SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 27, 2000
800America.com, Inc.
(Exact name of issuer as specified in its charter)
Nevada 000-28547 87-0567884
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) dentification Number)
420 Lexington Avenue
New York, NY 10170
(Address of principal executive offices and zip code)
(800) 999-5048
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported, on October 27, 2000, 800America.com, Inc.
("Registrant") acquired Inshop.com, Inc. ("Inshop") pursuant to a Stock
Acquisition Agreement between Registrant, Inshop and certain shareholders of
Inshop (the "Agreement") and issued in the aggregate 1,800,000 shares of its
restricted common stock to the shareholders of Inshop. Pursuant to the terms of
the Agreement, Registrant intends to operate Inshop as a subsidiary.
Closing of the transaction was subject to shareholder approval of the Inshop
Shareholders. No shareholder approval by Registrant's shareholders was required.
There is no relationship between Registrant or its affiliates, officers or
directors and Inshop or its affiliates, officers and directors.
The exchange ratio provided for in the stock Acquisition Agreement was arrived
at by arms length negotiation based upon the revenues, income and potential for
growth of Inshop as of the time the transaction was negotiated.
The Registrant is filing the following information relating to the transaction.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
(b) Pro Forma Financial Information.
(c) Exhibits.
Exhibit Number Description
-------------- -------------------------------------------------------
2 Form of Stock Acquisition Agreement (previously filed).
ITEM 7a
PRICEWATERHOUSECOOPERS
Pricewaterhouse Coopers LLP
1301 Avenue of the Americas New
York NY 10019-6013 Telephone
(212) 259-1000 Facsimile (212)
259-1301
Report of Independent Accountants
To the Board of Directors and Stockholders of inshop.com, Inc.:
In our opinion, the accompanying balance sheet and related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of inshop.com, Inc. (a development stage
company) (the "Company") at December 31, 1999, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
Financial statements, the Company has suffered operating losses since inception.
This and other factors raise substantial doubt about its ability to continue as
a going concern. Management's plan in regard to these matters is also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
March 10, 2000 Pricewaterhouse Coopers LLP
New York, New York
1
inshop.com, Inc.
(A development stage company)
Balance Sheet
________________________________________________________________________________
December 31,
1999
Assets
Current assets:
Cash and cash equivalents $4,082,226
Prepayments and other current assets 43,949
----------
Total current assets 4,126,175
Property and equipment, net 325,990
Restricted cash 95,564
----------
Total assets $4,547,729
----------
Liabilities, mandatorily redeemable convertible preferred stock
and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses $480,545
----------
Total current liabilities 480,545
----------
Commitments (Note 8)
Mandatorily redeemable
Series A Convertible Preferred Stock, net of offering costs ($.01 par
value; 10,000,000 shares authorized, 5,692,394 issued
and outstanding) (liquidation preference of $7,095,000) 6,767,518
Stockholders' deficit:
Common stock ($0.01 par value, 20,000,000 shares authorized,
8,089,800 shares issued and outstanding) 80,898
Additional paid in capital 692,657
Accumulated deficit (3,473,889)
-----------
Total stockholders' deficit (2,700,334)
-----------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' deficit $4,547,729
----------
The accompanying notes are an integral part of these financial statements
2
inshop.com, Inc.
(A development stage company)
Statement of Operations
________________________________________________________________________________
For the Period
January 28, 1997
Year Ended (Inception) to
December 31, December 31,
1999 1999
Total revenues $ $21,823
----------- -----------
Cost of revenues:
Website development and operations 324,602 401,619
Content development 208,264 242,546
----------- -----------
Total cost of revenues 532,866 644,165
----------- -----------
Gross margin (532,866) (622,342)
----------- -----------
Operating expenses:
Sales and marketing 1,528,173 1,599,855
Technology 127,743 127,743
General and administrative 982,716 1,232,988
----------- -----------
Total operating expenses 2,638,632 2,960,586
----------- -----------
Loss from operations (3,171,498) (3,582,928)
----------- -----------
Other income:
Interest and other income 111,416 120,892
Interest expense (11,853) (11,853)
----------- -----------
Total other income (expense) 99,563 109,039
----------- -----------
Net loss (3,071,935) (3,473,889)
----------- -----------
Accretion of mandatorily redeemable
convertible preferred stock to redemption value (30,584) (30,584)
----------- -----------
Loss available to common stockholders $(3,102,519) $(3,504,473)
----------- -----------
The accompanying notes are an integral part of these financial statements
3
inshop.com, Inc.
