<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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): MAY 9, 2000
TMP WORLDWIDE INC.
(Exact name of issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-21571 13-3906555
(Commission File Number) (IRS Employer Identification No.)
</TABLE>
1633 BROADWAY
NEW YORK, NY 10019
(Address of Principal Executive Offices)
------------------------------
(212) 977-4200
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OF ASSETS
On May 9, 2000, pursuant to the terms of the Agreement and Plan of Merger,
by and among TMP Worldwide Inc. ("TMP"), TMP VR Acquisition Inc., an Oregon
corporation and wholly owned subsidiary of TMP ("VR Sub") and Virtual
Relocation.com, Inc., an Oregon corporation ("VR"), TMP completed the merger
with VR. Pursuant to the merger, VR Sub merged into VR and VR was the surviving
company. TMP exchanged for all of the issued and outstanding capital stock of VR
947,916 shares of TMP common stock, $.001 par value per share. VR provides
on-line relocation services. The business combination is being accounted for as
a pooling of interests.
On May 31, 2000, pursuant to the terms of the Agreement and Plan of Merger,
by and among TMP, TMP Simpatix Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of TMP ("Sub") and the Stockholders listed on
Schedule A thereto (the "Sellers"), TMP merged with Simpatix Inc. ("Simpatix").
Pursuant to the merger, Sub was merged into Simpatix and Simpatix was the
surviving company. The Sellers were issued as consideration for their shares of
Simpatix and in connection with stay bonuses issued to certain employees of
Simpatix, 152,500 shares and 12,333 shares, respectively, for an aggregate of
164,833 shares of TMP common stock, $.001 par value per share. Simpatix is an
on-line application service provider which provides employee recruitment
services. The business combination is being accounted for as a pooling of
interests.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Virtual Relocation.com, Inc. and Simpatix Inc. the
acquired businesses.
See Page F-1.
(b) Pro Forma Financial Statements.
See Page F-43.
(c) Exhibits
<TABLE>
<CAPTION>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 26, 2000,
among TMP Worldwide Inc., TMP VR Acquisition Inc. and
Virtual Relocation.com, Inc.*
2.2 Agreement and Plan of Merger, dated as of May 18, 2000,
among TMP Worldwide Inc., TMP Simpatix Acquisition Corp.,
and the Stockholders listed on Schedule A thereto.*
23.1 Consent of KPMG LLP.
23.2 Consent of Marcum & Kliegman LLP.
</TABLE>
------------------------
* Filed as an Exhibit to the Company's Current Report on Form 8-K, dated
May 9, 2000.
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VIRTUAL RELOCATION.COM, INC.
<S> <C>
PAGE NO.
----
Balance sheets as of March 31, 2000 and December 31, 1999
(unaudited)............................................... F-2
Statements of operations for the three months ended
March 31, 2000 and 1999 (unaudited)....................... F-3
Statements of shareholders' equity for the three months
ended March 31, 2000 (unaudited).......................... F-4
Statements of cash flows for the three months ended
March 31, 2000 and 1999 (unaudited)....................... F-5
Notes to financial statements (unaudited)................... F-6
Independent auditors' report................................ F-7
Balance sheets as of December 31, 1999 and 1998............. F-8
Statements of operations for the years ended December 31,
1999 and 1998 and the period from October 1, 1997
(inception) through December 31, 1997..................... F-9
Statement of shareholders' equity for the years ended
December 31, 1999 and 1998 and the period from October 1,
1997 (inception) through December 31, 1997................ F-10
Statements of cash flows for the years ended December 31,
1999 and 1998 and the period from October 1, 1997
(inception) through December 31, 1997..................... F-11
Notes to financial statements............................... F-12
SIMPATIX INC.
Balance sheets as of March 31, 2000 and December 31, 1999
(unaudited)............................................... F-24
Statements of operations for the three months ended
March 31, 2000 and 1999 (unaudited)....................... F-25
Statement of changes in stockholders' deficiency for the
three months ended
March 31, 2000 (unaudited)................................ F-26
Statements of cash flows for the three months ended
March 31, 2000 and 1999 (unaudited)....................... F-27
Notes to financial statements (unaudited)................... F-28
Independent auditors' report................................ F-33
Balance sheets as of December 31, 1999, 1998 and 1997....... F-34
Statements of operations for the years ended December 31,
1999 and 1998 and for the period from March 26, 1997
(inception) through December 31, 1997..................... F-35
Statement of changes in stockholders' deficiency for the
years ended December 31, 1999 and 1998 and the period from
March 26, 1997 (inception) through December 31, 1997...... F-36
Statements of cash flows for the years ended December 31,
1999 and 1998 and for the period from March 26, 1997
(inception) through December 31, 1997..................... F-37
Notes to financial statements............................... F-38
TMP WORLDWIDE INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information...... F-43
Pro forma condensed consolidated balance sheet as of
March 31, 2000 (unaudited)................................ F-44
Pro forma condensed consolidated statement of operations for
the three months ended March 31, 2000 (unaudited)......... F-45
Pro forma condensed consolidated statement of operations for
the year ended
December 31, 1999 (unaudited)............................. F-46
Pro forma condensed consolidated statement of operations for
the year ended
December 31, 1998 (unaudited)............................. F-47
Pro forma condensed consolidated statement of operations for
the year ended
December 31, 1997 (unaudited)............................. F-48
</TABLE>
F-1
<PAGE>
VIRTUAL RELOCATION.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,299,460 $ 4,410,031
Securities held to maturity............................... 500,000 1,028,144
Accounts receivable, net of allowance for doubtful
accounts of $326,756 and $40,797, respectively.......... 208,741 293,756
Other current assets...................................... 24,487 28,560
----------- -----------
Total current assets.................................. 4,032,688 5,760,491
----------- -----------
Property and equipment, at cost:
Computer and other equipment.............................. 559,857 225,683
Furniture and fixtures.................................... 99,758 84,348
----------- -----------
659,615 310,031
Less accumulated depreciation............................. (116,386) (81,099)
----------- -----------
543,229 228,932
----------- -----------
Intangible assets, net...................................... 100,833 107,709
Other assets................................................ 37,904 22,221
----------- -----------
Total assets.......................................... $ 4,714,654 $ 6,119,353
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 357,499 $ 265,489
Accrued payroll........................................... 480,385 107,241
Other accrued liabilities................................. 469,841 250,986
Deferred revenue.......................................... 857,702 562,183
----------- -----------
Total current liabilities............................. 2,165,427 1,185,899
----------- -----------
Commitments
Shareholders' equity:
Preferred stock, no par value, 10,000,000 shares
authorized; Series A 190,580 issued and outstanding at
March 31, 2000 and December 31, 1999, respectively.
Liquidation preference $12,000,000...................... 5,939,034 5,939,034
Common stock, no par value, 50,000,000 shares authorized;
5,059,102 and 5,038,002 shares issued and outstanding at
March 31, 2000 and December 1999, respectively.......... 2,229,924 2,212,174
Warrants.................................................. 219,000 219,000
Accumulated deficit....................................... (5,838,731) (3,436,754)
----------- -----------
Total shareholders' equity............................ 2,549,227 4,933,454
----------- -----------
Total liabilities and shareholders' equity............ $ 4,714,654 $ 6,119,353
=========== ===========
</TABLE>
F-2
<PAGE>
VIRTUAL RELOCATION.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
----------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues:
Advertising............................................... $ 667,823 $ 142,557
Other..................................................... -- 12,500
----------- ---------
667,823 155,057
----------- ---------
Expenses:
Website development and operations........................ 573,718 115,229
Sales and marketing....................................... 1,737,665 264,956
General and administration................................ 776,967 133,457
----------- ---------
3,088,350 513,642
----------- ---------
Operating loss........................................ (2,420,527) (358,585)
----------- ---------
Other income (expense):
Investment income......................................... 18,550 --
Interest expense.......................................... -- --
----------- ---------
Total other income (expense).......................... 18,550 --
----------- ---------
Net loss before provision for taxes................... (2,401,977) (358,585)
Provision for income taxes.................................. -- --
----------- ---------
Net loss.............................................. $(2,401,977) $(358,585)
=========== =========
</TABLE>
F-3
<PAGE>
VIRTUAL RELOCATION.COM, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- ----------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT WARRANTS DEFICIT TOTAL
-------- ---------- ---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1999.............. 190,580 $5,939,034 5,038,002 $2,212,174 $219,000 $(3,436,754) $ 4,933,454
Stock option exercised per plan.......... -- -- 17,500 8,750 -- -- 8,750
Common stock issued for services......... -- -- 3,600 9,000 -- -- 9,000
Net loss--Three month-period ended March
31, 2000............................... -- -- -- -- -- (2,401,977) (2,401,977)
-------- ---------- ---------- ---------- -------- ----------- -----------
BALANCES, MARCH 31, 2000................. 190,580 $5,939,034 5,059,102 $2,229,924 $219,000 $(5,838,731) $ 2,549,227
======== ========== ========== ========== ======== =========== ===========
</TABLE>
F-4
<PAGE>
VIRTUAL RELOCATION.COM, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH-PERIOD ENDED
------------------------
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,401,977) $ (358,585)
Adjustment for non-cash expenditures:
Depreciation and amortization........................... 42,163 12,500
Common stock issued for services........................ 9,000 --
Common stock issued for content license................. -- 60,000
Net changes in working capital:
(Increase) decrease in accounts receivable.............. 85,015 (208,593)
(Increase) decrease in other current assets............. 4,073 (60,770)
(Increase) decrease accounts payable.................... 92,010 (36,928)
Increase in accrued payroll............................. 373,144 101,731
Increase (decrease) in other accrued liabilities........ 218,855 (1,920)
Increase in deferred revenue............................ 295,519 195,074
----------- ----------
Net cash used in operating activities................. (1,282,198) (297,491)
----------- ----------
Cash flows from investing activities:
Sale of securities........................................ 528,144
Investments in property and equipment..................... (349,584) (44,211)
Increase in other assets.................................. (15,683) --
----------- ----------
Net cash used in investing activities................. 162,877 (44,211)
Cash flows from financing activities:
Issuance of common stock.................................. 8,750 1,380,003
----------- ----------
Net cash provided by financing activities............. 8,750 1,380,003
----------- ----------
Net increase in cash and cash equivalents............. (610,571) 1,038,301
Cash and cash equivalents, beginning of period.............. 4,410,031 137,850
----------- ----------
Cash and cash equivalents, end of period.................... $ 3,299,460 $1,176,151
=========== ==========
</TABLE>
F-5
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(UNAUDITED)
(1) THE COMPANY
Virtual Relocation.com, Inc., an Oregon corporation, was formed in June 1998
for the purpose of acquiring all of the assets of Taow Internet Services,
LLC, an Oregon limited liability company, engaged in the business of
developing and operating an Internet website. Taow Internet Services, LLC
and Virtual Relocation.com, Inc., are entities under common control and as
such the financial statements reflect these entities as if a
pooling-of-interest had occurred. Taow Internet Services, LLC, commenced
operations on October 1, 1997 with the acquisition of rights to the website
from the site's developer in a transaction accounted for in accordance with
the purchase method. Virtual Relocation.com, Inc. and Taow Internet
Services, LLC, are referred to collectively as "the Company" unless the
context requires otherwise.
