UNITED STATES
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, 2000
----------------
FUSION NETWORKS HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-23900 51-0393382
---------------------------- ------------- ----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification Number)
8115 N.W. 29th Street, Miami, Florida 33122
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
(305) 477-6701
---------------------------------------------------
(Registrant's telephone number, including area code)
IDM Environmental Corp.
396 Whitehead Avenue, South River, New Jersey 08882
---------------------------------------------------------------
(Former name and former address, if changed since last report)
This amended Form 8-K relates to the transaction on April 13, 2000 pursuant to
which Fusion Networks Holdings, Inc. ("FNHI" or the "Company") completed a
holding company reorganization and merger in which it acquired IDM Environmental
Corp. ("IDM") and Fusion Networks, Inc. ("Fusion"). This amendment is filed to
restate certain financial statements relating to the Company's investment in
Marketing Services Group, Inc. to carry that investment at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Fusion Networks, Inc.
Independent Auditor's Report................................... F-1
Consolidated Balance Sheet - December 31, 1999................. F-2
Consolidated Statement of Operations for the Period from
Inception (July 1, 1999) to December 31, 1999............... F-3
Consolidated Statement of Cash Flows for the Period from
Inception (July 1, 1999) to December 31, 1999............... F-4
Consolidated Statement of Stockholders' Equity for the Period
from Inception (July 1, 1999) to December 31, 1999.......... F-5
Notes to Consolidated Financial Statements..................... F-6
Consolidated Balance Sheet (Unaudited) - March 31, 2000........ F-17
Consolidated Statement of Operations for the Quarter Ended
March 31, 2000 (Unaudited).................................. F-18
Consolidated Statement of Cash Flows for the Quarter Ended
March 31, 2000.............................................. F-19
Notes to Consolidated Financial Statements (Unaudited)......... F-20
(b) Pro Forma Financial Information
Summary Unaudited Pro Forma Consolidated Financial Data........ F-23
Pro Forma Consolidated Balance Sheet - March 31, 2000.......... F-24
Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1999 and for the Three Months Ended
March 31, 2000............................................. F-25
Notes to Pro Forma Consolidated Financial Data................. F-26
(c) Exhibits
None
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
FUSION NETWORKS HOLDINGS, INC.
Dated: January 12, 2001
By: /s/ Gary M. Goldfarb
---------------------------
Gary M. Goldfarb
President
3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Fusion Networks, Inc. and Subsidiary
Miami, Florida 33122
We have audited the accompanying consolidated balance sheet of Fusion Networks,
Inc. and Subsidiary (A Development Stage Company) as of December 31, 1999 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the period from inception (July 1, 1999) 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 Fusion Networks, Inc. and
Subsidiary (A Development Stage Company) as of December 31, 1999 and the results
of its operations and its cash flows for the initial period then ended in
conformity with generally accepted accounting principles.
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
May 30, 2000
F-1
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
-------
Current Assets:
Cash and cash equivalents $ 7,044,458
Employee and other loans 535
Prepaid expenses 21,858
-----------
Total Current Assets $ 7,066,851
Other Assets:
Investment in equity securities 25,500,000
Property and Equipment:
Office equipment 610,025
Furniture and fixtures 23,306
Automobiles 37,165
-----------
Total Property and Equipment 670,496
Less: Accumulated depreciation (27,938)
-----------
Net Property and Equipment 642,558
-----------
$33,209,409
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 122,109
Due to affiliate 8,971
-----------
Total Current Liabilities $ 131,080
Stockholders' Equity:
Common stock, authorized 60,000,000 shares, $.00001
par value, issued and outstanding 33,113,333 shares 331
Additional paid-in-capital 54,437,419
Foreign currency translation adjustment 14,551
Deficit accumulated during the development stage (21,373,972)
Accumulated other comprehensive income (loss):
Foreign currency translation 14,551
-----------
Total Stockholders' Equity 33,078,329
-----------
$33,209,409
===========
------------------------
The accompanying notes are an integral part of these financial statements.
F-2
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1999) TO DECEMBER 31, 1999
Revenues $ -
--------
Costs and Expenses:
General and administrative expenses $ 386,742
Product development and engineering 1,038,671
Sales and marketing 164,249
Consulting expenses 19,575,000
Merger expenses 238,350
------------
Total Costs and Expenses 21,403,012
------------
Loss from Operations (21,403,012)
Other Income (Expenses):
Interest income 35,568
Foreign currency (loss) (5,528)
Miscellaneous (1,000)
------------
29,040
------------
Net Loss $ (21,373,972)
============
Loss per Share:
Basic loss per share $ (.64)
============
Diluted loss per share $ (.64)
============
Basic common shares outstanding 33,113,333
============
Diluted common shares outstanding 33,113,333
============
----------------------
The accompanying notes are an integral part of these financial statements.
F-3
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 1, 1999) TO DECEMBER 31, 1999
Cash Flows from Operating Activities:
Net loss $(21,373,972)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 27,938
Compensation cost of consultants= warrants 19,575,000
Increase in employee and other loans (535)
Increase in prepaid expenses (21,858)
Increase in accounts payable and accrued expenses 122,109
Increase in due to affiliate 8,971
------------
Net cash used in operating activities (1,662,347)
------------
Cash Flows from Investing Activities:
Purchase of property and equipment (670,496)
------------
Net cash used in investing activities (670,496)
------------
Cash Flows from Financing Activities:
Net proceeds in connection with the issuance of
common stock and warrants 9,362,750
------------
Net cash provided by financing activities 9,362,750
------------
Effect of Exchange Rate Changes on Cash 14,551
------------
Net Increase in Cash and Cash Equivalents 7,044,458
Cash and Cash Equivalents - Inception, July 1, 1999 -
------------
Cash and Cash Equivalents - End of period, December 31, 1999 $ 7,044,458
============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ -
============
Taxes $ 160
============
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Issuance of common stock in exchange for investment
in affiliate 25,500,000
============
-----------------------
The accompanying notes are an integral part of these financial statements.