(A development stage company)
Statement of Stockholders' Deficit
________________________________________________________________________________
Common Stock Additional
---------------------- Paid in Accumulated
Shares Amount Capital Deficit Total
Issuance of Founder's common
stock for cash 5,100.000 $ 51,000 $ (42,118) $ 8,882
Issuance of common stock for
cash 2,314,800 23,148 224,634 247,782
Compensatory common shares
granted to employees 52,000 52,000
Compensatory stock options
granted to non-employees 80,520 80,520
Net loss $ (401,954) (401,954)
---------- -------- --------- ------------- ------------
Balance at December 31, 1998 7,414,800 74,148 315,036 (401,954) (12,770)
Exercise of stock options 675,000 6,750 74,250 81,000
Compensatory stock options
granted to non-employees 288,232 288,232
Compensatory common shares
granted employees 32,500 32,500
Stock options issued in connection
with issuance of mandatorily
redeemable preferred stock 6,327 6,327
Stock compensation charges
related to the issuance of the
AOL warrant 6,896 6,896
Accretion of mandatorily
redeemable convertible
preferred stock to redemption
value (30,584) (30,584)
Net loss (3,071,935) (3,071,935)
---------- -------- --------- ------------- ------------
Balance at December 31, 1999 $8,089,800 $ 80,898 $ 692,657 $ (3,473,889) $(2,700,334)
---------- -------- --------- ------------- ------------
4
inshop.com, Inc.
(A development stage company)
Statement of Cash Flows
--------------------------------------------------------------------------------
For the Period
January 28, 1997
Year Ended (Inception) to
December 31, December 31,
1999 1999
Cash flows from operating activities:
Net loss $ (3,071,935) $ (3,473,889)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensatory warrants issued to a service provider 6,896 6,896
Compensatory stock options granted to non-
employees 288,232 368,752
Compensatory common shares issued to employees 32,500 84,500
Depreciation and amortization 60,298 60,298
Increase in prepayments and other current assets (43,950) (43,950)
Increase in accounts payable and accrued expenses 427,798 480,544
------------ -----------
Net cash used in operating activities (2,300,161) (2,516,849)
------------ -----------
Cash flow from investing activities:
Increase in restricted cash (95,564) (95,564)
Purchases of property and equipment (362,312) (386,288)
------------ -----------
Net cash used in investing activities (457,876) (481,852)
------------ -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 81,000 81,000
Proceeds from issuance of common stock - 256,665
Net proceeds from issuance of mandatorily
redeemable convertible preferred stock 6,743,262 6,743,262
------------ -----------
Net cash provided by financing activities 6,824,262 7,080,927
------------ -----------
Net increase in cash and cash equivalents 4,066,225 4,082,226
Cash and cash equivalents, beginning of period 16,001 -
------------ -----------
Cash and cash equivalents, end of period $ 4,082,226 $ 4,082,226
------------ -----------
Cash paid for:
Interest $ 39,082 $ 39,082
------------ -----------
5
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
1. Organization and Basis of Presentation
Organization inshop.com, Inc. ("inshop" or "the Company") is a Delaware
corporation, which was incorporated in June 1999. inshop was formed to
succeed Insider Shopping LLC,
An investor group originally organized Insider Shopping LLC as a New
York limited liability company in January 1997. The Company was formed
to provide local shopping and shopping related content via a telephone
system and subsequently developed a Web site for delivering its content
through the Internet.
