SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment I
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest Reported event) July 5, 2000
NEVADA 0-23995 87-0576421
--------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
Of incorporation) File No.) I.D. No.)
202 East Madison Street, Tampa, Florida 33602
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code (813) 221-6617
On July 11, 2000, InsiderStreet.com, Inc. ("InsiderStreet") filed a report on
Form 8-K with respect to its acquisition of the stock of EbizStreet, Inc.
("EbizStreet"). At that time, it was impracticable to provide the financial
statements and pro forma financial information required to be filed therewith
relative to the acquired stock, and InsiderStreet stated in such Form 8-K that
it intended to file the required company financial statements and pro forma
financial information as soon as practicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 27, 2000 InsiderStreet.com Inc. (the "Registrant") acquired all of the
issued and outstanding shares of common stock of EbizStreet, Inc. effective as
of June 30, 2000 in exchange for the issuance of 1,684,887 shares of common
stock of the Registrant. The shares of the Registrant were valued for this
transaction at $11.937 per share. The agreement is subject to EbizStreet
acquiring 100% of the issued and outstanding shares of common stock of AMS
Systems Inc. and 85% of the common stock and certain secured convertible
debentures of HardwareStreet.com. Inc. AMS Systems is a Maryland based company
which markets computer hardware, software and consumables to governments,
businesses, affinity organizations and consumers, both directly and through the
Internet. HardwareStreet.com is a Nevada based company which provides direct
access to its products and service offerings via two websites.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
(1) Financial Statements of AMS Systems, Inc.
AMS balance sheets as of December 31, 1999 and 1998 and the related
statements of income, retained earnings and cash flows for the years then
ended and Independent Auditor's Report. Notes to Financial Statements.
Unaudited Statements of Income for the Seven Months Ended July 31, 2000 and
1999. Unaudited Statements of Cash Flows for the Seven Months Ended July
31, 2000 and 1999.
(2) Financial Statements of HardwareStreet.com, Inc.
HardwareStreet balance sheets as of December 31, 1999 and 1998 and the
related statements of income, retained earnings and cash flows for the
years then ended and Independent Auditor's Report. Notes to Financial
Statements.
Unaudited Statements of Income for the Seven Months Ended July 31, 2000 and
1999.
Unaudited Statements of Cash Flows for the Seven Months Ended July 31, 2000
and 1999.
<PAGE>
(c) Exhibits.
Exhibit Number Description
10* Stock Purchase Agreement, dated as of June 30, 2000, by
and among InsiderStreet, EbizStreet and the
shareholders of EbizStreet.
*Previously filed
SIGNATURE
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 thereunto duly authorized.
Date: October 10, 2000
InsiderStreet.com, Inc.
/s/ Raymond Miller
Raymond Miller
Chief Executive Officer
<PAGE>
AMS SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
<PAGE>
CONTENTS
ACCOUNTANTS' REPORT 1
BALANCE SHEETS 2
STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS 4
STATEMENTS OF RETAINED EARNINGS 5
STATEMENTS OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 8
<PAGE>
June 9, 2000
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
AMS Systems, Inc.
Burtonsville, MD
We have audited the accompanying balance sheets of AMS Systems, Inc. as of
December 31, 1999 and 1998, and the related statements of income, retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Corporations' management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMS Systems, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Handel & Associates, P.C.
Olney, Maryland
June 9, 2000
1
<PAGE>
AMS SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 105,964 $ 45,502
Accounts receivable (Note 1) 2,429,053 1,198,233
Other receivables 127,048 173,399
Employee advances 14,367 20,734
Prepaid taxes and other expenses 7,014 51,686
Inventories (Note 1 and 3) 481,425 74,578
----------- -----------
TOTAL CURRENT ASSETS 3,164,871 1,564,132
FIXED ASSETS
Furniture and Equipment 55,533 55,301
Truck 5,174 5,174
----------- -----------
60,707 60,475
Less: Accumulated Depreciation (49,662) (40,972)
----------- -----------
TOTAL FIXED ASSETS 11,045 19,503
OTHER ASSETS
Security deposits 1,451 1,451
Deferred taxes (Note 2) 58,201 991
Other receivable - restricted (Note 4) 286,962 287,452
----------- -----------
TOTAL OTHER ASSETS 346,614 289,894
----------- -----------
TOTAL ASSETS $ 3,522,530 $ 1,873,529
=========== ===========
See accompanying notes to financial statements.
2
<PAGE>
AMS SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit payable (Note 5) $1,867,790 $ 993,619
Accounts payable 825,939 222,591
Commissions payable 236,846 32,944
Customer deposits 70,332 --
Accrued expenses 10,168 48,560
Payroll taxes payable and accrued wages 23,203 1,711
Sales tax payable 16,381 8,992
Lease payable - current portion (Note 6) 54,545 44,984
Note payable - stockholder -- 25,167
Note payable - other 4,500 73,863
---------- ----------
TOTAL CURRENT LIABILITIES 3,109,704 1,452,431
LONG-TERM LIABILITIES
Note payable - related party (Note 7) 60,000 --
Lease payable - long term portion (Note 6) -- 54,545
Contingent liabilities (Note 11)
STOCKHOLDERS' EQUITY
12% Preferred Stock, 1,000 shares authorized,
75 issued and outstanding, no par value (Note 13) 75,000 --
Common Stock, 100,000 shares authorized,
1200 shares issued and outstanding, $1 par value 1,200 1,200
Additional paid-in capital 118,800 118,800
Retained Earnings 157,826 246,553
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 352,826 366,553
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,522,530 $1,873,529
========== ==========
See accompanying notes to financial statements.
3
<PAGE>
AMS SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998(1)
------------ ------------
REVENUES
Sales (net of refunds) $ 12,815,831 $ 7,378,116
Shipping 46,944 65,587
------------ ------------
TOTAL SALES REVENUE 12,862,775 7,443,703
COST OF GOODS SOLD 11,437,236 6,727,082
------------ ------------
GROSS PROFIT 1,425,539 716,621
EXPENSES
Salaries and wages 138,232 174,917
Employee benefits 26,041 17,785
Commissions 809,148 376,593
Other administrative 78,847 120,071
Meals and entertainment 471 2,098
Rent 56,949 51,088
Travel and transportation 1,536 4,368
Payroll tax 22,795 24,484
Telephone 38,457 29,069
Insurance 41,187 44,640
Depreciation 8,690 11,607
------------ ------------
1,222,353 856,720
OTHER INCOME AND EXPENSE
Interest income 1,716 392
Interest expense (106,901) (69,016)
Other income 43,016 109,266
Bad debt expense (32,800) (3,658)
------------ ------------
(94,969) 36,984
------------ ------------
INCOME FROM OPERATIONS 108,217 (103,115)
LOSS ON TRANSCATIONS WITH AFFILIATE (Note 4) (254,054) --
INCOME BEFORE INCOME TAXES (145,837) (103,115)
INCOME TAX (PROVISION) BENEFIT 57,110 40,201
------------ ------------
NET INCOME (LOSS) $ (88,727) $ (62,914)
============ ============
(1) Certain amounts have been reclassified for comparative purposes.
See accompanying notes to financial statements.
4
<PAGE>
AMS SYSTEMS, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
--------- ---------
RETAINED EARNINGS - BEGINNING OF YEAR $ 246,553 $ 309,467
NET INCOME (88,727) (62,914)
--------- ---------
RETAINED EARNINGS - END OF YEAR $ 157,826 $ 246,553
========= =========
See accompanying notes to financial statements.
