that represented additional services that were not part of the
base contract amount. Therefore, the backlog on the agreement at
December 31, 1999, which is the amount of revenue that the Company
expected to realize from work to be performed on the agreement, was
$600,000. However, as described in Note 1, on April 30, 2000, the
Company assigned any receivables, unpaid earnings, and claims, up to
$600,000, and any future earnings on the Development Agreement to
Primary Knowledge, an affiliated Company.
18
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of the following:
December 31, 2000
-----------------------------------
Acquired
Acquired Other than
through through
Capital Capital
Leases Leases Total
-------- -------- --------
Computer hardware and software $ 42,479 $188,619 $231,098
Furniture and equipment -- 103,021 103,021
-------- -------- --------
42,479 291,640 334,119
Less accumulated depreciation 28,320 55,866 84,186
-------- -------- --------
Total $ 14,159 $235,774 $249,933
======== ======== ========
December 31, 1999
-----------------------------------
Acquired
Acquired Other than
through through
Capital Capital
Leases Leases Total
-------- -------- --------
Computer hardware and software $ 42,479 $ 14,255 $ 56,734
Less accumulated depreciation 14,160 1,619 15,779
-------- -------- --------
Total $ 28,319 $ 12,636 $ 40,955
======== ======== ========
Depreciation expense was $71,205 and $15,779 for the year ended
December 31, 2000 and for the period from January 19, 1999 (inception)
to December 31, 1999, respectively.
NOTE 5 - COMMITMENTS
Leases
------
During 1999, the Company assumed 10 capital leases for computer
equipment with a finance company from an unaffiliated company. The
capital leases have been discounted to the present value of the future
minimum lease payments at rates between 17% and 31%. The leases
terminate through 2001 and require aggregate monthly payments of
$2,459.
19
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 5 - COMMITMENTS (Continued)
Leases (Continued)
------
Future minimum lease payments under capital leases at December 31, 2000
were as follows:
Year Ending
December 31,
-------------
2001 $ 20,891
Less amount representing interest 1,633
-----------
Total $ 19,258
===========
Rent expense was $42,143 and $71,846 for the year ended December 31,
2000 and the period from January 19, 1999 (inception) to December 31,
1999, respectively (see Note 8).
Letter of Credit
----------------
At December 31, 2000, the Company had a trade letter of credit in the
amount of $204,201 for the purposes of acquiring inventory. The trade
letter of credit is secured by cash.
NOTE 6 - SHAREHOLDER'S EQUITY AND ACQUISITION BY QUENTRA
Prior to the closing of the merger with Quentra, DQE exercised a
warrant to acquire 333,333 shares of convertible preferred stock for an
aggregate investment of $1,750,000, including the cancellation of a
promissory note issued by HomeAccess in the amount of $500,000.
In addition, prior to the merger, in October 2000, the Company licensed
its HomeAccess Technology for all states, excluding Washington, Nevada,
Oregon, and Pennsylvania, to HA Technology, Inc., a company affiliated
through common management and ownership, for $250,000. For accounting
purposes, because the Company and HA Technology were affiliated, the
$250,000 for license fees was recorded as a contribution of capital.
20
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 6 - SHAREHOLDER'S EQUITY AND ACQUISITION BY QUENTRA (Continued)
Acquisition by Quentra
----------------------
On October 19, 2000, 100% of the Company's outstanding preferred and
common stock was acquired by Quentra, a publicly traded company, in
exchange for the cancellation of a $450,000 debt owed to Quentra and
the issuance of Quentra's common stock valued at $14,361,773 for an
aggregate purchase price of $14,811,773. As part of the acquisition,
1,000 shares of a new class of common stock were authorized and issued
to Quentra, which owned 100% of the Company on December 31, 2000, while
existing preferred and common shares were retired. Quentra has pushed
down the effects of the transaction into the financial statements of
the Company. Any excess of consideration over the fair market value of
the assets has been allocated to goodwill and capitalized in the
accompanying financial statements.
