HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ................................ F-2
Financial Statements
Consolidated Balance Sheets ............................................................ F-3
Consolidated Statements of Operations ............................................ F-4
Consolidated Statement of Changes in Shareholders' Deficit ........... F-5
Consolidated Statements of Cash Flows ........................................... F-7
Notes to Consolidated Financial Statements ..................................... F-9
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
HouseHold Direct.com, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
HouseHold Direct.com, Inc. and Subsidiary (a development stage company) (the
"Company"), as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' deficit, and cash flows for
the year ended December 31, 1999 and for the period from May 18, 1998
(inception) to December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HouseHold
Direct.com, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December 31,
1999 and for the period from May 18, 1998 (inception) to December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company has incurred net losses since its inception
and has experienced severe liquidity problems. Those conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to those matters also are described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
WALLACE SANDERS & COMPANY
Dallas, Texas
June 9, 2000
F-2
<PAGE> 3
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- 2000
1998 1999 (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 63,189 $ 31,013 $ 245,261
Accounts receivable (Note 2) -- 4,600 657,472
Prepaid expenses and other current assets -- 9,565 94,314
Inventory -- -- 36,290
----------- ----------- -----------
Total current assets 63,189 45,178 1,033,337
PROPERTY AND EQUIPMENT, net 7,371 73,629 104,935
GOODWILL, net of accumulated amortization
of $2,080 and $3,016 at December 31, 1999 and
March 31, 2000, respectively -- 16,640 15,704
----------- ----------- -----------
TOTAL ASSETS $ 70,560 $ 135,447 $ 1,153,976
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 411,242 $ 671,341 $ 829,651
Accrued salaries -- 400,000 458,631
Current portion of note payable -- 5,601 5,601
Amounts payable to related parties -- 192,107 126,318
----------- ----------- -----------
Total current liabilities 411,242 1,269,049 1,420,201
NOTE PAYABLE, net of current portion -- 2,020 682
----------- ----------- -----------
TOTAL LIABILITIES 411,242 1,271,069 1,420,883
----------- ----------- -----------
DEFERRED REVENUE (NOTE 2) -- -- 612,688
COMMITMENTS AND CONTINGENCIES (NOTE 8) -- -- --
----------- ----------- -----------
411,242 1,271,069 2,033,571
----------- ----------- -----------
SHAREHOLDERS' DEFICIT
Common stock, 50,000,000 shares of $0.001 par value
authorized; 13,917,000, 20,240,304, and 23,037,782
shares issued and outstanding at December 31,
1998, 1999, and March 31, 2000, respectively 13,917 20,241 23,039
Additional paid-in capital 344,084 1,632,311 2,827,450
Common stock subscriptions receivable (59,999) (34,355) (34,355)
Options outstanding -- 125,131 125,131
Deferred compensation -- (15,000) (8,750)
Deficit accumulated during the
development stage (638,684) (2,863,950) (3,812,110)
----------- ----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (340,682) (1,135,622) (879,595)
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 70,560 $ 135,447 $ 1,153,976
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 4
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
For the Period from
Period from January 1,
May 18, 1998 For the Year Cumulative 2000 to
(inception) to ended During March 31,
December 31, December 31, Development 2000
1998 1999 Stage (unaudited)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Consulting services $ -- $ 53,418 $ 53,418 $ 32,625
Membership fees -- -- -- 11,907
-------------- -------------- -------------- --------------
TOTAL REVENUES -- 53,418 53,418 44,532
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Salaries and benefits 19,875 430,581 450,456 129,011
Research and development 10,000 121,072 131,072 53,311
Depreciation and amortization 3,243 23,610 26,853 161,604
Consulting fees 145,307 688,213 833,520 284,230
General and administrative 140,522 1,014,331 1,154,853 364,321
-------------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES 318,947 2,277,807 2,596,754 992,477
-------------- -------------- -------------- --------------
LOSS FROM OPERATIONS (318,947) (2,224,389) (2,543,336) (947,945)
-------------- -------------- -------------- --------------
OTHER EXPENSE:
Interest expense -- (877) (877) (215)
Loss from subsidiary - PCNI (319,737) -- (319,737) --
-------------- -------------- -------------- --------------
TOTAL OTHER EXPENSE (319,737) (877) (320,614) (215)
-------------- -------------- -------------- --------------
NET LOSS BEFORE INCOME TAX
PROVISION (638,684) (2,225,266) (2,863,950) (948,160)
INCOME TAX PROVISION -- -- -- --
-------------- -------------- -------------- --------------
NET LOSS $ (638,684) $ (2,225,266) $(2,863,950) $ (948,160)
============== ============== ============== ==============
Basic and diluted net loss per weighted
average share of common stock
outstanding $ (0.07) $ (0.12) $ (0.16) $ (0.04)
============== ============== ============== ==============
