<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): December 15, 1999
NETIVATION.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 000-26337
(State or Other Jurisdiction ---------- 82-0514605
of Incorporation or (Commission File (I.R.S. Employer)
Organization) Number) Identification Number)
806 CLEARWATER LOOP, SUITE N
POST FALLS, ID 83854
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (208) 777-4203
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
On December 29, 1999, Netivation.com, Inc., a Delaware corporation
("Netivation"), filed a Form 8-K (Commission File No. 000-26337), regarding the
acquisition of all of the issued and outstanding stock of Net.Capitol, Inc., a
Delaware corporation, on December 15.
Netivation hereby amends the following items, financial statements, exhibits, or
other portions of the report filed by Netivation on December 29, 1999 as set
forth in the pages attached hereto:
FIANANCIAL STATEMENTS OF BUSINESS ACQUIRED
<PAGE>
Net.Capitol, Inc.
Table of Contents
Page
Balance Sheets
As of December 31, 1997 and 1998 and September 31, 1999 (unaudited) 1
Statements of Operations
For the Years Ended December 31, 1997 and 1998 and the
Nine Months Ended September 30, 1999 (unaudited) 2
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997 and 1998 and the
Nine Months Ended September 30, 1999 (unaudited) 3
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1998 and the
Nine Months Ended September 30, 1999 (unaudited) 5
Notes to Financial Statements
As of December 31, 1997 and 1998 and September 30, 1999 (unaudited) 6
Report of Independent Public Accountants
To Net.Capitol, Inc.:
We have audited the accompanying balance sheets of Net.Capitol, Inc. (the
"Company," a Delaware corporation) as of December 31, 1997 and 1998, and the
related statements of operations, changes in shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Net.Capitol, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Vienna, Virginia
August 13, 1999 (Except with respect to the matter disclosed in Note 11, as to
which the date is November 17, 1999)
<PAGE>
Net.Capitol, Inc.
Balance Sheets
Assets
<TABLE>
<CAPTION>
As of
As of December 31, September 30,
1997 1998 1999
-------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 6,791 $ 22,673 $ 39,994
Accounts receivable, net of allowance for doubtful accounts of $0, $0 and
$64,054, respectively 8,386 128,324 153,701
Other current assets 18,900 20,425 19,153
-------- --------- -----------
Total current assets 34,077 171,422 212,848
Equipment and furniture, net 63,358 75,117 85,483
Intangible assets, net - 50,000 31,250
-------- --------- -----------
Total assets $ 97,435 $ 296,539 $ 329,581
======== ========= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 36,724 $ 40,829 $ 388,617
Deferred revenue 20,586 43,136 154,052
Capital lease obligations 9,118 23,746 20,209
Notes payable 5,325 30,025 76,452
-------- --------- -----------
Total current liabilities 71,753 137,736 639,330
Commitments and contingencies (Note 5)
Long-term liabilities:
Notes payable, net of current portion 26,276 20,130 -
Capital lease obligations, net of current portion 10,863 10,189 18,525
-------- --------- -----------
Total liabilities 108,892 168,055 657,855
Shareholders' equity:
Common stock, par value $.0001; 12,400,000 shares authorized;
4,166,364, 4,666,348 and 5,006,147 shares issued and 417 467 501
outstanding, respectively
Additional paid-in capital 302,418 702,578 899,614
Series A convertible preferred stock, par value $.0001; 6,300,000
shares authorized; 600,000 shares issued and outstanding;
liquidation preference of $.01 60,000 60,000 60,000
Series B convertible preferred stock, par value $.0001; 6,300,000
shares authorized; 329,657 shares issued and outstanding;
liquidation preference of $.02 82,220 82,220 82,220
Series C convertible preferred stock, par value $.0001; 3,000,000
shares authorized; 531,823, 850,006 and 850,006 shares issued
and outstanding, respectively 175,500 280,500 280,500
Stock subscriptions receivable (10,000) - -
Warrants outstanding 143,096 99,395 29,091
Deferred compensation - (176,179) (185,612)
Accumulated deficit (765,108) (920,497) (1,494,588)
-------- --------- -----------
Total shareholders' equity (11,457) 128,484 (328,274)
-------- --------- -----------
Total liabilities and shareholders' equity $ 97,435 $ 296,539 $ 329,581
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
Net.Capitol, Inc.
Statements of Operations
<TABLE>
<CAPTION>
For the Nine
For the Years Ended Months Ended
December 31, September 30,
1997 1998 1999
--------- --------- ------------
(Unaudited)
<S> <C> <C> <C>
Revenues $ 35,518 $ 485,154 $ 570,916
Operating expenses:
Production, product and technology 92,291 174,982 464,620
Stock compensation 333,434 102,523 108,473
Selling, general and administrative 153,131 308,143 528,591
Depreciation and amortization 13,048 43,036 35,159
--------- --------- -----------
Total operating expenses 591,904 628,684 1,136,843
--------- --------- -----------
Loss from operations (556,386) (143,530) (565,927)
Other expense:
Interest expense (8,184) (11,859) (8,164)
--------- --------- -----------
Net loss $(564,570) $(155,389) $ (574,091)
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
Net.Capitol, Inc.
Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Additional Stock Series A Stock Series B
Common Stock Paid-In Capital Convertible Preferred Convertible Preferred
------------------------ ----------------- ----------------------- -----------------------
Shares Amount Amount Shares Amount Shares Amount
---------- --------- ----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 3,539,670 $354 $112,143 600,000 $60,000 329,657 $82,220
Issuance of common stock
to employees in lieu of 626,694 63 190,275 - - - -
bonus salaries and
commissions
Issuance of warrants - - - - - - -
Issuance of Series C
convertible preferred - - - - - - -
stock with warrants
Issuance of Series C - - - - - - -
convertible preferred
stock
Net loss - - - - - - -
--------- ------ --------- -------- -------- ------- --------
Balance at December 31, 4,166,364 417 302,418 600,000 60,000 329,657 82,220
1997
Exercise of warrants 151,717 15 50,052 - - - -
Exercise of stock options 49,000 5 1,285 - - - -
Issuance of common stock
in conjunction with an 227,273 23 74,977 - - - -
acquisition
Issuance of common stock 71,994 7 23,751 - - - -
in lieu of salaries paid
Issuance of Series C
convertible preferred - - - - - - -
stock with warrants
Issuance of Series C - - - - - - -
convertible preferred
stock
Payment of stock - - - - - - -
subscriptions receivable
Compensation on stock - - 250,095 - - - -
options granted
Amortization of deferred - - - - - - -
compensation
Net loss - - - - - - -
--------- ------ --------- -------- -------- ------- --------
Balance at December 31,
1998 4,666,348 467 702,578 600,000 60,000 329,657 82,220
Exercise of warrants
(unaudited) 219,697 22 72,479 - - - -
Exercise of stock options
(unaudited) 120,102 12 6,651 - - - -
Compensation on stock
options granted
(unaudited) - - 149,532 - - - -
Options terminated
(unaudited) - - (31,626) - - - -
Amortization of deferred
compensation (unaudited) - - - - - - -
Net loss (unaudited) - - - - - - -
--------- ------ --------- -------- -------- ------- --------
Balance at September 30,
1999 (unaudited) 5,006,147 $ 501 $899,614 600,000 $ 60,000 329,657 82,220
========= ====== ======== ======== ======== ======= ========
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Stock Series C Stock Common
Convertible Preferred Subscriptions Stock Deferred Accumulated
------------------------
Shares Amount Receivable Warrants Compensation Deficit Total
--------- ---------- --------------- ---------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 - $ - $ - $ - $ - $ (200,538) $ 54,179
Issuance of common stock
to employees in lieu of - - - - - - 190,338
bonus salaries and
commissions
Issuance of warrants - - - 43,701 - - 43,701
Issuance of Series C
convertible preferred 310,610 102,500 - 99,395 - - 201,895
stock with warrants
Issuance of Series C 221,213 73,000 (10,000) - - - 63,000
convertible preferred
stock
Net loss - - - - - (564,570) (564,570)
--------- -------- ----------- -------- --------- ----------- ---------
Balance at December 31, 531,823 175,500 (10,000) 143,096 - (765,108) (11,457)
1997
Exercise of warrants - - - (48,550) - - 1,517
Exercise of stock options - - - - - - 1,290
Issuance of common stock
in conjunction with an - - - - - - 75,000
acquisition
Issuance of common stock - - - - - - 23,758
in lieu of salaries paid
Issuance of Series C
convertible preferred 15,152 5,000 - 4,849 - - 9,849
stock with warrants
Issuance of Series C 303,031 100,000 - - - - 100,000
convertible preferred
stock
Payment of stock - - 10,000 - - - 10,000
subscriptions receivable
Compensation on stock - - - - (250,095) - -
options granted
Amortization of deferred - - - - 73,916 - 73,916
compensation
Net loss - - - - - (155,389) (155,389)
--------- -------- ----------- -------- --------- ----------- ---------
Balance at December 31,
1998 850,006 280,500 - 99,395 (176,179) (920,497) 128,484
Exercise of warrants
(unaudited) - - - (70,304) - - 2,197
Exercise of stock options
(unaudited) - - -
Compensation on stock - - - 6,663
options granted
(unaudited) - - - - (149,532) - -
Options terminated
(unaudited) - - - - 31,626 - -
Amortization of deferred
compensation (unaudited) - - - - 108,473 - 108,473
Net loss (unaudited) - - - - - (574,091) (574,091
--------- -------- ----------- -------- --------- ----------- ---------
Balance at September 30,
1999 (unaudited) 850,006 $280,500 $ - $ 29,091 $(185,612) $(1,494,588) $(328,274)
========= ======== =========== ======== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these statements
-4-
<PAGE>
Net.Capitol, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended For the Nine
December 31, Months Ended
September 30,
1997 1998 1999
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(564,570) $(155,389) $(574,091)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities-
Depreciation and amortization 13,048 43,036 35,159
Stock based compensation and expense 333,434 102,523 108,473
Changes in operating assets and liabilities:
Accounts receivable (4,507) (119,938) (25,377)
Other current assets (15,369) (1,525) 1,272
Accounts payable and accrued expenses 31,517 4,105 347,788
Deferred revenue 20,586 22,550 110,916
--------- --------- ---------
Net cash (used in) provided by
operating activities (185,861) (104,638) 4,140
--------- --------- ---------
Cash flows from investing activities:
Purchases of equipment and furniture (26,601) (15,841) (9,754)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable 32,601 24,700 33,177
Repayment of notes payable (1,000) (6,146) (6,880)
Repayment of capital lease obligations - - (12,222)
Exercise of warrants - 1,517 2,197
Exercise of stock options - 1,290 6,663