F-4
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JULY 1, 1999) TO DECEMBER 31, 1999
Deficit Accumulated
Common Stock Accumulated other
$.00001 Par Value Additional During the Comprehensive Total
Number Paid-In Development Income Stockholders'
of Shares Amount Capital Stage (Loss) Equity
----------- -------- ------------ -------------- ------- --------------
At Inception on July 1, 1999 $ - $ - $ - $ - $ -
Issuance of common stock 26,600,000 266 1,000,484 1,000,750
Issuance of common stock and
warrants in connection with
private placement 3,013,333 30 8,361,970 8,362,000
Issuance of common stock for
investment in affiliate 3,500,000 35 25,499,965 25,500,000
Issuance of common stock
warrants to consultants 19,575,000 19,575,000
Foreign Currency Translation
Adjustment 14,551 14,551
Net Loss for the Period from
Inception (July 1, 1999) to
December 31, 1999 (21,373,972) (21,373,972)
----------- --------- ---------- ------------ -------- ------------
Balances, December 31, 1999 33,113,333 $ 331 $ 54,437,419 $(21,373,972) $14,551 $ 33,078,329
=========== ========= ========== ============ ======== ============
---------------------
The accompanying notes are an integral part of these financial statements.
F-5
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
Fusion Networks, Inc., (the "Company") a development stage company, was
incorporated under the laws of the State of Delaware on June 30, 1999. The
Company is a start-up Internet company founded to provide improved Internet
content and services to Latin American markets and to the Spanish and Portugese
speaking population around the world through their Internet Web Site
LatinFusion.com.
On September 23, 1999 the Company formed a wholly-owned Columbian subsidiary,
Fusion Networks DE Colombia LTDA for the purpose of conducting the Company's
business in Colombia, South America.
Principles of Consolidation
---------------------------
The accompanying financial statements as of December 31, 1999 and for the period
then ended consolidate the accounts of the parent company and its wholly-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Use of Management's Estimates
-----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
----------------------
Property and equipment are depreciated for financial accounting purposes on the
straight-line method over their respective estimated useful lives. Upon
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations. Expenditures for
maintenance and repairs are charged to operations. Renewals and betterments are
capitalized. Depreciation of leased equipment under capital leases is included
in depreciation.
Investments
-----------
The company accounts for its investments in debt and equity securities in
accordance with the Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"(SFAS 115),
which requires that investments in debt securities and marketable equity
securities be designated as trading, held-to-maturity or available-for-sale.
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale, along with any investments in equity securities. Securities
available for sale are carried at fair value, with unrealized gains and losses,
net of income taxes, reported as a separate component of Stockholder's Equity.
Impairment of Long-Lived Assets
-------------------------------
The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". SFAS 121 requires that if facts and circumstances
indicate that the cost of fixed assets or other assets may be impaired, an
evaluation of recoverability would be performed by comparing the estimated
future undiscounted pre-tax cash flows associated with the asset to the assets
carrying value to determine if a write-down to market value or discounted
pre-tax cash flow value would be required.
F-6
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
-------------------
The Company's revenues will be derived principally from the sale of
"infomercials" which are full multimedia advertisements including animated
graphics, sound and voice. Additional revenues will be derived from corporate
sponsorships of various services and games provided on LatinFusion.com as well
as from e-commerce commissions and transaction fees.
Product Development
-------------------
Costs incurred in conjunction with the development of new products are charged
to expense as incurred. Material software development costs subsequent to the
establishment of technological feasibility will be capitalized. Based upon the
Company's product development process, technological feasibility is established
upon the completion of a working model. To date attainment of technological
feasibility and general release to customers have substantially coincided.
Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No. 130, (SFAS
130) "Reporting Comprehensive Income". This statement establishes rules for the
reporting of comprehensive income and its components which require that certain
items such as foreign currency translation adjustments, unrealized gains and
losses on certain investments in debt and equity securities, minimum pension
liability adjustments and unearned compensation expense related to stock
issuances to employees be presented as separate components of stockholders=
equity.
Earnings (Loss) Per Share
-------------------------
The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the Preferred Stock (using the if-converted
method) and shares issuable upon the exercise of stock options (using the
treasury stock method); common equivalent shares are excluded from the
calculation if their effect is anti- dilutive.
Stock Splits
------------
On August 23, 1999, the Company's Board of Directors authorized a 1,000 for 1
forward stock split of its common stock and amended the par value of the common
stock to $0.00001 and increased the authorized shares to 3,000,000 for
shareholders of record at the close of business on August 23, 1999.
F-7
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Splits (Continued)
------------
On November 16, 1999, the Company=s Board of Directors authorized a 17.7333333
for 1 stock split of its common stock effective November 18, 1999 for
shareholders of record at the close of business on November 18, 1999.
All share and per-share amounts in the accompanying consolidated financial
statements have been restated to give effect to both the 1000 for 1 and the
subsequent 17.7333333 for 1 stock splits.
Concentrations of Credit Risk
-----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents.
The Company maintains the majority of its cash and cash equivalents with one
financial institution and this creates an inherent concentration of credit risk.
Start-Up Activities
-------------------
The American Institute of Certified Public Accountants recently issued Statement
of Position ("SOP") 98-5, "Reporting the Costs of Start-up Activities". SOP 98-5
requires start-up costs, as defined, to be expensed as incurred and is effective
for financial statements for fiscal years beginning after December 15, 1998. The
Company expenses all start-up costs as incurred in accordance with this
statement and therefore the issuance of SOP 98-5 had no material impact on the
Company's financial statements.
Income Taxes
------------
The Company follows Statement of Financial Accounting Standards No. 109, (SFAS
109) "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
2. INVESTMENTS
As of December 31, 1999 the fair value of the investment in equity securities
classified as available for sale securities approximated cost.
3. PLAN OF OPERATIONS
Fusion Networks, Inc. is a development stage company in the process of
developing LatinFusion.com, a universal portal offering a comprehensive suite of
Internet products, services and solutions to Latin America and other Spanish and
Portugese speaking markets. The Company believes that by offering an integrated
platform of content, community and commerce and related services, all produced
locally and in Spanish or Portugese, with the specific needs and desires of the
Spanish and Portugese speaking population as its focus, LatinFusion.com will be
well positioned to capitalize on the anticipated growth of the Internet
throughout the Spanish and Portugese speaking world.
F-8
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
3. PLAN OF OPERATIONS (Continued)
In order to capitalize on the anticipated growth of the Internet throughout the
Spanish and Portugese speaking population, the Company intends to establish
credibility in the Spanish and Portugese speaking markets by establishing a
local presence in those markets and developing content tailored to those
markets. The Spanish and Portugese speaking populations of the world share
important cultural and linguistic characteristics. To succeed in serving the
Internet needs of these communities the Company believes it is critical to
establish itself as a part of that community and display a sensitivity to the
needs of that community. While existing Internet providers produce native
language content for the Spanish and Portugese speaking community, the majority
of their content is translations of English language content.