5
<PAGE>
AMS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (88,727) $ (62,914)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 8,690 11,607
Loss on disposal of property -- (1,130)
(Increase) decrease in:
Trade accounts receivable (1,230,820) (89,835)
Other receivables 46,351 (173,399)
Employee advances 6,367 (20,735)
Prepaid taxes and other expenses 44,672 (4,257)
Inventories (406,847) 151,143
Security deposits -- (401)
Deferred taxes (57,210) (326)
Increase (decrease) in:
Accounts payable 603,348 139,863
Commissions payable 203,902 10,754
Customer deposits 70,332 --
Accrued expenses (38,392) 13,479
Payroll taxes payable and accrued 21,492 (2,087)
Sales tax payable 7,389 700
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (809,453) (27,538)
See accompanying notes to financial statements.
6
<PAGE>
AMS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NET CASH USED BY OPERATING ACTIVITIES (809,453) (27,538)
(from previous page)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from preferred stock 75,000 --
Proceeds from sale of securities -- 5,868
Net payments from Club Computer 490 (268,657)
Aquisition of equipment (232) (6,542)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES 75,258 (269,331)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Advanta Lease Payabl (44,984) 125,750
Net proceeds from stockholder loan 34,833 25,167
Net payment on other notes payable (69,363) (22,137)
Payment on ICC lease payable (16,846,039) (26,221)
Net proceeds from line of credit 17,720,210 227,715
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 794,657 330,274
------------ ------------
NET INCREASE IN CASH 60,462 33,405
CASH, BEGINNING OF YEAR 45,502 12,097
------------ ------------
CASH, END OF YEAR $ 105,964 $ 45,502
============ ============
See accompanying notes to financial statements.
7
<PAGE>
AMS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
-----------------------------
AMS Systems, Inc. (the Company) is a Maryland corporation engaged in marketing
microcomputer systems and software to business and government customers. The
Company primarily serves the Washington, D.C. and Raleigh-Durham, North Carolina
metropolitan areas.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Basis of Presentation
---------------------
The financial statements of AMS Systems, Inc. have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
Use of Estimates
Management uses estimates and assumptions in preparing the financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Revenue Recognition
-------------------
The Company recognizes revenue when goods are shipped to customers. No provision
for returns has been made as management believes that returns, if any, would
have no material impact on these financial statements.
Inventories
-----------
Inventories consist of computers, computer equipment and accessories held for
resale and are stated at lower of cost (first-in first-out) or market.
Accounts Receivable
-------------------
Accounts receivable consist solely of trade receivables. Management believes
that all trade receivables will be collected and therefore has not provided an
allowance for doubtful accounts.
Fixed Assets
------------
Fixed assets are recorded at cost. Depreciation is provided based on the
straight-line method over the estimated useful lives of the assets for book
purposes and the modified accelerated cost recovery system for tax purposes.
8
<PAGE>
AMS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - INCOME TAXES
---------------------
Income taxes have been provided as follows:
1999 1998
-------- --------
Current taxes NOL carryforward $(55,543) $ --
Current taxes 100
NOL carryback (39,875)
Change in deferred tax asset (1,667) (326)
-------- --------
Income tax (refund) provision $(57,110) $(40,201)
======== ========
The deferred tax assets of $58,201 and $991 at December 31, 1999 and 1998
respectively, and results from the use of accelerated methods of depreciation of
property and equipment for tax purposes, a contribution carryover and a net
operating loss carryforward. The components of deferred taxes are as follows:
2000 1999
-------- --------
Current - NOL carryforward $55,543 $ --
Deferred 2,658 991
------- -------
$58,201 $ 991
======= =======
The tax provision differs from the expense that would result from applying
statutory rates to income before income taxes due to the same facts related to
deferred taxes discussed above.
NOTE 3 - INVENTORIES
--------------------
Inventories at December 31, 1999 and 1998 consisted of the following:
1999 1998
-------- --------
Inventory in warehouse $245,658 $ 74,578
Inventory in transit to Company 235,767 --
-------- --------
Total inventory $481,425 $ 74,578
======== ========
9
<PAGE>
AMS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTE RECEIVABLE AND SUBSEQUENT EVENTS
----------------------------------------------
The Company loaned Club Computer.com, a corporation with common ownership
$541,016 as of December 31, 1999. The note bears no interest and is due on
demand. By March 31, 2000 Club Computer.com had become insolvent. On March 31,
2000 Club Computer.com was acquired by INFE.com, a publicly traded corporation
who agreed to pay a percentage of Club Computer.com's outstanding debt with
INFE.com stock. The stock is restricted under Rule 144 and can not be traded for
a period of one year. Therefore the receivable is listed as a non-current asset.
The stock will be received in eight installments of $34,765 with the final
installment being paid December 31, 2001. The payment schedule is as follows:
2000 $155,902
2001 131,060
--------
$286,962
========
The settlement with INFE.com required a write down of the receivable from Club
Computer.com in the amount of $254,054. This amount is shown separately on these
financial statements
NOTE 5 - LINE OF CREDIT
-----------------------
The Company has entered into a wholesale financing agreement with IBM Credit
Corporation (ICC). The terms of the credit line allow the Company to borrow up
to $3,500,000. Advances are based on collateral valued at 80% of eligible
accounts receivable and 100% of approved inventory. The Company is charged
monthly interest of prime plus 2.5% on the average daily balance of outstanding
invoices approved by ICC. The financing term on invoices is 60 days. The Company
may draw working capital advances against eligible accounts receivable for a
term of 180 days with interest of prime plus 2.75%. The prime rate at December
31, 1999 and 1998 was 8.50% and 7.75%, respectively. In addition, the Company is
charged a monthly service fee of $750.
The financing agreement is subject to certain financial ratios, subordination
agreements and a lock-box agreement for the collection of accounts receivable.
The agreement has also been personally guaranteed by the shareholders.
The Company did not meet a certain financial ratio required by the agreement,
nor did the Company provide audited financial statements as required by the
agreement. The Company owed the following amounts to ICC as of December 31, 1999
and 1998:
10
<PAGE>
AMS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1999 1998
---------- ----------
Line of credit $1,453,861 $ 993,619
Working capital advances 413,929 --
---------- ----------
Total $1,867,790 $ 993,619
========== ==========
NOTE 6 - CAPITAL LEASES
-----------------------
The Company is liable on a capital lease payable to Advanta for software. The
lease bears interest at a rate of 14.64% and matures in December 2000.
The software leased was used by Club Computer.com and the lease amount was
included in the total receivable balance (Note 4).
NOTE 7 - NOTE PAYABLE - RELATED PARTY
-------------------------------------
A note payable exists with one of the current members of the board. The note was
originally due October of 1999, but the holder agreed to exchange the note for
stock and to extend the terms of the note to January 2001 for any portion not
exchanged for Company stock.
NOTE 8 - OPERATING LEASES
-------------------------
The Company is obligated under an operating lease for its office space in
Burtonsville, Maryland. The lease commenced March 1, 1996 and is for a two year
term. In January of 1998 the Company extended the lease to February 28, 2001.
Future minimum payments required under the lease by fiscal year are as follows:
2000 $48,544
2001 8,130
-------
$56,674
=======
NOTE 9 - SIGNIFICANT CUSTOMERS
------------------------------
The Company has three significant customers that accounted for $6,157,297 or 48%
of sales in 1999. In 1998, the Company had four significant customers that
accounted for $3,079,765 or 41% of sales in 1998.