Weighted average number of shares of
basic and diluted common stock
outstanding 8,620,563 17,902,094 17,902,094 22,475,296
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 5
HOUSEHOLDDIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Common Accumulated
Additional Stock During the Total
Common Stock Paid-in Subscriptions Options Deferred Development Shareholders'
Shares Par Value Capital Receivable Outstanding Compensation Stage
Deficit
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reinstatement and
Recapitalization,
May 18, 1998 1,000,000 $ 1,000 $ -- $ -- $ -- $ -- $ -- $ 1,000
Stock issued for
Cash 1,627,095 1,627 174,334 -- -- -- -- 175,961
Stock issued for
services 914,000 914 99,626 -- -- -- -- 100,540
Stock issued for
purchase of
PCNI 10,000,000 10,000 -- (10,000) -- -- -- --
Sale of PCNI -- -- -- 1 -- -- -- 1
Stock issued in lieu
of interest 175,905 176 20,324 -- -- -- -- 20,500
Stock issued for
subscriptions
receivable 200,000 200 49,800 (50,000) -- -- -- --
Net loss -- -- -- -- -- -- (638,684) (638,684)
----------- --------- ---------- ------------- --------- -------- ----------- -----------
Balance at
December 31,
1998 13,917,000 13,917 344,084 (59,999) -- -- (638,684) (340,682)
----------- --------- ---------- ------------- --------- -------- ----------- -----------
Stock issued for
cash 4,784,504 4,785 897,394 -- -- -- -- 902,179
Stock issued for
services 1,488,800 1,489 367,883 -- -- -- -- 369,372
Stock issued for
subscriptions
receivable 50,000 50 22,950 (23,000) -- -- -- --
Cash received on stock
subscriptions
receivable -- -- -- 38,645 -- -- -- 38,645
Reclass to related party
payable -- -- -- 9,999 -- -- -- 9,999
Options granted for
services -- -- -- -- 125,131 -- -- 125,131
Deferred compensation -- -- -- -- -- (15,000) -- (15,000)
Net loss -- -- -- -- -- -- (2,225,266) (2,225,266)
----------- --------- ---------- ------------- --------- -------- ----------- -----------
Balance at
December 31,
1999 20,240,304 $20,241 $1,632,311 $(34,355) $125,131 $(15,000) $(2,863,950) $(1,135,622)
----------- --------- ---------- ------------- --------- -------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 6
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(CONTINUED)
<TABLE>
<CAPTION>
Deficit
Common Accumulated
Additional Stock During the Total
Common Stock Paid-in Subscriptions Options Deferred Development Shareholders'
Shares Par Value Capital Receivable Outstanding Compensation Stage Deficit
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1999
20,240,304 $20,241 $1,632,311 $(34,355) $125,131 $(15,000) $(2,863,950) $(1,135,622)
----------- ---------- ---------- ------------- ----------- ------------ ----------- -----------
Stock issued for cash (unaudited)
2,222,478 2,223 1,056,964 -- -- -- -- 1,059,187
Stock issued for services (unaudited)
575,000 575 138,175 -- -- -- -- 138,750
Deferred compensation
-- -- -- -- -- 6,250 -- 6,250
Net loss (unaudited)
-- -- -- -- -- -- (948,160) (948,160)
----------- ---------- ---------- ------------- ----------- ------------ ----------- -----------
Balance at
March 31, 2000 (unaudited)
23,037,782 $ 23,039 $2,827,450 $ (34,355) $125,131 $(8,750) $(3,812,110) $ (879,595)
=========== ========== ========== ============= =========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 7
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the.
For the Period from
Period from January 1,
May 18, 1998 For the Year Cumulative 2000 to
(inception) to ended During March 31,
December 31, December 31, Development 2000
1998 1999 Stage (unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (638,684) $ (2,225,266) $ (2,863,950) $(948,160)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,243 21,530 24,773 10,818
Goodwill amortization -- 2,080 2,080 150,786
Services in exchange for stock and
options 100,540 479,503 580,043 145,000
Interest paid with stock 20,500 -- 20,500 --
(Increases) decreases in operating assets:
Accounts receivable -- (4,600) (4,600) (652,872)
Prepaid expenses and other current assets -- (9,565) (9,565) (84,749)
Inventory -- -- -- (36,290)
Increases (decreases) in operating liabilities:
Accounts payable 411,242 655,099 1,066,341 216,841
Amounts payable to related parties -- 162,386 162,386 (65,789)
Deferred revenue -- -- -- 612,688
------------- ------------- ------------- -------------
Net cash used in operating
activities (103,159) (918,833) (1,021,992) (651,727)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from acquisition of
Thunderstick -- 17,815 17,815 --
Investment in Cross Check -- -- -- (150,000)
Cash acquired from acquisition of Cross
Check -- -- -- 250
Additions to property and equipment (10,613) (79,603) (90,216) (42,124)
------------- ------------- ------------- -------------
Net cash used in investing activities (10,613) (61,788) (72,401) (191,874)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issued for cash 176,961 902,179 1,079,140 1,059,187
Cash received on stock subscriptions
receivable -- 38,645 38,645 --
Advances on notes payable -- 11,000 11,000 --
Payments on notes payable -- (3,379) (3,379) (1,338)
------------- ------------- ------------- -------------
Net cash provided by financing
activities 176,961 948,445 1,125,406 1,057,849
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 63,189 (32,176) 31,013 214,248
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- 63,189 -- 31,013