The Company believes that in order to create loyalty and a sense of community
among Spanish and Portugese speaking Internet users, a Web site must contain
content which is both locally produced and produced in Spanish and/or Portugese.
The Company intends to establish and grow the LatinFusion.com site from a local
base in key markets to larger regional presences. To begin this process, the
Company will establish an initial presence in the Bogota, Colombia market to
support its initial pilot operations. The Company will establish the
infrastructure and local content development and support teams to ensure that
the LatinFusion.com site develops a reputation for quality, responsiveness and
reliability of both the Web site and related services.
All content will be developed locally and will be multi-cultural as well as
multilingual (available in Spanish, Portugese and English). By locally producing
native language content with reliable services, the Company believes
LatinFusion.com will become a recognized name and preferred Web site for
Internet users in the Bogota market. The Company also feels that by establishing
a favorable reputation in Bogota, the LatinFusion.com site will quickly gain
recognition and a favorable reputation in the surrounding region. The Company
plans to repeat this process in other key markets throughout Latin America as
well as in certain key markets in the United States and Europe.
In addition to establishing credibility and local presence in the Spanish and
Portugese markets, the Company plans to offer a comprehensive range of Internet
products and services tailored to those markets. The LatinFusion.com site is
expected to be initially divided into seven channels, each offering a broad
array of related products and services. The channels will include (1) home,
where users can access time, weather, and currency data, search engines and a
help desk; (2) media, which will provide access to national, regional and local
newspapers, regional magazines and regional television and radio broadcasts; (3)
guides, where users can access community, entertainment and tourist information
for selected regions and cities; (4) commerce, providing access to a wide
variety of on-line shopping options, on-line banking and on-line investment
options; (5) games, where users can access interactive games, (6) connection,
providing users with access to e-mail, video chat, Internet telephone services
and other communication tools, and (7) contests, where users can participate in
various contests. The Company plans to monitor new products and services as well
as user demand for those products and services and will add such to assure that
users have the broadest range of Internet products and services available.
F-9
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
3. PLAN OF OPERATION (Continued)
The Company also plans to utilize state-of-the-art technologies to improve their
users Internet experience. The Company intends to continually adopt the latest
technologies to both overcome bandwidth limitations and provide the richest,
most entertaining multimedia experience available on the Internet.
LatinFusion.com has been designed using Macromedia's Flash 4.0 which will offer
streaming video, interactive on-screen graphics and full stereo sound throughout
the site. The Company believes that the adoption of this technology will
differentiate LatinFusion.com from many of the sites on the Internet and make it
an exciting and enjoyable Web site to visit. The Company plans to consistently
monitor new technologies and will adopt new technologies to assure that
LatinFusion.com offers the richest and most attractive Internet experience
available.
Utilizing state-of-the-art technology also allows the Company to deploy
innovative new advertising strategies to better serve both users and
advertisers. Presently, advertising on the Internet today consists principally
of banners placed on Web sites which are linked to an advertiser's Web site. The
Company has adopted a new, non-banner, advertising model which it believes will
be better received by both Web users and advertisers. Utilizing Macromedia Flash
4.0, the Company will produce Ainfomercials@ which are ten seconds or less in
length and will include full multimedia, including graphics, sound and voice.
These infomercials will be downloaded in the background and run between page
views, and will be customized and targeted based on the user demographics
associated with the Web page being viewed. The Company believes this type of
advertising is similar to highly targeted television advertising, which is a
proven and long standing means of advertising, and will produce superior results
to traditional banner advertising.
4. PROPERTY AND EQUIPMENT
At December 31, 1999 property and equipment consist of the following:
Office equipment $610,025
Furniture and fixtures 23,306
Automobiles 37,165
---------
670,496
Accumulated depreciation (27,938)
---------
$642,558
=========
5. RELATED PARTIES
The Company currently leases approximately 1,600 square feet of office space in
an office building in Miami, Florida, from Latam Holding, Inc., a Florida
corporation, whose principle owner is Enrique Bahamon, a stockholder, director
and the Chief Financial Officer of the Company. The lease is for a term of one
year which commenced on July 1, 1999 and calls for a monthly base rent of
$2,500. The related expense for this lease for the period ended December 31,
1999 was $14,355. As of December 31, 1999, the Company was current on all rental
obligations due the related party.
F-10
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
5. RELATED PARTIES (Continued)
During 1999, the Company entered into an agreement with Red Colombia, a company
domiciled in Bogota, Colombia, owned in part by Hernando Bahamon and Felipe
Santos, principal stockholders, officers and/or directors of the Company, under
which Red Colombia agreed to provide certain Web site development services, at a
total cost of $229,171, which was expensed for the period ended December 31,
1999.
6. COMMITMENTS AND CONTINGENCIES
Merger Agreement
----------------
On July 26, 1999 the Company announced that it entered into a non-binding merger
agreement with IDM Environmental Corp. (collectively with its subsidiaries
referred to herein as "IDM") a New Jersey based publicly traded corporation,
pursuant to which IDM agreed to form a holding company known as Fusion Networks
Holding, Inc. ("FNH") with both the Company and IDM merging with subsidiaries of
FNH. On August 18, 1999 the agreement was amended and became a definitive
agreement. As a result both the Company and IDM will become wholly owned
subsidiaries of FNH.
The stockholders of the Company will receive one share of common stock of FNH
for each share of the Company=s common stock held and the stockholders of IDM
will receive one share of FNH for each share of IDM common stock held, resulting
in the current stockholders of the Company owning approximately 89% of FNH
common stock. The proposed plan of merger is subject to a number of conditions
including, but not limited to, regulatory approvals and the receipt of
stockholder approval from both the Company and IDM.
Employment Agreement
--------------------
In September 1999, Hernando Bahamon, President, CEO and Chairman of the Board of
Directors of the Company, entered into a Service Agreement with the Company
pursuant to which Mr. Bahamon agreed to provide services to the Company in
connection with the launch of its Bogota, Colombia Web site. The agreement
provides for monthly compensation of $15,000 and runs for a term of six months
from July 1, 1999 subject to automatic renewal on a monthly basis thereafter. It
is anticipated that Mr. Bahamon will enter into a long-term employment agreement
with the Company following the merger.
