SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 20, 2000
--------------
MERCHANTONLINE.COM, INC.
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(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)
902 Clint Moore Road - Suite 114, Boca Raton, FL 33487
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 395-3585
1600 South Dixie Highway Boca Raton, FL 33432
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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.
The audited financial statements of Web Financial Services Corporation
from January 29, 1999 (inception) to December 31, 1999 are attached.
(b) The unaudited condensed financial statements of Web Financial
Services Corporation from January 1, 2000 to March 31, 2000 are attached.
(c) Pro Forma Financial Information.
The pro forma financial statements for the year ended October 31, 1999
and the six months ended April 30, 2000 are attached.
(d) Exhibits.
2.6 Agreement and Plan of Reorganization dated as of April 3, 2000, by
and among MerchantOnline.com, Inc., Web Financial Services
Corporation and WFS Acquisition Corp.*
* 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: June 30, 2000 By: /s/ TAREK KIRSCHEN
----------------------------
Tarek Kirschen, President
<PAGE>
Web Financial Services Corporation
(A Development Stage Enterprise)
Financial Statements
Period from January 29, 1999
(inception) to December 31, 1999
CONTENTS
Report of Independent Certified Public Accountants.............................1
Financial Statements
Balance Sheet as of December 31, 1999 .........................................2
Statement of Operations for the period January 29, 1999 (inception)
to December 31, 1999.........................................................3
Statement of Shareholders' Deficit for period January 29, 1999 (inception)
to December 31, 1999........................................................4
Statement of Cash Flows for the period January 29, 1999 (inception)
to December 31, 1999........................................................5
Notes to Financial Statements..................................................6
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Web Financial Services Corporation
(A Development Stage Enterprise)
We have audited the accompanying balance sheet of Web Financial Services
Corporation (a development stage enterprise) as of December 31, 1999 and the
related statement of operations, shareholders' deficit and cash flows for the
period from January 29, 1999 (inception) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Web Financial Services
Corporation at December 31, 1999, and the results of its operations and its cash
flows for the period from January 29, 1999 (inception) to December 31, 1999 in
conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming Web Financial
Services Corporation will continue as a going concern. As more fully described
in Note 3, the Company has sustained operating losses since inception and had
negative cash flow from operations of approximately $260,000 and approximately
$205,000 of negative working capital at December 31, 1999. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 3. 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 that may result from the outcome
of this uncertainty.
/s/ EY
May 26, 2000
1
<PAGE>
Web Financial Services Corporation
Balance Sheet
(A Development Stage Enterprise)
December 31, 1999
ASSETS
Current assets:
Cash $ 24,978
Other assets 10,659
------------
Total current assets 35,637
Property and equipment, net 50,010
------------
Total assets $ 85,647
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued liabilities $ 165,911
Loan from shareholder 75,000
------------
Total current liabilities 240,911
Loan from shareholder 270,000
Commitments
Shareholders' deficit:
Common stock, $0.01 par value--1,500 shares
authorized, issued and outstanding 15
Additional paid-in capital 66,297
Accumulated deficit during the development stage (491,576)
------------
Total shareholders' deficit (425,264)
------------
Total liabilities and shareholders' deficit $ 85,647
============
See accompanying notes.