The Company's website, www.virtualrelocation.com, is designed and operated
to provide individuals and businesses with a wide range of relocation
information with which to plan and execute personal moves. Access to the
website is free to the general user. The website offers two basic types of
relocation information--content and directories--and provides this
information by hyper-linking its site to other websites. Content information
is focused on community specific data such as population statistics, tax
rates, unemployment, housing data, school spending and comparative cost of
living calculators. Directory information focuses on providers of specific
relocation related services and is structured in 12 classifications with 125
sub-classifications, organized geographically. From October 1997 through
June 1998, the Company was engaged principally in the development of the
website, which consisted of building the site structure and establishing
links to other websites. Since July 1998, the Company has continued to
develop the website and has also focused on increasing user traffic and
expanding sales of paid advertising. On a long-term basis, the Company
intends to support the business through advertiser revenues, fees for custom
applications of its website, and electronic commerce revenues derived from
certain proprietary and non-proprietary relocation related products to be
developed.
(2) BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company, without audit, in accordance with generally accepted accounting
principles. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission for interim financial
statements.
These statements reflect all adjustments, consisting of normal recurring
adjustments that, in the opinion of management, are necessary for fair
presentation of the information contained herein. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes for the years ended December 31, 1999 and 1998, included herein.
The Company follows the same accounting policies in preparation of interim
reports.
(3) SUBSEQUENT EVENTS
On May 9, 2000, the Company merged with a subsidiary of TMP Worldwide, the
world's largest provider of employment, recruitment, and job search services
and the world's largest yellow pages advertiser, in a transaction accounted
for as a pooling-of-interests. Under terms of the merger, all of the
outstanding common stock, Series A preferred stock and Series A preferred
stock warrants were exchanged for 947,916 shares of TMP's common stock. The
merger conversion ratios were .136235 shares of TMP's common stock for each
share of the Company's common stock and 1.36235 shares of TMP's common stock
for each Series A preferred stock or Series A preferred stock warrant. In
addition, all of the outstanding common stock options of the Company were
exchanged for options to purchase 94,885 shares of TMP's common stock,
subject to vesting and performance measures as defined in the agreements.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Virtual Relocation.com, Inc.:
We have audited the accompanying balance sheets of Virtual
Relocation.com, Inc. (the Company) as of December 31, 1999 and 1998, and the
related statements of operations, shareholders' equity and cash flows for each
of the years in the two-year period ended December 31, 1999 and for the period
from October 1, 1997 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Virtual
Relocation.com, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 1999 and for the period from October 1, 1997 (inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Portland, Oregon
March 6, 2000
F-7
<PAGE>
VIRTUAL RELOCATION.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,410,031 $ 137,850
Securities held to maturity............................... 1,028,144 --
Accounts receivable, net of allowance doubtful accounts of
$40,797 and $21,509, respectively....................... 293,756 12,791
Other current assets...................................... 28,560 12,675
----------- ---------
Total current assets.................................. 5,760,491 163,316
----------- ---------
Property and equipment, at cost:
Computer and other equipment.............................. 225,683 38,365
Furniture and fixtures.................................... 84,348 9,432
----------- ---------
310,031 47,797
Less accumulated depreciation............................. (81,099) (13,787)
----------- ---------
228,932 34,010
----------- ---------
Intangible assets, net...................................... 107,709 37,500
Other assets................................................ 22,221 10,627
----------- ---------
Total assets.......................................... $ 6,119,353 $ 245,453
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 265,489 $ 36,928
Accrued payroll........................................... 107,241 25,419
Other accrued liabilities................................. 250,986 33,750
Deferred revenue.......................................... 562,183 86,368
----------- ---------
Total current liabilities............................. 1,185,899 182,465
----------- ---------
Commitments (notes 2, 6 and 8)..............................
Shareholders' equity:
Preferred stock, no par value, 10,000,000 shares
authorized; Series A 190,580 and no shares issued and
outstanding at December 31, 1999 and 1998, respectively.
Liquidation preference $12,000,000...................... 5,939,034 --
Common stock, no par value, 50,000,000 shares authorized;
5,038,002 and 4,000,000 shares issued and outstanding at
December 31, 1999 and 1998, respectively................ 2,212,174 577,171
Warrants.................................................. 219,000 --
Accumulated deficit....................................... (3,436,754) (514,183)
----------- ---------
Total shareholders' equity............................ 4,933,454 62,988
----------- ---------
Total liabilities and shareholders' equity............ $ 6,119,353 $ 245,453
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
VIRTUAL RELOCATION.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 1,
1997
(INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Revenues:
Advertising............................................ $ 1,012,967 $ 159,404 $ 12,879
Other.................................................. 340,267 9,646 2,160
----------- --------- ----------
1,353,234 169,050 15,039
----------- --------- ----------
Expenses:
Website development and operations..................... 804,007 178,123 21,254
Sales and marketing.................................... 2,449,444 316,674 13,472
General and administration............................. 864,638 157,443 14,561
----------- --------- ----------
4,118,089 652,240 49,287
----------- --------- ----------
Operating loss..................................... (2,764,855) (483,190) (34,248)
----------- --------- ----------
Other income (expense):
Investment income...................................... 64,434 3,255 --
Interest expense....................................... (222,150) -- --
----------- --------- ----------
Total other income (expense)....................... (157,716) 3,255 --
----------- --------- ----------
Net loss before provision for taxes................ (2,922,571) (479,935) (34,248)
Provision for income taxes............................... -- -- --
----------- --------- ----------
Net loss........................................... $(2,922,571) $(479,935) $ (34,248)
=========== ========= ==========
Basic and diluted net loss per share..................... $ (0.59) $ (0.14) $ (0.01)
=========== ========= ==========
Shares used in computing basic and diluted net loss per
share.................................................. 4,932,854 3,362,192 3,000,000
=========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
VIRTUAL RELOCATION.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD
FROM OCTOBER 1, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- ---------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT WARRANTS DEFICIT TOTAL
-------- ---------- --------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at inception, October 1,
1997.................................. -- $ -- -- $ -- $ -- $ -- $ --
Issuance of shares in exchange for
assets in October 1997................ -- -- 3,000,000 50,000 -- -- 50,000
Additional contributions to equity...... -- -- -- 14,671 -- -- 14,671
Net loss--1997.......................... -- -- -- -- -- (34,248) (34,248)
------- ---------- --------- ---------- -------- ----------- -----------
Balances, December 31, 1997............. -- -- 3,000,000 64,671 -- (34,248) 30,423
Additional contributions to equity...... -- -- -- 12,500 -- -- 12,500
Private placements of common stock...... -- -- 1,000,000 500,000 -- -- 500,000
Net loss--1998.......................... -- -- -- -- -- (479,935) (479,935)
------- ---------- --------- ---------- -------- ----------- -----------
Balances, December 31, 1998............. -- -- 4,000,000 577,171 -- (514,183) 62,988
Common stock issued for content
license............................... -- -- 40,000 60,000 -- -- 60,000
Private placements of common stock...... -- -- 920,002 1,380,003 -- -- 1,380,003
Stock option exercised per plan......... -- -- 43,000 107,500 -- -- 107,500
Common stock issued for assets.......... -- -- 35,000 87,500 -- -- 87,500
Warrants issued for financing........... -- -- -- -- 219,000 -- 219,000
Issuance of Series A preferred stock,
net of expenses....................... 190,580 5,939,034 -- -- -- -- 5,939,034
Net loss--1999.......................... -- -- -- -- -- (2,922,571) (2,922,571)
------- ---------- --------- ---------- -------- ----------- -----------
Balances, December 31, 1999............. 190,580 $5,939,034 5,038,002 $2,212,174 $219,000 $(3,436,754) $ 4,933,454
======= ========== ========= ========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
VIRTUAL RELOCATION.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OCTOBER 1,
1997
(INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(2,922,571) $(479,935) $(34,248)
Adjustment for non-cash expenditures:
Depreciation and amortization........................ 84,603 22,398 3,889
Licensing fee........................................ 60,000 -- --
Warrant interest expense............................. 219,000 -- --
Net changes in working capital:
Increase in accounts receivable...................... (280,965) (7,506) (5,285)
Increase in other current assets..................... (15,885) (11,575) (1,100)
Increase in accounts payable......................... 228,561 33,765 3,163
Increase in accrued payroll.......................... 81,822 21,005 4,414
Increase in other accrued liabilities................ 217,236 25,000 8,750
Increase in deferred revenue......................... 475,815 69,511 16,857
----------- --------- --------
Net cash used in operating activities.............. (1,852,384) (327,337) (3,560)
----------- --------- --------
Cash flows from investing activities:
Purchases of securities................................ (1,028,144) -- --
Investments in property and equipment.................. (262,234) (36,686) (11,111)
Increase in other assets............................... (11,594) (10,627) --
----------- --------- --------
Net cash used in investing activities.............. (1,301,972) (47,313) (11,111)
----------- --------- --------
Cash flows from financing activities:
Issuance of preferred stock............................ 5,939,034 -- --
Issuance of common stock............................... 1,487,503 500,000 --
Other capital contributions............................ -- 12,500 14,671
----------- --------- --------
Net cash provided by financing activities.......... 7,426,537 512,500 14,671
----------- --------- --------
Net increase in cash and cash equivalents.......... 4,272,181 137,850 --
Cash and cash equivalents, beginning of period........... 137,850 -- --
----------- --------- --------
Cash and cash equivalents, end of period................. $ 4,410,031 $ 137,850 $ --
=========== ========= ========
Supplemental non-cash disclosure:
Common stock issued in exchange for assets............. $ 87,500 $ -- $ 50,000
=========== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) THE COMPANY
Virtual Relocation.com, Inc., an Oregon corporation, was formed in
June 1998 for the purpose of acquiring all of the assets of Taow Internet
Services, LLC, an Oregon limited liability company, engaged in the business
of developing and operating an Internet website. Taow Internet Services, LLC
and Virtual Relocation.com, Inc., are entities under common control and as
such the financial statements reflect these entities as if a
pooling-of-interest had occurred. Taow Internet Services, LLC, commenced
operations on October 1, 1997 with the acquisition of rights to the website
from the site's developer in a transaction accounted for in accordance with
the purchase method. Virtual Relocation.com, Inc. and Taow Internet
Services, LLC, are referred to collectively as "the Company" unless the
context requires otherwise.
The Company's website, www.virtualrelocation.com, is designed and operated
to provide individuals and businesses with a wide range of relocation
information with which to plan and execute personal moves. Access to the
website is free to the general user. The website offers two basic types of
relocation information--content and directories--and provides this
information by hyper-linking its site to other websites. Content information
is focused on community specific data such as population statistics, tax
rates, unemployment, housing data, school spending and comparative cost of
living calculators. Directory information focuses on providers of specific
relocation related services and is structured in 12 classifications with 125
sub-classifications, organized geographically. From October 1997 through
June 1998, the Company was engaged principally in the development of the
website, which consisted of building the site structure and establishing
links to other websites. Since July 1998, the Company has continued to
develop the website and has also focused on increasing user traffic and
expanding sales of paid advertising. On a long-term basis, the Company
intends to support the business through advertiser revenues, fees for custom
applications of its website, and electronic commerce revenues derived from
certain proprietary and non-proprietary relocation related products to be
developed.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) CASH EQUIVALENTS
The Company considers cash equivalents to consist of short-term, highly
liquid investments with an original maturity of less than three months.
(B) SECURITIES HELD TO MATURITY
Management determines the appropriate classification of marketable
securities at the time of purchase and re-evaluates such designation as
of each balance sheet date. Securities held to maturity are carried at
amortized cost, which approximates fair value. All securities held by the
Company as of December 31, 1999, were debt securities having a maturity
of less than one year. At December 31, 1999, contractual maturities of
marketable securities ranged from 81 to 105 days.
F-12
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(B) PROPERTY AND EQUIPMENT
For financial statement purposes, depreciation expense on property and
equipment is computed on the straight-line method using the following
estimated useful lives:
<TABLE>
<S> <C>
Computer equipment......................................... 2 years
Other equipment............................................ 5 years
Furniture and fixtures..................................... 5 years
</TABLE>
Maintenance and repairs are charged to expense when incurred. Major
repairs and improvements are capitalized and depreciated.