A summary of the assets purchased and liabilities assumed by Quentra at
October 19, 2000 is as follows:
Cash $ 1,458,059
Property and equipment 19,455
Goodwill 13,755,077
Other assets 32,933
Liabilities (453,751)
--------------
Total $ 14,811,773
==============
As discussed above, the transaction has been accounted for on the
pushdown basis, and the equity accounts of the Company have been
updated to reflect the investment in the Company by Quentra. In
addition, the accumulated deficit has been restated to $0 as of the
date of the transaction. As such, the accumulated deficit at December
31, 2000 reflects only those losses incurred since the change of
control.
NOTE 7 - INCOME TAXES
In 1999, the Company had elected to be taxed under provisions of
subchapter "S" of the Internal Revenue Code. Under these provisions,
the Company was not liable for federal corporate income taxes on its
taxable income. Instead, the sole shareholder was liable for individual
income taxes of the Company's taxable income, except for minimum state
taxes. However, upon merger with Quentra, a new legal corporation was
formed, and the surviving corporation did not have "S" corporation
status.
21
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 7 - INCOME TAXES (Continued)
For the year ended December 31, 2000 and period from January 19, 1999
(inception) to December 31, 1999, the current and deferred income tax
provision was as follows:
2000 1999
------ ------
Current
Federal $ -- $ --
State 1,600 800
------ ------
1,600 800
------ ------
Deferred
Federal -- --
State -- --
------ ------
-- --
------ ------
Total $1,600 $ 800
====== ======
The provision for income taxes differs from the amount that would
result from applying the federal statutory rate for the year ended
December 31, 2000 as follows:
Statutory regular federal income tax rate 34.0%
Goodwill (31.4)
Change in valuation allowance (3.2)
Other 0.6
------
Total --%
=====
The components of the deferred income tax assets (liabilities) as of
December 31, 2000 were as follows:
Net operating losses $ 417,554
Deferred state income taxes (29,023)
Valuation allowance (388,531)
------------
Total $ --
============
22
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
As described in Note 1, the Company is affiliated with Predictive Data,
Primary Knowledge, and ODC. Further, software development revenues from
Predictive Data accounted for $738,700, or 64% of the Company's
revenues for the period from January 19, 1999 (inception) to December
31, 1999.
During 2000, as described in Note 1, the Company licensed HomeAccess
Technology to HA Technology, Inc. for all states excluding Washington,
Nevada, Oregon, and Pennsylvania for $250,000.
During 2000, the Company provided consulting services valued at $70,000
to DQE.
During 2000 and 1999, prior to the merger with Quentra, the Company's
Chairman of the Board was the spouse of the shareholder.
The Company also entered into a maintenance agreement (the "Maintenance
Agreement") with Predictive Data, whereby the Company would provide
Predictive Data software maintenance, system and network maintenance,
and administration services for $26,000 per month. During 2000 and
1999, the Company charged Predictive Data $122,900 and $78,000,
respectively, under this agreement.
As described in Note 1, in April 2000, the Company assigned certain
assets and liabilities unrelated to the HomeAccess Technology to
Primary Knowledge.
During 2000, the Company acquired property and equipment from a
subsidiary of Quentra for $287,332.
During 2000, the Company paid to Predictive Data, Primary Knowledge,
and ODC $85,115, $181,182, and $21,073, respectively, for personnel and
administrative expenses. During 2000, rent expense paid to Predictive
Data and Roswell Property, which is partially owned by family members
of the Chief Executive Officer of the Company, totaled $32,143 and
$10,000, respectively. On December 31, 2000, due to related parties
consisted of $31,194 and $27,315 due to Predictive Data and Primary
Knowledge, respectively.
During 1999, the Company paid to Predictive Data and ODC $211,472 and
$5,564, respectively, for personnel and administrative expenses. During
1999, rent expense paid to Predictive Data totaled $71,846. On December
31, 1999, $4,927 was due to Predictive Data.
23
HOMEACCESS MICROWEB, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
================================================================================
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS (Continued)
During 1999, the Company and Predictive Data entered into an agreement
(the "Sharing Agreement"), whereby they agreed to share certain
employees, facilities, equipment, and administrative services and that
these costs would be allocated to each of the companies. Under the
agreement, the Company would have been charged $149,498 during 1999 in
addition to the $211,472 of other expenses paid to Predictive Data.