Year 2000
---------
The Company has contacted, and in the future intends to contact, their
third-party vendors, licensors and providers of software, hardware and services
regarding their Year 2000 readiness. Because LatinFusion.com is a new network
and the Company intends to utilize new equipment and software which is Year 2000
compliant, they believe that their network will perform correctly through Year
2000 and beyond. Due to the highly dynamic nature of their business, however,
they will continue the testing process through Year 2000 and beyond and will
continue to confirm that their third-party vendors, licensors and providers are
Year 2000 ready.
F-11
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
6. COMMITMENTS AND CONTINGENCIES (Continued)
Foreign Operations
------------------
The Company will be relying heavily on foreign Internet markets, primarily in
Latin America, for its operations. The market for Internet services in Latin
America is in an early stage of development and is an unproven medium for
advertising and other commercial services. In addition, there are several
factors involved in increasing the use of the Internet in Latin America for
commercial purposes which include security, reliability, cost, ease of
development, administration and quality of service. In addition, the
telecommunications structure in Latin America is not as well developed as in the
United States or Europe. Access to the Internet requires a relatively advanced
telecommunications infrastructure and continued development of the
telecommunications infrastructure will have a substantial impact on the
Company's ability to deliver services and on the market acceptance of the
Internet in Latin America in general. Social, political and economic conditions
in Latin America could also have an effect on the Company's operations. The
volatility of these conditions could make it difficult for the Company to
sustain their expected growth in revenues and earnings, which could have an
adverse effect on their stock price. Currency exchange rates have also been
somewhat volatile throughout Latin America and the economies of these areas have
experienced significant economic downturns. Poor economic conditions in Latin
American countries may cause the Company's customers to reduce their advertising
spending, which could have an adverse effect on the Company.
7. STOCKHOLDERS' EQUITY
Common Stock
------------
The holders of Common Stock have no preemptive rights and the Common Stock has
no redemption, sinking fund or conversion provisions. Each share of Common Stock
is entitled to one vote on any matter submitted to the holders and to equal
rights in the assets of the Company upon liquidation. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
On August 23, 1999, the Company's Board of Directors authorized a 1,000 for 1
forward stock split of its common stock and amended the par value of the common
stock to $0.00001 and increased the authorized shares to 3,000,000 for
shareholders of record at the close of business on August 23, 1999. All share
and per- share amounts in the accompanying financial statements have been
restated to give effect to the 1,000 for 1 forward stock split.
On November 16, 1999, the Company's Board of Directors authorized a 17.7333333
for 1 forward stock split of its common stock and increased the authorized
shares to 60,000,000 for shareholders of record at the close of business on
November 18, 1999. All share and per-share amounts in the accompanying
consolidated financial statements have been restated to give effect to the
17.7333333 for 1 forward stock split.
The original incorporators of the Company were issued a total of 13,300,000
shares of the Company's common stock for a nominal cash consideration of $750.
F-12
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
7. STOCKHOLDERS' EQUITY (Continued)
Common Stock (Continued)
------------
On July 8, 1999, the Company entered into an agreement with certain investors
for the purchase of 4,433,333 shares of the Company=s common stock for $500,000
and options to purchase an additional 8,866,667 shares of the Company's common
stock, at any time before December 31, 1999, for an additional $500,000. As of
December 31, 1999, the investors had exercised their options resulting in a
total of 13,300,000 shares of common stock being issued and $1,000,000 in funds
being received by the Company under this agreement.
During August 1999 the Company initiated a private placement offering under
which the Company is offering units (the "Units") for sale at $60,000 per Unit.
Each Unit consists of 20,000 shares of common stock and 20,000 three year
warrants (the "Warrants") to purchase common stock at $6.00 per share for a
period of three years. In addition, licensed broker-dealers participating in the
private placement will receive commissions of $4,500 cash and 1,500 three year
warrants (the "Brokers Warrants") to purchase common stock at $6.00 per share
for a period of three years, for each unit sold. As of December 31, 1999 the
Company had issued 3,013,333 shares of common stock, 3,013,333 common stock
Warrants and 226,005 Brokers Warrants, for net proceeds of $8,362,000.
On December 20, 1999, Fusion Networks and Marketing Services Group, Inc.
("MSGI") entered into a Stock Purchase and Sale Agreement pursuant to which
Fusion Networks issued 3,500,000 shares of common stock to MSGI in exchange for
1,500,000 shares of common stock of MSGI. MSGI is traded on the NASDAQ National
Market and has approximately 26 million shares outstanding and had a market
price of approximately $17 per share at the time of the agreement. MSGI provides
direct and database marketing, telemarketing and telefundraising, media planning
and buying, online consulting and common, automated internet marketing and web
design services. Pursuant to the terms of that agreement MSGI has the right for
a six month period ending in June 2000 to acquire up to an additional 3,500,000
shares of common stock of Fusion Networks in exchange for an additional
1,500,000 shares of MSGI common stock and MSGI has the right to designate a
nominee for director of Fusion Networks for a period of one year. MSGI and
Fusion Networks each agreed to "lock-up" the shares received from the other
preventing resale of these shares for a period of one year ending December 2000.
F-13
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
7. STOCKHOLDERS' EQUITY (Continued)
Employee Stock Options
----------------------
During October 1999, the Company's Board of Directors approved a stock option
plan for the Company, the Fusion Networks, Inc. 1999 Stock Option Plan (the
"1999 Plan"), under which stock option awards may be made to eligible key
employees, consultants and directors of the Company. The 1999 Plan became
effective immediately and it will remain in effect until the tenth anniversary
of the effective date unless terminated earlier by the Board of Directors.
Pursuant to the plan, the Company will reserve 5,320,000 shares of common stock
for issuance pursuant to the grant of incentive stock options and nonqualified
stock options.
During October and December, 1999 the Company granted stock options to purchase
845,000 shares of its common stock to employees under the Company's 1999 Stock
Option Plan. In addition, on October 12, 1999 the Company granted under this
plan stock options to 100,000 shares of its common stock to 10 consultants in
Colombia, South America who assisted in the development of the web-site. These
options were all granted with an exercise price of $5.34, the fair market value
of the underlying common stock at the date of grant. The Company recorded
approximately $84,000 as consulting expense for the value of the 100,000 options
issued to the 10 consultants. The value was computed using the Black Scholes
value option pricing model.
Warrants
--------
On November 18, 1999 the Company issued a total of 2,500,000 warrants to various
consultants. The warrants are exercisable for three (3) years at $5.00 per
share. In connection with this transaction the Company recorded in the fourth
quarter of 1999 consulting expenses of $14 million which was estimated using the
Black Scholes value option pricing model.