2
<PAGE>
Web Financial Services Corporation
Statement of Operations
(A Development Stage Enterprise)
Period from January 29, 1999 (inception) to
December 31, 1999
Expenses:
General and administrative $ 277,574
Research and development costs 181,622
Depreciation and amortization 14,738
------------
Operating loss (473,934)
Interest expense, shareholder (17,642)
------------
Net loss $ (491,576)
============
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
Web Financial Services Corporation
(A Development Stage Enterprise)
Statement of Shareholders' Deficit
ACCUMULATED
DEFICIT DURING
COMMON STOCK ADDITIONAL THE TOTAL
--------------------------- PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 29, 1999 (inception) 1,000 $ 10 $ -- $ -- $ 10
Non-cash contribution -- -- 4,639 -- 4,639
Issuance of stock for services 500 5 61,658 -- 61,663
Net loss -- -- -- (491,576) (491,576)
----- ------ ---------- --------- -----------
Balance at December 31, 1999 1,500 $ 15 $ 66,297 $(491,576) $ (425,264)
===== ====== ========== ========= ===========
</TABLE>
See accompanying notes
4
<PAGE>
Web Financial Services Corporation
(A Development Stage Enterprise)
Statement of Cash Flows
Period from January 29, 1999 (inception)
to December 31, 1999
OPERATING ACTIVITIES
Net loss $ (491,576)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 14,738
Stock issued for services 61,658
Changes in operating assets and liabilities:
Other assets (10,659)
Accrued liabilities 165,911
------------
Net cash used in operating activities (259,928)
INVESTING ACTIVITY
Purchases of property and equipment (60,109)
------------
Net cash used in investing activity (60,109)
FINANCING ACTIVITIES
Borrowings from shareholders 345,000
Proceeds from issuance of stock 15
------------
Net cash provided by financing activities 345,015
Net increase in cash 24,978
Cash at beginning of the period --
------------
Cash at end of the period $ 24,978
============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Property and equipment contributed by shareholders $ 4,639
Stock issued for services $ 61,658
5
<PAGE>
Web Financial Services Corporation
(A Development Stage Enterprise)
Notes to Financial Statements
Period from January 29, 1999
(inception) to December 31, 1999
1. NATURE OF BUSINESS
Web Financial Services Corporation (the Company or WFS) was incorporated on
January 29, 1999 under the laws of the State of Delaware to engage in any lawful
corporate undertaking. Pursuant to Statement of Financial Accounting Standards
(SFAS) Statement No. 7, Accounting and Reporting by Development Stage
Enterprises, the Company is considered to be a development stage enterprise
since it has devoted substantially all of its efforts to establishing a new
business and its planned principal operations have commenced, but there has been
no revenue therefrom.
The primary business of the Company is to develop software that supports the
usage of a card (ATM, Credit and smart abilities) for shopping on the Internet.
This technology provides a diverse selection of services, which it has developed
to allow Internet merchants to establish e-commerce through the use of
electronic shopping carts, web site developing and hosting, merchant accounts
and real-time credit card processing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SOFTWARE DEVELOPMENT COSTS
SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, requires software development costs to be capitalized upon
the establishment of technological feasibility. Prior to the establishment of
technological feasibility, all costs incurred in the process of creating a
software product are research and development costs and should be expensed in
accordance with SFAS 2, Accounting for Research and Development Costs. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management with
respect to certain external factors such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies. The
Company recognized $181,622 of research and development costs during the period
from January 29, 1999 (inception) through December 31, 1999. There were no
capitalized costs during the period.
6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
In January 2000, the Emerging Issues Task Force issued EITF 00-2, Accounting for
Website Development Costs. This EITF requires capitalization of certain costs
incurred in connection with developing or obtaining internal use software under
SOP 98-1, Accounting for the Costs of Computer Software Developed for or
Obtained for Internal Use. The Company has capitalized $8,000 of web site
development costs pursuant to this SOP, which is included in property and
equipment on the accompanying balance sheet.
INCOME TAXES
The Company has elected to be treated as an S Corporation under the applicable
provision of the Internal Revenue Code. In lieu of the corporate income taxes,
the stockholders of an S Corporation are taxed on their proportionate share of
the taxable income of the company. Accordingly, there is no provision for income
taxes for the 1999 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 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. 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 $260,000 during the year ended
December 31, 1999 and approximately $205,000 of negative working capital at
December 31, 1999. As more fully described in Note 8, the Company was acquired
by 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
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
USEFUL LIVES DECEMBER 31,
(YEARS) 1999
----------------------------------
Computer hardware and software 3 $ 46,130
Furniture and fixtures 5 10,618
Website development 3 8,000
------------
Total property and equipment 64,748
Less accumulated depreciation
and amortization (14,738)
------------
$ 50,010
============
5. LOANS FROM SHAREHOLDERS
At December 31, 1999, the Company had two loans from shareholders totaling
$345,000 in the aggregate. The loan from shareholder of $75,000 bears interest
at 9% per annum and is due in two equal installments on May 15 and June 15,
2000. The loan from shareholder of $270,000 also bears interest at 9% per annum
and is due and payable on April 30, 2003. The Company incurred approximately
$17,600 of interest expense on these notes during the period from January 29,
1999 (inception) through December 31, 1999.
6. COMMON STOCK AND CAPITAL CONTRIBUTIONS
During 1999, the Company issued 500 shares of common stock to employees and
non-employees. Management has determined that the fair value of the common stock
on the dates of issuances aggregated to $61,663. This amount has been recorded
as a charge to operations during the period.