However, Predictive Data agreed not to charge the Company for costs
under this Sharing Agreement. Therefore, certain overhead costs were
absorbed by Predictive Data on behalf of the Company.
NOTE 9 - 401(K) AND PROFIT SHARING PLAN
The Company has a 401(k) plan for the benefit of qualified employees.
Under the terms of the plan, matching contributions, if any, are at the
discretion of the Company. Pension plan expense for the years ended
December 31, 2000 and the period of January 19, 1999 (inception)
through December 31, 1999 was $3,069 and $3,550, respectively.
NOTE 10 - SUBSEQUENT EVENT
On April 13, 2001, 100% of the outstanding shares of common stock were
acquired from Quentra by GLDI in exchange for 200,000 shares of Series
A preferred stock of GLDI, which is convertible into 2,000,000 shares
of GLDI's common stock. GLDI's common stock price was $0.55 per share
on April 13, 2001. In addition, GLDI paid $100,000 in cash and forgave
a $625,000 loan granted to the Company subsequent to December 31, 2000.
The spouse of the Chairman of the Board of the Company has a
controlling ownership interest in GLDI.
24
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 29, 2000
(INCEPTION) TO DECEMBER 31, 2000
25
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
December 31, 2000
--------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 27
FINANCIAL STATEMENTS
Balance Sheet 28
Statement of Operations 29
Statement of Shareholder's Equity 30
Statement of Cash Flows 31
Notes to Financial Statements 32 - 36
26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholder
HA Technology, Inc.
We have audited the accompanying balance sheet of HA Technology, Inc. (a
development stage company) as of December 31, 2000, and the related statements
of operations, shareholder's equity, and cash flows for the period from
September 29, 2000 (inception) to December 31, 2000. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HA Technology, Inc. as of
December 31, 2000, and the results of its operations and its cash flows for the
period from September 29, 2000 (inception) to December 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is dependent on revenues
generated from affiliates to fund its operations. In addition, future revenue
and profitability are dependent upon obtaining financing and successfully
marketing HomeAccess Technology. These factors, among others as discussed in
Note 2 to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 11, 2001
27
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 2000
--------------------------------------------------------------------------------
ASSETS
Assets
Investment in license agreement $ 250,000
------------
Total assets $ 250,000
============
SHAREHOLDER'S EQUITY
Shareholder's equity
Series A convertible preferred stock, $0.001 par value
333,333 shares authorized
no shares issued and outstanding $ --
Common stock, $0.001 par value
833,333 shares authorized
500,000 shares issued and outstanding 500
Stock subscription (500)
Additional paid-in capital 252,000
Deficit accumulated during the development stage (2,000)
------------
Total shareholder's equity $ 250,000
============
The accompanying notes are an integral part of these financial statements.
28
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Period from September 29, 2000 (Inception) to December 31, 2000
--------------------------------------------------------------------------------
Revenue $ --
Operating expenses 2,000
-----------
Net loss $ (2,000)
===========
The accompanying notes are an integral part of these financial statements.
29
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDER'S EQUITY
For the Period from September 29, 2000 (Inception) to December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Deficit
Common Stock Accumulated
----------------------- Additional During the
Stock Paid-In Development
Shares Amount Subscription Capital Stage Total
--------- --------- --------- --------- --------- ---------
Balance, September 29, 2000 (inception) -- $ -- $ -- $ -- $ -- $ --
Sale of common stock 500,000 500 (500) -- -- --
Sale of preferred stock purchase warrants -- -- -- 250,000 -- 250,000
Donated capital -- -- -- 2,000 -- 2,000
Net loss -- -- -- -- (2,000) (2,000)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 2000 500,000 $ 500 $ (500) $ 252,000 $ (2,000) $ 250,000
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
30
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Period from September 29, 2000 (Inception) to December 31, 2000
--------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (2,000)
Start-up costs paid with donated capital 2,000
---------
Net cash provided by operating activities --
---------
Cash flows from investing activities
Proceeds used to acquire investment in license (250,000)
---------
Net cash used in investing activities (250,000)
---------
Cash flows from financing activities
Cash received for preferred stock purchase warrants 250,000
---------
Net cash provided by financing activities 250,000
---------
Net increase in cash --
Cash, beginning of period --
---------
Cash, end of period $ --
=========
Supplemental schedule of non-cash financing activities
Start-up costs of $2,000 were donated to the Company by the sole shareholder.