Proceeds from the issuance of preferred stock 165,500 115,000 -
--------- --------- ---------
Net cash provided by financing
activities 197,101 136,361 22,935
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (15,361) 15,882 17,321
Cash and cash equivalents, beginning of period 22,152 6,791 22,673
--------- --------- ---------
Cash and cash equivalents, end of period $ 6,791 $ 22,673 $ 39,994
========= ========= =========
Supplemental cash flow information:
Cash paid for interest $ 8,184 $ 11,859 $ 8,164
Non-cash investing and financing activities:
Equipment financed through capital leases 19,981 13,954 17,021
Exchange of warrants for common stock - 48,550 70,304
Exchange of options for common stock - 14,880 22,613
Acquisition of Stardot for common stock - 75,000 -
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
Net.Capitol, Inc.
Notes to Financial Statements
1. Organization of the Company and Nature of Operations:
Basis of Presentation
The accompanying financial statements include the accounts of Net.Capitol, Inc.
("Net.Capitol" or the "Company").
The accompanying balance sheet as of September 30, 1999, and the statements of
operations, changes in shareholders' equity and cash flows for the nine months
ended September 30, 1999, are unaudited but, in the opinion of management,
include all adjustments (consisting of normal, recurring adjustments) necessary
for a fair presentation of results for this period. Results for an interim
period are not necessarily indicative of results for the entire year.
Description of Company
Net.Capitol, Inc., a Delaware corporation ("Net.Capitol" or the "Company"), was
incorporated in March 1996, and specializes in website design and hosting
services. These services include development of Internet application software,
software consulting services, and the design of working website pages primarily
for customers in the Washington, D.C. area.
The Company is subject to the risks and challenges associated with other
companies at a similar state of development including dependence on key
individuals, successful sales and marketing of products, and competition from
companies with greater financial, technical, management and marketing resources.
Further, the Company may require additional funds that may not be readily
available to it.
The Company has sustained net losses and negative cash flows from operations
since inception. The Company's ability to meet its obligations in the ordinary
course of business is dependent upon its ability to establish profitable
operations or raise additional financing through public or private equity
financings, collaborative or other arrangements with corporate sources, or other
sources of financing to fund operations.
The Company has a limited operating history and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in the new
and rapidly evaluating markets for Internet products and services. These risks
include the failure to develop and extend the Company's product line, the
rejection of the Company's services by Web consumers, as well as other risks and
uncertainties. In the event that the Company does not successfully implement its
business plan, certain assets may not be realizable.
The Company has entered into an acquisition agreement with Netivation.com, Inc.
as described in Note 11.
2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
-6-
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with a maturity
of three months or less at the date of purchase to be cash equivalents.
Equipment and Furniture
Equipment and furniture consist primarily of computer equipment and are stated
at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful life of five years. Maintenance
and repairs are expensed as incurred.
Identified Intangible Assets
Identified intangible assets consist of customer lists, existing customer
contracts and intellectual property acquired from Stardot Consulting, Inc. on
January 21, 1998 (see Note 9). Amortization of intangible assets is provided for
by the straight-line method over the estimated useful life of three years.
Amortization expense for the year ended December 31, 1998 and for the nine-month
period ended September 30, 1999, totaled $25,000 and $18,750, respectively.
-7-
<PAGE>
Accounts Payable and Accrued Expenses
As of December 31, 1997 and 1998 and the nine month period ended September 30,
1999, accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
(Unaudited)
Accounts payable $20,572 $24,081 $120,107
Professional services - - 130,035
Deferred salary - 2,000 71,231
Employee reimbursables 15,511 8,704 38,193
Sales tax payable 641 6,044 29,051
-------- ------- ---------
$36,724 $40,829 $388,617
======== ======= =========
</TABLE>
Revenue Recognition
The Company derives its revenues from three primary sources: Internet software
products, website design consulting services and website hosting and
maintenance. Revenues from each category are as follows:
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, September 30,
1997 1998 1999
---------------------- -------------
(Unaudited)
<S> <C> <C> <C>
Internet software products $ 6,564 $203,935 $271,429
Consulting services 27,579 199,307 259,949
Website hosting and maintenance 1,375 81,912 39,538
------- -------- --------
$35,518 $485,154 $570,916
======= ======== ========
</TABLE>
Revenue from the sale of Internet software products are recognized upon delivery
of the product in accordance with Statement of Position 97-2, "Software Revenue
Recognition," ("SOP 97-2"). Revenues related to agreements with customers that
contain significant future service requirements are recognized ratably over the
term of the respective agreements, which are usually one year in length.