11
<PAGE>
AMS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PENSION PLAN
----------------------
In December of 1996, the Company adopted a simplified employee pension plan ( a
defined contribution plan) covering substantially all employees who have worked
for the Company in three of the last five years. There were no contributions for
the years ended December 31, 1999 and 1998.
NOTE 11 - CONTINGENT LIABILITY
------------------------------
The Company is contingently liable as guarantor for a certain debt of Club
Computer.com, Inc. of about $299,000. Management fully expects to resolve any
liability resulting from this guarantee without any impact to the financial
statements.
NOTE 12 - RESTRICTED STOCK
--------------------------
The shareholders entered into an agreement on March 7, 1997 to restrict the sale
and use of their Company stock and establish the value of the stock in the event
of a stock transfer under any of the agreement provisions.
NOTE 13 - PREFERRED STOCK
-------------------------
Two common stockholders of AMS Systems, Inc. purchased a total of 75 shares of
preferred stock in 1999. AMS Systems, Inc. preferred stock is 12%, no par value.
There were 75 shares issued and outstanding at the end of 1999.
12
<PAGE>
AMS SYSTEMS, INC.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements of AMS Systems, Inc. ("AMS") as of
July 31, 2000 and for the seven month periods ended July 31, 2000 and 1999 do
not provide all disclosures included in the annual financial statements. These
interim financial statements should be read in conjunction with the annual
audited financial statements and the footnotes thereto. Results for the interim
periods are not necessarily indicative of the results for the fiscal year ending
October 31, 2000. In the opinion of management, the accompanying interim
financial statements reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations of AMS.
<PAGE>
AMS Systems, Inc.
Unaudited Balance Sheet
As of July 31, 2000
ASSETS:
CURRENT ASSETS
Cash $ 124,979
Accounts receivable, net 2,537,182
Inventory 337,622
Deferred taxes 58,201
Other current assets 12,881
-----------
Total current assets 3,070,865
PROPERTY AND EQUIPMENT, net 12,962
-----------
TOTAL ASSETS $ 3,083,827
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses $ 2,239,390
Deferred revenue 68,049
Sales tax payable 46,778
Notes payable 83,592
-----------
Total current liabilities 2,437,809
STOCKHOLDERS' DEFICIT:
12% Preferred stock, no par value, 1,000
Shares authorized, 75 issued
and outstanding 75,000
Common Stock, $1 par value, 100,000
Shares authorized, 1,200 shares
Issued and outstanding 357,368
Common stock subscription (172,368)
Additional paid in capital -
Retained earnings 386,018
-----------
Total Stockholders' Equity 646,018
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,083,827
===========
<PAGE>
AMS Systems, Inc.
Unaudited Statements of Income
For the Seven Months Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues 10,932,588 7,838,488
Cost of sales 9,540,238 6,893,772
----------- -----------
GROSS PROFIT 1,392,350 944,716
OPERATING EXPENSES:
Salaries and wages 844,542 549,827
General and administrative 251,921 166,234
----------- -----------
Total operating expenses 1,096,463 716,061
----------- -----------
INCOME FROM OPERATIONS 295,887 228,655
----------- -----------
OTHER INCOME (EXPENSE):
Interest income
Interest expense (59,418) (38,021)
----------- -----------
Total other income (expense) (59,418) (38,021)
----------- -----------
NET INCOME BEFORE TAXES 236,469 190,634
----------- -----------
Provision for income taxes (92,223) (74,347)
----------- -----------
NET INCOME 144,246 116,287
=========== ===========
</TABLE>
<PAGE>
AMS Systems, Inc.
Unaudited Statements of Cash Flows
For the Seven Months Ended July 31, 2000 and 1999
---------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 144,246 $ 116,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,345 5,069
Changes in operating assets and liabilities:
Trade accounts receivable 178,833 (1,899,700)
Inventory 143,803 (155,420)
Prepaid expenses and other assets 136,999 147,176
Sales taxes payable 30,397 9,890
Accrued liabilities (857,710) 1,348,802
Deferred revenue 68,049 0
Income tax payable 92,223 75,336
-------------- ---------------
Net cash used in operating activities (58,815) (352,560)
INVESTING ACTIVITIES:
Purchase of property and equipment (6,262) (5,301)
-------------- --------------
Net cash used in investing activities (6,262) (5,301)
FINANCING ACTIVITIES:
Increase in note payable 19,092 312,359
Issuance of common stock 65,000 -
-------------- ---------------
Net cash provided by financing activities 84,092 312,359
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,015 (45,502)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 105,964 45,502
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 124,979 $ 0
============== ===============
</TABLE>
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C> <C>
PAGE 3 INDEPENDENT AUDITORS' REPORT
PAGE 4 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,
1999 AND 1998
PAGE 5 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1999 and 1998
PAGES 6 - 7 CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDER'S EQUITY (DEFICIENCY) FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
PAGE 8 - 9 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998
PAGES 10 - 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
HardwareStreet.com, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
HardwareStreet.com, Inc. and Subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of operations and changes in stockholder's
equity (deficiency) and cash flows for the years then ended. 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 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 consolidated financial statements referred to above present
fairly in all material respects, the financial position of HardwareStreet.com,
Inc. and Subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended 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 discussed in Note 13 to
the consolidated financial statements, the Company has suffered continuing
losses from operations and has a working capital deficiency of $2,345,137. These
matters raise substantial doubt about the Company's ability to continue as going
concern. Management's Plan in regards to these matters is also described in Note
13. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
August 25, 2000
3
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
------------ ------------
<S> <C> <C>
Current assets
Cash $ 90,932 $ 350,834
Accounts receivable, net 1,458,999 332,077
Prepaid expenses and other assets, net 861,988 222,905
Note receivable 63,286 99,000
------------ ------------
Total Current Assets 2,475,205 1,004,816
------------ ------------
PROPERTY AND EQUIPMENT - NET 290,503 86,219
------------ ------------
OTHER ASSETS
Intangibles, net 38,583 18,419
Software development costs, net 285,356 270,195
------------ ------------
Total Other Assets 323,939 288,614
------------ ------------
TOTAL ASSETS $ 3,089,647 $ 1,379,649
------------ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Cash overdraft $ 46,444 $ 120,401
Accounts payable and other accrued expenses 4,454,750 1,156,990
Notes payable 319,148 83,612
------------ ------------
Total Current Liabilities 4,820,342 1,361,003
------------ ------------
Long term debt 6,626,932 --
------------ ------------
Total Liabilities 11,447,274 1,361,003
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued -- --
Common stock, $.001 par value, 25,000,000 shares authorized,
8,707,455 and 8,313,800 shares issued and outstanding, respectively 8,707 8,314
Additional paid in capital 2,424,319 2,244,797
Accumulated deficit (10,790,653) (2,234,465)
------------ ------------
Total Stockholders' Equity (Deficiency) (8,357,627) 18,646
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,089,647 $ 1,379,649
---------------------------------------------- ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
SALES $ 25,384,297 $ 11,320,573
COST OF SALES 23,483,425 10,627,420
------------ ------------
GROSS PROFIT 1,900,872 693,153
------------ ------------
OPERATING EXPENSES
Sales and marketing 6,832,829 1,283,695
General and administrative 1,940,625 1,183,483
Technology and development 1,253,435 133,944
------------ ------------
Total Operating Expense 10,026,889 2,601,122
------------ ------------
LOSS FROM OPERATIONS (8,126,017) (1,907,969)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 41,531 8,004
Interest expense (328,140) (11,629)
Other expenses (143,562) (147,337)
------------ ------------
Total Other Income (Expense) (430,171) (150,962)
------------ ------------
NET LOSS $ (8,556,188) $ (2,058,931)
============ ============
Net loss per common share - basic and diluted $ (.99) $ (.30)
============ ============