During 1999, the shareholders of the Company contributed property plant and
equipment valued at $4,639.
7. COMMITMENTS
The Company leases its office space under a three-year lease agreement that is
subject to termination with a 90 days prior written notice by either party.
Rental expense amounted to approximately $26,300 for the period from January 29,
1999 (inception) through December 31, 1999.
8
<PAGE>
In connection with the acquisition, (see Note 8), the lease was terminated
effective June 30, 2000.
8. SUBSEQUENT EVENTS
On April 3, 2000, the Company entered into a reverse triangular merger agreement
with WFS Acquisition Corporation, a wholly-owned subsidiary of
MerchantOnline.com (MOL) with the Company becoming the surviving corporation.
Upon the effectiveness of the merger, on April 19, 2000, the outstanding shares
of the Company were converted into 1,250,000 common shares of MOL.
Also on April 3, 2000 the Company gave 90 days notice, as required by its lease
agreement dated March 1, 1999, to terminate its lease.
9
<PAGE>
WEB FINANCIAL SERVICES CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
WEB FINANCIAL SERVICES CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 2000
--------------
ASSETS
CURRENT ASSETS:
Cash $ 6,606
Deposits 8,029
------------
Total current assets 14,635
Property and equipment, net 44,968
------------
Total assets $ 59,603
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and other $ 144,363
Loan from shareholder 405,000
------------
Total current liabilities 549,363
Shareholder's deficit:
Common stock, $0.01 par value--1,500 shares
authorized, issued and outstanding
15
Additional paid-in capital 91,267
Accumulated deficit during development stage (581,072)
------------
Total shareholders' deficit (489,760)
------------
Total liabilities and shareholders' deficit $ 59,603
============
See accompanying notes to condensed financial statements.
1
<PAGE>
WEB FINANCIAL SERVICES CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
Three-months ended
-------------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
General and administrative $ 75,341 12,608
Depreciation and amortization 5,042 1,799
Research and development costs -- 16,591
Operating loss (80,383) (30,998)
Interest expense (9,113) (573)
------------ ------------
Net loss $ (89,496) $ (31,571)
============ ============
See accompanying notes to condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
WEB FINANCIAL SERVICES CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three-months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (89,496) $ (31,571)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 5,042 1,799
Expenses paid by shareholder 25,000 --
Changes in operating assets and Liabilities:
Other assets 2,630 (7,264)
Accounts payable and other (21,548) 10,801
------------ ------------
Net cash used in operating activities (78,372) (26,235)
INVESTING ACTIVITY
Purchases of property and equipment -- (43,310)
------------ ------------
Net cash used in investing activity -- (43,310)
FINANCING ACTIVITIES
Advances from shareholders 60,000 109,000
Proceeds from stock issuance -- 15
------------ ------------
Net cash provided by financing activities 60,000 109,015
Net (decrease) increase in cash (18,372) 39,470
Cash at beginning of the period 24,978 --
------------ ------------
Cash at end of the period $ 6,606 $ 39,470
============ ============
SUPPLEMENTAL SCHEDULE OF
NONCASH ACTIVITIES
Expenses paid by shareholder on
behalf of the Company $ 25,000 $ --
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
WEB FINANCIAL SERVICES CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The unaudited interim financial statements of Web Financial Services Corporation
("WFS") as of March 31, 2000 and for the three month periods ended March 31,
2000 and 1999 do not provide all the disclosures included in the annual
financial statements. These interim financial statements should be read in
conjunction with the audited financial statements and footnotes included
therein. In the opinion of management, the accompanying interim financial
statements reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations of WFS.
Note 2. Non-Cash Expenditures
During the quarter ended March 31, 2000, a shareholder of the Company paid
certain expenditures in the amount of $25,000 on its behalf. This amount has
been recorded as a capital contribution.
Note 3. Subsequent Events
On April 3, 2000, the Company entered into a reverse triangular merger agreement
with WFS Acquisition Corporation, a wholly-owned subsidiary of
MerchantOnline.com (MOL) with the Company becoming the surviving corporation.
Upon the effectiveness of the merger, on April 19, 2000, the outstanding shares
of the Company were converted into 1,250,000 common shares of MOL.
Also on April 3, 2000 the Company gave 90 days notice, as required by its lease
agreement dated March 1, 1999, to terminate its lease.