(C) INTANGIBLE ASSETS
On October 1, 1997, the Company purchased exclusive, perpetual, and
royalty-free rights to all of the assets of the www.virtualrelocation.com
website from the site's developer in exchange for a non-interest bearing
note payable totaling $50,000 and the equivalent of 600,000 shares of the
Company's common stock. The business was valued based on arm's-length
negotiation between the Company and the developer. The acquisition is
being accounted for in accordance with the purchase method and,
accordingly, the $50,000 purchase price has been allocated entirely to
goodwill and is being amortized on a straight-line basis over five years.
Amortization expense totaled $10,000, $10,000 and $2,500 for the years
ended December 31, 1999 and 1998 and the period from October 1, 1997
(inception) through December 31, 1997, respectively. Accumulated
amortization totaled $22,500 and $12,500 at December 31, 1999 and 1998,
respectively. The principal balance of the note, which was the obligation
of certain senior management of the Company, was paid on September 30,
1999.
On August 1, 1999, the Company purchased all of the assets of Right
Choice, Inc., for 35,000 shares of the Company's common stock. The
acquisition is being accounted for in accordance with the purchase
method, and accordingly, the fair market value of the shares at the time
of acquisition totaling $87,500 has been allocated entirely to goodwill,
as Right Choice, Inc. did not have any tangible assets, and is being
amortized on a straight-line basis over five years. Amortization expense
and accumulated amortization totaled $7,291 as of and for the year ended
December 31, 1999. In connection with the acquisition, the Company
entered into an agreement with one of the principals to provide on-going
support and maintenance consulting assistance related to certain of the
purchased products. Under the agreement, the consultant receives 10% of
the net collected revenues for two specified products and revenue
percentages to be negotiated for future products that the consultant
develops for the Company. If the Company elects to terminate the
agreement without cause, the consultant has the right to receive his
share of net collected revenues for 180 days after such termination. For
the year ended December 31, 1999, a total of $24,442 was expensed as fees
under the agreement.
Results of operations of Right Choice, Inc. are included in the Company's
financial statements from the date of acquisition. The separate results
of operations of Right Choice, Inc. were not material compared to the
Company's overall results of operations and, as such, pro forma financial
information has been omitted.
(D) OTHER ASSETS
Other assets consist of deposits on leased facilities.
F-13
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(E) COVENANT NOT-TO-COMPETE AND AMOUNTS DUE TO RELATED PARTY
On October 1, 1997, the Company entered into an agreement with the site's
developer for a two-year covenant not-to-compete. Under terms of the
agreement, a total of $30,000 was due and was paid on September 30, 1999.
The obligation was accrued on a straight-line basis over the term of the
non-compete. An expense of $11,250, $15,000 and $3,750 has been recorded
in the accompanying financial statements for the years ended
December 31, 1999 and 1998 and the period from October 1, 1997
(inception) through December 31, 1997, respectively.
(F) ACCOUNTING FOR LONG-LIVED ASSETS
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS,
requires the Company to review for impairment its long-lived assets and
certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying value of an asset might not be
recoverable. The Company has evaluated its long-lived assets and
intangibles based on SFAS 121 and does not believe that any impairment
exists. If circumstances indicated a possible impairment might exist, an
impairment analysis would be performed based upon undiscounted cash flow
projections.
(G) INCOME TAXES
Prior to June 15, 1998, the Company was taxed under the partnership
provisions of the Internal Revenue Code. Under those provisions, the
Company is not liable for any federal or state corporate income taxes.
Instead, all pre-incorporation tax liabilities and benefits pass through
to the Taow Internet Services, LLC, members. Effective June 15, 1998,
Taow Internet Services, LLC, transferred all assets into the new
corporation. The Company's income taxes since that date are accounted for
under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(H) REVENUE RECOGNITION
The Company recognizes revenue when the related advertising, web design
or banner set-up services are delivered. Certain advertising is billed
and collected in advance, and, accordingly, such revenue is deferred and
recognized as revenue in the period in which the advertising is run. The
Company also receives commitments for annual purchases of advertising
that are billed on a monthly basis. The following summarizes the status
of contracts and deferred revenue:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, OCTOBER 1, 1997
------------------------ (INCEPTION) THROUGH
1999 1998 DECEMBER 31, 1997
----------- ---------- -------------------
<S> <C> <C> <C>
Contractual commitments for services..... $2,821,733 $472,280 $38,910
Less amounts billable after year end..... (1,233,417) (240,733) (7,014)
Less amounts collected and deferred...... (562,183) (86,368) (16,857)
Add amounts deferred in prior period..... 327,101 23,871 --
---------- -------- -------
Reported revenues........................ $1,353,234 $169,050 $15,039
========== ======== =======
</TABLE>
F-14
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
In addition to its public website, the Company enters into agreements
with various strategic partners to provide customized versions of its
website as value-added relocation enhancements to the partners' websites.
Under certain of these agreements, the Company has received development
fees and/or has agreed to share revenues with the partners based on
revenues derived from the custom applications. During the year ended
December 31, 1999, the Company incurred an expense aggregating $93,814 in
connection with such arrangements.
(I) RESEARCH AND DEVELOPMENT EXPENSES
The Company incurs research and development costs relating to its
website. All research and development costs are expensed as incurred.
(J) COSTS OF SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Internal use software development costs are accounted for in accordance
with SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE. Costs incurred in the preliminary project
stage are expensed as incurred and costs incurred in the application and
development stage, which meet the capitalization criteria, are
capitalized and amortized on a straight-line basis over the estimated
useful life of the asset. To date, no costs have been capitalized.
(K) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS 123). Under SFAS 123 companies may elect
to account for stock-based compensation arrangements under the fair value
method of accounting or under Accounting Principles Board Opinion No. 25
(APB 25) intrinsic value method with pro forma disclosures of net loss
computed as if the fair value method had been applied. The Company has
elected under SFAS 123 to apply the intrinsic value method for
stock-based compensation plans for employees with the annual pro forma
disclosures. Stock-based compensation plans for non-employees are
accounted for using the fair value method. As of December 31, 1999, a
total of 553,750 stock options were outstanding. The per share weighted
average fair value of stock options granted during 1999 was $0.31 on the
date of grant using the minimum value option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, OCTOBER 1, 1997
------------------------- (INCEPTION) THROUGH
1999 1998 DECEMBER 31, 1997
----------- ----------- -------------------
<S> <C> <C> <C>
Risk free interest rate................. 6.1% 5.5% 5.5 %
Expected dividend yield................. -- -- --
Expected life........................... 7 years 7 years 7 years
</TABLE>
The total value of options granted during 1999 and 1998 will be amortized
on a pro forma basis over the vesting period of the options. Options
generally vest equally over three years. If the Company had accounted for
its stock option grants in accordance with SFAS 123, the Company's
F-15
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
net loss and net loss per share would have increased as reflected in the
following pro forma amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, OCTOBER 1, 1997
------------------------ (INCEPTION) THROUGH
1999 1998 DECEMBER 31, 1997
----------- ---------- -------------------
<S> <C> <C> <C>
Net loss:
As reported........................... $(2,922,571) $(479,935) $(34,248)
Pro forma............................. (3,096,415) (482,331) (34,248)
Basic and diluted net loss per share:
As reported........................... (0.59) (0.14) (0.01)
Pro forma............................. (0.63) (0.14) (0.01)
</TABLE>
The above determination of the pro forma expense has been calculated
consistent with SFAS 123 which does not take into consideration the
effects that limitations on exercisability and transferability imposed by
the Company's stock option plan may have on stock option values.
(L) 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 amounts of assets and liabilities at
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.
(M) NET LOSS PER SHARE
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standards
No. 128 (SFAS 128). Under SFAS 128, basic EPS is calculated using the
weighted average number of common shares outstanding for the period. The
computation of diluted EPS includes the effects of stock options,
warrants and convertible preferred stock, if such effect is dilutive. For
the periods presented, the Company has been in a loss position and,
accordingly, there is no difference between basic EPS and diluted EPS
since the common stock equivalents under the "if-converted" method would
be antidilutive. For 1999, stock options issued and outstanding for the
purchase of 553,750 shares of common stock and 1,905,600 shares of common
stock equivalents on an as-converted basis for preferred stock have been
excluded from EPS calculations for the year ended December 31, 1999. For
1999, the warrant to purchase 7,500 shares of preferred stock has been
excluded from the EPS calculation because the effect would be
anti-dilutive. For 1998, stock options issued and outstanding for the
purchase of 75,750 shares of common stock have been excluded from EPS
calculations for the year ended December 31, 1998. There were no stock
options issued and outstanding in the period ended December 31, 1997.
(N) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. The objective of SFAS No. 130 is to report all
changes in equity that result from transactions and economic events other
than transactions with owners. For the years ended December 31, 1999 and
1998 and the period October 1, 1997 (inception) through December 31,
1997, there were no differences between net loss and comprehensive loss.
F-16
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(O) SEGMENT REPORTING
The Company considers that all of its operations are included in one
business segment.
(P) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, securities held to
maturity, accounts receivable, accounts payable and accrued liabilities
approximate fair value due to the short-term nature of these instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument when
available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
(Q) ADVERTISING COSTS
The Company's policy is to expense advertising costs as incurred. Total
advertising expenses were approximately $327,000, $18,000 and $1,000 for
the years ended December 31, 1999 and 1998 and for the period October 1,
1997 (inception) through December 31, 1997.
(R) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other
hedging activities. Because the Company currently holds no derivative
financial instruments and does not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material
impact on the Company's financial condition or results of operations. In
June 1999, the FASB issued Statement No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES AND DEFERRAL OF THE EFFECTIVE DATE OF
FASB STATEMENT NO. 133. Statement No. 137 defers the effective date of
Statement No. 133 for one year. Statement No. 133 is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
(3) INCOME TAXES
Due to the Company's pre-tax losses in the periods since inception, there
has been no provision for federal and state income taxes. The reconciliation
of the statutory federal income tax rate to the Company's effective income
tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, OCTOBER 1, 1997
------------------------- (INCEPTION) THROUGH
1999 1998 DECEMBER 31, 1997
----------- ----------- -------------------
<S> <C> <C> <C>
Federal statutory rate.............. (34.0)% (34.0)% --%
State income taxes, net of federal
benefit........................... (4.4) (4.4) --
Changes in valuation allowance...... 38.4 39.80 --
Other............................... -- (1.40) --
----- ----- ---
--% --% --%
===== ===== ===
</TABLE>
F-17
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates for the years in which the
taxes are expected to be paid. The tax effects of significant items
comprising the Company's net deferred tax assets are as follows at
December 31:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 1,101,000 $ 151,000
Accrued interest................................... 84,000 --
Accrued expenses................................... 81,000 --
Allowance for doubtful accounts.................... 16,000 --
Other.............................................. -- 22,000
----------- ---------
1,282,000 173,000
Less valuation allowance........................... (1,282,000) (173,000)
----------- ---------
Net deferred tax assets.......................... $ -- $ --
=========== =========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1999 and 1998 and for the period October 1, 1997 (inception)
through December 31, 1997 were increases of $1,109,000, $173,000 and $-0-,
respectively.
As of December 31, 1999 and 1998, the Company has net operating loss
carryforwards of approximately $2,871,000 and $395,000, respectively, to
offset against future income for federal and state tax purposes. These
carryforwards expire through 2019. A provision of the Internal Revenue Code
requires the utilization of net operating losses be limited when there is a
change of more than 50% in ownership of the Company. The Company is not
subject to any such limitations as of December 31, 1999.