Weighted average shares outstanding during the period 8,664,787 6,867,347
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
-----------------------------------------------------------------------
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 -- $ -- 6,120,000 $ 1,969 $ -- $ (175,534) $ (173,565)
Reclass of common stock pursuant to 1000:1 -- -- -- 4,151 (4,151) -- --
Debentures converted to common stock -- -- 70,500 71 70,429 -- 70,500
Common stock issued, net of offering costs -- -- 2,123,300 2,123 1,947,403 -- 1,949,526
Common stock warrants issued for computer -- -- -- -- 159,928 -- 159,928
Common stock warrants issued for purchase -- -- -- -- 59,975 -- 59,975
Common stock issued for services -- -- -- -- 11,213 -- 11,213
Net loss - 1998 -- -- -- -- -- (2,058,931) (2,058,931)
------ ------ ----------- --------- ----------- ----------- -----------
Balance at December 31, 1998 -- -- 8,313,800 8,314 2,244,797 (2,234,465) 18,646
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
-----------------------------------------------------------------------
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----- ------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 -- -- 8,313,800 8,314 2,244,797 (2,234,465) 18,646
Issuance of common stock upon exercise of -- -- 382,180 382 39,886 -- 40,268
Common stock warrants issued as financing -- -- -- -- 125,172 -- 125,172
Common stock issued upon exercise of stock -- -- 9,475 9 9,466 -- 9,475
Common stock issued for services -- -- 2,000 2 4,998 -- 5,000
Net loss - 1999 -- -- -- -- -- (8,556,188) (8,556,188)
----- ------- ---------- --------- ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 -- $ -- 8,707,455 $ 8,707 $ 2,424,319 $(10,790,653) $ (8,357,627)
---------------------------- ===== ======= ========== ========= ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,556,188) $(2,058,931)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and Amortization 260,167 70,072
Stock issued for services 5,000 11,213
Debentures issued in lieu of bond interest 181,932 --
(Increase) in accounts receivable, net (1,126,922) (297,657)
(Increase) in prepaid expenses and other assets (619,812) (222,905)
Increase in accounts payable and accrued expenses 3,307,235 1,022,170
Increase (Decrease) in cash overdraft (73,957) 120,401
----------- -----------
Net Cash Used In Operating Activities (6,622,545) (1,355,637)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (290,781) (91,384)
Purchase of development costs (103,094) (347,574)
Note receivable 35,714 (99,000)
----------- -----------
Net Cash Provided By (Used In) Investing Activities (358,161) (537,958)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Amount due on purchase of software -- 75,000
Proceeds from debt issuance 180,938 --
Proceeds from note issuance 1,212,500 --
Proceeds from debenture offerings 5,457,500 --
Proceeds from loan payable 213,210 --
Proceeds from common stock issuances 40,268 --
Repayments of long term debt -- 2,239,929
Repayments of short term debt (225,000) (8,612)
Repayments of borrowing s under asset purchase (83,612) (61,888)
Repayments of note payable (75,000) --
----------- -----------
Net Cash Provided By Financing Activities 6,720,804 2,244,429
----------- -----------
NET INCREASE (DECREASE) IN CASH (259,902) 350,834
CASH - BEGINNING OF YEAR 350,834 --
----------- -----------
CASH - END OF YEAR $ 90,932 $ 350,834
------------------ =========== ===========
CASH PAID FOR INTEREST $ 262,478 $ 6,564
---------------------- =========== ===========
</TABLE>
8
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
-----------------------------------------------------------
In 1999 the Company issued 9,475 shares of common stock with a fair value of
$9,475 under a stock option agreement. The issuance of shares was used to reduce
accounts payable by $9,475.
In 1999 the Company issued 2,000 shares of common stock with a fair value of
$5,000 in exchange for services.
In 1999 the Company issued 272,875 common stock warrants with a fair value of
$125,172 under a stock option agreement (valued under SFAS No. 123, using the
Black-Scholes Model), in exchange for services provided by a placement agent for
assisting with the Company's debt financing (See Note 11(D)).
In 1998 the Company issued 70,500 shares of common stock with a fair value of
$70,500 as a result of a shareholder converting a debenture bond.
In 1998 the Company issued 288,000 shares of common stock warrants with a fair
value of $159,928, (valued under SFAS No. 123, using the Black-Scholes Model),
in exchange for services provided by the Company's placement agents.
In 1998 the Company issued 20,000 shares of common stock with a fair value of
$11,213, (valued under SFAS No. 123, using the Black-Scholes Model), in exchange
for services provided by a consultant for assisting with the Company's equity
financing in conjunction with the Company's initial public offering.
In 1998 the Company issued 150,000 shares of common stock warrants with a fair
value of $59,975, (valued under SFAS No. 123, using the Black-Scholes Model), in
connection with the purchase of software from NetLine Corporation.
See accompanying notes to consolidated financial statements
9
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
NOTE 1 ORGANIZATION AND BUSINESS
------ -------------------------
HardwareStreet.com, Inc. ("the Company") was incorporated in
Nevada on January 27, 1997 as Software Street, Inc. and began
selling computer products in September 1997. The company
changed its name to Hardware Street, Inc. on March 15, 1997
and, subsequently to HardwareStreet.com, Inc. on August 10,
1998. The Company is an online retailer of computer hardware,
computer software, and peripheral computer equipment on the
Company's Internet sites. On September 23, 1998,
HardwareStreet.ca, Inc., a Canadian subsidiary was formed. The
purpose of this subsidiary is to perform the same operations
as HardwareStreet.com in the Canadian location. On November 2,
1998, InternetStreet Services Corporation, a California
corporation, was formed. The purpose of this subsidiary is to
perform all technical operations of the Company, including
repairs and support.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------ ------------------------------------------
(A) Principles of Consolidation
-------------------------------
The consolidated financial statements for the year ended
December 31, 1999 and 1998 include the accounts of
HardwareStreet.com, Inc. and its wholly-owned subsidiaries,
HardwareStreet.ca, Inc. and InternetStreet Services
Corporation. All inter-company accounts and transactions are
eliminated in consolidation.
(B) Major Customer and Supplier
-------------------------------
The Company had a distribution agreement with a single
supplier and was an authorized reseller for six other
suppliers through December 31, 1998. The products from the
supplier having the distribution agreement represented 100% of
net purchases since the inception of the Company through
December 31, 1998. During the year ended December 31, 1999,
the Company entered into distribution agreements with three
additional suppliers. Approximately 80% of net purchases
during the year ended December 31, 1999 were from a single
supplier.
In 1999 and 1998, no single customer exceeded 10% of net
sales.
(C) Use of Estimates
--------------------
In preparing financial statements, management is required to
make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and revenues during the reported period. Actual results may
differ from these estimates.
10
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(D) Cash and Cash Equivalents
-----------------------------
Cash and cash equivalents represent bank deposits and
short-term investments consisting of money market funds
carried at cost, which approximates market. The Company
considers all short-term investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
(E) Property and Equipment
--------------------------
Property and equipment are recorded at cost less accumulated
depreciation and amortization. For financial reporting
purposes depreciation of equipment and amortization of
acquired software are computed using the straight-line method
based upon the estimated useful lives of the assets as
follows:
Computers and related equipment 3 years
Purchased software 3 years
Office equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements 2 years
Useful lives are evaluated regularly by management in order to
determine recoverability in light of current technological
conditions. Maintenance and repairs are charged to expense as
incurred while renewals and improvements are capitalized. Upon
the sale or retirement of property and equipment, the accounts
are relieved of the cost and the related accumulated
depreciation or amortization, with any resulting gain or loss
included in the Statement of Operations.