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 63,189 $ 31,013 $ 31,013 $ 245,261
======= ============= ======= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
interest $ 653 $ 877 $ 1,530 215
======= ============= ======= ===========
Cash paid during the period for
income taxes $ -- $ -- $ -- --
======= ============= ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 8
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the For the Period from
Period from January 1,
May 18, 1998 For the Year 2000 to
(inception) to ended March 31,
December 31, December 31, 2000
1998 1999 (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE ON NON-CASH
INVESTING AND FINANCING ACTIVITIES:
ISSUANCE OF COMMON STOCK FOR SERVICES $ 100,540 $ 369,372 $ 138,750
ISSUANCE OF COMMON STOCK IN LIEU OF
INTEREST 20,500 -- --
ISSUANCE OF OPTIONS FOR SERVICES -- 110,131 --
DEFERRED COMPENSATION RECORDED
FOR EMPLOYEE OPTIONS -- 15,000 --
ISSUANCE OF COMMON STOCK FOR
ACQUISITION OF PCNI 10,000 -- --
ACQUISITION OF THUNDERSTICK -- 10,000 --
ACQUISITION OF MEGAPPLIANCE'S ASSETS -- 34,720 --
ISSUANCE OF COMMON STOCK FOR ACQUISITION
OF CROSS CHECK -- -- 100
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 9
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) ORGANIZATION
On January 2, 1992, RDI Marketing, Inc. ("RDI") was formed as a Florida
corporation. Upon formation, RDI issued 1,000 shares of common stock.
On May 18, 1998, RDI adopted a plan of recapitalization whereby the
1,000 shares of common stock were converted into 1,000,000 shares of
.001 par value common stock. RDI essentially remained dormant with no
direct or indirect business activity until reinstatement on May 18,
1998. In addition to the recapitalization on May 18, 1998, RDI filed a
disclosure statement under Rule 15C2-11 of the Securities and Exchange
Act of 1934 (hereafter the "Exchange Act") with the National
Association of Securities Dealers ("NASD"). As a result, commencing on
June 11, 1998, RDI's common stock was quoted on the OTC Bulletin Board.
On July 10, 1998, RDI exchanged 10,000,000 shares of common stock for
all of the outstanding stock of Preferred Consumer Network
International, Inc. ("PCNI") (see Note 3).
PCNI, incorporated on June 13, 1997, was engaged in the business of
developing and operating a wholesale buying club which provided buying,
marketing and financial services to third party owned wholesale buying
clubs. The traditional buying club business model (the "Traditional
Model") being utilized by PCNI was predicated on the sale of
memberships to the general public, which memberships entitled the
holders to purchase goods and services through the wholesale buying
club at wholesale prices (exclusive of separately charged taxes,
handling and shipping charges and a processing fee of up to 10%).
During the fourth quarter of 1998, RDI elected to abandon the
Traditional Model in preference to a new business model (the "New
Model") predicated on the mass marketing (through telemarketing and the
internet) of memberships. Additionally, the operations of PCNI based on
the Old Model were suspended and PCNI became inactive. Subsequently,
RDI sold all of the issued and outstanding capital stock of PCNI to Mr.
John Folger (the President, a member of the Board of Directors and a
principle shareholder of RDI) for nominal consideration (see Note 3).
RDI, in furtherance of the development of the New Model, entered into
several acquisitions during 1999.
On May 14, 1999, RDI entered into an acquisition agreement whereby RDI
agreed to acquire all of the issued and outstanding capital stock of
Thunderstick, Inc. ("Thunderstick") in exchange for 1,000,000 shares of
common stock. Thunderstick, through its wholly-owned affiliate
Thunderstick Software, LLC, is engaged in the business of developing
and marketing internet software which will be utilized to support RDI's
website and e-commerce operations (see Note 3).
F-9
<PAGE> 10
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(1) ORGANIZATION (CONTINUED)
On or about July 12, 1999, RDI, among other things, changed its
corporate domicile from Florida to Delaware, and its name to
HouseHold Direct.com, Inc. (the "Company"). These changes were
effectuated by merging the Company into its wholly-owned Delaware
subsidiary, and such merger had no impact on the shareholders or the
capital accounts of the Company.
On or about September 14, 1999, the Company entered into an acquisition
agreement with Megappliance, Inc. ("Mega") pursuant to which the
Company agreed to acquire a website (including software, technology and
related commercial relationships) in exchange for shares of the
Company's common stock (see Note 3).
On March 9, 2000, the Company executed an Agreement and Plan of Merger
with Cross Check Corp., a Colorado corporation ("Cross") and a Letter
Agreement with the shareholders of Cross. Pursuant to such agreements,
the Company merged Cross (which had no business operations but was
registered, and fully reporting, under the Exchange Act) into the
Company so that the Company could achieve "successor issuer" status
under the Exchange Act. In connection with such merger which was
consummated on March 20, 2000, the Company paid $150,000 in cash and
issued 100,000 shares of common stock of the Company to the former
shareholders of Cross.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which
contemplate the continuation of the Company as a going concern.