(4) 401(K) RETIREMENT BENEFIT PLAN
Effective January 1, 1999, the Company adopted a 401(k) retirement benefit
plan for its employees. All employees, subject to certain age and length of
service requirements, are eligible to participate. The plan permits certain
voluntary employee contributions to be excluded from the employees' current
taxable income under provisions of the Internal Revenue Code Section 401(k)
and regulations thereunder. The plan permits voluntary Company matches of
employee contributions and discretionary profit sharing contributions to all
employees. The Company does not currently match employee contributions or
make discretionary profit sharing contributions.
(5) SHAREHOLDERS' EQUITY
(A) PREFERRED STOCK
The Company has authorized 10 million shares of preferred stock to be
issued from time to time with such designations and preferences and other
special rights and qualifications, limitations and restrictions thereon,
as permitted by law and as fixed from time to time by resolution of the
Board of Directors. On November 2, 1999, the Board of Directors
authorized the issuance of up to 320,000 shares of Series A convertible
preferred stock.
SERIES A CONVERTIBLE PREFERRED STOCK. Series A preferred stock
accumulates dividends at 8% per annum before any dividends to common
shareholders, only if and as declared by the Board of
F-18
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
Directors. In the event of any sale, merger, consolidation of the Company
in a transaction in which the shareholders immediately prior to the
transaction are no longer majority owners of the surviving company or in
the event of any voluntary or involuntary liquidation of the Company, the
Series A shareholders are entitled to receive up to two times the
original issue price of the Series A shares plus accrued dividends before
any distributions are made to other classes of stock, including common
stock, not having the same or greater preference upon liquidation.
Subject to certain adjustments, each original share of Series A preferred
stock may be converted at the holder's election into 10 shares of common
stock at any time and must be converted upon the occurrence of the
earlier of (i) the Company's underwritten sale of common stock pursuant
to a registration under the Securities Act of 1933, as amended, in which
the Company is valued at not less than $50 million at the time of the
public offering and the Company receives proceeds before expenses of at
least $10 million, or (ii) upon conversion of the majority of the
originally issued and outstanding shares of the Series A preferred stock.
So long as any shares of Series A preferred stock remain outstanding, a
majority of the Series A shareholders must consent to the following
actions by the Company: the sale of all or substantially all of the
assets of the Company; the merger, consolidation, reorganization or
recapitalization of the Company; any transaction or series of related
transactions in which the shareholders immediately prior to the
transactions no longer own a majority interest in the Company after the
transactions; redemption, purchase or acquisition for value of any common
stock of the Company; amendment of the Company's Articles of
Incorporation if such amendment would change the rights, preferences or
limitations of the Series A preferred shareholders.
The conversion ratio of Series A preferred stock is subject to adjustment
with certain exceptions in the event that subsequent issuances of stock
are less than the $3.15 initial conversion price per share. The Series A
shareholders have the right to elect one member of the Board of Directors
and in all other matters have one vote for each share of common stock
into which such Series A preferred shares are at that time convertible.
In connection with the Series A issuance, certain of the shareholders
received Board of Directors observer rights. On November 18, 1999, the
Company issued 190,580 Series A preferred shares in exchange for proceeds
totaling $6 million.
SERIES A PREFERRED STOCK WARRANT. On October 7, 1999, prior to the
closing of the Series A preferred stock transaction, one of the investors
provided the Company with $500,000 of bridge financing which along with
accrued interest of $3,150 was converted at closing into Series A
preferred stock. In connection with this bridge financing, this investor
was granted a warrant to purchase up to 7,500 Series A preferred shares
at $25.00 per share for a period of 10 years. No shares have been
exercised as of December 31, 1999. In accordance with Emerging Issues
Task Force (EITF) Consensus on Issue No. 96-18, ACCOUNTING FOR EQUITY
INSTRUMENTS THAT ARE ISSUED IN CONJUNCTION WITH SELLING, GOODS OR
SERVICES, the fair market value of the warrant is considered interest
expense for the period in which the bridge financing was outstanding.
Accordingly, for the year ended December 31, 1999, the Company has
recorded non-cash interest expense of $219,000 in the accompanying
financial statements.
(B) COMMON STOCK
Holders of common stock are entitled to one vote for each share of record
held on all matters to be voted on by shareholders. No shares have been
subject to assessment, and there are no preemptive or conversion rights
and no provision for redemption, purchase or cancellation,
F-19
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
surrender or sinking or purchase funds. Holders of common stock are not
entitled to cumulate their shares in the election of directors.
On June 15, 1998, the Company was formed for the purpose of acquiring all
of the assets and liabilities of Taow Internet Services, LLC, in a
tax-free transfer of assets and liabilities in exchange for 3.0 million
shares of the Company's common stock. At the time of the transfer, of the
total 3.0 million shares issued, senior management of the Company
indirectly owned 2.31 million shares and the corporation which developed
the website indirectly owned 600,000 shares. In June, July, August and
November 1998, the Company issued 1.0 million shares of its common stock
in exchange for proceeds of $500,000 from a group of outside investors.
One of the outside investors became a director of the Company in
August 1998.
In January and February 1999, the Company issued 920,002 shares of its
common stock in exchange for proceeds of $1.38 million.
(C) STOCK OPTIONS
Options may be granted to directors, officers and employees of the
Company by the Board of Directors under terms of the Company's 1998 Stock
Incentive Plan (the Plan), which was adopted by the Board of Directors
and approved by the shareholders on June 15, 1998. Under the terms of the
Plan, eligible employees may receive statutory and nonstatutory stock
options, stock bonuses and stock appreciation rights for purchase of
shares of the Company's common stock at prices, vesting, exercisability
and such other terms as determined by a committee of the Board.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Balances, October 1, 1997........................... -- $ --
Options granted..................................... -- --
Options exercised................................... -- --
Options canceled or expired......................... -- --
------- -----
Balances, December 31, 1997......................... -- --
Options granted..................................... 75,750 .85
Options exercised................................... -- --
Options canceled or expired......................... -- --
------- -----
Balances, December 31, 1998......................... 75,750 .85
Options granted..................................... 551,000 2.41
Options exercised................................... (43,000) 2.50
Options canceled or expired......................... (30,000) 2.07
------- -----
Balances, December 31, 1999......................... 553,750 $2.21
======= =====
</TABLE>
The following table sets forth as of December 31, 1999, the number of
shares outstanding, exercise price, weighted average remaining
contractual life, weighted average exercise price,
F-20
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
number of exercisable shares and weighted average exercise price of
exercisable options by groups of similar price and grant date:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------- ------------------------
WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
SHARES AT REMAINING AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE 1999 LIFE (YEARS) PRICE 1999 PRICE
--------------------- ------------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C>
0.50.$.......... 34,750 5.79 $0.50 21,790 $0.50
1.25........... 35,000 9.00 1.25 -- --
1.50........... 45,500 6.23 1.50 -- --
2.50........... 438,500 9.38 2.50 -- --
------- ------
0.50-$2.50...... 553,750 8.87 $2.21 21,790 $0.50
======= ======
</TABLE>
(D) VOTING AGREEMENT
In September and November 1999, the limited liability companies through
which the founders of the Company held their original shares of common
stock were dissolved. As part of the dissolution, the former limited
liability company members executed voting agreements under which the
voting rights for their shares would be restricted and would be voted at
the direction of Dean Kyriakos and Scott Taylor. Under these agreements,
the voting rights of an aggregate of 3 million shares of common stock
remain under the joint control of Messrs. Kyriakos and Taylor until the
earlier of the sale of the company or six months following an initial
public offering of stock.
(E) INVESTOR RIGHTS, REPURCHASE AND CO-SALE AGREEMENTS
In connection with the issuance of the Series A preferred stock, the
Company, the Series A investors, Dean Kyriakos and Scott Taylor entered
into a series of agreements the effect of which was to grant certain
rights to the Series A investors, place limitations on the sale and
transfer of Messrs. Kyriakos and Taylor's already issued shares and in
certain circumstances cause Messrs. Kyriakos and Taylor to be required to
re-sell their shares to the Company based on prices specified in the
agreements. Mr. Kyriakos is chief executive officer and Mr. Taylor is
president of the Company.
SERIES A INVESTORS RIGHTS AGREEMENT. Under this agreement, on the
earlier of September 30, 2001 or six months following an initial public
offering of stock, the holders of 50% of Series A preferred stock may
demand an underwritten public offering of their shares subject to certain
limitations. They may also require that the Company register their shares
with the Securities and Exchange Commission on Form S-3, also subject to
certain limitations. The Company has agreed to pay the expenses of and to
indemnify the Series A shareholders in connection with these
registrations of shares. In consideration for these rights the Series A
shareholders have agreed to various lock-up provisions after a public
offering of stock provided that similar provisions apply to the officers
and directors of the Company. The parties have also agreed that while the
Company is privately held the Board of Directors will consist of five
individuals and that nominees for director positions will be made by
certain specified groups. Until the closing of a qualified public
offering, as defined in the agreement, the Series A preferred
shareholders have the right to participate in subsequent financings up to
40% of such financings.
F-21
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
CO-SALE AGREEMENT. Except for certain permitted transfers as defined in
the agreement, if Messrs. Kyriakos or Taylor propose to sell or transfer
their stock in the Company, under this agreement the holders of the
Series A preferred stock have the right to participate in any such
proposed sale on a pro rata basis.
REPURCHASE AGREEMENTS. At the closing of the Series A preferred stock
offering, Messrs. Kyriakos and Taylor each held 584,135 common shares of
the Company which are subject to separate repurchase agreements. Under
the agreements, each of these individuals is required to sell certain of
his shares to the Company upon the occurrence of certain events as
defined in the agreement. The number of shares which are required to be
resold decreases at the rate of 1/36th per month beginning in
December 1999 until there are no longer any shares subject to the
agreement. Generally, if either of these individuals is terminated for
cause, at the Company's election, the specified number of shares must be
resold to the Company at $.50 per share. In addition, if either
voluntarily terminates his employment with the Company, then the Company
may elect to repurchase the specified number of shares at the then fair
market value as determined in good faith by the Board of Directors. The
repurchase right immediately terminates if (i) the individual's
employment with the Company is involuntarily terminated without cause,
(ii) upon the sale of the Company or substantially all of its assets,
(iii) upon the merger or consolidation with another company in which the
Company's shareholders no longer own a majority interest, or (iv) upon
the completion of an underwritten public offering in which the Company is
valued at not less than $50 million and the Company receives gross
proceeds of at least $10 million.
(6) COMMITMENTS
(A) OPERATING LEASES
The Company has operating leases for its administrative and sales
facilities and also leases office equipment under operating leases for
periods up to five years. At December 31, 1999, future minimum payments
under noncancelable operating leases with terms in excess of one year are
as follows (see note 8):
<TABLE>
<CAPTION>
FACILITIES EQUIPMENT
---------- ---------
<S> <C> <C>
Year ending December 31:
2000................................................ $ 364,063 $ 6,889
2001................................................ 373,523 4,534
2002................................................ 326,015 2,448
2003................................................ 206,924 2,448
2004................................................ 88,605 816
---------- --------
$1,359,130 $ 17,135
========== ========
</TABLE>
Rent expense was approximately $129,000, $35,000 and $3,300 for the years
ended December 31, 1999 and 1998 and the period October 1, 1997
(inception) through December 31, 1997, respectively.