(F) Long-Lived Assets
---------------------
During 1995, Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to be Disposed Of" ("SFAS 121"), was
issued. SFAS 121 requires the Company to review long-lived
assets and certain identifiable assets related to those assets
for impairment whenever circumstances and situations change
such that there is an indication that the carrying amounts may
not be recoverable. If the non-discounted future cash flows of
the enterprise are less than their carrying amount, their
carrying amounts are reduced to fair value and an impairment
loss is recognized. The adoption of this pronouncement did not
have an impact on the Company's financial statements for the
years ending December 31, 1999 and 1998, respectively.
11
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(G) Software Development Costs
------------------------------
In accordance with EITF Issue No. 00-2, the Company accounts
for its web site development costs in accordance with
Statement of Position No. 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use"
("SOP 98-1").
SOP 98-1 requires the expensing of all costs of the
preliminary project stage and the training and application
maintenance stage and the capitalization of all internal or
external direct costs incurred during the application
development stage. The Company amortizes the capitalized cost
of software developed or obtained for internal use over an
estimated life ranging from twelve months to thirty-six months
(See Note 3).
(H) Income Taxes
----------------
The Company accounts for income taxes under the Financial
Accounting Standards No. 109 "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period includes the
enactment date.
(I) Net Loss Per Share
----------------------
The Company has presented net loss per share pursuant to SFAS
No. 128, "Computation of Earnings Per Share", and the
Securities and Exchange Commission Staff Accounting Bulletin
No. 98.
In accordance with SFAS No. 128, basic earnings per share is
computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and
dilutive common stock equivalent shares outstanding. For 1999
and 1998 common equivalent shares are excluded from the
calculation of diluted earnings per share since their effect
is antidilutive.
12
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(J) Stock-based Compensation
----------------------------
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock
Issued to Employees", and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation". Under APB No. 25, unearned compensation is
based on the difference, if any, on the date of the grant,
between the fair value of the Company's common stock and the
exercise price. Unearned compensation is amortized and
expensed in accordance with Financial Accounting Standards
Board Interpretation No. 28 using the multiple-option
approach. The Company accounts for stock-based compensation
issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods, or Services." All options granted through December 31,
1999 have been granted at fair market value (See Note 11(C)).
(K) Revenue Recognition
-----------------------
Merchandise revenue is earned by the Company from the sales
through its online retail store. Merchandise revenue is
recognized upon the shipment of the merchandise, which occurs
only after credit card authorization or credit approval is
obtained. For sales of merchandise, the Company is responsible
for establishing prices, processing the orders, and forwarding
the information to the manufacturer, distributor, or
third-party warehouse for shipment. For these transactions,
the Company assumes credit risk and is responsible for
processing returns. The Company provides for estimated returns
at the time of shipment based on historical data. Outbound
shipping, handling and insurance charges are included in net
sales. Currently, the Company maintains separate agreements
with various credit card processors (See Note 3).
Advertising revenue is derived from hardware manufacturers and
software publishers that pay for promotional placements on the
Company's Web site and is recognized ratably over the period
in which the Company is obligated to provide the advertising.
Advertising revenue related to other sites are offset against
sales and marketing costs and vendor rebates related to
certain promotional programs are included as a reduction of
the cost of goods sold.
(L) Sales, Marketing, and Advertising
-------------------------------------
In accordance with Accounting Standards Executive Committee
Statement of Position 93-7, ("Sop 93-7") costs incurred for
producing and communicating advertising of the Company, are
charged to operations as incurred. Advertising costs amounted
to $1,860,046 and $803,077 for the years ended December 31,
1999 and 1998, respectively.
13
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(M) Technology and Development
------------------------------
Technology and development expenses consist principally of
payroll and related expenses for development, editorial, and
network operations personnel and consultants, systems and
telecommunications infrastructure and costs of acquired
content, as well as similar costs incurred to enhance the
Company's web site. Technology and development costs are
expensed as incurred
(N) Recent Accounting Pronouncements
------------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards
for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial
statements. Comprehensive income generally represents all
changes in shareholder' equity during the period except those
resulting from investments by, or distributions to,
shareholders. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of
earlier periods presented. SFAS No. 130 had no impact on the
Company's financial statements for the years ended December
31, 1999 and 1998, respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that a public enterprise
reports information about operating segments in annual
financial statements, and requires that those enterprises
report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131
is effective for fiscal years beginning after December 15,
1997 and requires restatement of earlier periods presented.
SFAS No. 131 had no impact on the Company's financial
statements for the years ended December 31, 1999 and 1998,
respectively.
The Financial Accounting Standards Board has recently issued
one new accounting pronouncement. Statement No. 133 as amended
by Statement No. 137 and 138, "Accounting for Derivative
Instruments and Hedging Activities" established accounting and
reporting standards for derivative instruments and related
contracts and hedging activities. This statement is effective
for all fiscal quarters and fiscal years beginning after June
15, 2000.
14
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(O) Concentration of Credit Risk
--------------------------------
Financial instruments which subject the Company to a
concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents
are deposited with high credit quality financial institutions.
From time to time, the Company's cash balances with any one
financial institution may exceed Federal Deposit Insurance
Corporation insurance limits.
The Company's accounts receivable are derived from revenue
earned from customers located in the U.S. and throughout the
world and are denominated in U.S. currency. Accounts
receivable balances are typically settled through customer
credit cards and, as a result, the majority of accounts
receivable are collected upon processing of credit card
transactions. The Company maintains an allowance for doubtful
accounts based upon the expected collectability of accounts
receivable.
(P) Fair Value of Financial Instruments
---------------------------------------
Statement of Financial Accounting Standards No. 109,
"Disclosures about Fair Value of Financial Instruments"
requires disclosures of information about the fair value of
certain financial instruments for which it is practicable to
estimate that value. For purposes of this disclosure, the fair
value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation.
The carrying amounts of the Company's financial instruments,
including cash, cash equivalents, accounts receivable,
accounts payable and accrued liabilities and notes payable,
approximate fair value due to the relatively short period to
maturity for these instruments.
NOTE 3 BALANCE SHEET COMPONENTS
------ ------------------------
Accounts receivable consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Accounts receivable $ 1,641,647 $ 615,983
Allowance for doubtful accounts (32,648) -
Allowance for sales returns (150,000) (283,906)
------------ -------------
Total $ 1,458,999 $ 332,077
============ =============
</TABLE>
Included in accounts receivable are sales initiated by credit
card purchases. Typically, 5% of all credit card sales are
withheld as a reserve for sales and other chargebacks in order
to guarantee the credit card processor their administrative
fee. The amounts held in reserve are subsequently released six
months after the month in which the sale initially took place,
plus accrued interest. (See Note 2(K)).
15
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
Prepaid expenses and other assets consists of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Deferred financing costs $ 919,431 $ -
Accumulated amortization on financing costs (105,901) -
Other 48,458 222,905
---------------- ----------------
$ 861,988 $ 222,905
================ ================
</TABLE>
In connection with the issuance of the 8% senior secured
debentures in June 1999, the Company incurred $919,431 in
costs. The Company is amortizing these costs over a 45 month
period ending April 1, 2003 (See Note 5). Amortization expense
on deferred financing costs was $105,901 for the year ended
1999.