The accompanying notes are an integral part of these financial statements.
31
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
HA Technology, Inc. (the "Company") was incorporated on September 29,
2000 in the state of Delaware. In October 2000, the Company purchased a
license from HomeAccess MicroWeb, Inc., an affiliate, to market certain
technology known as "HomeAccess Technology," for all states, excluding
Washington, Nevada, Oregon, and Pennsylvania. The HomeAccess Technology
consists of code, programs, software, hardware, and other inventions
relating to a system designed for use on screen telephones or other
communication devices, which would allow consumers to shop, pay bills,
and find information online.
The Company is a development stage company and has not had any
significant business activity to date.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, future revenue
and profitability are dependent upon the success of marketing
HomeAccess Technology. Furthermore, the Company will need to obtain
additional financing in order to market HomeAccess Technology.
Management continues to look for strategic partners and additional
sources of capital to fund its operations, to which there can be no
assurance that such capital will be obtained.
Cash Equivalents
----------------
For the purpose of the statement of cash flows, the Company considers
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the
assets to future net cash flows expected to be generated by the assets.
If the assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
exceeds the fair value of the assets. To date, no such impairment has
occurred.
32
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Start-Up Costs
--------------
Start-up costs include legal and professional fees. In accordance with
Statement of Position 98-5, "Costs of Start-Up Activities," these costs
have been expensed as incurred.
Income Taxes
------------
The Company uses the asset and liability method of accounting for
income taxes. The asset and liability method accounts for deferred
income taxes by applying enacted statutory rates in effect for periods
in which the difference between the book value and the tax bases of
assets and liabilities are scheduled to reverse. The resulting deferred
tax asset or liability is adjusted to reflect changes in tax laws or
rates. Because the Company's net loss for federal and state income tax
purposes was comparable with its net loss of $2,000 for the period from
September 29, 2000 (inception) to December 31, 2000, the Company did
not have any significant deferred tax assets or liabilities at December
31, 2000, and its provision for income taxes for the period from
September 29, 2000 (inception) to December 31, 2000 was $0.
Estimates
---------
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
Recently Issued Accounting Pronouncements
-----------------------------------------
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," to provide guidance on the recognition,
presentation, and disclosure of revenue in financial statements.
Changes in accounting to apply the guidance in SAB No. 101 may be
accounted for as a change in accounting principle effective January 1,
2000. Management has not yet determined the complete impact of SAB No.
101 on the Company; however, management does not expect that
application of SAB No. 101 will have a material effect on the Company's
revenue recognition and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation," (an Interpretation of Accounting
Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44
provides guidance on the application of APB 25, particularly as it
relates to options. The effective date of FIN 44 is July 1, 2000, and
the Company has adopted FIN 44 as of that date.
33
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
-----------------------------------------
In June 2000, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 138, "Accounting for Certain Instruments and
Certain Hedging Activities." This statement is not applicable to the
Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121."
This statement is not applicable to the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." This statement
is not applicable to the Company.
NOTE 3 - INVESTMENT IN LICENSE AGREEMENT
On October 19, 2000, the Company acquired a license for HomeAccess
Technology from a related party for $250,000 (see Note 1). The Company
did not amortize the cost of the license since the Company did not have
any significant business activity.
NOTE 4 - SHAREHOLDER'S EQUITY
Preferred Stock
---------------
Dividends
The holders of Series A convertible preferred stock are entitled to
receive quarterly dividends, out of any assets legally available, prior
and in preference to, any declaration or payment of any dividend on the
common stock of the Company at the rate of $1.44 per share per year.
Such dividends are payable when, as, and if declared by the Board of
Directors and are cumulative. As of December 31, 2000, no dividends
have been declared.
Liquidation
In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, the holders of Series A
convertible preferred stock are entitled to receive, prior and in
preference to, any distribution of any assets of the Company to the
holders of common stock by reason of their ownership, an amount equal
to the sum of the original issuance price for each outstanding share of
Series A convertible preferred stock, as adjusted for any stock
dividends, combinations, or splits, plus any declared but unpaid
dividends on such shares. Any remaining assets will be distributed
ratably to the holders of common stock based on the number of shares
held by each shareholder.
