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): January 17, 2000
MERCHANTONLINE.COM, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 0-22607 84-1233073
- -------------- ----------- -------------
State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1600 South Dixie Highway
Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (561) 395-3585
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(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Financial statements as of and for the year ended December 31, 1999 and as of
and for the period August 21, 1998 (inception) to December 31, 1999 for Charge
Solutions, LLC (predecessor to Approve.net, Inc.)
(b) Pro Forma Financial Information.
Pro forma balance sheet as of October 31, 1999 and pro forma statement of
operations for the year ended October 31, 1999 for MerchantOnline.com, Inc.
(c) Exhibits.
2.5* Merger Agreement (the "Agreement"), dated as of November 30,
1999, by and among Approve.net, Inc., a California
corporation, (the "Company"), Kim Wilson, Jim Terhune and
Vince Mazziotti, being the sole holders of all of the
outstanding shares of capital stock of the Company, and
MerchantOnline.com, Inc. is hereby incorporated by reference
to the 8-K filed previously on January 19, 2000
10.1* Employment Agreement between Don Hughes and
Merchantonline.com, Inc. dated August 1, 1999 is hereby
incorporated by reference to the 8-K filed previously on
January 19, 2000
10.2* Employment Agreement between Jim Terhune and
Merchantonline.com, Inc. dated August 1, 1999 is hereby
incorporated by reference to the 8-K filed previously on
January 19, 2000
10.3* Employment Agreement between Vince Mazziotti and
Merchantonline.com dated February 1, 2000 is hereby
incorporated by reference to the 8-K filed previously on
January 19, 2000
* Previously filed
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.
MERCHANTONLINE.COM, INC.
Date: March 20, 2000 By: /s/ TAREK KIRSCHEN
-----------------------------------
Tarek Kirschen, President
<PAGE>
Financial Statements
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
YEAR ENDED DECEMBER 31, 1999 AND THE
PERIOD FROM AUGUST 21, 1998 (INCEPTION)
TO DECEMBER 31, 1998
WITH REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Financial Statements
Year Ended December 31, 1999 and the Period from August 21, 1998
(inception) to December 31, 1998
CONTENTS
Report of Independent Certified Public Accountants.........................1
Audited Financial Statements
Balance Sheets.............................................................2
Statements of Operations...................................................3
Statements of Members' Equity..............................................4
Statements of Cash Flows...................................................5
Notes to Financial Statements..............................................7
<PAGE>
Report of Independent Certified Public Accountants
To the Members'
Charge Solutions, LLC
We have audited the accompanying balance sheets of Charge Solutions, LLC,
predecessor to Approve.net, Inc., (the Company) as of December 31, 1999 and
1998, and the related statements of operations, members' equity, and cash flows
for the year ended December 31, 1999 and the period from August 21, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Charge Solutions, LLC,
predecessor to Approve.net, Inc., at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the year ended December 31, 1999 and
the period from August 21, 1998 (inception) through December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming Charge
Solutions, LLC (predecessor to Approve.net, Inc.) will continue as a going
concern. The Company has sustained operating losses since inception and had
negative cash flow from operations of approximately $30,500 for the year ended
December 31, 1999. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. As more fully described in Note 6 and 7,
the Company merged with Approve.net, Inc. on January 5, 2000 and Approve.net,
Inc. subsequently merged with MerchantOnline.com, Inc. on January 7, 2000. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
March 14, 2000
1
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Balance Sheets
DECEMBER 31,
1999 1998
-------- --------
ASSETS
Current assets:
Cash $ 3,314 $ 47,231
Accounts receivable 12,967 1,419
Accounts receivable from related party 7,525 --
Due from shareholder 5,471 --
-------- --------
Total current assets 29,277 48,650
Property and equipment, net 43,638 54,856
-------- --------
Total assets $ 72,915 $103,506
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 4,176 $ 23,768
Accrued expenses 4,000 --
Deferred revenue 22,089 --
-------- --------
Total current liabilities 30,265 23,768
Members' equity 42,650 79,738
-------- --------
Total liabilities and members' equity $ 72,915 $103,506
======== ========
SEE ACCOMPANYING NOTES.
2
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Statements of Operations
PERIOD FROM
AUGUST 21, 1998
DECEMBER 31, DECEMBER, 31,
1999 1998
------------ ---------------
Revenues, net $ 79,173 $ 2,428
Expenses:
Costs or revenues 32,973 2,733
Sales and marketing 14,259 1,165
General and administrative 49,872 18,792
Depreciation and amortization 18,857 --
--------- ---------
Total expenses 115,961 22,690
--------- ---------
Net loss $ (36,788) $ (20,262)
========= =========
SEE ACCOMPANYING NOTES.