Revenue from consulting services performed on a time-and-material basis is
recognized as services are rendered. Revenue from fixed-price consulting
contracts is recognized on the percentage-of-completion method of accounting,
measured primarily by output measures as management considers output measures to
be the best available measure of contract performance.
Website hosting and maintenance revenue is billed and recognized on a monthly
basis.
-8-
<PAGE>
Deferred Revenue
Deferred revenue consists of revenues deferred under website design consulting
projects based on the percentage-of-completion method and the future service
requirements of the sale of Internet software products.
Income Taxes
The Company computes income taxes using the asset and liability method, under
which deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax assets and liabilities are measured using currently
enacted tax rates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amounts expected to be realized.
Research and Development
Research and development costs are expensed as incurred and consist primarily of
salaries, supplies and contract services.
The Company's accounting policy is to capitalize eligible computer software
development costs upon the establishment of technological feasibility, which the
Company has defined as a completion of a working model. For the periods ended
December 31, 1997 and 1998, and the nine months ended September 30, 1999, the
amount of eligible costs to be capitalized has not been material, and
accordingly, the Company has charged all software development costs to product
development in the accompanying statements of operations.
Stock-Based Compensation
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
applies Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plan.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and accrued expenses, approximate fair
value because of their short maturities. The carrying amount of the Company's
capital leases and other equipment financing obligations approximates the fair
value of such instruments based upon management's best estimate of interest
rates that would be available to the Company for similar debt obligations as of
December 31, 1997 and 1998.
Impact of Recently Issued Accounting Standards
The Company adopted Financial Accounting Standards Board ("FASB") SFAS No. 130,
"Reporting Comprehensive Income" during 1998. The adoption of this pronouncement
did not require the Company to make certain additional disclosures, as it has no
items of other comprehensive income in any periods presented.
-9-
<PAGE>
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 did not have a
material impact on the Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which required recognition of the fair value
of derivatives in the statement of financial position, with changes in the fair
value recognized either in earning or as a component of other comprehensive
income dependent upon the hedging nature of the derivative. SFAS No. 133 will
not have a material impact on the Company's earnings or other comprehensive
income.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year's presentation.
-10-
<PAGE>
3. Equipment and Furniture:
Equipment and furniture consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
-------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
Computer equipment $ 55,455 $ 84,943 $ 111,718
Office equipment 23,236 23,236 23,236
-------- -------- -----------
78,691 108,179 134,954
Less- Accumulated depreciation (15,333) (33,062) (49,471)
-------- -------- -----------
Equipment and furniture, net $ 63,358 $ 75,117 $ 85,483
======== ======== ===========
</TABLE>
Depreciation for fixed assets was $13,048, $18,036 and $16,409 for the years
ended December 31, 1997 and 1998, and for the nine month period ended September
30, 1999, respectively.
4. Income Taxes:
The Company did not provide an income tax benefit for the period presented
because, based on a number of factors, there is sufficient uncertainty regarding
the realizability of carryforwards that a full valuation allowance has been
recorded against the net deferred tax asset. The Company has total net operating
loss ("NOL") carryforwards of approximately $569,000 at December 31, 1998, which
expire between 2017 and 2018. The significant components of the deferred tax
asset were as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
--------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
Net operating loss carryforward $ 248,241 $ 320,673 $ 314,875
Accrual to cash basis 12,271 (38,057) 101,573
Other deferred tax assets 1,601 16,442 121,669
Deferred tax asset valuation allowance (262,113) (299,058) (538,117)
--------- --------- -----------
$ - $ - $ -
========= ========= ===========
</TABLE>
In accordance with certain provisions of the Internal Revenue Code, as amended,
a change in ownership of greater than 50 percent of a company within a three-
year period may result in an annual limitation on the Company's ability to
utilize its net operating loss ("NOL") carryforwards from tax periods prior to
the ownership change.
5. Commitments and Contingencies:
Internet Access
In April 1997, the Company entered into an agreement with a third party to
provide Internet access and hosting services. The Company terminated its
relationship with this third party on November 1, 1998, and as of December 31,
1998, approximately $11,000 is due to this third party which is included in
accounts payable and accrued expenses in the accompanying balance sheets.
Effective August 1998, the Company received Internet access, hosting and co-
location services from another third-party provider.
-11-
<PAGE>
Under the terms of the agreement, the Company is obligated to pay a total of
$1,385 a month through January 2000.
Capital Leases
The Company leases certain computer equipment under long-term capital lease
obligations through 2001. Depreciation of the equipment under capital leases is
included in the depreciation expense for 1997, 1998 and 1999.
The future minimum payments under these leases as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31
-------------
<S> <C>
1999 $23,746
2000 6,760
2001 3,429
-------
$33,935
=======
</TABLE>
Facility Leases
The Company has entered into noncancellable operating lease agreements involving
facilities. Rent expense totaled approximately $37,000, $42,000 and $31,500 for
the years ended December 31, 1997 and 1998, and for the nine month period ended
September 30, 1999, respectively. There are no future minimum payments under
the operating leases as of December 31, 1998 and September 30, 1999.