Basis of Presentation
The financial statements have been prepared on a going-concern basis,
which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. The Company has incurred
substantial losses since its inceptions and has financed its operations
to date by capital contributions raised in private financing. As of
December 31, 1999, the Company has a stockholders' deficit of
$2,700,334. In addition, the Company expects to incur substantial costs
and expenses during the year ending December 31, 2000; accordingly, the
Company will require additional funds to meet planned obligations over
the next twelve months which it expects to obtain from additional
private financing, however, it currently has no commitment for
additional financing. There can be no assurance that such funds, if at
all available, can be obtained on terms reasonable to the Company. In
the event the Company is unable to raise additional funds, planned
operations will need to be scaled back or discontinued. Continuance of
the Company as a going concern is dependent upon, among other things,
the Company's ability to obtain adequate long-term financing and
profitable operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Recapitalization
These financial statements reflect the recapitalization on June 2, 1999
of Insider Shopping LLC as a corporation and the conversion of each
membership interest in the limited liability Company into shares of
common stock.
2. Significant Accounting Policies and Procedures
Fixed Assets
Depreciation of equipment, furniture and fixtures, and purchased
computer software is provided for by the straight-line method over
their estimated useful lives ranging from three to five years.
Amortization of leasehold improvements is provided for over the lesser
of the term of the related lease or the estimated useful life of the
improvement. Repairs and maintenance costs are charged to operations in
the periods incurred.
6
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
Computer Software Costs
The Company applies the provisions of Statement of Position 981,
"Accounting for the cost of Computer Software Develop or Obtained from
Internal Use" ("SOP 98-1") which provides guidance for accounting for
computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of such
costs. Costs incurred during the preliminary project stage are expensed
as incurred. Computer software costs incurred during the application
development stage are capitalized. Typically, these costs relate to
third party consulting costs directly associated with the development
of the internal use computer software. Amortization commences once the
software is ready for its interned used and is amortized by the
straight-line method over the estimated useful life, typically twelve
to eighteen months.
Cash and Cash Equivalents
Cash and Cash Equivalents include money market accounts and highly
liquid investments purchased with original maturities of three months
or less. The Company maintains its cash and cash equivalents in highly
rated financial institutions.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities, approximate fair value because of their short
maturities
Revenue Recognition
Subscription services revenues are recognized over the period that
services are provided.
Risks and Uncertainties
The Company has a limited operating history and its prospects are
subject to the risks, expenses, and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for
Internet products and services. These risks include the failure to
develop and extend the Company's online service brands, the rejection
of the Company's services by Web consumers, vendors and/or advertisers,
the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and
uncertainties. Management believes that sufficient funding will be
available to meets its planned business objectives for a reasonable
period of time; however, there can be no assurance that inshop will be
successful in its efforts to raise additional capital.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those
estimates.
7
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
Advertising Costs
The Company expenses the costs of advertising in the period in which
the costs are incurred. Advertising expenses were approximately
$1,280,000 for the year ended December 31, 1999.
Income Taxes
The Company recognizes deferred taxes by the asset and liability method
of accounting for income taxes. Under the asset and liability method,
deferred income taxes are recognized for differences between the
financial statement and tax bases of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences
are expected to reverse. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the
enactment date. In addition, valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
realized.
Stock based compensation
The accompanying financial position and results of operations of the
Company have been prepared in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees: ("APB No. 25"). Under APB
No. 25, generally, no compensation expense is recognized in the
financial statement's in connection with the awarding of stock option
grants to employees provided that, as of the grant date, all terms
associated with the award are fixed and the fair value of the Company's
stock is equal to or less than the amount an employee must pay to
acquire the stock. The Company will recognize compensation expense in
situations where the terms of an option grant are not fixed or where
the fair value of the Company's common stock on the grant date is
greater than the amount an employee must pay to acquire the stock.
Disclosures require by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
including pro forma operating results had the Company prepared its
financial statements in accordance with the fair-value-based method of
accounting for stock-based compensation, have been included in Note 6.
The fair value of options and warrants granted to non employees for
financing, goods or services are included in the financial statements
and expenses over the life of the debt, as goods are utilized or the
services performed, respectively.
Stock options granted to non-employees
The fair value of options granted to non-employees for services
rendered is recognized as an expense in accordance with EITF 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
Comprehensive Income" ("FAS 130"). This statement requires companies to
classify items of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a
statement of financial position. FAS 130 is effective for financial
statement issues for fiscal years beginning after December 15, 1997.