3
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Statements of Changes in Members' Equity
For the year ended December 31, 1999 and the period from August 21,
1998 (inception) through December 31, 1998
MEMBERS'
EQUITY
--------------
Initial capital contribution at August 21, 1998 (inception)
Cash contribution $ 50,000
Contribution of software 50,000
---------
Total initial capital contributions 100,000
Net loss (20,262)
---------
Balance at December 31, 1998 79,738
Distribution to member (300)
Net loss (36,788)
---------
Balance at December 31, 1999 $ 42,650
=========
SEE ACCOMPANYING NOTES
4
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Statements of Cash Flows
PERIOD FROM
AUGUST 21, 1998
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ---------------
OPERATING ACTIVITIES
Net loss $(36,788) $(20,262)
Adjustments to reconcile net loss to net cash
Depreciation and amortization 18,857 --
Changes in operating assets and liabilities:
Accounts receivable (11,548) (1,419)
Accounts receivable from related party (7,525) --
Accounts payable (19,592) 23,768
Accrued expenses 4,000 --
Deferred revenue 22,089 --
-------- --------
Net cash (used in) provided by operating activities (30,507) 2,087
INVESTING ACTIVITIES
Purchases of property and equipment (7,639) (4,856)
Payments made on behalf of a related party (5,471) --
-------- --------
Net cash used in investing activities (13,110) (4,856)
FINANCING ACTIVITIES
Proceeds from capital contribution -- 50,000
Distribution to member (300) --
-------- --------
Net cash (used in) provided by financing activities (300) 50,000
5
<PAGE>
<TABLE>
<CAPTION>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Statements of Cash Flows (continued)
PERIOD FROM
AUGUST 21, 1998
(INCEPTION)
YEAR ENDED
DECEMBER 31, TO DECEMBER,
1999 1998
------------ ---------------
<S> <C> <C>
Net (decrease) increase in cash (43,917) 47,231
Cash at beginning of the period 47,231 --
-------- --------
Cash at end of the period $ 3,314 $ 47,231
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Capital contribution of software $ -- $ 50,000
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Notes to Financial Statements
Year Ended December 31, 1999 and the Period from August 21, 1998
(inception) to December 31, 1998
1. NATURE OF BUSINESS
Charge Solutions, LLC, predecessor to Approve.net, Inc., (the Company) is
limited liability company formed in the State of California on August 21, 1998.
The primary business of the Company is to provide charge card processing
solutions to Internet merchants by hosting a server that allows eBusinesses to
execute transactions such as online processing of credit cards, debit cards and
online checks. On January 5, 2000, the members of the Company relinquished their
interest in the company in exchange for shares of Approve.net, Inc. (see Note
6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from set-up fees are deferred and recognized on a straight-line basis
over a twelve-month period. Revenues from monthly fees, transaction fees and
commissions are recorded when earned.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost or at the fair value as determined by
the members of the Company upon formation. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
ADVERTISING EXPENSE
The Company accounts for its advertising expense in accordance with SOP 93-7,
REPORTING ON ADVERTISING COSTS, which requires advertising costs to be expensed
as incurred or at the time of first showing. Advertising costs for the year
ended December 31, 1999 were $5,432, and there were no advertising expenses
incurred in 1998.
7
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company was formed as limited liability company under the applicable
provision of the Internal Revenue Code. Accordingly, items of income, loss,
credit and deduction were not taxed to the Company, but instead were passed
through to the members. Accordingly, there is no provision for income taxes for
the 1999 and 1998 financial statements.
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 amounts reported in the consolidated financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent; however, actual results
could differ from these estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
USEFUL LIVES
(YEARS) 1999 1998
------------- --------- --------
Computer hardware and software 3 $ 62,495 $ 54,856
Less accumulated depreciation
and amortization (18,857) --
--------- --------
$ 43,638 $ 54,856
========= ========
8
<PAGE>
Charge Solutions, LLC
(Predecessor to Approve.net, Inc.)
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS
The Company subleases rental space on a month-to-month basis from a related
party. The party is related through common ownership of one of the members of
the Company. The Company incurred $11,850 and $6,650 of related rental expense
for the year ended December 31, 1999 and the period from August 21, 1998
(inception) through December 31, 1998.
During 1999, a related party collected $7,525 from merchants through its
merchant account on behalf of the Company. The party is related through common
ownership of one of the members of the Company. The amount is recorded as
accounts receivable from a related party on the accompanying balance sheet.
During 1999, the Company paid $5,471 of expenses on behalf of a related party.
The party is related through common ownership of one of the members of the
Company. The amount is recorded as due from related party on the accompanying
balance sheet.