F-22
<PAGE>
VIRTUAL RELOCATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(B) AGREEMENT
On December 31, 1998, and as subsequently amended, the Company entered
into an agreement with EPIC Relocation, LLC (EPIC), for exclusive online
rights to EPIC's Community Profiles information. Under the agreement, the
companies share revenues received from the Community Profiles product in
the ratio of 60% to the Company and 40% to EPIC for a period of three
years, commencing in January 1999. In addition, the Company agreed to
make minimum revenue sharing payments to EPIC in the amounts per month of
$5,000 from July to September, $7,500 from October to December 1999, and
$10,000 thereafter until expiration in December 2001. The Company further
agreed to issue 40,000 shares of the Company's common stock on
January 4, 1999 to EPIC, deliverable on or before December 31, 1999,
subject to EPIC's satisfactory performance under the agreement. The
Company further agreed, upon EPIC's election, to issue an additional
160,000 shares of its common stock to EPIC plus share 10% of Community
Profiles revenues with no minimum monthly payments for the remaining term
of the original agreement in exchange for all of the assets of the
Community Profiles business, free of any liabilities, liens or
encumbrances and termination of the original revenue sharing arrangement.
EPIC must make this election on or before March 31, 2000.
(C) LITIGATION
The Company from time to time is involved in various claims and legal
actions arising from the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
(7) COMPETITION AND RISK OF TECHNOLOGICAL CHANGE
The Company's business strategy is based on expanding its user base, selling
advertising and other electronic commerce products, and continuously
refining and developing its website to maintain user appeal and
technological competitiveness. In the extremely competitive environment in
which the Company operates, such traffic expansion, marketing and
development processes are uncertain and complex, requiring accurate
prediction of user and advertiser trends as well as successful management of
various technological projects and prediction of future Internet business
and technology developments. The Company's future success will be dependent
on its ability to predict and manage these changes. Failure to do so could
have long-term, adverse impacts on the Company's growth and results of
operations.
(8) SUBSEQUENT EVENTS
LEASES OF FACILITIES. Subsequent to year-end, the Company entered into
leases for office facilities in Washington, DC, and Los Angeles, California.
The lease in Washington, DC, is for 2,224 sq. ft. of full service office
space at the rate of $5,683 per month commencing February 2000 and ending
October 30, 2001. The lease in Los Angeles is for 3,718 sq. ft. of full
service office space for a term of three years commencing March 2000. The
rent is $9,667 per month for the first year, up to $9,779 per month for the
second year and up to $9,891 per month for the third year of the lease.
PURCHASE OF THIRD PARTY WEBSITE. In January 2000, the Company signed a
letter of intent to purchase all of the assets of a third party website in
exchange for 50,000 shares of the Company's common stock. The Company is in
the process of preparing final agreements for signing and expects to close
the transaction in March 2000. As part of the transaction, the key principal
of the business has agreed to provide consulting services for up to three
years after the sale closes in exchange for fees of $3,000 per month and the
grant of options to purchase 12,000 shares of the Company's common stock,
vesting over three years.
F-23
<PAGE>
SIMPATIX INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 258,709 $ 11,896
Accounts receivable, net of allowance for doubtful
accounts of $13,803 in 1999 and 2000.................... 47,395 37,656
----------- -----------
Total Current Assets.................................. 306,104 49,552
PROPERTY AND EQUIPMENT, Net................................. 77,925 74,775
OTHER ASSETS
Security deposits......................................... 6,048 6,048
----------- -----------
TOTAL ASSETS.......................................... $ 390,077 $ 130,375
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable.......................................... $ 96,149 $ 77,397
Accounts payable, related party........................... 20,743 21,744
Accrued vacation expense.................................. 21,721 22,238
Deposits payable.......................................... -- 22,500
Current portion of long-term debt......................... 18,600 18,320
----------- -----------
Total Current Liabilities............................. 157,213 162,199
----------- -----------
OTHER LIABILITIES
Accrued salaries expense.................................. 621,667 588,333
Long term debt, net of current............................ 9,732 14,489
----------- -----------
Total Other Liabilities............................... 631,399 602,822
----------- -----------
TOTAL LIABILITIES..................................... 788,612 765,021
----------- -----------
COMMITMENTS
STOCKHOLDERS' DEFICIENCY
Convertible Series A preferred stock, $.0001 par value,
1,000,000 shares authorized, issued and outstanding
(liquidation preference $100,000)....................... 100,000 100,000
Convertible Series B preferred stock, $.0001 par value,
4,120,880 shares authorized, 2,307,704 issued and
outstanding (liquidation preference $420,000)........... 420,000 420,000
Convertible Series C preferred stock, $.0001 par value,
1,949,320 shares authorized, 677,382 issued and
outstanding (liquidation preference $347,500)........... 347,500
Common stock, $.0001 par value, 17,070,200 shares
authorized 9,000,000 issued and outstanding............. 900 900
Deferred compensation..................................... (101,589) (113,516)
Additional paid in capital................................ 194,645 194,645
Accumulated deficit....................................... (1,359,991) (1,236,675)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY........................ (398,535) (634,646)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY........ $ 390,077 $ 130,375
=========== ===========
</TABLE>
See notes to accompanying financial statements.
F-24
<PAGE>
SIMPATIX INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
OPERATING REVENUE........................................... $ 118,657 $ --
COST OF SALES............................................... 7,188 10,896
--------- ---------
GROSS PROFIT (LOSS)..................................... 111,469 (10,896)
GENERAL AND ADMINISTRATIVE EXPENSES......................... 233,849 145,602
--------- ---------
OPERATING LOSS.......................................... (122,380) (156,498)
--------- ---------
OTHER INCOME AND (EXPENSES)
Interest income........................................... 716 3,810
Interest expense.......................................... (972) (741)
--------- ---------
TOTAL OTHER INCOME (EXPENSE)............................ (256) 3,069
--------- ---------
NET LOSS BEFORE INCOME TAXES............................ (122,636) (153,429)
INCOME TAXES................................................ 680 680
--------- ---------
NET LOSS................................................ $(123,316) $(154,109)
========= =========
</TABLE>
F-25
<PAGE>
SIMPATIX INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- DEFERRED PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMPENSATION CAPITAL DEFICIT TOTAL
--------- -------- --------- -------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1999.... 3,307,704 $520,000 9,000,000 $900 $(113,516) $194,645 $(1,236,675) $(634,646)
Issuance of preferred stock,
Series C.................... 677,382 347,500 -- -- -- -- -- 347,500
Amortization of deferred
compensation................ -- -- -- -- 11,927 -- -- 11,927
Net loss (unaudited).......... -- -- -- -- -- -- (123,316) (123,316)
--------- -------- --------- ---- --------- -------- ----------- ---------
BALANCE--MARCH 31, 2000
(UNAUDITED)................. 3,985,086 $867,500 9,000,000 $900 $(101,589) $194,645 $(1,359,991) $(398,535)
========= ======== ========= ==== ========= ======== =========== =========
</TABLE>
See notes to accompanying financial statements.
F-26
<PAGE>
SIMPATIX INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(123,316) $(154,109)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... $ 4,973 $ 4,747
Stock based compensation................................ 11,927 4,259
(Increase) decrease in accounts receivable.............. (9,739) 4,725
Increase in accounts payable............................ 17,750 33,388
Decrease in accrued vacation expense.................... (517) --
Decrease in deposits payable............................ (22,500) --
Increase in accrued salaries expense.................... 33,334 36,666
--------- ---------
TOTAL ADJUSTMENTS..................................... 35,228 83,785
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES................. (88,088) (70,324)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in investments................................. -- 190,000
Purchases of property and equipment..................... (8,123) (5,576)
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES... (8,123) 184,424
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock..... 347,500 --
Decrease in stock subscription receivable................. -- 30,000
Payments on long term debt................................ (4,476) (4,212)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 343,024 25,788
--------- ---------
NET INCREASE IN CASH.................................. 246,813 139,888
CASH AND CASH EQUIVALENTS--Beginning........................ 11,896 117,845
--------- ---------
CASH AND CASH EQUIVALENTS--Ending........................... $ 258,709 $ 257,733
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for: 2000 1999
--------- ---------
Interest................................................ $ 972 $ 741
Income taxes............................................ $ 680 $ 680
Non-cash investing and financing activities:
Issuance of stock options for compensation and
consulting expense.................................... $ -- $ 938
</TABLE>
See accompanying notes to accompanying financial statements.
F-27
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Simpatix Inc. (the "Company") was incorporated on March 26, 1997 in the
State of Delaware under the name Simpatico Group, Inc. The Company changed its
name on November 23, 1998 to Simpatix Inc. The Company is an application service
provider for the human resources and recruiting industry. The Company commenced
operations in February 1999 and, from date of incorporation to that date, was
considered a development stage company in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 7.
BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company, without audit, in accordance with generally accepted accounting
principles. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission for interim financial statements.
These statements reflect all adjustments, consisting of normal recurring
adjustments that, in the opinion of management, are necessary for fair
presentation of the information contained herein. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes for the years ended December 31, 1999, 1998 and 1997, included herein. The
Company follows the same accounting policies in preparation of interim reports.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred; costs of major additions and betterments are
capitalized. When property and equipment is sold or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is reflected in income.
DEPRECIATION
Depreciation is provided for using the straight-line method over the
estimated useful lives of the related assets.
INCOME TAXES
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences between
such income and that recognized for tax return purposes.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were $18,500
and $--for the three months ended March 31, 2000 and 1999, respectively.
F-28
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS
No. 123 requires compensation expense to be recorded (i) using the new fair
value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma disclosure of
what net income would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock-based
compensation in accordance with the provisions of APB 25.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
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 at 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.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
2000 LIVES
-------- ---------
<S> <C> <C>
Furniture and fixtures................................... $ 2,069 5 years
Computer software........................................ 2,200 5 years
Computer equipment....................................... 100,326 5 years
Office Equipment......................................... 5,798 5 years
------- -------
110,393
Less: accumulated depreciation........................... 32,468
------- -------
Property and Equipment, net.......................... $77,925
======= =======
</TABLE>
Depreciation expense for the periods ended March 31, 2000 and 1999 was $4,973
and $4,747, respectively.
F-29
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 3--LONG TERM DEBT
At March 31, 2000, long-term debt consists of the following:
<TABLE>
<CAPTION>
2000
--------
<S> <C>
Note payable due in monthly installments of $1,651 including
interest of 6% through September 2001, collateralized by
the underlying equipment.................................. $28,332
Less: Current Maturities:................................... 18,600
-------
Total................................................... $ 9,732
=======
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING
MARCH 31, AMOUNT
---------------------- ---------
<S> <C>
2000.................................................. $18,600
2001.................................................. 9,732
-------
Total............................................... $28,332
=======
</TABLE>
NOTE 4--STOCKHOLDERS' EQUITY
COMMON STOCK
On March 7, 2000, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock to 17,070,200 for the
conversion of Series C Preferred Stock to common stock.
As of March 31, 2000, no stock options were exercised, and none of the
shares of Series A, B, or C Preferred Stock were converted to common stock.
PREFERRED STOCK
On March 7, 2000, the Company amended its certificate of incorporation to
authorize 1,949,320 shares of convertible, $.0001 par value Series C preferred
stock (the "Series C Preferred Stock"). The Company sold an aggregate of 677,382
shares of this stock at a price of $.513 per share. The total proceeds relating
to this sale were $347,500.
The holders of the Series C Preferred Stock shall be entitled to receive
non-cumulative dividends at the rate of $.015 per annum, per share, out of any
funds legally available therefore. The holders may also at any time convert the
Series C Preferred Stock to shares of the Company's $0.0001 par value common
stock. There is a liquidation preference in the amount of $347,500.
STOCK-BASED COMPENSATION
From March 1998 through July 1999, the Company issued incentive and
nonqualified options to purchase 1,343,359 shares of the Company's common stock
to employees and consultants. The options have exercise prices ranging from
$0.01 to $0.0182 per share, and vesting periods range from grant date to three
years. These options all expire ten years from grant date.