34
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
--------------------------------------------------------------------------------
NOTE 4 - SHAREHOLDER'S EQUITY (Continued)
Preferred Stock (Continued)
---------------
Voting
The holder of each share of Series A convertible preferred stock is
entitled to vote as though each share of the Series A convertible
preferred stock were converted into one share of common stock.
Conversion
At the option of the holder, each share of Series A convertible
preferred stock is convertible into one share of common stock. The
conversion rate is adjustable so that the holder of preferred stock
will acquire 40% of the outstanding common stock at the time of
conversion.
Warrants
In October 2000, the Company sold 333,333 Series A convertible
preferred stock purchase warrants to DQE Enterprises ("DQE") in
exchange for $250,000. The warrants are exercisable at $24 per share,
subject to certain adjustments. The conversion rate of the warrants is
adjustable so that, upon exercise of all of the warrants, DQE will own
40% of the common stock equivalents of the Company. The warrants expire
October 19, 2003.
Common Stock
------------
At December 31, 2000, the Company had 500,000 shares of outstanding
common stock that are restricted securities pursuant to the Securities
and Exchange Commission's Rule 144, which significantly limits the
timing and procedures of selling such stock. Each share of common stock
is entitled to one vote. The holders of common stock are also entitled
to receive dividends whenever funds are legally available and when
declared by the Board of Directors, subject to the prior rights of
holders of all classes of stock outstanding. The 333,333 shares of
unissued common stock are reserved for issuance upon conversion of the
Series A convertible preferred stock.
Option Agreement
----------------
Quentra Networks, Inc. ("Quentra") obtained an option to purchase all
of the capital stock of the Company in exchange for 9,000,000 shares of
Quentra's common stock and warrants to purchase 3,800,000 shares of
Quentra's common stock at $8.64 per share. The option was to expire in
April 2002. However, as described in Note 6, the option agreement was
canceled subsequent to December 31, 2000.
35
HA TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
--------------------------------------------------------------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS
In October 2000, the Company acquired a license for HomeAccess
Technology from HomeAccess MicroWeb, Inc. for all states, excluding
Washington, Nevada, Oregon, and Pennsylvania (see Note 1).
NOTE 6 - SUBSEQUENT EVENTS
On April 13, 2001, all of the Company's issued and outstanding shares
of common stock were acquired by Group Long Distance, Inc. ("GLDI") in
exchange for 10,000,000 shares of GLDI's common stock. On April 13,
2001, the closing price of GLDI's common stock was $0.55 per share. The
sole shareholder of the Company as of the acquisition date became the
controlling shareholder of GLDI.
On April 13, 2001, the option agreement for Quentra to purchase the
Company was canceled as required under an agreement for GLDI to
purchase HomeAccess MicroWeb, Inc. from Quentra.
36
GROUP LONG DISTANCE, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The unaudited pro forma financial statements gives effect to the stock purchase
by the Company of HomeAccess for $100,000 and 200,000 shares of Series A
Preferred Stock and the stock purchase of HAT for 7,800,000 shares of Common
Stock. On July 20, 2001, the Company acquired the remaining 20% of HAT in
exchange for 2,200,000 shares of Common Stock. The unaudited pro forma
consolidated Balance Sheet as of January 31, 2001 and the unaudited pro forma
consolidated Statement of Operations for year ended April 30, 2000 and the nine
months ended January 31, 2001, give effect to the transaction discussed above as
if such transaction had been consummated at January 31, 2001, or at the
beginning of the period presented. The acquisition has been accounted for under
the purchase method of accounting. The amounts included for HomeAccess and HAT,
in the pro forma balance sheet are as of December 31, 2000. Any differences
between the December 31, 2000 and a January 31, 2001 balance sheet are
immaterial.
The unaudited pro forma financial statements may not necessarily be indicative
of the results that would actually have been obtained had the transactions
occurred on the date indicated or which may be obtained in the future. In the
opinion of the Company's management, all adjustments necessary to present fairly
such unaudited pro forma Consolidated Financial Statements have been included.