The Company adopted FAS 00 in fiscal year 1999. There was no difference
between net income and comprehensive income for the year ended December
31, 1999.
8
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
3. Fixed Assets
Fixed assets consist of the following:
Estimated December 31,
Useful Life 1999
Computers and equipment 3 years $ 219,291
Leasehold improvements Term of lease or 5 years 18,221
Furniture and fixtures 5 years 34,117
Software developed for internal use 18 months 114,659
---------
Less, accumulated depreciation and amortization (60,298)
--------
Total fixed assets $ 325,990
---------
4. Mandatory Redeemable Preferred Stock
Series A, convertible participating preferred stock
In June and November 1999, the Company completed a private offering of
3,309,531 and 2,392,863 shares of Series A mandatory redeemable,
convertible participating preferred stock ("Series A Preferred Stock"),
respectively, at a price of $1,2464 per share, providing gross proceeds
of approximately $4.12 million and $2.97 million, respectively.
The holders of the Series A Preferred Stock are entitled to: (i)
receive dividends when and if declared by the Board of Directors prior
to December 31, 200 1; (ii) receive a dividend at an annual rate of
LIBOR, plus 4% commencing January 1, 2002; (iii) a liquidation
preference equal to the $1.2464 plus any accrued and unpaid dividends;
(iv) mandatory redemption of the preference amount in cash at any time
after January 1, 2004; (v) vote at a special or annual Meeting of
stockholders, (vi) elect one director of the Company; and (vi) covert
shares of Series A Preferred Stock to shares of the Company's common
stock at a rate of $1.2464 divided by the conversion price of $1.2464
as adjusted for dividends, issuance of rights to purchase common stock,
certain distributions and other changes.
In the event of a public offering of the Company's stock, the shares of
Series A Preferred Stock will automatically convert into common shares.
9
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
5. Capital Stock
At December 31, 1999 the authorized capital stock of the Company
consists of 20,000,000 shares Of Common Stock, $.01 par value per share
and 10,000,000 of Preferred Stock, $.01 par value per share The Board
of Directors of the Company has the authority to issue Preferred Stock
in series with rights and privileges determined by the Board. Upon
formation of the Company, 7,414,800 shares of $.01 par value Common
Stock were issued to the founders for $256,664.
In 1999, inshop issued 50,000 shares of the Company's common stock to
an employee in exchange for services provided. The Company recorded a
non-cash compensation expense of $32,500 based upon the $0.65 fair
value of the Company's common shares on the date of the issuance as
determined by the Company's Board of Directors.
Warrants Issued to Related Party
In November 1999, the Company issued to America Online/Digital Cities
warrants to purchase up to 401,155 shares of the Company's Mandatory
Redeemable Preferred Stock at a price of $1.2464 per share in exchange
for banner advertising on the American Online/Digital Cities Website.
For the year ended December 31, 1999, the Company recorded a non-cash
charge of $6,996 as a marketing expense, representing the fair value of
the advertising services received in 1999 in exchange for the warrants.
In connection with the warrant issued to America Online, 234,693
prorata warrants at a price of S 1.2464 were issued to the other
Preferred Stock shareholders including AOL in order that the preferred
shareholders have the ability to maintain their ownership percentages.
6. Stock Options
Stock Option Plan
In 1999, inshop's Board of Directors and stockholders adopted the
Company's 1999 Stock Option Plan ("the Plan"). The Plan provides for
the granting of stock options at the discretion of the Board of
Directors. The total number of shares of Common Stock for which options
may be granted under the Plan is 1,600,000.
The Board of Directors determines the exercise price of all stock
options granted under the Plan at the time of grant. The maximum term
of each option granted under the Plan is ten years from the date of
grant. Options shall become exercisable at such times and in such
installments as the Board of Directors shall provide in the terms of
each individual award.
The exercise price of all options under the Plan, which range from
$0.94-$1.25, were determined based upon the fair market value of
inshop's Common Stock on the date of grant as determined by the
Company's board of directors,
Stock option activity under the Plan can be summarized as follows:
10
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
Weighted-
Number of Average
Shares Exercise Price
Outstanding at January 1, 1999
Granted 908,291 $ 1.22
Exercised - -
Forfeited 191,408 1.25
------- ---------
Outstanding at December 31, 1999 16,883 $ 1.22
------- ---------
Options available for future grant 883,117
Options exercisable 123,469 $ 1.06
At December 31, 1999 the weighted-average remaining contractual life of
the outstanding options approximated 10 years.