6. Notes Payable:
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
--------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
Notes payable to shareholder in the original amount of
$25,000, payable July 3, 2000, at 10 percent simple
interest. $26,276 $ 20,130 $ 16,452
Notes payable to employee and shareholder for various
amounts, payable on demand at 10 percent simple
interest. 5,325 30,025 60,000
----------- ------------ ----------
Total notes payable 31,601 50,155 76,452
Less- Current portion (5,325) (30,025) (76,452)
----------- ------------ ----------
Notes payable, net of current portion $26,276 $ 20,130 $ -
=========== =========== ==========
</TABLE>
7. Stockholders' Equity:
Common and Convertible Preferred Stock
As of January 1, 1997, 1,000,000 shares of which 800,000 consists of common
stock ("Common Stock") and 200,000 shares of preferred stock at par value $.10
per share were authorized. The 200,000 shares of
-12-
<PAGE>
preferred stock were designated, 100,000 shares for Series A preferred stock
("Series A Preferred") and a 100,000 shares for Series B preferred stock
("Series B Preferred").
On February 24, 1997, the Board of Directors approved a 1000 to 1 stock split of
all outstanding shares of Common Stock, Series A Preferred and Series B
Preferred. In addition, the Board of Directors authorized 12,400,000 shares of
Common Stock and 12,600,000 shares of preferred stock at par value $.0001 as
available for issuance.
Both series of preferred stockholders are entitled to receive dividends at the
same rate as dividends payable on the Company's Common Stock. In the event of
liquidation, the holders of Series A Preferred and Series B Preferred are
entitled to receive before stockholders of Common Stock or other classes of
preferred stock ranking junior thereto, $.01 and $.02 in cash or in kind for
each share of Series A Preferred and Series B Preferred, respectively, plus an
amount equal to all dividends accrued but unpaid, if any, up to the date fixed
for distribution.
Each share of the Series A Preferred and Series B Preferred is convertible into
one share of Common Stock at the option of the holder. Each share of the Series
A Preferred and Series B Preferred will automatically and mandatorily convert to
shares of Common Stock on the date on which a registration statement is declared
effective by the U.S. Securities and Exchange Commission ("SEC"). On February
25, 1997, the Board of Directors authorized 3,000,000 shares of a third class
preferred stock (the "Series C Preferred") with a par value of $.0001 per share.
The holders of the Series C Preferred are entitled to receive dividends at the
same rate as dividends payable on the Company's Common Stock. In the event of
liquidation, the holders of Series C Preferred are entitled to receive before
stockholders of Common Stock or other classes of preferred stock ranking junior
thereto, $.33 in cash or in kind for each share of Series C Preferred plus an
amount equal to all dividends accrued but unpaid, if any, up to the date fixed
for distribution. Each share of Series C Preferred will automatically and
mandatorily convert to shares of Common Stock on the date on which a
registration statement is declared effective by the SEC.
From March to July 1997, the Company issued 221,213 in Series C Preferred at
$.33 per share for $73,000. As of December 31, 1997, the Company has not
received $10,000 from this issuance and has recorded a stock subscription
receivable for that amount on the accompanying statements of changes in
stockholders' equity.
From July to November 1997, the Company issued 310,610 shares of Series C
Preferred stock with common stock warrants (the "Warrants") at $.33 per share
for $102,500 including shares to employees and Board members. One Warrant was
issued with each share of Series C Preferred. The Warrants are exercisable for
five years from the date of grant at an exercise price of $.01 per share. Stock
compensation expense totaling $99,395 was recorded in the accompanying
statements of operations for the issuance of the Warrants.
Throughout 1997, the Company issued a total of 626,694 shares of Common Stock to
employees and Board members in lieu of salaries and bonuses. Stock compensation
expense of $190,338 was recognized in connection with these issuances.
In December 1997, the Company issued 136,565 Warrants to the president of the
Company. The Warrants are exercisable from the grant date for five years at an
exercise price of $.01 per share of Common Stock. Stock compensation of $43,701
was recorded for the issuance in the accompanying statements of operations for
the issuance of the Warrants.
-13-
<PAGE>
In January 1998, the Company acquired Stardot Consulting, Inc. ("Stardot") and
issued 227,273 shares of Common Stock valued at $.33 per share totaling $75,000
as described in Note 9. In addition, the majority shareholder of Stardot
purchased 227,273 shares of Series C Preferred at $.33 per share for $75,000.
During January 1998, the Company also issued 15,152 Series C Preferred stock
with Warrants for $5,000 to a Board member. One Warrant was issued with each
share of Series C Preferred. The Warrants are exercisable from the grant date
for five years at an exercise price of $.01 per share of Common Stock. Stock
compensation expense totaling $4,849 was recorded in the accompanying statements
of operations for the issuance of the Warrants.