F-30
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 4--STOCKHOLDERS' EQUITY (CONTINUED)
Activity in stock options is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED SHARES WEIGHTED
AVERAGE SUBJECT TO AVERAGE
EXERCISE PRICE OPTION REMAINING LIFE
-------------- ---------- --------------
<S> <C> <C> <C>
January 1, 2000......................... $.01710 1,343,359 9.2 years
Options granted......................... -- -- 8.9 years
Options exercised....................... -- -- 8.9 years
------- ---------
March 31, 2000.......................... $.01710 1,343,359 8.9 years
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation", which the Company has
adopted in fiscal 1998. The Company chose to continuously use APB 25 to account
for its employee stock options with proforma disclosure of net income and
earnings per share as if such method had been used to account for stock-based
costs as described in SFAS No. 123. The proforma compensation cost before income
taxes for March 31, 2000 was $12,489. For the three months ended March 31, 2000,
the company recognized compensation expense of $11,927. The Company's net loss
using these proforma compensation costs for the three months ended March 31,
2000 would have been:
<TABLE>
<S> <C>
Net loss, as reported....................................... $(123,316)
Net Loss, pro forma......................................... $(123,878)
</TABLE>
NOTE 5--INCOME TAXES
The provision for income taxes for the periods ended March 31, 2000 and 1999
consists of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Federal..................................................... $ -- $ --
State and City.............................................. 680 680
---- ----
Total....................................................... $680 $680
==== ====
</TABLE>
The Company recognizes deferred tax assets or liabilities for the future tax
consequences of the events that have been recognized in their financial
statements or tax returns. Such differences result primarily from net operating
loss carryforwards and differences in accounting methods for book and tax. A
valuation allowance is required if, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Management concluded that a full valuation allowance was
appropriate at March 31, 2000. At March 31, 2000 net deferred tax assets were
approximately $462,000, which have been fully reserved. Operating loss
carryforwards, which may provide future tax benefits, approximate $647,000 at
March 31, 2000, which begin to expire in 2014.
F-31
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 6--COMMITMENTS
LEASE ARRANGEMENT AND SUBSCRIPTION AGREEMENT
The Company subscribes to a service which provides space and technical
support for their product. The subscription is for a (1) year period, expiring
December 17, 2000.
The minimum commitments for the remainder of the subscription agreement is
$13,600 payable through December 17, 2000.
For the periods ended March 31, 2000 and 1999, rent expense was $4,150 and
$9,306, respectively, pursuant to a month to month lease agreement currently in
effect.
NOTE 7--SUBSEQUENT EVENTS
SALE OF COMPANY
On May 31, 2000, TMP Worldwide Inc. ("TMP"), through a wholly owned
subsidiary, acquired all shares and other equity interests in the Company in
exchange for $12,000,000 of TMP's common stock.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Simpatix Inc.
We have audited the accompanying balance sheets of Simpatix Inc. as of
December 31, 1999, 1998 and 1997, and the related statements of operations,
changes in stockholders' deficiency and cash flows for the years ended
December 31, 1999, 1998, and for the period March 26, 1997 (Inception) through
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Simpatix Inc. as of
December 31, 1999, 1998 and 1997 and the results of its operations and its cash
flows for the years ended December 31, 1999, 1998, and for the period March 26,
1997 (Inception) through December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Marcum & Kliegman LLP
New York, NY
April 19, 2000
F-33
<PAGE>
SIMPATIX INC.
BALANCE SHEETS
DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 11,896 $ 117,845 $ --
Investments............................................. -- 190,000 --
Accounts receivable, net of allowance for doubtful
accounts of $13,803 in 1999........................... 37,656 4,725 --
----------- --------- ---------
Total Current Assets................................ 49,552 312,570 --
PROPERTY AND EQUIPMENT, Net............................... 74,775 83,429 8,919
OTHER ASSETS
Security deposits....................................... 6,048 -- --
----------- --------- ---------
TOTAL ASSETS........................................ $ 130,375 $ 395,999 $ 8,919
=========== ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable........................................ $ 77,397 $ 46,424 $ 4,990
Accounts payable, related party......................... 21,744 19,423 15,270
Accrued vacation expense................................ 22,238 4,892 --
Deposits payable........................................ 22,500 -- --
Current portion of long-term debt....................... 18,320 17,240 --
----------- --------- ---------
Total Current Liabilities........................... 162,199 87,979 20,260
----------- --------- ---------
OTHER LIABILITIES
Accrued salaries expense................................ 588,333 440,000 200,000
Long term debt, net of current.......................... 14,489 32,809 --
----------- --------- ---------
Total Other Liabilities............................. 602,822 472,809 200,000
----------- --------- ---------
TOTAL LIABILITIES................................... 765,021 560,788 220,260
----------- --------- ---------
COMMITMENTS
STOCKHOLDERS' DEFICIENCY
Convertible Series A preferred stock, $.0001 par value,
1,000,000 shares authorized, issued and outstanding
(liquidation preference $100,000)..................... 100,000 100,000 --
Convertible Series B preferred stock, $.0001 par value,
4,120,880 shares authorized, 2,307,704 issued and
outstanding (liquidation preference $420,000)......... 420,000 420,000 --
Common stock, $.0001 par value, 15,120,880 shares
authorized 9,000,000 issued and outstanding........... 900 900 900
Preferred stock subscription receivable................. -- (30,000) --
Deferred compensation................................... (113,516) (29,803) --
Additional paid in capital.............................. 194,645 58,730 --
Accumulated deficit..................................... (1,236,675) (684,616) (212,241)
----------- --------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY...................... (634,646) (164,789) (211,341)
----------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY...... $ 130,375 $ 395,999 $ 8,919
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
SIMPATIX INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND FOR THE PERIOD
MARCH 26, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUE........................................... $ 68,149 $ 100 $ --
COST OF SALES............................................... 31,428 4,646 --
--------- --------- ---------
GROSS PROFIT............................................ 36,721 (4,546) --
GENERAL AND ADMINISTRATIVE EXPENSES......................... 593,069 467,731 212,241
--------- --------- ---------
OPERATING LOSS.......................................... (556,348) (472,277) (212,241)
--------- --------- ---------
OTHER INCOME AND (EXPENSES)
Interest income........................................... 7,624 706 --
Interest expense.......................................... (2,655) (804) --
--------- --------- ---------
TOTAL OTHER INCOME (EXPENSE)............................ 4,969 (98) --
--------- --------- ---------
NET LOSS BEFORE INCOME TAXES............................ (551,379) (472,375) (212,241)
INCOME TAXES................................................ 680 -- --
--------- --------- ---------
NET LOSS................................................ $(552,059) $(472,375) $(212,241)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
SIMPATIX INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND FOR THE PERIOD MARCH 26, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK PREFERRED ADDITIONAL
-------------------- -------------------- STOCK DEFERRED PAID-IN
SHARES AMOUNT SHARES AMOUNT SUBSCRIPTION COMPENSATION CAPITAL
--------- -------- --------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 26, 1997................ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock............... -- -- 9,000,000 900 -- -- --
Net loss............................... -- -- -- -- -- -- --
--------- -------- --------- ---- -------- --------- --------
BALANCE, DECEMBER 31, 1997............. -- -- 9,000,000 900 -- -- --
Issuance of preferred stock, Series
A.................................... 1,000,000 100,000 -- -- -- -- --
Issuance of preferred stock, Series
B.................................... 2,307,704 420,000 -- -- -- -- --
Preferred stock subscribed............. -- -- -- -- (30,000) -- --
Issuance of options for compensation... -- -- -- -- -- (58,730) 58,730
Amortization of deferred
compensation......................... -- -- -- -- -- 28,927 --
Net loss............................... -- -- -- -- -- -- --
--------- -------- --------- ---- -------- --------- --------
BALANCE, DECEMBER 31, 1998............. 3,307,704 520,000 9,000,000 900 (30,000) (29,803) 58,730
Preferred stock subscription........... -- -- -- -- 30,000 -- --
Issuance of options for compensation... -- -- -- -- -- (135,915) 135,915
Amortization of deferred
compensation......................... -- -- -- -- -- 52,202 --
Net loss............................... -- -- -- -- -- -- --
--------- -------- --------- ---- -------- --------- --------
BALANCE--DECEMBER 31, 1999............. 3,307,704 $520,000 9,000,000 $900 $ -- $(113,516) $194,645
========= ======== ========= ==== ======== ========= ========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- ---------
<S> <C> <C>
BALANCE, MARCH 26, 1997................ $ -- $ --
Issuance of common stock............... -- 900
Net loss............................... (212,241) (212,241)
----------- ---------
BALANCE, DECEMBER 31, 1997............. (212,241) (211,341)
Issuance of preferred stock, Series
A.................................... -- 100,000
Issuance of preferred stock, Series
B.................................... -- 420,000
Preferred stock subscribed............. -- (30,000)
Issuance of options for compensation... -- --
Amortization of deferred
compensation......................... -- 28,927
Net loss............................... (472,375) (472,375)
----------- ---------
BALANCE, DECEMBER 31, 1998............. (684,616) (164,789)
Preferred stock subscription........... -- 30,000
Issuance of options for compensation... -- --
Amortization of deferred
compensation......................... -- 52,202
Net loss............................... (552,059) (552,059)
----------- ---------
BALANCE--DECEMBER 31, 1999............. $(1,236,675) $(634,646)
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
SIMPATIX INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND FOR THE PERIOD
MARCH 26, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(552,059) $(472,375) $(212,241)
--------- --------- ---------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 19,706 6,093 1,695
Stock based compensation................................ 28,109 9,637 --
Bad debts............................................... 13,803 -- --
Stock issued for services............................... 24,093 19,290 --
Increase in accounts receivable......................... (46,734) (4,725) --
Increase in security deposits........................... (6,048) -- --
Increase in accounts payable............................ 33,295 45,587 20,260
Increase in accrued vacation expense.................... 17,346 4,892 --
Increase in deposits payable............................ 22,500 -- --
Increase in accrued salaries expense.................... 148,333 240,000 200,000
--------- --------- ---------
TOTAL ADJUSTMENTS..................................... 254,403 320,774 221,955
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES... (297,656) (151,601) 9,714
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (11,053) (26,405) (10,614)
Decrease (increase) in investments........................ 190,000 (190,000) --
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES... 178,947 (216,405) (10,614)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock..... 30,000 490,000 --
Proceeds from issuance of common stock.................... -- -- 900
Payments on long term debt................................ (17,240) (4,149) --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 12,760 485,851 900
--------- --------- ---------
NET DECREASE (INCREASE) IN CASH....................... (105,949) 117,845 --
CASH AND CASH EQUIVALENTS--Beginning........................ 117,845 -- --
--------- --------- ---------
CASH AND CASH EQUIVALENTS--Ending........................... $ 11,896 $ 117,845 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest.................................................... $ 2,572 $ 804 $ --
Income taxes................................................ $ 680 $ -- $ --
Non-cash investing and financing activities:
Issuance of stock for stock subscription receivable......... $ -- $ 30,000 $ --
Issuance of stock options for compensation and consulting
expense................................................... $ 135,915 $ 58,730 $ --
Purchase of computer equipment by entering into long-term
debt agreement............................................ $ -- $ 54,198 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Simpatix Inc. (the "Company") was incorporated on March 26, 1997 in the
State of Delaware under the name Simpatico Group, Inc. The Company changed its
name on November 23, 1998 to Simpatix Inc. The Company is an application service
provider for the human resources and recruiting industry. The Company commenced
operations in February 1999 and, from date of incorporation to that date, was
considered a development stage company in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 7.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred; costs of major additions and betterments are
capitalized. When property and equipment is sold or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is reflected in income.