Property and equipment consists of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Computer equipment $ 166,081 $ 49,313
Leasehold improvements 87,050 -
Office equipment 135,407 48,445
------------- --------------
388,538 97,758
Less: Accumulated depreciation (98,035) (11,539)
------------- --------------
Total $ 290,503 $ 86,219
============= ==============
</TABLE>
Depreciation expenses for the years ended December 31, 1999
and 1998 were $86,496 and $11,112, respectively.
Software development costs consist of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Software development costs $ 412,085 $ 329,155
Less: Accumulated amortization (126,729) (58,960)
------------- --------------
Total $ 285,356 $ 270,195
============= ==============
</TABLE>
16
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
Amortization expense for the years ended December 31, 1999 and
1998 were $67,770 and $58,960, respectively (See Note 2(G)).
Accounts payable and accrued expenses consists of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Accounts payable and accrued expenses $ 4,108,580 $ 1,438,279
Reserve for purchase returns (100,000) (281,289)
Accrued compensation and related benefits 162,974 -
Other 283,196 -
------------- --------------
Total $ 4,454,750 $ 1,156,990
============= ==============
</TABLE>
NOTE 4 ACCOUNTS RECEIVABLE FINANCING
------ -----------------------------
During November 1999, the Company entered into a $1,000,000
receivable financing agreement with Pacific Business Funding
(PBF). The terms of the Agreement provided the Company with an
advance of 70% against all eligible receivables under 90 days.
The credit facility has no maturity date and may be terminated
at any time by either party. Additionally, there is no
recourse with regard to the receivables financed.
The interest rate charged by PBF was 1.5% per month on the
average daily balance. Additionally, an administrative fee was
charged for 1% of the face amount of each account financed,
and a commitment fee of 1/2% of the outstanding credit
facility was charged.
At December 31, 1999, the total amount of receivables
purchased by PBF that have not been collected by PBF amount to
$213,210. The agreement was terminated in May 2000.
NOTE 5 RELATED PARTY TRANSACTIONS
------ --------------------------
During 1999 and 1998, the Company and Netline entered into
various agreements, including a new Web hosting and services
agreement in October 1998, whereby Netline provided technical
design, system implementation, internet hosting, and other
related services. Additionally, agreements entered into during
the year ended December 31, 1999 would allow the Company to
develop a new website shopping cart and provide additional
services related to the support of bandwidth, volume, and
storage. Under these agreements, the Company paid Netline fees
of $140,484 and $66,287 in 1999 and 1998, respectively. At
December 31, 1999 and 1998, the balance owing to Netline for
the services was $66,964 and $11,282, respectively and was
included in accrued liabilities (See Note 11(D)).
17
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
In August 1998, the Company granted a director of the Company
a warrant to purchase 250,000 shares of the Company's common
stock at $1.00 per share for placement services rendered in
connection with its September 1998 private placement of common
stock. The value of these warrants was charged to additional
paid-in capital in 1998.
In September 1998 the Company purchased proprietary e-commerce
systems software developed by Netline. The Company paid
Netline $150,000 and granted Netline a warrant to purchase
150,000 shares of the Company's common stock at $1.00 per
share. At December 31, 1998 the Company owed Netline $75,000
with respect to this purchase. During 1999 this amount was
repaid. (See Note 11(D)).
In October 1998, the Company loaned Netline $99,000 pursuant
to a thirty-six month self-amortizing note bearing interest at
8% per annum. The balance due under this note was $63,286 and
$99,000 at December 31, 1999 and 1998, respectively.
In April 1999, South Point loaned the Company $180,937
pursuant to a 7% promissory note due September 15, 1999. At
December 31, 1999, the Company had repaid $75,000 of this loan
and has reached an agreement with South Point to repay the
remaining balance at the rate of $30,000 per month until paid
in full.
NOTE 6 MARKETING AGREEMENTS
------ --------------------
In September 1998, the Company entered into a twelve-month
co-branded banner marketing agreement with c/net. In March
1999, the Company entered into a revised nine-month agreement
with c/net. Under the terms of the revised agreement the
Company will be provided with 50 million banners on c/net's
network of Web sites. The Company is obligated to pay
$1,275,000 over the term of the agreement. In addition, during
September 1998 the Company entered into a seven-month premier
merchant program with c/net. In March 1999 a new nine-month
agreement was entered into. Under the terms of this agreement
c/net has designated the Company as one of five-featured
"Premier Merchants." Pursuant to the agreement, the Company
will be prominently displayed on c/net's retail product search
engine sites. The Company is obligated to pay a fee each time
a visitor links to the Company's storefront from c/net. This
contract was terminated in November 1999, and the outstanding
payable of $1,563,178 was in litigatin and resolved after
December 31, 1989. (See Note 14).
18
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
In addition, the Company has other various marketing
agreements with prominent search engines, for which it pays
fees based upon revenues or on a fixed fee per month basis.
NOTE 7 LINE OF CREDIT
------ --------------
During 1998, the Company obtained a credit line with Deutsche
Financial Services ("DFS") pursuant to which DFS may extend
credit to the Company from time to time to purchase inventory
from DFS approved vendors. Under this agreement the Company
can purchase inventory from certain vendors and elect to have
these vendors invoice DFS instead of the Company. If the
Company repays DFS within thirty days, there is no interest
charge. After 30 days, the Company incurs a fee of .4% and
must repay the full amount within 10 days. The line of credit
is collateralized by substantially all of the Company's
assets. At December 31, 1998, the Company owed DFS $428,357 on
that credit line which is included in accounts payable and
accrued expenses. During 1999 the Company terminated this
financing agreement.
NOTE 8 CURRENT DEBT
------ ------------
In February 1999, the Company borrowed $400,000 from seven
third-party lenders pursuant to individual six-month
non-interest bearing promissory notes. The lenders are to
receive two-year warrants to purchase 40,000 shares of common
stock at $4.00 per share upon the repayment of the loans.
During June and July 1999, $225,000 of these loans were repaid
in full and $175,000 was converted to 8% Senior Secured
Convertible Debentures (See Note 9).
In February 1999, the Company borrowed $35,000 pursuant to a
line-of-credit agreement with a financial institution. The
maximum borrowings under this line-of-credit is $35,000, the
borrowing bears interest in the amount of 7 1/2% payable
monthly, is secured by a $35,000 certificate of deposit, and
is renewable every three months. The Line of Credit was closed
in May 2000.
NOTE 9 LONG-TERM DEBT
------ --------------
During May 1998, two officers of the Company loaned the
Company an aggregate of $25,000 on a non interest-bearing
basis. The loans were repaid in June 1998.
In April 1999, South Point and an officer of the Company
loaned the Company $562,500 and $250,000, respectively,
pursuant to 7% convertible promissory notes due June 1, 2003.
These loans, together with any accrued but unpaid interest,
are convertible into common stock at an initial conversion
price of $2.50 per share which was subsequently adjusted to
$2.00 per share as a result of the Company not meeting certain
19
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
financial performance covenants, as described in the
promissory notes. Based on the fair market value of the common
stock at the grant dates the convertible notes did not contain
a beneficial conversion feature. On May 31 and June 30, 1999
the Company closed on a $5,632,500 private placement of 8%
Senior Secured Convertible Debentures which become due on
April 30, 2003. The Debentures, together with any accrued but
unpaid interest, are convertible into common stock at an
initial conversion price of $2.50 per share, which was
subsequently adjusted to $2.00 per share as a result of the
Company not meeting certain financial performance covenants,
as described in the Debentures. Pursuant to the terms of the
Debentures, the Company elected to pay-in-kind, the $ 181,932
interest due to the Debenture holders on October 31, 1999. The
Company has entered into a security agreement and has pledged
all of its assets as collateral for the Debentures.