However, the Company is in the development stage, and since inception
has been engaged primarily in raising capital and developing its
website, product, and market strategy. The Company has not generated
significant revenues from operations, and in the course of funding
product and website development and other start-up activities, has
experienced cumulative net losses of $2,863,950 for the period from May
18, 1998 (inception) to December 31, 1999, and has used cash in
operations of $1,021,992 for the period from May 18, 1998 (inception)
to December 31, 1999. The Company expects that it will continue to
incur net operating losses as it expends substantial resources on
product development and sales and marketing in an attempt to capture
market share and develop market recognition. Management is in the
process of raising additional capital through continued issuance of
stock. Management of the Company believes that its additional capital
that is expected to be raised in the future will be sufficient to cover
its working capital needs until the Company's revenue volume reaches a
sufficient level to cover operating expenses. Without the assurances
F-10
<PAGE> 11
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of additional capital, these factors raise a substantial doubt about
the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary. Intercompany
transactions and balances have been eliminated in consolidation.
At December 31, 1998, there were no wholly-owned subsidiaries. At
December 31, 1999, the wholly-owned subsidiary is Thunderstick.
Revenue Recognition
Revenue for services is recognized when the service is rendered, while
product revenue is recognized when the product is shipped to the
customer.
1998 revenue
Revenue consisted of products sold and shipped from the PCNI
subsidiary.
1999 revenue
Revenue relates to consulting services performed by
Thunderstick.
First quarter of 2000 revenue (unaudited)
Revenue of approximately $12,000 consists of membership fee
income earned related to the contract entered into with
Personal Consumer Services, Inc. (see Note 10). Revenue of
approximately $32,500 consists of consulting services
performed by Thunderstick.
Deferred revenue as presented on the balance sheet relates to
uncollected revenue related to Personal Consumer Services,
Inc. (see Note 10). Due to the uncertainty of collection
history of this company, only cash received subsequent to the
first quarter was recorded as revenue ($12,000) and all
outstanding receivable amounts as of March 31, 2000 were
recorded as deferred revenue.
F-11
<PAGE> 12
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives, ranging
from three to five years. Maintenance and repair costs are expensed as
incurred.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosure About
Fair Value of Financial Instruments," requires disclosure about the
fair value of all financial assets and liabilities for which it is
practicable to estimate. At December 31, 1998 and 1999, the carrying
value of all of the Company's accounts receivable, accounts payable and
accrued liabilities approximate fair value because of their short term
nature. The note payable carrying value approximates fair value based
on the borrowing rate currently available to the Company for loans with
similar terms.
Research and Development Costs
Research and development costs are expensed as incurred.
Goodwill
Goodwill reflects the excess of purchase price over the fair value of
net assets purchased and is amortized on a straight-line basis over 3
years. As of December 31, 1999, accumulated amortization was $2,080.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with initial maturities of
three months or less to be cash equivalents.
Use of Estimates
The preparation of consolidated 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 consolidated financial statements and the reported
amounts of the revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-12
<PAGE> 13
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss per Share
Basic net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding for the period
(17,902,094 shares in 1999 and 8,620,563 shares in 1998). Diluted net
loss per share is computed by dividing net loss by the weighted average
number of common shares and dilutive common stock equivalents
outstanding for the period. Common stock equivalents, representing
options totaling 4,300,000 shares for 1999 and 380,000 for 1998, are
not included in the diluted loss per share as they are antidilutive.
Net loss per share has been stated for all periods presented in
accordance with SFAS No. 128.
(3) ACQUISITIONS AND SALES
Preferred Consumer Network International, Inc.
On July 10, 1998, the Company purchased PCNI in exchange for 10,000,000
shares of common stock at $0.001 par value per share. This acquisition
was accounted for by using the purchase method of accounting, and
accordingly the deficit assumed was initially recorded by the Company
based on estimated fair values at the date of acquisition:
<TABLE>
<S> <C>
Deficit $ (693,716)
Goodwill 703,716
--------------------------
Purchase consideration $ 10,000
===============
</TABLE>
On December 31, 1998, the Company sold PCNI to a major shareholder of
the Company for $1.
Thunderstick, Inc.
On May 7, 1999, a related party exchanged 500,000 shares of .001 par
value per share personally held common stock (par value of $5,000) of
the Company for 50% of the purchase consideration for all of the stock
of Thunderstick. The Company agreed to pay the liability of $5,000 and
therefore, this amount is included in amounts payable to related
parties. The outstanding portion, 500,000 shares of common stock (par
value of $5,000), is included in accounts payable and was subsequently
issued in May 2000.