On December 29, 1999 the Company issued to a consultant a warrant to purchase
500,000 shares of the Company's common stock for services provided during the
fourth quarter of 1999 for financing, merger and acquisition and strategic
alliance consulting activities. The warrant is exercisable immediately, in whole
or in part, for a period of three years and at an exercise price of $5.00 per
common share. The Company recorded approximately $5,600,000 as consulting
expense with this transaction.
8. SUBSEQUENT EVENTS
The merger agreement between the Company and IDM Environmental Corp., as
described in Note 5, was approved by the shareholders of the Company and of IDM
Environmental Corp. in March 2000 and the reorganization was completed in April
2000. As a result of the reorganization, the Company and IDM became wholly-owned
subsidiaries of Fusion Networks Holdings, Inc. The Company and IDM both plan to
continue their historical operations for the foreseeable future.
F-14
FUSION NETWORKS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
8. SUBSEQUENT EVENTS (Continued)
In February 2000 the Company entered into a contract with a public relations
firm which will assist in the preparation of internal and external news
releases, relations with local and national trade and general press
organizations, also the preparation of product literature for the general public
and the trade. The contract is for a term of one year for $60,000 a year or
$5,000 a month. In addition, the Company also granted 45,000 common stock share
warrants at an exercise price of $10.3125 per share. These common stock warrants
vest at 15,000 warrants per year.
In May 2000 the Company entered into an employment contract with Mr. Gary
Goldfarb to serve as President and Chief Executive Officer of the Company for an
undisclosed period of time. The contract provides for a monthly compensation of
$18,750 per month. The contract also grants Mr. Goldfarb 1,000,000 five year
stock options exercisable at the closing price of the Company's common stock on
the effective date. The options will vest 25% on each of the first three
anniversaries, the remaining 25% will vest at various times.
9. OTHER SUBSEQUENT EVENTS (UNAUDITED)
During 2000 the investment in MSGI suffered a significant decline in it's fair
value. During the fourth quarter of 2000, the Company wrote down the value of
their investment and recorded from the original cost a realized loss of $
12,750,000 and provided an allowance for an additional unrealized loss of $
10,980,000, which reduces the carrying value of the investment to $ 1,770,000 at
December 31, 2000.
SALE OF IDM
On July 25, 2000, the Company entered into a letter of intent pursuant to
which the Company agreed in principal to sell all of its stock of IDM to
two principal officers of IDM. The Company completed the sale of IDM on
August 18, 2000. Pursuant to the terms of the IDM sale, the Company
received a promissory note in the amount of $58,881 and were relieved of
guarantees in the amount of $300,000.
Based on the agreement in principal to sell IDM, the Company recorded a
write-down of the goodwill associated with the acquisition of IDM in the
amount of $7,354,181 in the second quarter of 2000 and recorded the loss on
the sale of $1,320,847 in the third quarter of 2000.
CONVERTIBLE DEBENTURES AND WARRANTS
On June 15, 2000, the Company sold $4,000,000 of 6% Secured Convertible
Debentures and 1,500,000 Warrants. The Debentures and Warrants were sold to
three accredited investors. The Debentures and Warrants were sold for an
aggregate offering price of $4,000,000. A finders fee of 5%, or $200,000,
was paid in connection with the sale of the Debentures and Warrants. The
Debentures and Warrants were sold pursuant to the exemption from
registration set out in Rule 506 as promulgated pursuant to Section 4(2) of
the Securities Act of 1933. The securities were offered without general
solicitation in a privately negotiated transaction with three accredited
investors.
The Debentures bear interest at 6% per annum, are due on June 13, 2001 and
are secured by a pledge of the investment in affiliates of Marketing
Services Group, Inc. The Debentures are convertible into shares of Common
Stock of the Company at a fixed conversion price of $1.75 per share. The
Warrants are exercisable to purchase Common Stock of the Company at $1.50
per share.
15
VISUALCOM PURCHASE
In August 2000, the Company entered into a letter of intent to acquire
Visualcom, Inc., a Miami based Internet consulting company specializing in
Strategic Consulting, I-Business Solutions, Internet Marketing and Internet
Wireless. Under the terms of the letter of intent, the Company agreed to
issue 2 million shares of common stock and 2.5 million five year warrants,
exercisable at 110% of the average closing price of the Company's common
stock over the seven trading days preceding closing, in exchange for all of
the issued and outstanding shares of Visualcom. One million of the shares
and one million of the warrants issuable under the letter of intent are
issuable in escrow subject to release upon satisfaction of certain
"earn-out" criteria. The letter of intent also provided that certain
shareholders of Visualcom would purchase shares of the Company's common
stock with the proceeds of that sale to be used to fund Visualcom
operations pending closing. In November 2000, the Company and Visualcom
signed a definitive Plan of Share Exchange and the Company completed the
acquisition of Visualcom.
PRIVATE PLACEMENT AND VISUALCOM CREDIT FACILITY
In September 2000, certain Visualcom shareholders acquired an aggregate of
359,574 shares of common stock of the Company for $475,000, or $1.321 per
share. The Company utilized the proceeds from the sale to establish a
credit facility for Visualcom with funds being advanced subject to
forgiveness on closing of the acquisition of Visualcom by the Company.
BRIDGE LOAN
In October and November 2000, the Company secured a short-term bridge loan
in the amount of $500,000 from the sale of Convertible Bridge Loan Notes
and 125,000 Bridge Loan Warrants. The Bridge Loan Notes are due on or
before December 31, 2000 with interest accruing at 12% per annum. The
Bridge Loan Notes are convertible into common stock, at the option of the
holder, at market value on the date of closing. The Bridge Loan Warrants
are exercisable for a term of five years to purchase common stock at $0.845
per share with respect to 100,000 of the warrants and $0.875 per share with
respect to 25,000 of the warrants.
F-16
FUSION NETWORKS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, 2000
ASSETS
Current Assets:
Cash and cash equivalents $ 3,350,733
Employee and other loans 137,135
Prepaid expenses 132,112
Deposits 10,918
-----------
Total Current Assets $ 3,630,898
Other Assets:
Investment in equity securities 26,625,010
Property and Equipment:
Office equipment 1,290,346
Furniture and fixtures 205,465
Automobiles 37,195
-----------
Total Property and Equipment 1,533,006
Less: Accumulated depreciation (83,337)
-----------
Net Property and Equipment 1,449,669
----------
$31,705,577
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 303,541
Due to affiliate 16,428
-----------
Total Current Liabilities $ 319,969
Stockholders' Equity:
Common stock, authorized 60,000,000 shares,
$.00001 par value, issued and outstanding
33,113,333 shares
Common stock 331
Additional paid-in-capital 54,437,419
Foreign currency translation (9,894)
Retained deficit (24,167,248)
-----------
Accumulated other comprehensive income (loss):
Foreign currency translation (9,894)
Unrealized gain on equity securities 1,125,000
-----------
Total Stockholders' Equity 31,385,608
----------
$31,705,577
==========
------------------------
See accompanying notes to consolidated financial statements.