The Company has a verbal agreement with a related party to solicit merchant
accounts on behalf of the Company for a percentage of the set-up fees. The party
is related indirectly through common ownership of one of the members of the
Company. The Company records these set-up fees net of the compensation paid. The
Company received $11,255 under the terms of this agreement in 1999. The Company
did not receive any such fees in 1998.
5. DEFERRED REVENUE
At December 31, 1999, deferred revenue includes $15,092 of deferred set-up fees
and $6,586 of prepaid monthly fees.
6. MANAGEMENT'S PLANS AND ISSUES AFFECTING LIQUIDITY
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has a limited operating history
and had sustained losses since inception. In addition the Company had negative
cash flow from operations of approximately $30,500 during the year ended
December 31, 1999. As more fully described in Note 7, the Company merged with
Approve.net, Inc. on January 5, 2000 and on January 7, 2000, Approve.net, Inc.
merged with MerchantOnline.com, Inc. As a result, the financial statements do
not include any adjustments to reflect the possible effects on the
recoverability and classification of liabilities.
7. SUBSEQUENT EVENTS
On January 5, 2000, the members of the Company contributed their interests in
the Company to Approve.net, Inc., in exchange for 61.5% of the outstanding
shares of Approve.net, Inc. Approve.net, Inc. was incorporated in the State of
California on December 3, 1999 with a contribution of software from its sole
shareholder. Approve.net, Inc. did not commence operations prior to the merger
with the Company on January 5, 2000.
On January 7, 2000, Approve.net, Inc. merged into MerchantOnline.com, Inc.,
whereby, the shareholders of Approve.net, Inc. exchanged their net assets for
2,000,000 common shares of MerchantOnline.com, Inc. The shares received by the
shareholders of Approve.net, Inc. were valued at $3.33 per share, as determined
by an independent appraiser.
8. IMPACT OF THE YEAR 2000 (UNAUDITED)
In late 1999, the Company completed their remediation and testing of systems. As
a result of those planning and implementation efforts, the Company experienced
no significant disruptions in mission-critical information technology and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. The Company did not incur any material
expenses in connection with remediating its systems. The Company is not aware of
any material problems resulting from Year 2000 issues, either with their
products, their internal systems, or the products and services of third parties.
The Company will continue to monitor their mission-critical computer application
and those of their suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
9
<PAGE>
PRO FORMA FINANCIAL INFORMATION
MERCHANTONLINE.COM, INC. AND APPROVE.NET, INC.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
On January 5, 2000, Approve.net, Inc. merged with Charge Solutions, LLC,
whereby, the members of Charge Solutions, LLC exchanged their equity interest in
the limited liability company for shares of Approve.net, Inc. Approve.net, Inc.
was formed on December 3, 1999 by a sole shareholder. Approve.net, Inc. did not
commence operations prior to its merger with Charge Solutions, LLC.
Effective January 7, 2000, MerchantOnline.com, Inc. consummated an agreement and
plan of merger (the"Merger") with Approve.net, Inc. In connection with the
Merger, MerchantOnline.com, Inc. issued 2,000,000 shares of common stock for all
of the outstanding shares of Approve.net, Inc. The value of the
MerchantOnline.com, Inc. common shares was determined to be $3.33 per share on
the Merger date by an independent appraiser.
The accompanying unaudited pro forma balance sheet as of October 31, 1999,
presents the financial position of MerchantOnline.com, Inc. and Approve.net,
Inc., assuming the Merger had been at that date. The unaudited pro forma
statement of operations for the year ended October 31, 1999, reflects the
operating results of MerchantOnline.com, Inc. and Approve.net, Inc. (and its
predecessor, Charge Solutions, LLC) as if the Merger had been consummated on
November 1, 1998.
The pro forma financial information does not purport to be indicative of the
results which would have actually have been obtained had such transactions been
completed as of the assumed dates and for the periods presented or which may be
obtained in the future.
The pro forma balance sheet and the pro forma adjustments described in the notes
to pro forma financial statements reflect the excess of purchase price over the
net book value of assets acquired as "Purchase Price to be Allocated". The
Company is currently in the process of evaluating the fair values of assets
acquired, including identifiable intangible assets, if any.
1
<PAGE>
MERCHANTONLINE.COM, INC. AND APPROVE.NET, INC..
PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
Charge Solutions,
LLC (predecessor
MerchantOnline.com, to Approve.net, Inc.)