37
Group Long Distance, Inc. and subsidiaries
Pro Forma Consolidated Balance Sheet
As of January 31, 2001
(Unaudited)
Group Long HomeAccess HA Technology, Pro Forma
Distance, Inc. Microweb, Inc. Inc. Adjustments Total
Current assets
Cash 2,414,959 290,999 -- (725,000) A 1,980,958
Accounts Receivable less allowance for
doubtful accounts 158,412 -- -- -- 158,412
Prepaid Expenses and other current assets 43,901 36,614 -- -- 80,515
Deferred Tax - current 67,700 -- -- -- 67,700
-----------------------------------------------------------------------------
Total current assets 2,684,972 327,613 -- (725,000) 2,287,585
Property and equipment, net 4,029 249,933 -- -- 253,962
Deposits -- 57,640 -- -- 57,640
Restricted Cash -- 204,201 -- -- 204,201
Note receivable 300,000 -- -- -- 300,000
Deferred tax asset 243,060 -- -- -- 243,060
Investment in license agreement -- -- 250,000 (250,000) B --
Intangible Assets -- -- -- 8,913,726 A 8,913,726
Intangible Assets -- 1,733,750 -- (1,733,750) A --
-----------------------------------------------------------------------------
Total Assets $ 3,232,061 $ 2,573,137 $ 250,000 $ 6,204,976 $ 12,260,174
=============================================================================
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 627,340 $ 157,387 -- 383,990 B 1,168,717
Volume shortfall charge payable,net 122,223 -- -- -- 122,223
Income taxes payable -- -- -- -- --
Accrued expenses and other liabilities 123,799 58,509 -- -- 182,308
Current portion of capital lease obligations -- 19,258 -- -- 19,258
Customer deposits -- 368,969 -- -- 368,969
-----------------------------------------------------------------------------
Total current liabilities 873,362 604,123 -- 383,990 1,861,475
-----------------------------------------------------------------------------
Stockholders' Equity(deficit)
Preferred stock, no par value -- -- -- -- --
Common stock, no par value -- 14,811,773 500 (14,812,273) A --
Subscriptions receivable -- -- (500) 500 A --
Additional paid-in capital 5,913,988 -- 252,000 7,788,000 A/B 13,953,988
Accumulated deficit/retained earnings (3,555,289) (12,842,759) (2,000) 12,844,759 A (3,555,289)
-----------------------------------------------------------------------------
Total stockholders' equity (deficit) 2,358,699 1,969,014 250,000 5,820,986 10,398,699
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Total liabilities and stockholders equity (deficit) $ 3,232,061 $ 2,573,137 $ 250,000 $ 6,204,976 $ 12,260,174
=============================================================================
38
Group Long Distance, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Year Ended April 30, 2000
(Unaudited)
Group Long HA
Distance, Inc. Home Access Technology Pro-Forma
and subsidiaries Microweb, Inc. Inc. Adjustments Total
Sales 13,736,337 890,663 -- -- 14,627,000
Cost of sales 5,230,837 565,282 -- -- 5,796,119
-------------------------------------------------------------------------
Gross Profit 8,505,500 325,381 -- -- 8,830,881
Selling,general and administrative expenses 1,961,578 108,622 -- -- 2,070,200
Depreciation and amortization 15,368 20,518 -- 1,554,263 A 1,590,149
Research and development expenses -- 305,169 -- -- 305,169
-------------------------------------------------------------------------
Income from operations 6,528,554 (108,928) -- (1,554,263) 4,865,363
Gain on sale of customer base 1,000,000 -- -- -- 1,000,000
interest income (expense),net 3,825 (9,950) -- -- (6,125)
-------------------------------------------------------------------------
Income (loss) before income taxes 7,532,379 (118,878) -- (1,554,263) 5,859,238
Income Tax 867,511 -- -- (45,200) A 822,311
-------------------------------------------------------------------------
Net income (loss) $ 6,664,868 $ (118,878) $ -- $ (1,509,063) $ 5,036,927
=========================================================================
net income per common share - basic $ 1.90 -- -- -- $ 0.37
=========================================================================
net income per common share - diluted $ 1.87 -- -- -- $ 0.32
=========================================================================
Shares:
Basic 3,500,402 -- -- -- 13,500,402
=========================================================================
Diluted 3,559,911 -- -- -- 15,559,911
=========================================================================
39
Group Long Distance, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Nine months Ended January 31, 2001