Stock-Based Compensation
As permitted by FAS 123, the Company applies APB 25 and related
interpretations in accounting for employees stock option awards. In
accordance with the provisions of FAS 123, the Company discloses pro
forma effects of accounting for such arrangements using the minimum
value method of the Black-Scholes option-pricing model. Based on the
fair value of the stock options at the date of grant, the Company's net
loss for the year ended December 31, 1999 would not have been adjusted.
The fair value of each option grant to employees is estimated using the
minimum-value method of the Black-Scholes option-pricing Model, which
assures no volatility. The values were obtained using' assumptions,
which were derived using information provided by the management of the
Company. Changes in the information would affect the assumptions and
the option prices derived from those assumptions. The weighted average
assumptions used for the grants made in 1999 were as follows: risk free
interest rate ranging between 4.42%-6.0 1%, expected option life
ranging between one to five years and dividend yield 0.0%.
During 1999, the Company issued options to purchase up to 369,794
shares of the Company's Common Stock to consultants and advisors. The
options vest over different time periods of up to three years. In
accordance with Emerging Issues Task Force Abstract No. 9618,
"Accounting for Equity Investments That are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services", the Company is recording the value of the services being
received based on the fair value of the options provided or the
services received whichever is more reliably measured. The fair value
of these options has been estimated using the Black-Scholes options
pricing model based on the following weighted average assumptions: risk
free interest rate ranging between 4.42%-6.01 %, expected option life
ranging between one to rive years, dividend yield 0.0% and volatility
of 50%. In 1999, the Company recorded non-compensation of approximately
$288,000 related to such awards.
In connection with the sales of the Company's Series A Preferred Stock,
the Company issued options to purchase 74.100 and 127,450 shares of the
Company's common shares at exercise prices of $0.94 and $1.25,
respectively to the financial advisor of the Company. The Company
recorded issuance costs of $6,327 related to these options.
11
inshop.com, Inc.
(A development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
--------------------------------------------------------------------------------
7. Related Party Transactions
In November 1999, the Company entered into a contract with America
Online/Digital Cities, a holder of inshop stock, whereby America
Online/ Digital Cities agreed to deliver certain traffic to a
co-branded Website with the Company for a period of one year.
(See Note 5)
The Company entered into a License and Support Agreement with a
stockholder in 1999, whereby inshop.com issued a license to inshop UK
in exchange for a 25% interest in the UK entity.
8. Commitments
Operating leases the Company leases office space under a non-cancelable
operating lease expiring in 2005. The following is a schedule of future
minimum lease payments under non-cancelable operating leases as of
December 31, 1999:
2000 $ 159,105
2001 196,074
2002 201,956
Thereafter 530,852
---------
$1,087,987
----------
Rent expense for the year ended December 31, 1999 was approximately
$93,000.
9. Subsequent Events
In January 2000, the Board of Directors approved a verbal agreement
with CAE Solutions, a related party, under which CAE Solutions will
provide technical services to the Company. Under the agreement, the
Company with pay CAE a monthly fee of tip to $44,000 and will issue CAE
Solutions 160,000 shares of the Company's common stock upon completion
of the initial 12 month term of the agreement. The Company will account
for the issuance of such shares under the provisions of EITF 96-18.
12
ITEM 7b
800America.com, Inc.
Pro Forma Combined
Condensed Financial Information
On October 24, 2000, 800America . com, Inc. (800America) acquired all the
outstanding common and preferred stock of Inshop . com (InShop) in exchange for
1,187,493 shares of 800America . com, Inc. common stock.