DEPRECIATION
Depreciation is provided for using the straight-line method over the
estimated useful lives of the related assets.
INCOME TAXES
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences between
such income and that recognized for tax return purposes.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising Costs were $7,275
for the year ended December 31, 1999.
STOCK OPTIONS
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS
No. 123 requires compensation expense to be recorded (i) using the new fair
value method or (ii) using the existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma disclosure of
what net income would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock-based
compensation in accordance with the provisions of APB 25.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
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 at the date of the financial
statements and the
F-38
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1999 1998 1997 LIVES
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Furniture and fixtures................................... $ 2,069 $ 1,172 $1,172 5 years
Computer equipment....................................... 94,404 89,177 8,574 5 years
Office Equipment......................................... 5,797 868 868 5 years
------- ------- ------ -------
102,270 91,217 10,614
Less: accumulated depreciation........................... 27,495 7,788 1,695
------- ------- ------
Property and Equipment, net.............................. $74,775 $83,429 $8,919
======= ======= ======
</TABLE>
Depreciation expense for the periods ended December 31, 1999, 1998 and 1997
was $19,706, $6,093 and $1,695 respectively.
NOTE 3--LONG TERM DEBT
At December 31, 1999, 1998 and 1997, long-term debt consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Note payable due in monthly installments of $1,651 including
interest of 6% through September 2001, collateralized by
the underlying equipment.................................. $32,809 $50,049 $ --
Less: Current Maturities:................................... 18,320 17,240 --
------- ------- ---------
Total....................................................... $14,489 $32,809 $ --
======= ======= =========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING
DECEMBER 31, AMOUNT
-------------------- --------
<S> <C>
2000........................................................ 18,320
2001........................................................ 14,489
-------
Total................................................. $32,809
=======
</TABLE>
NOTE 4--STOCKHOLDERS' DEFICIENCY
COMMON STOCK
At inception, the Company authorized 10,000,000 shares of $0.0001 par value
common stock and issued 9,000,000 of these share for $900.
F-39
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCKHOLDERS' DEFICIENCY (CONTINUED)
On September 3, 1998, the Company amended its certificate of incorporation
to increase the number of authorized shares of common stock to 11,000,000 for
the conversion of Series A Preferred Stock to common stock.
On September 13, 1998, the Company amended its certificate of incorporation
to increase the number of authorized shares of common stock to 15,120,880 for
the conversion of Series B Preferred Stock to common stock.
As of December 31, 1999, no stock options were exercised, and none of the
shares of Series A or B Preferred Stock were converted to common stock.
PREFERRED STOCK
On September 3, 1998, the Company amended its certificate of incorporation
to authorize 1,000,000 shares of convertible, $.0001 par value, Series A
preferred stock (the "Series A Preferred Stock"). The Company sold an aggregate
of 1,000,000 shares of this stock at a price of $.10 per share. The total
proceeds relating to this sale was $100,000.
The holders of the Series A Preferred Stock shall be entitled to receive
non-cumulative dividends at the rate of $.015 per annum, per share, out of any
funds legally available therefore. The holders may also at any time convert the
Series A Preferred Stock to shares of the Company's $0.0001 par value common
stock. There is a liquidation preference in the amount of $100,000.
On September 13, 1998, the Company amended its certificate of incorporation
to authorize 4,120,880 shares of convertible, $.0001 par value, Series B
preferred stock (the "Series B Preferred Stock"). The Company sold an aggregate
of 2,307,704 shares of this stock at a price of $.182 per share. The total
proceeds relating to this sale were $420,000.
The holders of the Series B Preferred Stock shall be entitled to receive
non-cumulative dividends at the rate of $.015 per annum, per share, out of any
funds legally available therefore. The holders may also at any time convert the
Series B Preferred Stock to shares of the Company's $0.0001 par value common
stock. There is a liquidation preference in the amount of $420,000.
STOCK-BASED COMPENSATION
From March 1998 through July 1999, the Company issued incentive and
nonqualified options to purchase 1,343,359 shares of the Company's common stock
to employees and consultants. The options have exercise prices ranging from
$0.01 to $0.0182 per share, and vesting periods range from grant date to three
years. These options all expire ten years from grant date.
F-40
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCKHOLDERS' DEFICIENCY (CONTINUED)
Activity in stock options is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED SHARES WEIGHTED
AVERAGE SUBJECT TO AVERAGE
EXERCISE PRICE OPTION REMAINING LIFE
-------------- ---------- --------------
<S> <C> <C> <C>
January 1, 1998......................................... $ -- --
Options granted......................................... $.01548 519,179 9.6 years
--------- ---------
December 31, 1998....................................... $.01548 519,179 9.6 years
Options granted......................................... $.01820 824,180 9.2 years
--------- ---------
December 31, 1999....................................... $.01710 1,343,359 9.2 years
========= =========
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation", which the Company has
adopted in fiscal 1998. The Company chose to continuously use APB 25 to account
for its employee stock options with proforma disclosure of net income and
earnings per share as if such method had been used to account for stock-based
costs as described in SFAS No. 123. The proforma compensation costs before
income taxes for December 31, 1999, 1998 and 1997, based on the fair value at
the grant date, was $52,203, $28,927 and $--. The Company's net loss using these
proforma compensation costs for the year ended December 31, 1999, 1998, and 1997
would have been:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss, as reported....................................... $(552,059) $(472,375) $(212,241)
Net Loss, pro forma......................................... (553,352) (473,141) (212,241)
</TABLE>
NOTE 5--INCOME TAXES
The provision for income taxes for the periods ended December 31, 1999, 1998
and 1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal..................................................... $ -- $ -- $ --
State and City.............................................. 680 -- --
---- ---- ----
Total................................................... $680 $ -- $ --
==== ==== ====
</TABLE>
The Company recognizes deferred tax assets or liabilities for the future tax
consequences of the events that have been recognized in their financial
statements or tax returns. Such differences result primarily from net operating
loss carryforwards and differences in accounting methods for book and tax. A
valuation allowance is required if, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Management concluded that a full valuation allowance was
appropriate at December 31, 1999, 1998 and 1997. At December 31, 1999, 1998, and
1997 net deferred tax assets were approximately $359,000, $128,000 and $60,000
which have been fully reserved. Operating loss carryforwards, which may provide
future tax benefits, approximate $467,000 at December 31, 1999, which begin to
expire in 2014.
F-41
<PAGE>
SIMPATIX INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS
LEASE ARRANGEMENT AND SUBSCRIPTION AGREEMENT
The Company subscribes to a service which provides space and technical
support for their product. The subscription is for a (1) year period, expiring
December 17, 2000.
The Company leases office space under a (1) year noncancelable lease
expiring January 31, 2000. Rent expense was $21,739 for the year ended
December 31, 1999.
The minimum commitments for the remainder of the lease and subscription
agreements are $20,250 payable through December 17, 2000.
NOTE 7--SUBSEQUENT EVENTS
PREFERRED STOCK
On March 7, 2000, the Company amended its certificate of incorporation to
authorize 1,949,320 shares of convertible, $.0001 par value, Series C preferred
stock (the "Series C Preferred Stock"). The Company sold an aggregate of 677,382
shares of Series C Preferred Stock at a price of $.513 per share. The total
proceeds relating to this sale were $347,500.
The holders of the Series C Preferred Stock shall be entitled to receive
non-cumulative dividends at the rate of $.015 per annum, per share, out of any
funds legally available therefore. The holders may also at any time convert the
Series C Preferred Stock to shares of the Company's $0.0001 par value common
stock. There is a liquidation preference in the amount of $347,500.
SALE OF COMPANY
On March 24, 2000, the Company entered into a non-binding letter of intent
to sell the Company. Under the terms of the agreement the acquirer will acquire
all shares and other equity interests in the Company, in exchange for
$12,000,000 of the acquirers common stock. The Company and the acquirer intend
to enter into definitive documentation on or before May 15, 2000.
F-42
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Financial Information
reflects financial information which gives effect to the acquisition by TMP
Worldwide Inc. and Subsidiaries ("TMP" or the "Company") of all of the
outstanding stock of Virtual Relocation.com, Inc. ("VR") and Simpatix Inc.
("Simpatix") and the replacement of all outstanding options to buy VR and
Simpatix stock with options to purchase TMP stock in exchange for the issuance
of 1,100,416 shares of TMP's common stock and 98,270 options to purchase shares
of TMP common stock. The mergers have been accounted for under the pooling of
interests method of accounting. The share amounts and option amounts calculated
using an exchange ratio of 0.1362 per share for VR and 0.0115 per share for
Simpatix, respectively, were 947,916 for VR shares, 94,810 for VR options,
152,500 for Simpatix shares and 3,460 for Simpatix options based on the number
outstanding as of the acquisition date. The Unaudited Pro Forma Condensed
Consolidated Financial Information is derived from the unaudited consolidated
condensed financial statements reported on the Company's Form 10-Q for the
quarter ended March 31, 2000 with respect to the information as of March 31,
2000 and for the quarter ended March 31, 2000 and from the audited consolidated
financial statements for the years ended December 31, 1999, 1998 and 1997 as
reported on the Company's Form 10-K.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
the transactions as if it had occurred on March 31, 2000, combining the balance
sheet of TMP and the balance sheets of VR and Simpatix as of March 31, 2000. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations give effect
to the transactions as if they had occurred at the beginning of the earliest
period presented combining the results of TMP for the quarter ended March 31,
2000 and the years ended December 31, 1999, 1998 and 1997 with those of VR and
Simpatix for the quarter ended March 31, 2000 and the years ended December 31,
1999, 1998 and the period ended December 31, 1997.
The pro forma adjustments are based on certain assumptions that TMP's
management believes are reasonable under the circumstances and do not reflect
any potential cost savings. The Unaudited Pro Forma Condensed Consolidated
Financial Information is not necessarily indicative of the results that would
have been reported if such events had occurred on the date specified nor is it
intended to project TMP's results of operations or financial position for any
future period or date.