F-17
FUSION NETWORKS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
FOR THE QUARTER ENDED MARCH 31, 2000
Income:
Revenues $ -
Costs and Expenses:
General and administrative $ 996,940
Project development and engineering 1,510,907
Sales and marketing 278,667
Depreciation and amortization 55,399
-----------
Total Costs and Expenses 2,841,853
-----------
Loss from Operations (2,841,853)
Other Income (Expenses):
Interest income 45,808
Foreign currency (loss) 2,766
-----------
Total Other Income (Expense) 48,574
------------
Net Loss $(2,793,279)
============
Loss per Share:
Basic loss per share $ (.08)
============
Diluted loss per share (.08)
============
Basic common shares outstanding 33,113,333
============
Diluted common shares outstanding 33,113,333
============
----------------------
See accompanying notes to consolidated financial statements.
F-18
FUSION NETWORKS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
FOR THE QUARTER ENDED MARCH 31, 2000
Cash Flows from Operating Activities:
Net loss $(2,793,279)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 55,399
Increase in employee and other loans (136,600)
Increase in prepaid expenses (110,254)
Increase in deposits (10,918)
Increase in accounts payable and accrued expenses 181,432
Increase in due to affiliate 7,457
-----------
Net cash used by operating activities (2,806,763)
-----------
Cash Flows from Investing Activities:
Purchase of property and equipment (862,517)
-----------
Net cash used by investing activities (862,517)
-----------
Effect of Exchange Rate Changes on Cash (24,445)
-----------
Net Decrease in Cash and Cash Equivalents (3,693,725)
Cash and Cash Equivalents - beginning of period 7,044,458
-----------
Cash and Cash Equivalents - end of period $ 3,350,733
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -
===========
Taxes $ -
===========
Supplement disclosure of noncash investing and financing activities:
Unrealized gain and equity securities $ 1,125,000
===========
----------------
See accompanying notes to consolidated financial statements.
F-19
FUSION NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2000
Note 1
------
Fusion Networks, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on June 30, 1999. The Company is an Internet portal company
founded to provide improved Internet content and services to Latin American
markets and to the Spanish and Portugese speaking population around the world.
Fusion Networks launched its Internet site, LatinFusion.com, in Bogota, Columbia
in October 1999 followed by the launch of its site in Miami in January 2000, and
plans similar launches in targeted cities and regions in the Americas and
Europe.
Note 2
------
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position as of
March 31, 2000 and the statements of operations for the three months ended March
31, 2000 and the statements of cash flows for the three months ended March 31,
2000.
The statements of operations for the three months ended March 31, 2000 are not
necessarily indicative of results for the full year.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, these financial statements should be read in
conjunction with the financial statements and accompanying notes included in the
Company's Annual Report for the year ended December 31, 1999.
Note 3
------
Earnings per share are based on the weighted average number of common shares
outstanding including common stock equivalents.
Note 4
------
Due to the availability of net operating losses there is no tax effect with any
component of other comprehensive gain (loss)
Note 5
------
The proposed reorganization between the Company and IDM Environmental was
approved by the shareholders of the Company and IDM in March 2000 and the
reorganization was completed on April 13, 2000. As a result of the
reorganization, the Company and IDM became wholly-owned subsidiaries of Fusion
Networks Holdings, Inc. The Company and IDM both plan to continue their
historical operations for the foreseeable future.
Note 6
------
OTHER COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No.130 "Reporting Comprehensive
Income" effective in 1998, requires the disclosure of comprehensive income
(loss) to reflect changes in equity that result from transactions and economic
events from nonowner sources. Due to the availability of net operating losses
there is no tax effect on any component of other comprehensive income (loss).
Other comprehensive income (loss): For the three
Months ended
March 31,2000
--------------
Net loss $ ( 2,793,279)
Unrealized gain on equity securities 1,125,000
Foreign currency translation
adjustments (24,445)
Total other comprehensive (loss) $ ( 1,692,724)
F-20
Note 7
------
INVESTMENTS IN EQUITY SECURITIES
As of March 31, 2000 all equity securities are deemed by management to be
available for sale and are reported at fair value with net unrealized gains or
losses reported within shareholders' equity as a separate component of other
comprehensive income. Realized gains and losses are recorded in the statement of
operations in the period in which they become known. The carrying amount of the
company's investments is shown as follows:
March 31, 2000
Market
Cost Value
------ ---------
Investment in equity securities $ 25,500,000 $26,625,000
Unrealized gains 1,125,000 -
------------ ------------
26,625,000 26,625,000
During 2000 the investment in MSGI suffered a significant decline in it's fair
value. During the fourth quarter of 2000, the Company wrote down the value of
their investment and recorded from the original cost a realized loss of $
12,750,000 and provided an allowance for an additional unrealized loss of $
10,980,000, which reduces the carrying value of the investment to $ 1,770,000 at
December 31, 2000.
Note 8
------
SUBSEQUENT EVENTS
SALE OF IDM
On July 25, 2000, the Company entered into a letter of intent pursuant to
which the Company agreed in principal to sell all of its stock of IDM to
two principal officers of IDM. The Company completed the sale of IDM on
August 18, 2000. Pursuant to the terms of the IDM sale, the Company
received a promissory note in the amount of $58,881 and were relieved of
guarantees in the amount of $300,000.
Based on the agreement in principal to sell IDM, the Company recorded a
write-down of the goodwill associated with the acquisition of IDM in the
amount of $7,354,181 in the second quarter of 2000 and recorded the loss on
the sale of $1,320,847 in the third quarter of 2000.