The acquisition will be accounted for as a purchase. The stock issued was
valued at $1 per share for a total purchase price of $1,817,493 allocated as
follows:
Customer list (approximately 103,000 names) $917,493
Goodwill 900,000
----------
Total $1,817,493
The stock was valued at the average price per share during the month the
agreement was reached which value was reduced by one-third due to the restricted
nature of the stock and its volatility. It was valued at approximately $9 per
customer and will be amortized over seven years. The customer list consist of
retail stores around the country that have agreed to participate with InShop The
equipment of Inshop was not considered to have any value.
The unaudited pro forma condensed consolidated balance sheet of 800America
.. com Inc. and Inshop as of September 30, 2000 reflects adjustments as if the
acquisition had been made as of that date. The unaudited pro forma condensed
consolidated statements of income for the year ended December 31, 1999 and for
the nine months ended September 30, 2000 reflect adjustments as if acquisition
had occurred on January 1, 1999 and January 1, 2000 respectively.
The unaudited pro forma condensed consolidated balance shee t and statement
of income should be read in conjunction with the separate historical audited
financial statements of 800America . com Inc. and Inshop and the related notes
appearing elsewhere in this report. The pro forma financial information is not
nece s sarily indicative of the results that would have been reported had such
events actually occurred on the dates specified, nor is it necessarily
indicative of the future results of the combined company. Actual statements of
operations of the companies will be consolidated commencing on the date of the
acquisition.
13
800America . com, Inc.
Unaudited Pro Forma Combined
Condensed Balance Sheet
September 30, 2000
Historical Historical Pro Forma Pro Forma
800America InShop.com Adjustments 800America
Assets
Current Assets
Cash and Cash Equivalents $1,780,803 $1,780,803
Accounts Receivables (Net) 1,097,094 1,097,094
----------------------------------------------------------------
Total Current Assets 2,877,897 2,877,897
Property and Equipment
Equipment (Net) 592,575 383,800 -383,800 b 592,575
Intangible Assets 917,493 a 917,493
Goodwill (Net) 200,000 900,000 a 1,100,000
----------------------------------------------------------------
Total Assets 3,670,472 383,800 1,433,693 5,487,965
================================================================
Liabilities, Mandatorily Redeemable
Convertible Preferred Stock
Current Liabilities
Accounts Payable 209,011 536,700 -536,700 b 209,011
Rebates Payable 330,982 330,982
Income Tax Payable 415,570 415,570
----------------------------------------------------------------
Total Current Liabilities 955,563 536,700 -536,700 955,563
----------------------------------------------------------------
Mandatory Redeemable
Series A Convertible Preferred Stock 6,783,000 -6,783,000 b
----------------------------------------------------------------
Stockholders' Equity
Common Stock 12,450 82,600 10,817 a 23,267
-82,600 b
Additional Paid in Capital 1,402,112 693,500 1,806,676 a 3,208,788
-693,500 b
Retained Earnings 1,300,347 -7,712,000 7,712,000 b 1,300,347
----------------------------------------------------------------
Total Stockholders' Equity 2,714,909 -6,935,900 8,753,393 4,532,402
----------------------------------------------------------------
Total Liabilities and Stockholders' Equity $3,670,472 $383,800 $1,433,693 $5,487,965
================================================================
See Notes to the Unaudited Pro Forma
Combined Consolidated Financial Notes
14
800America.com, Inc.
Pro Forma Income Statement
Year Ended December 31, 1999
Pro Forma
800America InShop Adjustments Combined
Revenues $3,283,575 $0 $3,283,575
----------------------------------------------------------------
Cost and Expense
Rebates 2,135,668 2,135,668
Web Site Development 324,602 324,602
Content Development 208,264 208,264
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Total Cost of Revenues 2,135,668 532,866 2,668,534
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Gross Margin 1,147,907 -532,866 615,041
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Operating Expense
Sales and Marketing 1,528,173 1,528,173
Technology 127,743 127,743
Advertising 397,738 397,738
General and Administrative 474,999 982,716 191,070 a 1,648,785
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Total Operating Expense 872,737 2,638,632 191,070 3,702,439
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Profit (Loss) from Operations 275,170 -3,171,498 -191,070 -3,087,398
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Other Income (Expense)
Interest and Other Income 5,810 111,416 117,226
Interest Expense -11,853 -11,853
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Total 5,810 99,563 105,373
Income Tax (Expense) Benefit -95,533 1,061,828 c 966,295
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Net Income (Loss) $185,447 ($3,071,935) $870,758 ($2,015,730)
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Accretion of Mandatary
Redeemable Convertible
Preferred Stock to Redemption Value -30,584 30,584 b
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Net Income (Loss) 185,447 -3,102,519 901,342 -2,015,730
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Basic Earnings Per Common Share Outstanding $0.03
Basic Weighted Average Common
Shares Outstanding 6,243,132
Diluted Earnings Per CommonShare $0.03
Diluted Weighted Average Common Share 6,432,989
See Notes to the Unaudited Pro Forma
Combined Consolidated Financial Notes
15
800America . com, Inc.