Inc. Year ended Year ended Pro-format
October 31, 1999 December 31, 1999 Adjustments Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash $ 5,148 $ 3,314 $ 8,462
Prepaid consulting fees 1,472,500 1,472,500
Prepaid advertising 63,750 63,750
Deferred advertising 500,000 500,000
Accounts receivable 12,967
Accounts receivable from related party 7,525
Due from shareholder 5,471
----------------------------------------------------------------------
Total current assets 2,041,398 29,277 2,070,675
Property and equipment, net 914,184 43,638 957,822
Deferred advertising 201,250 201,250
Other assets 9,260 9,260
Purchase price to be allocated 4,396,841(A) 4,396,841
----------------------------------------------------------------------
Total assets $ 3,166,101 $72,915 $ 4,396,841 $ 7,635,848
======================================================================
Liabilities and equity
Accounts payable $ 263,808 $ 4,176 182,500(B) $ 450,484
Accrued advertising liability 1,402,500 1,402,500
Other accrued liabilities 96,029 4,000 100,029
Notes payable 270,000 270,000
Notes payable and convertible note payable to shareholders 29,560 29,560
Convertible note payable 60,000 60,000
Other liabilities 226,564 226,564
Deferred revenue 22,089 (22,089)(A) 0
-----------------------------------------------------------------------
Total current liabilities 2,348,461 30,265 2,539,137
Equity:
Members equity 42,650 (42,650)(A) 0
Common stock 21,025 2,000(A) 23,025
Additional paid-in capital 4,137,275 6,658,000(A) 10,795,275
Subscriptions receivable (675,000) (675,000)
Accumulated deficit (2,665,660) (2,380,920) (5,046,580)
-----------------------------------------------------------------------
Total liabilities and equity $ 3,166,101 $72,915 $ 4,396,841 $ 7,635,857
=======================================================================
</TABLE>
2
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Charge Solutions,
LLC (predecessor to
Approve.net, Inc.)
MerchantOnline.com, Inc. Year ended Pro Forma
Year ended October 31, 1999 December 31, 1999 Adjustments Combined
--------------------------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues, net 204,106 79,173 283,279
Costs of revenues 111,064 32,973 144,037
Sales and marketing 1,296,774 14,259 1,311,033
General and administrative 721,023 49,872 2,198,420(C) 3,151,815
182,500(D)
Depreciation and amortization 30,649 18,857 49,506
Interest expense 29,924 29,924
Other expenses - settlement 455,000 455,000
Total costs and expenses 2,644,434 115,961 2,380,920 5,144,315
---------------------------------------------------------------------------
Net loss $(2,440,328) $(36,788) (2,380,920) $(4,858,036)
===========================================================================
Net loss per share - Basic and Diluted ($0.25)
Weighted average shares outstanding 20,223,449(E)
</TABLE>
3
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
In the Merger, MerchantOnline.com, Inc. acquired all of the outstanding shares
of Approve.net, Inc. through the issuance of 2,000,000 shares of its common
stock. The shares issued by MerchantOnline.com, Inc. in the Merger are valued at
$3.33 per share, as determined by an independent appraiser.
The unaudited pro forma balance sheet combines the balance sheets of
MerchantOnline.com, Inc. as of October 31, 1999 and the balance sheet of Charge
Solutions, LLC (predecessor to Approve.net, Inc.) as of December 31, 1999. The
unaudited pro forma statement of operations combines the statements of
operations of MerchantOnline.com, Inc. for the year ended October 31, 1999 and
Charge Solutions, LLC (predecessor to Approve.net, Inc.) for the year ending
December 31, 1999.
The MerchantOnline.com, Inc. historical balance sheet and statement of
operations as of and for the year ended October 31, 1999 and the Charge
Solutions, LLC. (predecessor to Approve.net, Inc.) historical balance sheet and
statement of operations as of and for the year ended December 31, 1999 used in
the preparation of the pro forma financial statements have been derived from the
respective audited financial statements.
UNAUDITED PRO FORMA ADJUSTMENTS
Descriptions of the adjustments included in the unaudited pro forma financial
statements are as follows:
BALANCE SHEET ADJUSTMENTS
(A) Reflects the accounting for the Merger as the purchase of Approve.net,
Inc.'s net assets for a total purchase price of approximately $6,660,000,
consisting of the issuance of 2,000,000 shares of MerchantOnline.com, Inc.'s'
common stock, valued at $3.33 per share.
(B) Reflects the accruals of additional compensation expense determined based
upon employee agreements with former employees of Approve.net, Inc.
INCOME STATEMENT ADJUSTMENTS
(C) Reflects the amortization of purchase price to be allocated over a
three-year amortization period. Actual amortization for future periods will be
dependent upon the final allocation of the purchase price, when completed, for
identifiable intangible assets and goodwill, if any, and the evaluation of
appropriate useful lives for such assets. The Company is currently in the
process of evaluating the fair value of assets acquired, including identifiable
intangible assets, if any.
(D) Reflects compensation expense for key employees of Approve.net, Inc. Amounts
were determined based upon employee agreements.
(E) Reflects the weighted average number of shares outstanding for the year,
after giving effect to the Merger, calculated as the historical weighted average
common shares for MerchantOnline.com, Inc.
4