F-43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP VIRTUAL
WORLDWIDE RELOCATION.COM, SIMPATIX PRO FORMA
INC. INC. INC. ADJUSTMENTS COMBINED
---------- --------------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 515,743 $ 3,299 $ 259 $ -- $ 519,301
Securities held to maturity...................... -- 500 -- -- 500
Accounts receivable, net......................... 485,550 209 47 -- 485,806
Work-in-process.................................. 23,321 -- -- -- 23,321
Prepaid and other................................ 79,056 25 -- -- 79,081
---------- ------- ------- ------- ----------
Total current assets........................... 1,103,670 4,033 306 -- 1,108,009
Property and equipment, net........................ 83,789 543 78 -- 84,410
Intangibles, net................................... 297,030 101 -- 297,131
Other assets....................................... 37,186 38 108 -- 37,332
---------- ------- ------- ------- ----------
$1,521,675 $ 4,715 $ 492 $ -- $1,526,882
========== ======= ======= ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 270,620 $ 358 $ 96 $ -- $ 271,074
Accrued expenses and other liabilities........... 197,241 950 42 -- 198,233
Accrued integration and restructuring costs...... 25,237 -- -- -- 25,237
Deferred commissions & fees...................... 84,678 858 -- -- 85,536
Current portion of long term debt................ 8,751 -- 19 8,770
---------- ------- ------- ------- ----------
Total current liabilities...................... 586,527 2,166 157 -- 588,850
Long term debt, less current portion............... 19,956 -- 10 -- 19,966
Other long-term liabilities........................ 27,297 -- 622 -- 27,919
---------- ------- ------- ------- ----------
Total liabilities.............................. 633,780 2,166 789 -- 636,735
---------- ------- ------- ------- ----------
Minority interests................................. 52 -- -- -- 52
---------- ------- ------- ------- ----------
Stockholders' equity:
Common stock..................................... 87 -- -- 1 (a) 88
Class B common stock............................. 5 -- -- -- 5
Preferred stock of Virtual Relocation.com,
Inc............................................ -- 5,939 -- (5,939)(b) --
Common stock of Virtual Relocation.com, Inc...... -- 2,230 -- (2,230)(b) --
Warrants of Virtual Relocation.com, Inc.......... -- 219 -- (219)(b) --
Convertible preferred stock of Simpatix Inc...... -- -- 868 (868)(b) --
Additional paid-in-capital....................... 965,437 -- 195 9,255 (a)(b) 974,887
Other comprehensive loss......................... (39,084) -- -- -- (39,084)
Deficit.......................................... (38,602) (5,839) (1,360) -- (45,801)
---------- ------- ------- ------- ----------
Total stockholders' equity..................... 887,843 2,549 (297) -- 889,095
---------- ------- ------- ------- ----------
$1,521,675 $ 4,715 $ 492 $ -- $1,526,882
========== ======= ======= ======= ==========
</TABLE>
------------------------------
(a) Represents the par value of 1,091,688 shares of TMP stock issued in
connection with the mergers, based on the number of Virtual
Relocation.com, Inc. and Simpatix Inc. shares of common and preferred stock
outstanding as of the balance sheet date multiplied by the exchange ratio of
0.1362 and 0.0115, respectively.
(b) Value of pooled entities' common, preferred stock and warrants reclassified
to additional paid-in-capital, net of the par value of newly issued TMP
common stock as of the balance sheet date.
F-44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP VIRTUAL
WORLDWIDE RELOCATION.COM, SIMPATIX PRO FORMA
INC. INC. INC. COMBINED
--------- --------------- -------- ---------
<S> <C> <C> <C> <C>
Commissions and fees.............................. $244,003 $ 668 $ 111 $244,782
-------- -------- ------ --------
Operating expenses:
Salaries & related.............................. 136,469 1,248 145 137,862
Office & general................................ 55,027 808 69 55,904
Marketing & promotion........................... 28,286 1,025 19 29,330
Merger & integration............................ 8,674 -- -- 8,674
Amortization of intangibles..................... 3,351 8 -- 3,359
-------- -------- ------ --------
Total operating expenses.................... 231,807 3,089 233 235,129
-------- -------- ------ --------
Operating income (loss)........................... 12,196 (2,421) (122) 9,653
-------- -------- ------ --------
Other income (expense):
Interest income (expense), net.................. 2,794 19 0 2,813
Other, net...................................... (87) -- -- (87)
-------- -------- ------ --------
Total other income (expense), net........... 2,707 19 0 2,726
-------- -------- ------ --------
Income (loss) before provision for income taxes
and minority interests.......................... 14,903 (2,402) (122) 12,379
Provision for income taxes........................ 7,598 -- 1 7,599
-------- -------- ------ --------
Income (loss) before minority interests and equity
in losses of affiliates......................... 7,305 (2,402) (123) 4,780
Minority interests................................ (81) -- -- (81)
-------- -------- ------ --------
Net income (loss) applicable to common and Class B
common stockholders............................. $ 7,386 $ (2,402) $ (123) $ 4,861
======== ======== ====== ========
Net income per common and Class B
common share:
Basic......................................... $ 0.08 $ 0.05(a)
======== ========
Diluted....................................... $ 0.08 $ 0.05(a)
======== ========
Weighted average shares outstanding:
Basic......................................... 89,282 90,114(a)
======== ========
Diluted....................................... 96,882 98,009(a)
======== ========
</TABLE>
------------------------
(a) Gives effect to the additional shares and options issued in connection with
the mergers, including the weighted average basic and diluted shares
outstanding for the periods, which were 948 and 1,019 for VR and 143 and 155
for Simpatix, respectively, after giving effect to an exchange ratio of
0.1362 and 0.0115, respectively.
F-45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP VIRTUAL
WORLDWIDE RELOCATION.COM, SIMPATIX PRO FORMA
INC. INC. INC. COMBINED
--------- --------------- -------- ---------
<S> <C> <C> <C> <C>
Commissions and fees............................. $765,805 $ 1,353 $ 37 $767,195
-------- -------- ----- --------
Operating expenses:
Salaries & related............................. 436,255 2,291 411 438,957
Office & general............................... 179,580 676 145 180,401
Marketing & promotion.......................... 64,874 1,134 37 66,045
Merger & integration........................... 63,054 -- -- 63,054
Restructuring.................................. 2,789 -- -- 2,789
Amortization of intangibles.................... 11,430 17 -- 11,447
-------- -------- ----- --------
Total operating expenses................... 757,982 4,118 593 762,693
-------- -------- ----- --------
Operating income (loss).......................... 7,823 (2,765) (556) 4,502
-------- -------- ----- --------
Other income (expense):
Interest income (expense), net................. (8,803) 64 5 (8,734)
Other, net..................................... (568) (222) -- (790)
-------- -------- ----- --------
Total other income (expense), net.......... (9,371) (158) 5 (9,524)
-------- -------- ----- --------
Loss before provision for income taxes, minority
interests and equity in losses of affiliates... (1,548) (2,923) (551) (5,022)
Provision for income taxes....................... 5,450 -- 1 5,451
-------- -------- ----- --------
Loss before minority interests and equity in
losses of affiliates........................... (6,998) (2,923) (552) (10,473)
Minority interests............................... 107 -- -- 107
Equity in losses of affiliates................... (300) -- -- (300)
-------- -------- ----- --------
Net loss applicable to common and Class B common
stockholders................................... $ (7,405) $ (2,923) $(552) $(10,880)
======== ======== ===== ========
Net loss per common and Class B
common share:
Basic........................................ $ (0.09) $ (0.13)(a)
======== ========
Diluted...................................... $ (0.09) $ (0.13)(a)
======== ========
Weighted average shares outstanding:
Basic........................................ 79,836 80,651(a)
======== ========
Diluted...................................... 79,836 80,651(a)
======== ========
</TABLE>
------------------------
(a) Gives effect to the additional shares and options issued in connection with
the mergers, including the weighted average basic and diluted shares
outstanding for the periods, which were 672 and 672 for VR and 143 and 143
for Simpatix, respectively, after giving effect to an exchange ratio of
0.1362 and 0.0115, respectively.
F-46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP VIRTUAL
WORLDWIDE RELOCATION.COM, SIMPATIX PRO FORMA
INC. INC. INC. COMBINED
--------- --------------- -------- ---------
<S> <C> <C> <C> <C>
Commissions and fees.............................. $657,486 $ 169 $ (5) $657,650
-------- -------- ----- --------
Operating expenses:
Salaries & related.............................. 382,689 342 257 383,288
Office & general................................ 165,538 158 210 165,906
Marketing & promotion........................... 24,666 142 1 24,809
Merger & integration............................ 22,412 -- -- 22,412
Restructuring................................... 3,543 -- -- 3,543
Amortization of intangibles..................... 10,185 10 -- 10,195
CEO special bonus............................... 1,250 -- -- 1,250
-------- -------- ----- --------
Total operating expenses........................ 610,283 652 468 611,403
-------- -------- ----- --------
Operating income (loss)......................... 47,203 (483) (473) 46,247
-------- -------- ----- --------
Other income (expense):
Interest income (expense), net.................. (9,828) 3 -- (9,825)
Other, net...................................... (2,042) -- -- (2,042)
-------- -------- ----- --------
Total other income (expense), net............... (11,870) 3 -- (11,867)
-------- -------- ----- --------
Income (loss) before provision for income taxes,
minority interests and equity in losses of
affiliates.................................... 35,333 (480) (473) 34,380
Provision for income taxes...................... 14,367 -- -- 14,367
-------- -------- ----- --------
Income (loss) before minority interests and
equity in losses of affiliates................ 20,966 (480) (473) 20,013
Minority interests.............................. 28 -- -- 28
Equity in losses of affiliates.................. (396) -- -- (396)
-------- -------- ----- --------
Net income (loss) applicable to common and Class
B common stockholders......................... $ 20,542 $ (480) $(473) $ 19,589
======== ======== ===== ========
Net income per common and Class B common share:
Basic........................................... $ 0.27 $ 0.25(a)
======== ========
Diluted......................................... $ 0.26 $ 0.25(a)
======== ========
Weighted average shares outstanding:
Basic........................................... 77,472 78,047(a)
======== ========
Diluted......................................... 79,278 79,864(a)
======== ========
</TABLE>
------------------------
(a) Gives effect to the additional shares and options issued in connection with
the mergers, including the weighted average basic and diluted shares
outstanding for the periods, which were 458 and 469 for VR and 117 and 117
for Simpatix, after giving effect to an exchange ratio of 0.1362 and 0.0115,
respectively.
F-47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP VIRTUAL
WORLDWIDE RELOCATION.COM, SIMPATIX PRO FORMA
INC. INC. INC. COMBINED
--------- --------------- -------- ---------
<S> <C> <C> <C> <C>
Commissions and fees.............................. $541,828 $ 15 $ -- $541,843
-------- -------- ----- --------
Operating expenses:
Salaries & related.............................. 310,168 13 203 310,384
Office & general................................ 140,657 22 9 140,688
Marketing & promotion........................... 12,167 11 -- 12,178
Amortization of intangibles..................... 6,866 3 -- 6,869
CEO special bonus............................... 1,500 -- -- 1,500
-------- -------- ----- --------
Total operating expenses........................ 471,358 49 212 471,619
-------- -------- ----- --------
Operating income (loss)......................... 70,470 (34) (212) 70,224
-------- -------- ----- --------
Other income (expense):
Interest income (expense), net.................. (8,443) -- -- (8,443)
Other, net...................................... 821 -- -- 821
-------- -------- ----- --------
Total other income (expense), net............... (7,622) -- -- (7,622)
-------- -------- ----- --------
Income (loss) before provision for income taxes,
minority interests and equity in losses of
affiliates.................................... 62,848 (34) (212) 62,602
Provision for income taxes...................... 20,565 -- -- 20,565
-------- -------- ----- --------
Income (loss) before minority interests and
equity in losses of affiliates................ 42,283 (34) (212) 42,037
Minority interests.............................. 296 -- -- 296
Equity in losses of affiliates.................. (33) -- -- (33)
-------- -------- ----- --------
Net income (loss)............................... 41,954 (34) (212) 41,708
Preferred stock dividend........................ (123) -- -- (123)
-------- -------- ----- --------
Net income (loss) applicable to common and Class
B common stockholders......................... $ 41,831 $ (34) $(212) $ 41,585
======== ======== ===== ========
Net income per common and Class B common share:
Basic........................................... $ 0.58 $ 0.57(a)
======== ========
Diluted......................................... $ 0.57 $ 0.56(a)
======== ========
Weighted average shares outstanding:
Basic........................................... 72,666 73,153(a)
======== ========
Diluted......................................... 73,908 74,395(a)
======== ========
</TABLE>
------------------------
(a) Gives effect to the additional shares and options issued in connection with
the mergers, including the weighted average basic and diluted shares
outstanding for the periods, which were 409 and 409 for VR and 78 and 78 for
Simpatix, respectively, after giving effect to an exchange ratio of 0.1362
and 0.0115, respectively.
F-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
(Registrant)
By: /s/ BART CATALANE
-----------------------------------------
Bart Catalane
CHIEF FINANCIAL OFFICER
</TABLE>
Dated: July 21, 2000
F-49