In August 1998, the Company issued 75,758 Series C Preferred stock at $.33 per
share for $25,000.
In December 1998, the Company issued 71,994 shares in Common Stock at the fair
market value of $.33 per share in lieu of paying salaries to employees. The
Company recorded $23,758 of stock compensation expense in the accompanying
statements of operations.
Stock Options Issued to Employees
The Company has the authority to determine all matters relating to incentive and
nonqualified stock options and stock reserved to be granted, including the
selection of individuals to be granted options, number of shares to be subject
to each option, the exercise price and the term and vesting period, if any.
Options generally vest over periods ranging up to four years from date of grant.
The Company granted 834,251 options during 1998 of which 49,000 options were
exercised. At December 31, 1998 and September 30, 1999, exercise prices for all
options granted ranged from $.01 to $.049 per share and the average remaining
contractual life is 3.3 and 3.25 years, respectively.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1997 - $ -
Granted 834,251 .035
Exercised (49,000) .033
-------- -----
Outstanding at December 31, 1998 785,251 .035
======== =====
Granted 335,825 .049
Exercised (67,602) .037
Terminated (107,750) .034
-------- -----
Outstanding at September 30, 1999 945,724 $.040
======== =====
Exercisable at December 31, 1998 200,001
Weighted average number of shares and fair value of options .354
granted at December 31, 1998
Exercisable at September 30, 1999 447,969
Weighted average number of shares and fair value of options .404
granted at September 30, 1999
</TABLE>
In April 1999, the Company granted 43,751 options at an exercise price of $.03
per share of as payment for 1998 employee commissions. At December 31, 1998,
the Company recorded $13,125 of stock compensation expense related to these
options in the accompanying statements of operations.
-14-
<PAGE>
For the nine month period ended September 30, 1999, the Company issued 42,534
options at an exercise price of $.049 per share as payment for employee
commissions and salaries. As the options are vested when issued, stock
compensation expense of $18,758 was recognized in connection with these
issuances.
Under APB 25, the Company records compensation expense over the vesting period
for the difference between the exercise price and the deemed fair market value
of stock options granted. In conjunction with grants made in 1998 and for the
nine-months ended September 30, 1999, the Company recorded $60,791 and $108,473,
respectively as stock compensation expense in the accompanying statements of
operations.
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." Had the compensation expense been recognized for
the Company's stock options issued based on the fair value of the options at the
date of grant and recognized over the vesting period, the Company's net loss
would have been increased to the pro-forma amounts indicated below:
December 31, 1998 September 30, 1999
----------------- ------------------
(Unaudited)
Net loss:
As reported $(155,389) $(574,091)
Pro forma (162,149) (586,144)
The fair value of each option grant is estimated on the date of grant using the
fair value based method prescribed by SFAS No. 123 for private companies, which
considers only the time value of money. Assumptions used for the grants were:
expected life of three years, risk free interest rate of 5.5 percent and no
dividend yield.
Stock Options Issued to Third Parties
From August 1998 until May 1999, the Company issued 5,000 options per month for
a total of 50,000 options to purchase Common Stock at a price of $.033 per share
in 1998 and $.049 in 1999 in exchange for consulting services. These options are
vested when issued and expire five years from the date of vesting. As of
December 31, 1998 and September 30, 1999, the Company has recorded $7,500 and
$11,025, respectively, of selling, general and administrative expense in the
accompanying statements of operations, related to the 25,000 and 25,000 options
vested.
8. Related-Party Transactions:
The Company has entered into transactions with customers who are shareholders
and/or Board members of the Company. Revenues from such transactions totaled
$1,795 and $18,960 for the years ended December 31, 1997 and 1998, respectively.
In 1999, the Company has entered into a hosting/co-location agreement with a
company whose co-chairman is a Board member of Net.Capitol. Expenses under this
agreement totaled $16,685 for the nine months ended September 30, 1999.
The Company has notes payable to an employee and shareholders totaling $31,601,
$50,155 and $76,452 and as of December 31, 1997 and 1998, and September 30,
1999, respectively (see Note 6).
-15-
<PAGE>
9. Acquisition:
On January 21, 1998, Net.Capitol acquired Stardot Consulting, Inc. ("Stardot")
for 227,273 shares of Series C Preferred stock. Net.Capitol stock was valued at
$.33 per share which equaled $75,000. Net.Capitol acquired customer lists,
current contracts Stardot had with its customers, and intellectual property.
There were no other assets or liabilities which existed at the time of purchase.
The cost of the acquisition was allocated to the assets and liabilities assumed
based upon their estimated fair value. The $75,000 purchase price was allocated
to identified intangible assets, as customer lists, existing customer contracts
and intellectual property were the acquired assets in the transaction. These
intangible assets are being amortized over three years.
10. Exchange Transactions:
Since January 1998, in exchange for website hosting and maintenance services,
Net.Capitol receives weekly advertising space in a local political newspaper.
For the year ended December 31, 1998, $68,700 of website hosting and maintenance
revenue and advertising expense, which is included in selling, general and
administrative, has been recorded on the accompanying statements of operations.
The revenue and expense were valued based on the fair value of the services
provided.