F-13
<PAGE> 14
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(3) ACQUISITIONS AND SALES (CONTINUED)
This acquisition was accounted for by using the purchase method of
accounting, and accordingly the equity assumed was initially recorded
by the Company based on estimated fair values at the date of
acquisition:
<TABLE>
<S> <C>
Equity $ 28,580
Negative goodwill (18,580)
--------------------------
Purchase consideration $ 10,000
===============
</TABLE>
The market value of the Company's shares on May 7, 1999 was $0.346 per
share, equating to a value of $346,000. Based on the substance of the
purchase agreement, as well as the underlying net assets of the
acquired company, the transaction was recorded at fair value and
subsequently written down to the par value of the Company's shares.
The non-current assets of the purchased company were reduced by the
negative goodwill.
Megappliance, Inc.
On September 9, 1999, a related party exchanged personally held stock
of the Company valued at $34,720 for the assets of Mega. This
acquisition was accounted for by using the purchase method of
accounting, and accordingly the assets assumed were initially recorded
by the Company based on estimated fair values at the date of
acquisition:
<TABLE>
<S> <C>
Computer equipment $ 16,000
Goodwill 18,720
-------------------------
Purchase consideration $ 34,720
===============
</TABLE>
F-14
<PAGE> 15
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(3) ACQUISITIONS AND SALES (CONTINUED)
Pro-forma Information
Unaudited pro-forma information for the year ended December 31, 1999
has been prepared to reflect the results of the consolidated operations
as if the acquisition of Thunderstick and Mega had occurred on January
1, 1999. The results are not necessarily indicative of the results
which would have occurred had these transactions been consummated at
the beginning of 1999 or of future results of operations of the
Company.
<TABLE>
<CAPTION>
Pro-Forma
Historical Adjustments Pro-Forma
------------ ------------- ------------
<S> <C> <C> <C>
Revenues $ 53,418 $ 129,000 $ 182,418
Net loss (2,225,266) (35,732) (2,260,998)
Loss per share (0.13) -- (0.13)
</TABLE>
The pro-forma adjustments represent revenue from services rendered by
Thunderstick to outside parties for the period January 1, 1999 to May
7, 1999, as well as the net effect of operating results of
Thunderstick, for the same period, on the net loss of the Company.
(4) RELATED PARTY TRANSACTIONS
Directors and major shareholders of the Company, John Folger and Ann
Jameson (the "Shareholders"), entered into the following transactions
with the Company:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999
------------ -------------
<S> <C> <C>
Cash advances $ 47,136 $ 240,810
Payments on advances (11,543) (165,036)
Services converted to stock (35,593) --
Personal stock issued
to vendors in lieu of services -- 267,235
Personal stock issued for acquisition of
Thunderstick stock and Megappliance
assets -- 39,720
PCNI receivable write-off (includes $9,999
of stock subscriptions receivable) -- (190,622)
------------ -------------
$ -- $ 192,107
======= ========
</TABLE>
F-15
<PAGE> 16
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(4) RELATED PARTY TRANSACTIONS (CONTINUED)
As of December 31, 1998, PCNI is wholly owned by John Folger. During
1999, the Company made payments totaling $190,622 on behalf of PCNI. It
was determined that this amount would not be collected by the Company
and therefore written off against the amounts payable to related
parties balance.
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998
and 1999:
<TABLE>
<CAPTION>
1998 1999
---------------- ------------------
<S> <C> <C>
Motor vehicle $ -- $ 13,500
Computer equipment 10,614 55,641
Computer software -- 25,454
---------------- ------------------
10,614 94,595
Less: accumulated depreciation (3,243) (20,966)
---------------- ------------------
$ 7,371 $ 73,629
========== ==========
</TABLE>
F-16
<PAGE> 17
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(6) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" which requires the use of the "liability method" of accounting
for income taxes. Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for consolidated financial reporting purposes and the
amount used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued expenses $ -- $ 75,920
Less: valuation allowance -- (75,920)
------------ ------------
Total current -- --
------------ ------------
Noncurrent:
Net operating loss 124,870 887,967
Less: valuation allowance (124,870) (887,967)
------------ ------------
Total noncurrent -- --
------------ ------------
Total deferred tax assets $ -- $ --
============ ============
</TABLE>
The reconciliation of the income tax provision at the statutory United
States federal income tax rates to income tax provision is:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Income tax benefit at statutory rate $(111,844) $(756,590)
Permanent items -- 5,694
State taxes (13,026) (88,121)
Change in valuation allowance 124,870 839,017
--------- ---------
$ -- $ --
========= =========
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $2.3 million which
begin to expire in 2018. Utilization of net operating losses may be
subject to annual limitations due to the
F-17
<PAGE> 18
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(6) INCOME TAXES (CONTINUED)
ownership change limitation provided by the Internal Revenue Code of
1986. The annual limitation may result in the expiration of net
operating losses before utilization. The Company has not filed any
federal, state, or local income tax returns since inception.