NOTE 10 COMMITMENTS AND CONTINGENCIES
------- -----------------------------
(A) Operating Leases
--------------------
The Company was obligated under an operating lease for space
rented at its corporate headquarters. The lease term is for
one year, expired in April 1999 and the monthly rent is
$3,515. In November 1998, the Company entered into a month to
month lease for additional office space in the same building
location that houses its corporate headquarters it presently
leases. The monthly rent is $2,469. Total rent expense for the
years ended December 31, 1999 and 1998 was $26,000 and
$32,878, respectively.
In April 1999, the Company entered into a lease on new
headquarters office space replaced the lease above which
expired in April 1999. The lease is a full service lease for
a twenty-four month period at a monthly rental of $13,819. The
Company has an option to renew the space for an additional
twenty-four month period at the conclusion of the base term.
Total rent expense for the year ended December 31, 1999 was
$108,265.
The Company entered into a lease for its copier in September
1998. The lease term is for 60 months and monthly payments are
$122. The total lease expense for the years ended December 31,
1999 and 1998 was $1,464 and $488, respectively.
In March 1999, InternetStreet Services Corporation, the
Company's wholly-owned subsidiary, leased office space for a
twenty-four month period at a monthly rental of $2,619 per
month, excluding utilities. Total rent expense for the years
ended December 31, 1999 was $28,600.
20
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(B) Employment Agreements
-------------------------
The Company maintains various employment agreements with
certain executive officers and key employees of the Company.
The employment agreements provide for minimum salary levels,
incentive compensation and severance benefits, among other
items.
(C) Save a Tree Program
-----------------------
The Company has agreed to donate 1% of its profits to The
National Forest Foundation to plant trees in a U.S. National
Forest. The maximum donation under the Save a tree program is
$250,000 per year. No donations were made in 1999 and 1998
NOTE 11 STOCKHOLDERS' EQUITY
------- --------------------
(A) Common Stock
On March 24, 1998, the Company authorized a 1,000:1 common
stock split. On the same date the Company authorized a par
value of $0.001 per share of its common stock. The effect of
this stock split and the change in par value has been
retroactively reflected throughout the financial statements.
On May 20, 1998, South Point Capital Corporation, the major
shareholder of the Company, converted its $70,500 loan to the
Company and received 70,500 shares of the Company's common
stock. Based on the $1.00 fair market value of the common
stock on the conversion date, no gain or loss on conversion
was recorded by the Company
In September 1998, and in a private placement, the Company
issued 2,123,300 common shares to various investors for total
proceeds of $1,949,526 net of offering costs of $173,774.
During 1999, 391,655 common shares were issued upon the
exercise of stock options. Of the total shares issued, 9,475
shares were issued in exchange for $9,475 of accounts payable
with a vendor based on the $1.00 fair market value of the
common stock on the exchange date.
During 1999, 2,000 shares were issued in exchange for $5,000
of services based on the $2.50 fair market value of the common
stock on the exchange date.
The Company has 25,000,000 shares of $.001 par value common
stock authorized of which 8,707,455 and 8,313,800 were issued
and outstanding at December 31, 1999 and 1998, respectively.
At December 31, 1999 and, 1998, the Company had reserved
shares of common stock for issuance as follows:
21
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
Issuance under stock option plans 4,000,000
Conversion of warrants 1,000,000
-------------
Total shares reserved 5,000,000
=============
(B) Preferred Stock
-------------------
During 1999, the Company authorized 10,000,000 shares of $.001
par value preferred stock of which no shares were issued or
outstanding at December 31, 1999.
(C) Stock Options
-----------------
Effective August 17, 1998, as amended on August 12, 1999, the
Board of Directors adopted a Stock Option plan (the "Plan").
As of December 31, 1999 and 1998 the Plan authorizes options
up to an aggregate of 4,000,000 and 3,250,000 respectively.
The Stock Plan provides for the issuance of incentive and
non-qualified stock options, the Company may grant options to
purchase shares of common stock to employees, directors and
consultants at prices not less than the fair market value at
the date of grant for incentive stock options and not less
than 85% of the fair market value for nonstatutory stock
options. These options generally vest 16.7% after six months
from the vest start date and ratably over the following 30
months and expire 10 years from the date of grant.
Option activity under the Stock Plan is as follows:
Weighted
Average
Number of Exercise
Shares Price
Options granted in 1998 2,475,750 $ .41
Options cancelled - -
Options exercised - -
--------- --------
Outstanding, December 31, 1998 2,475,750 .41
Options granted in 1999 865,350 2.00
Options cancelled (125,775) 1.00
Options cancelled (55,750) 2.00
Options exercised (9,475) 1.00
Options exercised (382,180) .12
--------- --------
Outstanding, December 31, 1999 2,767,920 $ .89
========= ========
Exercisable at December 31, 1999 933,452
22
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
At December 31, 1999 options for 814,175 shares were available
for grant.
The authorized 4,000,000 options are a result of the original
3,250,000 authorized options during 1998 and an August 12,
1999 amendment to the Plan increasing the authorized stock
options to 4,000,000. During the year ended December 31, 1999,
the Company issued 865,350 stock options in addition to the
stock options issued during the year ended 1998.
In accordance with SFAS 123, for options issued to employees,
the Company applies APB Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for options issued under
the plan as of December 31, 1999 and 1998. Had compensation
cost for the Company's stock-based compensation plan been
determined on the fair value at the grant dates for awards
under that plan, consistent with Statement of Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
(Statement No. 123), the Company's net income for the years
ended December 31, 1999 and 1998 would have been decreased to
the pro-forma amounts indicated below. (See Note 2(I)).
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Net loss As reported $ (8,556,188) $ (2,058,931)
Pro forma $ (9,228,112) $ (2,058,931)
Net income per share -
basic and diluted As reported $ (.99) $ (.30)
Pro forma $ (1.07) $ (.30)
</TABLE>
The effect of applying Statement No. 123 is not likely to be
representative of the effects on reported net income for
future years due to, among other things, the effects of
vesting.
For financial statement disclosure purposes, the fair market
value of each stock option granted to employees during 1999
and 1998 was estimated on the date of grant using the
Black-Scholes Model in accordance with Statement No. 123 using
the following weighted-average assumptions for 1999: expected
dividend yield 0% risk-free interest rate ranging from 5.39%
to 6% and expected life of the option ranging from one to ten
years. For 1998: expected dividend yield 0% risk-free interest
rate ranging from 4.91% to 5.48%, volatility 60% and expected
life of the option ranging from two and one half to five
years.
For financial statement disclosure purposes and for purposes
of valuing stock options issued to consultants, the fair
market value of each stock option granted was estimated on the
date of grant using the Black-Scholes Option-Pricing Model in
accordance with SFAS 123 using the weighted-average
assumptions described above.
23
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
The following table summarizes information about stock options
outstanding at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------- ----------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 1999 Life Price 1999 Price
----------- ----------------- ------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ .12 1,267,820 8.25 Years $ .12 534,486 $ .12
$ 1.00 690,500 8.67 Years $ 1.00 301,119 $ 1.00
$ 2.00 809,600 9.83 Years $ 2.00 97,846 $ 2.00
</TABLE>
(D) Common Stock Warrants
-------------------------
In August 1998, the Company issued warrants to purchase
288,000 shares of common stock at an exercise price of $1.00
per share to placement agents. The warrants expire in August
2003. Using the Black-Scholes model, the warrants were valued
at $159,928 using the following assumptions; no annual
dividend, volatility of 60%, risk free interest rate of 4.91%,
and a term of five years. This amount was recorded as a
reduction to the net proceeds resulting from the private
placement of common stock.