11. Subsequent Events:
Acquisition Agreement
On November 17, 1999, the Company entered into an agreement to sell its stock to
Netivation.com, Inc. ("Netivation") each for 0.2123566 shares of Netivation
common stock for a total of 1,544,730 shares and 105,270 options to acquire
Netivation common stock plus cash consideration of $410,220. Each of the
Company's warrant and option holders have the fully vested option to purchase
0.2123566 shares of Netivation stock per option or warrant held.
-16-
<PAGE>
PRO FORMA FINANCIAL INFORMATION
NETIVATION.COM, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet of Netivation.com, Inc. at
September 30, 1999 gives effect to the acquisition of Net.Capitol, Inc. as if it
was consummated on September 30, 1999. The unaudited pro forma combined
statements of operations of Netivation.com, Inc. for the year ended December 31,
1998 and for the nine months ended September 30, 1999 gives effect to the
acquisition of The Online Medical Bookstore, LLC, InterLink Service, Inc. and
Net.Capitol, Inc. as if they had been acquired on January 1, 1998.
The unaudited pro forma combined balance sheet and statements of operations are
presented for informational purposes only and do not purport to represent what
the Company's financial position and results of operations for the year ended
December 31, 1998 or for the nine months ended September 30, 1999 would actually
have been had the acquisitions, in fact, occurred on January 1, 1998, or the
Company's results of operations for any future period.
-17-
<PAGE>
NETIVATION.COM, INC.
--------------------
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
------------------------------------------
SEPTEMBER 30, 1999
------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Combined
Netivation.com, Inc. Net.Capitol, Inc. Adjustments Total
-------------------- ----------------- ----------- -----
<S> <C> <C> <C> <C>
ASSETS:
Cash and short-term investments $19,634 $ 40 $ (410)/(a)/ $19,264
Accounts receivable 113 154 267
Prepaids and other 504 19 523
Equipment and furniture, net 473 86 559
Intangible assets 3,320 31 10,772 14,123
Other assets 537 - 537
------- ------- ------- -------
Total assets $24,581 $ 330 $10,362 $35,273
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accruals 1,125 389 - 1,514
Deferred revenue 61 154 - 215
Other liabilities 7 115 - 122
------- ------- ------- -------
Total liabilities 1,193 658 - 1,851
------- ------- ------- -------
PREFERRED STOCK - 423 (423)/(b)/ -
COMMON STOCK AND PAID-IN CAPITAL 31,136 900 9,134/(a)(b)/ 41,170
WARRANTS OUTSTANDING - 29 (29)(b) -
DEFERRED COMPENSATION - (185) 185(b) -
DEFICIT (7,748) (1,495) 1,495/(b)/ (7,748)
------- ------- ------- -------
Total stockholders' equity 23,388 (328) 10,362 33,422
------- ------- ------- -------
Total liabilities and stockholders' equity
$24,581 $ 330 $10,362 $35,273
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma combined
balance sheet.
-18-
<PAGE>
NETIVATION.COM, INC.
--------------------
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
----------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
The
Online Medical InterLink Pro Forma Combined
Netivation.com, Inc. Bookstore, LLC Services, Inc. Net.Capitol, Inc. Adjustments Total
-------------------- -------------- ------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ - $ 290 $329 485 $ - $1,104
--------- ----- ---- ----- ------- ------
OPERATING EXPENSES:
Production product and
technology 171 273 149 175 - 768
Selling, general and
administrative 1,388 5 198 326 123/(d)/ 2,040
Stock compensation 586 - - 103 - 689
Amortization of intangible
assets - - - 25 4,749/(c)/ 4,774
--------- ----- ---- ----- ------- ------
Total operating
expenses 2,145 278 347 629 4,872 8,271
--------- ----- ---- ----- ------- ------
INCOME (LOSS) FROM OPERATIONS (2,145) 12 (18) (144) (4,872) (7,167)
INTEREST EXPENSE (183) - - (12) - (195)
--------- ----- ---- ----- ------ ------
INCOME (LOSS) BEFORE
INCOME TAXES (2,328) 12 (18) (156) (4,872) (7,362)
PROVISION FOR INCOME TAXES - - - - - -
---------- ----- ----- ----- ------- ----------
Net (loss) income $ (2,328) $ 12 $ (18) (156) (4,872) (7,362)
PREFERRED STOCK DIVIDENDS (14) - - - - (14)
---------- ----- ----- ----- ------- ----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCK $ (2,342) $ 12 $ (18) $(156) $(4,872) $ (7,376)
========== ==== ===== ===== ======= ==========
BASIC AND DILUTED NET LOSS PER
SHARE $ (.69) $ (1.40)
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,417,377 5,281,407
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-19-
<PAGE>
NETIVATION.COM, INC.