(7) NOTE PAYABLE
On April 7, 1999, the Company entered into a note payable agreement
with a third party for $13,500. A $2,500 payment was made by the
Company. The note payable bears interest at 12.00% per annum and
requires monthly principal and interest payments of $518 beginning May
1, 1999. The note matures on May 1, 2001. Scheduled maturities of the
note payable under existing terms are as follows at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 5,601
2001 2,020
-------
$ 7,621
=======
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases certain office space under an operating lease that
requires monthly rental payments of approximately $2,522 and expires
April 30, 2002. Total rent expense related to this lease totaled
$22,698 for the year ended December 31, 1999 and is included in general
and administrative expenses in the accompanying consolidated statement
of operations.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
2000 $ 30,939
2001 31,866
2002 8,025
-------------
$ 70,830
=============
</TABLE>
Internal Revenue Service Contingent Liability
PCNI, a temporary wholly owned subsidiary of the Company during five
months in 1998, was subsequently purchased and is currently owned by a
major shareholder of the
F-18
<PAGE> 19
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company (see Note 3). PCNI has been assessed a tax liability by the
Internal Revenue Service ("IRS") for taxes, related to wages paid to
employees, for an approximate total amount of $83,000. It is of the
opinion of the Company's legal counsel that this liability will not
significantly impact the Company. However, there is currently no legal
determination as to whether the Company may be liable at some point for
the entire amount. As of December 31, 1999, the Company recorded
approximately $11,000 of this liability which was incurred during the
time of temporary ownership. This amount is included in accounts
payable in the accompanying consolidated balance sheets.
The Company may be subject to other various legal proceedings and
claims that arise in the ordinary course of business. Management
currently believes that resolving these matter(s) will not have a
material adverse impairment on the Company's financial position or its
results of operations.
(9) CAPITAL STOCK
Common Stock Shares Issued
During 1998, the Company issued an aggregate of 12,917,000 shares of
Common Stock at $.001 par value (the "Common Stock"). The aggregate
consideration received by the Company in connection with the issuance
of such shares consisted of (a) $175,961 in the form of cash payments,
received in connection with the issuance of 1,627,095 shares, (b)
$100,540 in the form of services performed for or on behalf of the
Company received in connection with the issuance of 914,000 shares, (c)
175,905 shares issued in lieu of interest of $20,500; and (d) on
December 28, 1998, the Company issued 200,000 shares at $0.25 per share
to an unrelated third party under the terms of a stock subscription
agreement; the amount is payable on demand. The outstanding stock
subscriptions are classified in the accompanying consolidated balance
sheets and statement of changes in shareholders' deficit as a contra
account to shareholders' deficit. No payments for stock subscriptions
were received as of December 31, 1998. The Company also received all of
the outstanding shares of the capital stock of PCNI in connection with
the issuance of (e) 10,000,000 shares of the Company's common stock.
These 10,000 shares were recorded as common stock subscriptions
receivable since it was deemed that the purchase of PCNI resulted in
little to no value to the Company. During calendar year 1999, the
Company issued an additional 6,323,304 shares of Common Stock (the
"Additional Shares"); and in connection with such issuance received (f)
$902,179 in the form of cash in connection with issuance of 4,784,504
Additional Shares, (g) $369,372 in the form of services in connection
with the issuance of 1,488,800 Additional Shares; and (h) on April 6,
1999, the Company issued 50,000 shares at $0.46 per share to an
unrelated third party under
F-19
<PAGE> 20
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) CAPITAL STOCK (CONTINUED)
the terms of a stock subscription agreement; the amount is payable on
demand. The outstanding amounts are classified in the accompanying
consolidated balance sheets and statement of changes in shareholders'
deficit as a contra account to shareholders' deficit. A total amount of
$38,645 was received as of December 31, 1999 in respect of all stock
issued for subscriptions receivable. The $9,999 stock subscriptions
receivable related to the PCNI transaction was reclassed against the
amounts payable to related parties balance at December 31, 1999.
All stock for services were valued at the average stock for cash value
($.19 in 1999 and $.11 in 1998). However, where specific values of
services could be determined, those values were used to record the
transactions.