CONVERTIBLE DEBENTURES AND WARRANTS
On June 15, 2000, the Company sold $4,000,000 of 6% Secured Convertible
Debentures and 1,500,000 Warrants. The Debentures and Warrants were sold to
three accredited investors. The Debentures and Warrants were sold for an
aggregate offering price of $4,000,000. A finders fee of 5%, or $200,000,
was paid in connection with the sale of the Debentures and Warrants. The
Debentures and Warrants were sold pursuant to the exemption from
registration set out in Rule 506 as promulgated pursuant to Section 4(2) of
the Securities Act of 1933. The securities were offered without general
solicitation in a privately negotiated transaction with three accredited
investors.
The Debentures bear interest at 6% per annum, are due on June 13, 2001 and
are secured by a pledge of the investment in affiliates of Marketing
Services Group, Inc. The Debentures are convertible into shares of Common
Stock of the Company at a fixed conversion price of $1.75 per share. The
Warrants are exercisable to purchase Common Stock of the Company at $1.50
per share.
F-21
VISUALCOM PURCHASE
In August 2000, the Company entered into a letter of intent to acquire
Visualcom, Inc., a Miami based Internet consulting company specializing in
Strategic Consulting, I-Business Solutions, Internet Marketing and Internet
Wireless. Under the terms of the letter of intent, the Company agreed to
issue 2 million shares of common stock and 2.5 million five year warrants,
exercisable at 110% of the average closing price of the Company's common
stock over the seven trading days preceding closing, in exchange for all of
the issued and outstanding shares of Visualcom. One million of the shares
and one million of the warrants issuable under the letter of intent are
issuable in escrow subject to release upon satisfaction of certain
"earn-out" criteria. The letter of intent also provided that certain
shareholders of Visualcom would purchase shares of the Company's common
stock with the proceeds of that sale to be used to fund Visualcom
operations pending closing. In November 2000, the Company and Visualcom
signed a definitive Plan of Share Exchange and the Company completed the
acquisition of Visualcom.
PRIVATE PLACEMENT AND VISUALCOM CREDIT FACILITY
In September 2000, certain Visualcom shareholders acquired an aggregate of
359,574 shares of common stock of the Company for $475,000, or $1.321 per
share. The Company utilized the proceeds from the sale to establish a
credit facility for Visualcom with funds being advanced subject to
forgiveness on closing of the acquisition of Visualcom by the Company.
BRIDGE LOAN
In October and November 2000, the Company secured a short-term bridge
loan in the amount of $500,000 from the sale of Convertible Bridge
Loan Notes and 125,000 Bridge Loan Warrants. The Bridge Loan Notes are
due on or before December 31, 2000 with interest accruing at 12% per
annum. The Bridge Loan Notes are convertible into common stock, at the
option of the holder, at market value on the date of closing. The
Bridge Loan Warrants are exercisable for a term of five years to
purchase common stock at $0.845 per share with respect to 100,000 of
the warrants and $0.875 per share with respect to 25,000 of the
warrants.
F-22
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data for Fusion
Networks Holdings, Inc. is based on the historical financial statements of
Fusion Networks, Inc. and Subsidiaries and IDM Environmental Corp. (collectively
with its subsidiaries referred to herein as "IDM") which appear elsewhere in
this Form 8-K and has been prepared on a pro forma basis to give effect to the
merger under the purchase method of accounting, as if the transaction had
occurred at January 1, 1999 for each operating period presented. The pro forma
information was prepared based upon certain assumptions described below and may
not be indicative of results that actually would have occurred had the merger
occurred at the beginning of the last full fiscal year presented or of results
which may occur in the future. The unaudited pro forma consolidated financial
data and accompanying notes should be read in conjunction with the annual and
interim financial statements and notes thereto of Fusion Networks, Inc. and IDM
Environmental Corp. appearing elsewhere herein and incorporated by reference
into this Form 8-K filing.
The unaudited pro forma consolidated balance sheet as of March 31, 2000 presents
the financial position of Fusion Networks Holdings, Inc. as if the merger had
occurred on that date and was prepared utilizing the unaudited Fusion Networks,
Inc. balance sheet as of March 31, 2000 and the unaudited IDM Environmental
Corp. balance sheet as of March 31, 2000. The pro forma consolidated statements
of operations data presented assumes the merger occurred at the beginning of the
periods presented. It should not be assumed that IDM Environmental Corp. and
Fusion Networks, Inc. would have achieved the unaudited pro forma consolidated
results if they had actually been combined during the periods shown.
The merger is expected to be accounted for as a purchase. The stockholders of
Fusion Networks, Inc. will receive one share of common stock of Fusion Networks
Holdings, Inc. for each share of Fusion Networks, Inc. common stock held and the
stockholders of IDM will receive one share of Fusion Networks Holdings, Inc. for
each share of IDM common stock held, resulting in the current stockholders of
Fusion Networks, Inc. owning approximately 90% of Fusion Networks Holdings, Inc.
common stock. The plan of merger was approved by the stockholders of both Fusion
Networks, Inc. and IDM during March 2000 and the merger was completed on April
13, 2000.
The unaudited pro forma consolidated results are based on estimates and
assumptions, which are preliminary and have been made solely for the purposes of
developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The unaudited pro forma combined results should be read in conjunction with the
historical consolidated financial statements and notes thereto set forth herein
for Fusion and set forth for IDM on Form 10K for December 31, 1999 and Form 10Q
for the quarterly period ended March 31, 2000.
F-23
FUSION NETWORKS HOLDINGS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
Fusion
Fusion Networks
IDM Networks Holdings, Inc.