4
<PAGE>
PRO FORMA FINANCIAL INFORMATION
MERCHANTONLINE.COM, INC. AND WEB FINANCIAL SERVICES CORP.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
INTRODUCTION TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Effective April 19, 2000, MerchantOnline.com, Inc., consummated an agreement and
plan of reorganization (the "Agreement") with Web Financial Services
Corporation, a development stage enterprise, and WFS Acquisition Corp., a
wholly-owned subsidiary of MerchantOnline.com, Inc. In connection with the
Agreement, WFS Acquisition Corporation merged with and into Web Financial
Services Corporation in a reverse triangular merger (the"Merger"), with Web
Financial Services Corporation to be the surviving corporation. Pursuant to the
Merger, MerchantOnline.com, Inc. issued 1,250,000 shares of common stock for all
of the outstanding shares of Web Financial Services Corporation. The value of
the MerchantOnline.com, Inc. common shares was determined to be $5.31 per share
on the Merger date by an independent appraiser. The Merger was accounted for
using the purchase method of accounting. The purchase price exceeded the fair
value of the tangible net assets acquired by approximately $8 million.
Management has included this amount on their unaudited condensed balance sheet
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. This amount is being amortized over a three-year period.
The unaudited pro forma condensed statement of operations for the year ended
October 31, 1999, combines the statements of operations of MerchantOnline.com,
Inc. for the year ended October 31, 1999 and of Web Financial Services
Corporation for the period from January 29, 1999 (inception) through December
31, 1999, and assumes the transaction occurred on November 1, 1998. The
unaudited pro forma condensed statement of operations for the six month period
ended April 30, 2000 combines the statements of operations of
MerchantOnline.com, Inc. for the six month period ended April 30, 2000 and of
Web Financial Services Corporation for the six month period ended March 31, 2000
and assumes the transaction occurred on November 1, 1999. The fourth quarter of
fiscal year 1999 (October 31, 1999 to December 31, 1999) for Web Financial
Services Corporation was included in both the annual and the six month period
presentations.
1
<PAGE>
<TABLE>
<CAPTION>
The unaudited pro forma condensed statements of operations do 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.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
(UNAUDITED)
Web Financial
Services
MerchantOnline.com, Corporation
Inc. Period from
January 29, 1999
Year ended through December Pro Forma
October 31, 1999 31, 1999 Adjustments Combined
------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues, net $ 204,106 $ -- $ 204,106
Costs of revenues 111,064 -- 111,064
Sales and marketing 1,296,774 -- 1,296,774
General and administrative 721,023 277,574 166,744(B) 1,165,341
Research and development costs -- 181,622 181,622
Depreciation and amortization 30,649 14,738 2,695,380(A) 2,740,767
Other expenses - settlement 455,000 -- 455,000
------------- ---------- ------------
Total costs and expenses 2,614,510 473,934 5,950,568
Interest expense 29,924 17,642 47,566
------------- ---------- ------------
Net loss $ (2,440,328) $ (491,576) $ (5,794,028)
============= ========== ============
Net loss per share - Basic and Diluted ($0.15)
Weighted average shares outstanding 38,946,498(C)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED APRIL 30, 2000
(UNAUDITED)
MerchantOnline.com, Web Financial
Inc. Services
Corporation
Six month Six month
period ended period ended Pro Forma
March 31, 2000 March 31, 2000 Adjustments Combined
-------------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues, net $ 97,770 $ -- $ 97,770
Costs of revenues 36,699 -- 36,699
General and administrative 2,628,303 242,969 83,372(B) 2,954,644
Depreciation and amortization 1,040,806 9,845 1,123,075(A) 2,173,786
---------- --------- ----------
Total costs and expenses 3,705,868 252,814 5,165,129
Interest expense 7,149 16,876 24,025
---------- --------- ----------
Net loss $(3,615,247) $ (269,690) $(5,091,384)
=========== ========== ===========
Net loss per share - Basic and Diluted ($0.10)
Weighted average shares outstanding 48,954,757(C)
</TABLE>
3
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
UNAUDITED PRO FORMA ADJUSTMENTS
Descriptions of the adjustments included in the unaudited pro forma statements
of operations are as follows:
(A) Reflects the amortization of the "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, to
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 such allocations and useful lives.
(B) Reflects increase of compensation expense for key employees of Web Financial
Services Corporation based on new employment agreements entered into in
connection with the Merger.
(C) 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