(Unaudited)
Group Long HA
Distance, Inc. Home Access Technology Pro-Forma
and subsidiaries Microweb, Inc. Inc. Adjustments Total
Sales 3,341,584 44,900 -- -- 3,386,484
Consulting fees -- 70,000 -- -- 70,000
--------------------------------------------------------------------------
Total revenues 3,341,584 114,900 -- -- 3,456,484
--------------------------------------------------------------------------
Cost of sales 1,826,517 191,648 -- -- 2,018,165
--------------------------------------------------------------------------
Gross Profit 1,515,067 (76,748) -- -- 1,438,319
Selling,general and administrative expenses 924,700 675,499 -- -- 1,600,199
Depreciation and amortization 3,700 59,629 -- 1,165,697 A 1,229,026
Research and development expenses -- 682,936 -- -- 682,936
--------------------------------------------------------------------------
Income from operations 586,667 (1,494,812) -- (1,165,697) (2,073,842)
Write down of Note Receivable 650,000 -- -- -- 650,000
interest income (expense),net 153,353 (2,753) -- -- 150,600
--------------------------------------------------------------------------
Income (loss) before income taxes 90,020 (1,497,565) -- (1,165,697) (2,573,242)
Income Tax 32,000 -- -- (32,000) --
--------------------------------------------------------------------------
Net income (loss) $ 58,020 $ (1,497,565) $ -- $ (1,133,697) $ (2,573,242)
==========================================================================
net income (loss) per common share - basic $ 0.02 -- -- -- $ (0.19)
==========================================================================
net income (loss) per common share - diluted $ 0.02 -- -- -- $ (0.19)
==========================================================================
Shares:
Basic 3,500,402 -- -- -- 13,500,402
==========================================================================
Diluted 3,500,402 -- -- -- 13,500,402
==========================================================================
40
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY
31, 2001 AND THE RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2000 AND THE
NINE MONTHS ENDED JANUARY 31, 2001.
A. On April 13, 2001, the Company acquired all the outstanding
common stock of HomeAccess in exchange for (i) cash in the
amount of $100,000 and (ii) 200,000 shares of Series A
Preferred Stock Each share of series A Preferred Stock has no
par value, has a liquidation preference of $20.00 per share,
does not have a dividend preference and does not pay
dividends, does not have any voting rights, except as
otherwise provided by law, and, commencing on April 13, 2002,
is convertible into ten shares of Common Stock. The Company
also agreed to convert all loans made to HomeAccess prior to
closing into capital. Such loans totaled $625,000.
Simultaneously with the HomeAccess acquisition, the Company
entered into an agreement to acquire 80% of the outstanding
shares of common stock of HAT, an affiliate through common
ownership and management, in exchange for 7,800,000 shares of
Common Stock. On July 20, 2001 the Company acquired the
remaining 20% of HAT in exchange for 2,200,000 shares of
Common Stock.
The acquisition of HomeAccess and HAT resulted in the
recognition of $6,561,314 of intangible assets when recorded
on April 13, 2001. In July 2001 the Company recorded an
additional $1.2 million to intangible assets to reflect the
acquisition of the remaining 20% of HAT. In the pro forma
January 31,2001 balance sheet, the acquisition is recorded
using an average share price for the end of January 2001. The
Company is amortizing the intangible assets over five years.
The pro forma adjustment is to record the acquisition and the
amortization of the intangible assets as if the acquisition
occurred on the first day of the periods presented.
The adjustment to income tax expense is to reflect the tax
benefit of HomeAccess's operating losses. The tax adjustment
is limited to the extent that the Company had taxable income.
B. This accrual relates to expenses incurred in the acquisition
of HomeAccess and HAT and comprises of legal fees, fees paid
to an investment banking firm and travel and related
expenditure. The investment in license agreement is
eliminated, since Group Long Distance, Inc now controls both
affiliated companies.
41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROUP LONG DISTANCE, INC.
(Registrant)
By: /s/ Glenn S. Koach
--------------------------
Glenn S. Koach
President and COO
42