--------------------
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
----------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
The
Online Medical InterLink ProForma Combined
Netivation.com, Inc. Bookstore, LLC* Services, Inc.* Net.Capitol, Inc. Adjustments Total
--------------------- ---------------- ---------------- ------------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 563 $292 $132 $ 571 $ - $ 1,558
---------- ---- ---- ------ ------- --------
OPERATING EXPENSES:
Production, product and
technology 1,291 278 57 465 - 2,091
Selling, general and
administrative 2,997 33 111 545 63/(d)/ 3,749
Stock compensation 1,232 - - 108 - 1,340
Amortization of intangible
assets 331 - - 19 3,272/c)/ 3,622
---------- ---- ---- ------ ------- --------
Total operating expenses 5,851 311 168 1,137 3,335 10,802
---------- ---- ---- ------ ------- --------
INCOME (LOSS) FROM OPERATION (5,288) (19) (36) (566) (3,335) (9,244)
INTEREST INCOME (EXPENSE), net 158 - (2) (8) - 148
--------- ---- ---- ------ ------- --------
INCOME (LOSS) BEFORE INCOME
TAXES (5,130) (19) (38) (574) (3,335) (9,906)
PROVISION FOR INCOME TAXES - - - - - -
</TABLE>
-20-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
TAXES
--------- ---- ---- ------ ------- ---------
Net (loss) income (5,130) 19) (38) (574) (3,335) (9,906)
PREFERRED STOCK DIVIDENDS (209) - - - - (209)
--------- ---- ---- ------ ------- ---------
NET INCOME (LOSS)
AVAILABLE TO
COMMON STOCK $ (5,339) $(19) $(38) $ (574) $(3,335) $ (9,305)
========= ==== ==== ====== ======= =========
BASIC AND DILUTED NET LOSS PER
SHARE $ (.99) $ (1.30)
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,377,642 7,135,236
========= =========
</TABLE>
* January 1, 1999 to June 22, 1999
The accompanying notes are an integral part of this statement.
-21-
<PAGE>
NETIVATION.COM, INC.
--------------------
NOTES TO UNAUDITED PRO FORMA
----------------------------
COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
--------------------------------------------------
SEPTEMBER 30, 1999
------------------
(Dollars in thousands, except per share data))
----------------------------------------------
1. BASIS OF PRESENTATION:
----------------------
The unaudited pro forma combined balance sheet gives effect to the acquisition
of Net.Capitol, Inc. as if it was consummated on September 30, 1999. The pro
forma adjustments are based on consideration exchanged, including the estimated
fair value of assets acquired, liabilities assumed and common stock issued. The
actual adjustments, which will be based on valuations of fair value as of the
date of acquisition, may differ from that made herein.
The pro forma combined statement of operations for the year ended December 31,
1998 and for the nine months ended September 30, 1999 gives effect to the
acquisition of (1) The Online Medical Bookstore, LLC, (2) InterLink Services,
Inc., and (3) Net.Capitol, Inc. as if these entities had been acquired January
1, 1998. As The Online Medical Bookstore and InterLink Services, Inc. were
acquired on June 22, 1999, Netivation.com, Inc.'s consolidated results of
operations for the nine months ended September 30, 1999 include results from The
Online Medical Bookstore ad InterLink Services, Inc. subsequent to June 22,
1999.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
Netivation.com, Inc. for the fair value of the assets acquired and liabilities
assumed.
-22-
<PAGE>
2. PRO FORMA ADJUSTMENTS:
----------------------
(a) To record the acquisition of Net.Capitol, Inc. as follows:
Purchase price $10,413
Net liabilities assumed 359
-------
Purchase price allocated to goodwill $10,772
=======
The purchase price of Net.Capitol, Inc. is $410 in cash plus 1,544,730
shares of Netivation's common stock valued at $6.06 per share, and options
to acquire 105,270 shares of Netivation common stock.
(b) To eliminate the equity of the acquired businesses.
(c) To record goodwill amortization from the acquisitions totaling $4,749 and
$4,432 for the annual and nine-month periods, respectively. As The Online
Medical Bookstore, Inc. and InterLink Services, Inc. were acquired during
1999, amortization is based on the actual purchase price allocation and
computed for the period from January 1, 1999 to the respective date of
acquisition. Goodwill is amortized over three years.
(d) To record salary expense totaling $123 and $63 for the annual and nine-
month periods, respectively, for key employees of acquired companies. This
amount represents salaries above historical levels and is $80 for The
Online Medical Bookstore, LLC and $43 for InterLink Services, Inc. on an
annual basis.
EXHIBITS.
2.0 Agreement and Plan of Merger, dated as of November 17, 1999, among
Netivation.com, Inc., Netivation.com Merger Corp., Net.Capitol, Inc. and the
Representing Stockholders of Net.Capitol, Inc.; incorporated by reference to
Exhibit 2.0 to the Registrant's form 8-K filed December 29, 1999 (Commission
File No. 000-26337).
99.0 Press Release dated December 16, 1999; incorporated by reference to
Exhibit 2.0 to the Registrant's form 8-K filed December 29, 1999 (Commission
File No. 000-26337).
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 hereto duly authorized.
Dated as of February 28, 2000.
NETIVATION.COM, INC.
By /s/ Anthony J. Paquin
-------------------------------------
Anthony J. Paquin, President and Chief
Executive Officer
-23-