Detail Stock Transactions
Stock issued in 1998 for cash:
<TABLE>
<CAPTION>
Number of
Issue Date Shares Amount
-------------------------- ------------ ------------
<S> <C> <C>
August 20, 1998 125,000 $ 13,750
October 2, 1998 245,000 51,500
October 6, 1998 200,000 500
October 20, 1998 50,000 1,000
October 9, 1998 135,000 8,100
November 6, 1998 792,095 92,311
November 24, 1998 55,000 6,050
December 3, 1998 25,000 2,750
------------ ------------
1,627,095 $ 175,961
============ ============
</TABLE>
Stock issued in 1998 in lieu of interest:
<TABLE>
<CAPTION>
Number of
Issue Date Shares Amount
-------------------------- ------------ ------------
<S> <C> <C>
November 20, 1998 175,905 $ 20,500
============ ============
</TABLE>
F-20
<PAGE> 21
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) CAPITAL STOCK (CONTINUED)
Stock issued in 1998 for acquisition of PCNI:
<TABLE>
<CAPTION>
Issue Date Number of Shares Amount
---------- ---------------- ------
<S> <C> <C>
July 10, 1998 10,000,000 $ 10,000
========== ==============
</TABLE>
Stock issued in 1998 for subscriptions receivable:
<TABLE>
<CAPTION>
Issue Date Number of Shares Amount
---------- ---------------- ------
<S> <C> <C>
December 28, 1998 200,000 $ 50,000
========== ==============
</TABLE>
Stock issued in 1998 for services:
<TABLE>
<CAPTION>
Issue Date Number of Shares Amount
---------- ---------------- ------
<S> <C> <C>
August 26, 1998 100,000 $ 11,000
September 17, 1998 180,000 19,800
October 6, 1998 224,000 24,640
October 20, 1998 100,000 11,000
November 16, 1998 210,000 23,100
November 23, 1998 25,000 2,750
December 8, 1998 50,000 5,500
December 15, 1998 25,000 2,750
---------- -------------
914,000 $ 100,540
========== =============
</TABLE>
F-21
<PAGE> 22
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) CAPITAL STOCK (CONTINUED)
Stock issued in 1999 for cash:
<TABLE>
<CAPTION>
Issue Date Number of Shares Amount
---------- ---------------- ------
<S> <C> <C>
February 2, 1999 150,000 $ 35,500
February 11, 1999 101,000 46,020
February 16, 1999 50,000 23,000
February 18, 1999 100,000 46,000
February 19, 1999 250,000 98,250
February 23, 1999 1,300,000 130,000
February 25, 1999 100,000 19,000
March 3, 1999 369,109 60,189
March 8, 1999 200,000 38,000
March 18, 1999 550,000 136,355
March 19, 1999 300,000 75,000
May 4, 1999 505,000 11,870
May 14, 1999 100,000 15,645
December 6, 1999 494,117 80,000
December 20, 1999 215,278 87,350
---------- ------------
4,784,504 $ 902,179
========== ============
</TABLE>
Stock issued in 1999 for subscriptions receivable:
<TABLE>
<CAPTION>
Issue Date Number of Shares Amount
---------- ---------------- ------
<S> <C> <C>
April 6, 1999 50,000 $ 23,000
========== ============
</TABLE>
F-22
<PAGE> 23
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) CAPITAL STOCK (CONTINUED)
Stock issued in 1999 for services:
<TABLE>
<CAPTION>
Issue Date Number of Shares Amount
---------- ---------------- ------
<S> <C> <C>
February 2, 1999 150,000 $ 57,300
February 11, 1999 138,300 26,277
February 23, 1999 195,000 37,050
March 1, 1999 100,000 76,700
March 3, 1999 50,000 9,500
May 4, 1999 70,000 13,300
August 2, 1999 15,000 2,850
August 9, 1999 100,000 19,000
September 22, 1999 86,500 16,435
December 6, 1999 515,000 97,850
December 14, 1999 69,000 13,110
---------- ----------
1,488,800 $ 369,372
========== ==========
</TABLE>
Stock Grants, Options and Warrants
The Company has a nonqualified stock option plan that provides for the
granting of the options to employees and consultants. The option price,
number of shares, and grant date are determined at the discretion of
the Company's Board of Directors. Grantees vest in the options at
various intervals as determined by the Board of Directors. Options
granted under the plan are exercisable for a period of up to five years
from the grant date. Options were also granted to third parties to
obtain capital.
F-23
<PAGE> 24
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) CAPITAL STOCK (CONTINUED)
A summary of activity involving options and warrants of the Company's
common stock follows:
<TABLE>
WARRANTS AND OPTIONS DATE NUMBER OF
EXERCISE
ISSUED SHARES PRICE
----------------------------------------------------
<S> <C> <C> <C>
Granted for Equity October 30, 1998 5,000 0.375
Granted for Equity November 6, 1998 792,095 0.375
Granted for Equity December 8, 1998 100,000 0.250
Granted for Equity December 20, 1998 10,000 0.250
Granted for Equity December 21, 1998 300,000 0.250
Granted for Equity December 22, 1998 319,109 0.375
Granted for Equity December 31, 1998 70,000 0.250
Options outstanding as at December 31, 1998
Granted for Equity February 2, 1999 100,000 0.250
Granted for Equity February 16, 1999 40,000 0.250
Granted for Equity February 16, 1999 180,000 0.250
Granted for Equity February 16, 1999 100,000 0.250
Granted for Equity February 16, 1999 100,000 0.250
Granted for Equity February 17, 1999 200,000 0.250
Granted to management for services November 11, 1999 400,000 0.150
Granted to management for services November 11, 1999 250,000 1.350
Granted to management for services November 11, 1999 300,000 0.150
Granted to management for services November 11, 1999 250,000 1.350
Granted to management for services November 11, 1999 1,300,000 0.150
Granted to management for services November 11, 1999 500,000 1.350
Granted for consulting services November 11, 1999 300,000 0.150
Granted to management for services November 11, 1999 500,000 0.150
Granted to management for services November 11, 1999 500,000 1.350
Options and warrants outstanding as at December 31, 1999
Granted for Equity February 29, 2000 180,000 0.500
<CAPTION>
WARRANTS AND OPTIONS EXPIRATION DATE