March 31,2000 March 31, 2000 Pro Forma Pro Forma
(Unaudited) (Unaudited) Adjustments Results
------------- --------------- ----------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 211,175 $ 3,350,733 $ 3,561,908
Accounts receivable 4,366,589 4,366,589
Other loans 137,135 137,135
Recoverable income taxes 650,242 650,242
Prepaid expenses and other
current assets 2,299,100 143,030 2,442,130
------------ ------------ ----------- ------------
Total Current Assets 7,527,106 3,630,898 11,158,004
Goodwill, net of accumulated 7,362,754 (2)
amortization (1,314,777)(3) 6,047,977
Investments in and advances to
unconsolidated affiliates 929,266 929,266
Investment in affiliate, at cost 1,853,125 1,853,125
Investment in equity securities 26,625,010 26,625,010
Property, plant and equipment, net 1,814,675 1,449,669 3,264,344
Other assets 979,925 979,925
------------ ------------ ----------- ------------
$ 13,104,097 $ 31,705,577 $ 6,047,977 $ 50,857,651
============ ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liablities:
Current portion of long-term debt $ 13,873 $ 13,873
Accounts payable and accrued expenses 8,760,333 319,969 9,080,302
Billings in excess of costs and estimated
earnings 1,327,722 1,327,722
Due to officers 220,682 220,682
------------ ------------ ----------- ------------
Total Current Liabilities 10,322,610 319,969 10,642,579
Long-Term Debt 15,810 15,810
------------ ------------ ----------- ------------
Total Liabilities 10,338,420 319,969 10,658,389
Commitments and Contingencies
Stockholders' Equity:
Common stock 39,184 331 (39,145)(2) 370
Additional paid-in-capital 60,922,920 54,437,419 7,362,754 (2) 63,251,034
(1,314,777)(3)
(58,607,282)(2)
450,000 (1)
Foreign currency translation (9,894) (9,894)
Retained earnings (deficit) (58,196,427) (24,167,248) (450,000)(1) (24,167,248)
58,646,427 (2)
Accumulated other comprehensive income (loss):
Foreign currency translation (9,894) (9,894)
Unrealized gain on securities 1,125,000 1,125,000
------------ ------------ ----------- ------------
Total Stockholders' Equity 2,765,677 31,385,608 6,047,977 40,199,262
------------ ------------ ----------- ------------
$ 13,104,097 $31,705,577 $ 6,047,977 $50,857,651
============ ============ =========== ============
See Notes to Pro Forma Consolidated Financial Data
F-24
FUSION NETWORKS HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended For the three months ended
December 31, 1999 March 31,2000
------------------------------------------------------- ----------------------------------------
Fusion Fusion
Networks Networks
Holdings, Inc. Fusion Holdings, Inc
Fusion Pro Forma Pro Forma IDM Networks Pro Forma Pro Forma
IDM Networks Adjustments Results (Unaudited) (Unaudited) Adjustments Results
--------- ---------------------- -------------- ----------- --------- ----------- --------
Contract Income $13,581,298 $ $ $13,581,298 $3,064,595 $ $ $3,064,595
Direct Job Costs 13,366,165 13,366,165 1,988,110 1,988,110
Write-down of inventory surplus 582,517 582,517
----------- --------- ----------- ----------- ----------- --------- --------- ----------
Gross Profit (Loss) (367,384) 1,076,485 1,076,485
----------- --------- ----------- ----------- ----------- --------- --------- ----------
Costs and Expenses:
General and administrative
expenses 7,054,208 20,276,036 27,330,244 2,453,333 926,299 3,379,632
Product development and
engineering 1,011,941 1,011,941 1,510,907 1,510,907
Sales and marketing 87,097 87,097 349,248 349,248
Merger expenses 450,000(1) 450,000
Depreciation and amortization 334,617 27,938 1,051,822(3) 1,414,377 67,047 55,399 262,955(3) 385,401
Write-down on investment on
unconsolidated partnerships 105,757 105,757
Equity in net loss of
unconsolidated partnerships 176,814 176,814
----------- -------- ----------- ----------- ----------- --------- --------- ----------
7,671,396 21,403,012 1,051,822 30,126,230 2,520,380 2,841,853 712,955 6,075,188
----------- -------- ----------- ----------- ----------- --------- --------- ----------
Loss from Operations (8,038,780) (21,403,012) (29,441,792) (1,443,895) (2,841,853) (4,285,748)
Other Income (Expense):
Loss on disposal of property,
plant and equipment (285,194) (285,194) (3,385) (3,385)
Miscellaneous income (expense) (172,519) (172,519)
Interest income (expense) 145,626 29,040 174,666 (12,104) 48,574 36,470
----------- -------- ----------- ----------- ----------- --------- --------- ----------
Loss before Credit for Income
Taxes (8,350,867) (21,373,972)(1,051,822) (30,776,661) (1,459,384) (2,793,279) (712,955) (4,965,618)
Provision (Credit) for Income
Taxes (1,200,000) (1,200,000)
----------- --------- ----------- ----------- ----------- --------- --------- ----------
Net Loss (7,150,867) (21,373,972)(1,051,822) (29,576,661) (1,459,384) (2,793,279) (712,955) (4,965,618)
Preferred Stock Dividends
including Amortization of
Beneficial Conversion Feature 11,289 11,289
----------- --------- ----------- ----------- ----------- --------- --------- ----------
Net Loss on Common Stock ($7,162,156) ($21,373,972)($1,051,822)($29,565,372) ($1,459,384)($2,793,279) ($712,955) ($4,965,618)
=========== ========== =========== ============= =========== ===========
Loss per Share:
Basic loss per share $ (2.21) $ (0.64) $ (0.81) $ (0.38) $ (0.08) $ (0.13)
=========== ========== =========== ============= =========== =========== ==========
Diluted loss per share $ (2.21) $ (0.64) $ (0.81) $ (0.38) $ (0.08) $ (0.13)
=========== ========== =========== ============= =========== =========== ==========
Basic common shares outstanding 3,243,493 33,113,333 36,356,826 3,798,658 33,113,333 36,911,991
Diluted common shares outstanding3,243,493 33,113,333 36,356,826 3,798,658 33,113,333 36,911,991
See Notes to Pro Forma Consolidated Financial Data
F-25
FUSION NETWORKS HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
MARCH 31, 2000
(1) To record as compensation, merger expenses for 400,000 consultant stock
options granted with an exercise price of $1.15, the market price at the
date of grant. The options were granted for a ten year period and vest upon
the completion of the merger. The estimated fair market value of $450,000
for this option is based on the Black Scholes value option pricing model.
(2) To record the purchase of IDM and the issuance of 33,113,333 shares of
common stock of Fusion Networks Holdings, Inc. to the stockholders of
Fusion Networks, Inc. and the issuance of 3,918,393 shares of common stock
of Fusion Networks Holdings, Inc. to the stockholders of IDM and the
elimination of IDM's accumulated deficit as a result of the merger. The
transaction, accounted for as a purchase, resulted in goodwill of
$7,362,754 being recorded. The purchase price and goodwill was determined
as follows:
IDM common shares outstanding 3,918,393
Estimated fair value of shares issued $2.47 (a)
---------
Purchase price before merger costs $9,678,431
Merger costs 450,000
---------
Purchase price 10,128,431
IDM net book value 2,765,677
---------
Goodwill $ 7,362,754
=========
(a)The estimated fair value of shares issued was determined using the
average closing market price of IDM=s common stock for the 3 days
prior and 3 days subsequent to the public announcement of the letter
of intent.
(3) To record amortization of goodwill over a seven year period.
F-26