Pro Forma Income Statement
Nine Months Ended September 30, 2000
Pro Forma
800America Inshop Adjustments Combined
Revenues $9,512,208 $23,800 $9,536,008
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Cost of Revenues
Web Site Development and Operations 486,453 526,400 1,012,853
Contents 488,200 488,200
Rebates 4,876,154 4,876,154
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Total 5,362,607 1,014,600 6,377,207
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General, Administration and Selling Expense
Sales and Marketing 1,060,112 2,392,600 3,452,712
Technology 144,700 144,700
General and Administration 1,062,121 710,000 143,303 1,915,424
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Total 2,122,233 3,247,300 143,303 5,512,836
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Operating Income (Loss) 2,027,368 -4,238,100 -143,303 -2,354,035
Income Tax (Expense) Benefit -689,305 0 1,533,491 844,186
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Net Income (loss) $1,338,063 ($4,238,100) $1,390,188 ($1,509,849)
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Basic Earnings Per Common Share
Outstanding $0.11
Basic Weighted Average
Common Shares Outstanding 12,350,000
Diluted Earnings Per Share
Common Stock $0.10
Diluted Weighted Average
Common Stock 13,900,000
See Notes to the Unaudited Pro Forma
Combined Consolidated Financial Notes
16
800America.com, Inc.
Notes to Unaudited Pro Forma
Combined Condensed Financial Information
Note 1 - Significant Accounting Policies and Basis of Presentation
The accompanying historical financial statements of 800America . com,
Inc. (800America) and InShop . com (InShop)have been derived from financial
statements prepared in accordance with U. S. generally accepted accounting
principles.
800America and Inshop's historic financial statements for the year
ended December 31, 1999, used in the pro forma financial statements., were for
each company based on their audited financial statements of and for the period
ended December 31, 1999.
800America and Inshop financial statements as of and for the nine
months ended September 30, 2000, used in the pro forma financial statements are
derived from each company's unaudited financial statements for that period.
Note 2 - Pro Forma Adjustments Balance Sheet
a. Balance sheet adjustments - to record the consideration paid for the
net assets acquired at their fair market value.
Customer list $917,493
Goodwill 900,000
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Stock issued $1,817,493
----------
b. The above consideration was in the form of 1,817,493 shares of
800America issued for all the outstanding common and preferred stock
of Inshop.
c. The fair market value of the stock determined above was the average
price traded for the month of the merger (October 2000) reduced by
one-third for its restricted status and volatility. The customer list
was comprised of retail stores around the country, who had agreed to
participate with Inshop, and each name was valued at approximately
nine (9) dollars. The equipment was not considered to have any value.
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Note 3 - Pro Forma Adjustment Income Statement
a. Intangibles resulting from the purchase will be amortized as
follows until January 2, 2002 when Financial Accounting Standards
Board Opinion No. 142 will be adopted dispensing with the
amortization for Goodwill and requiring, at a minimum annual test
for impairment and recognition of impairment losses in the future.
Goodwill 15 years
Customer List 7 years
b. Accretion of redemption value of preferred stock no longer be
required with the merger and is terminated.
c. To record income tax effects of the merger and pro forma
adjustments. The net operating loss created during the year of
merger would be used during the year of the merger and the
subsequent year. The tax benefit will be created during the year
of the merger.
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SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
800AMERICA.COM, INC.
Date: May 9, 2002 By: /s/ David E. Rabi
-----------------------------
David E. Rabi
Chief Executive Officer
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