OUTSTANDING DATE EXERCISED VALUE
-----------------------------------------------------------
<S> <C> <C> <C>
Granted for Equity December 22, 1998 December 22, 1998 --
Granted for Equity December 22, 1998 December 22, 1998 --
Granted for Equity December 22, 1999 December 29, 1998 --
Granted for Equity December 22, 1999 March 8, 1999 2,500
Granted for Equity December 22, 1999 March 10, 1999 75,000
Granted for Equity December 31, 1998 December 22, 1998 --
Granted for Equity December 22, 1999 March 9, 1999 17,500
-------------------- -------------------------------------------------------------------
Options outstanding as at December 31, 1998 95,000
=========================== ========================================
Granted for Equity December 22, 1999 November 11, 1999 --
Granted for Equity December 22, 1999 March 11, 1999 --
Granted for Equity December 22, 1999 March 10, 1999 --
Granted for Equity December 22, 1999 March 2, 1999 --
Granted for Equity December 22, 1999 March 1, 1999 --
Granted for Equity December 22, 1999 March 10, 1999 --
Granted to management for services November 1, 2004 -- 60,000
Granted to management for services December 1, 2004 -- 337,500
Granted to management for services November 1, 2004 -- 45,000
Granted to management for services December 1, 2004 -- 337,500
Granted to management for services November 1, 2004 -- 195,000
Granted to management for services December 1, 2004 -- 675,000
Granted for consulting services November 1, 2004 -- 45,000
Granted to management for services November 1, 2004 -- 75,000
Granted to management for services December 1, 2004 -- 675,000
-------------------- -------------------------------------------------------------------
Options and warrants outstanding as at December 31, 1999 2,445,000
=========================== ========================================
Granted for Equity December 23, 2000 March 29, 2000 --
=========================== ========================================
2,445,000
=========================== ========================================
</TABLE>
F-24
<PAGE> 25
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(9) CAPITAL STOCK (CONTINUED)
The Company accounts for its stock based awards to employees using the
intrinsic value method in accordance with APB 25, "Accounting for Stock
Issued to Employees," and its related interpretations. Deferred
compensation of $15,000 was recorded in accordance with APB 25.
The fair value of each option grant was estimated in accordance with
SFAS 123 using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1999
---------------- ----------------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 0.487% 0.294%
Risk-free rate of return 6.8% 6.8%
Expected life 5 Years 5 Years
</TABLE>
Compensation costs for stock options determined at the grant date in
accordance with the fair value method consistent with SFAS 123 requires
no additional amounts in compensation costs to be recognized for the
years ended December 31, 1999 and 1998 as fair market value calculated
using the Black-Scholes model, was lower than the option prices in all
cases.
Where options were issued to third parties for services rendered, the
value of the consideration received is used to record the transactions,
as allowed by SFAS 123. A total amount of $110,131 was recorded in 1999
on this basis. This amount is included in consulting fees in the
accompanying consolidated statements of operations.
(10) SUBSEQUENT EVENTS
Formation of Additional Subsidiaries
During the first quarter of 2000, the Company formed additional wholly
owned subsidiaries for the purpose of expanding and pursuing other
related business opportunities.
Agreement with Personal Consumer Services, Inc.
In January 2000, the Company entered into a service agreement (the
"Agreement") with a third party wholesale buying club, Personal
Consumer Services, Inc. ("PCS"). The Company is to provide services
for PCS members in exchange for a base fee and
F-25
<PAGE> 26
HOUSEHOLD DIRECT.com, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(10) SUBSEQUENT EVENTS (CONTINUED)
monthly retainer as defined in the Agreement. The Agreement expires in
December 2005 with an option to extend the term for an additional five
years. As of March 31, 2000, the Company is owed $652,872 from PCS, of
which $612,688 has been recorded as deferred revenue.
Purchase of Cross Check Corp.
On March 9, 2000, the Company executed an Agreement and Plan of Merger
with Cross and a Letter of Agreement with the shareholders of Cross.
Pursuant to such agreements, the Company merged Cross (which had no
business operations but was registered, and fully reporting, under the
Exchange Act) into the Company so that the Company could achieve
"successor issuer" status under the Exchange Act. In connection with
such merger which was consummated on March 20, 2000, the Company paid
$150,000 in cash and issued 100,000 shares of common stock of the
Company to the former shareholders of Cross.
Pro-forma information is not presented for this acquisition since
Cross was an inactive company with no significant assets and
liabilities.
(11) UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim consolidated financial information as of March
31, 2000 and for the three months ended March 31, 2000 has been
prepared on the same basis as the audited consolidated financial
statements. In the opinion of management, such unaudited information
includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of this interim
information. Operating results for the three months ended March 31,
2000 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2000.
F-26
-----END PRIVACY-ENHANCED MESSAGE-----