In August 1998, the Company issued warrants to purchase 20,000
shares of common stock at an exercise price of $1.00 per share
to a consultant assisting with raising equity financing for
the Company. The warrants expire in August 2003. Using the
Black-Scholes model, the warrants were valued at $11,213 using
the following assumptions; no annual dividend, volatility of
60%, risk free interest rate of 4.91%, and a term of five
years
In August 1998, the Company issued warrants to purchase
150,000 shares of common stock at an exercise price of $1.00
per share to Netline Corporation in connection with the
purchase of certain computer software (see Note 5). The
warrants expire in August 2003. Using the Black-Scholes model,
the warrants were valued at $59,975 using the following
assumptions; no annual dividend, volatility of 60%, risk free
interest rate of 5.48%, and a term of 2.5 years. This amount
has been recorded as a cost of acquiring the computer
software.
In March 1999, the Company issued warrants to purchase 200,000
shares of common stock at an exercise price of $4.00 to a
consultant in connection with the providing of certain
marketing and other financial services. Using the
Black-Scholes Model, the warrants were valued at $0 using the
following assumptions; no annual dividend, volatility of 10%,
risk-free interest rate of 4.91%, and a term of five years.
24
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
In June 1999, the Company issued warrants to purchase 218,300
shares of common stock at an initial exercise price of $2.50
per share to the Placement Agent for the 8% Senior Secured
Convertible Debentures. Subsequently, the exercise price was
reduced to $2.00 per share resulting in an increase of shares
that may be converted to 272,875 because the Company did not
meet certain financial performance covenants, as described in
the Debentures. Using the Black-Scholes Model, the warrants
were valued at $125,172 using the following assumptions; no
annual dividend, volatility of 10%, risk-free interest rate of
5.39%, and a term of five years.
In July 1999, the Company issued two year warrants to purchase
40,000 shares of common stock at an exercise price of $4.00
per share to seven third-party lenders in connection with
non-interest bearing loans in the total amount of $400,000
which repaid at such time. Using the Black-Scholes Model, the
warrants were valued at $0 using the following assumptions; no
annual dividend, volatility of 60%, risk-free interest rate of
4.91%, and a term of five years (Note 8).
NOTE 12 INCOME TAXES
------- ------------
At December 31, 1999 the Company had a net operating loss
carryforward of approximately $10,796,000 the utilization of
which expires on December 31, 2014. Utilization of net
operating loss carryforwards may be subject to certain
limitations under Section 382 of the Internal Revenue Code.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 3,668,800 $ 759,700
Allowance for doubtful accounts 11,100 --
Allowance for sales returns 51,000 96,500
Allowance for purchase returns (34,000) (95,600)
------------------ ------------------
Gross deferred tax assets 3,696,900 760,600
Less: Valuation allowance (3,696,900) (760,600)
------------------ ------------------
Net deferred tax assets $ -- $ --
================== ==================
</TABLE>
25
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
As a result of the Company's loss history, management believes
a valuation allowance for the entire net deferred tax assets,
after considering deferred tax liabilities, is required.
NOTE 13 GOING CONCERN
------- -------------
The Company's financial statements for the years ended
December 31, 1999 and 1998 have been prepared on a going
concern basis which contemplated the realization of assets and
the settlement of liabilities and commitments in the normal
course of business. The Company incurred a net loss of
$8,556,188 and $2,058,931 for the years ended December 31,
1999 and 1998, respectively and has an accumulated deficit of
$10,790,653 and $2,234,465 at December 31, 1999 and 1998,
respectively. The Company's working capital and stockholders'
deficiency at December 31, 1999 and 1998 of $2,345,137 and
$8,357,627, respectively, may not enable it to meet such
objectives as presently structured. The financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
The ability of the Company to continue as a going concern is
dependent on the Company's ability to raise additional
capital, commence profitable operations, and implement its
business plan.
NOTE 14 SUBSEQUENT EVENTS
------- -----------------
In February 2000, holders of 413,256 of warrants to purchase
our common stock at $1.00 exercised the warrants at a discount
rate of $0.50 per share in order to raise working capital.
On July 27, 2000 HardwareStreet.com, Inc. and AMS Systems,
Inc., an unrelated third party, closed on a stock exchange
agreement with a new wholly formed holding company
e-BizStreet, Inc. Pursuant to the agreement, the shareholders
of the Company agreed to transfer 100% of the issued and
outstanding shares to e-BizStreet, Inc. in exchange for
125,660 shares of common stock.
Additionally, the holders of the 8% senior secured convertible
debentures agreed to retire their debt in exchange for 485,884
shares of eBizStreet, Inc. common stock. Also, holders of
certain convertible notes agree to retire their debt in
exchange for 68,066 of eBizStreet, Inc. common stock.
Simultaneously, the shareholders of e-BizStreet, Inc. closed
on a stock exchange agreement with InsiderStreet.com, Inc.,
which resulted in the Company becoming a wholly-owned
subsidiary of InsiderStreet.com, Inc.
26
<PAGE>
HARDWARESTREET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
In July 2000, InsiderStreet.com, Inc. (the parent company, see
preceding paragraph) issued 90,395 shares of its common stock
having a fair value of $933,780 to satisfy a debt of the
Company with a vendor and a related litigation (see Note 6).
As a result of this transaction the Company recognized a gain
of $629,398.
In July 2000, InsiderStreet.com, Inc. issued 10,000 shares of
its common stock having a fair value of $75,000 to satisfy a
debt that the Company had with a vendor at December 31, 1999.
27
<PAGE>
HARDWARESTREET.COM, INC.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements of HardwareStreet.com
("HardwareStreet") as of July 31, 2000 and for the seven month periods ended
July 31, 2000 and 1999 do not provide all disclosures included in the annual
financial statements. These interim financial statements should be read in
conjunction with the annual audited financial statements and the footnotes
thereto. Results for the interim periods are not necessarily indicative of the
results for the fiscal year ending October 31, 2000. In the opinion of
management, the accompanying interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations of
HardwareStreet.
<PAGE>
HardwareStreet.com, Inc.
Unaudited Balance Sheet
As of July 31, 2000
ASSETS:
CURRENT ASSETS
Cash $ 97,320
Accounts receivable, net 34,962
Prepaid expenses and other assets, net 34,173
Note Receivable 63,286
-----------
Total current assets 229,741
PROPERTY AND EQUIPMENT, net 198,697
OTHER ASSETS
Intangibles, net $ 100,000
Software development costs, net 241,222
-----------
Total other assets 341,222
-----------
TOTAL ASSETS $ 769,660
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and other accrued expenses $ 4,566,367
Notes payable 93,438
-----------
Total current liabilities 4,659,805
Long term debt 6,612,500
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 10,000,000
Shares authorized, none issued --
Common Stock, $.001 par value, 25,000,000
Shares outstanding, 8,707,455 shares
issued and outstanding 8,707
Additional paid in capital 2,495,776
Accumulated deficit (13,007,128)
-----------
Total stockholders' deficit (10,502,645)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 769,660
===========
<PAGE>
HardwareStreet.com, Inc.
Unaudited Statements of Income
For the Seven Months Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
REVENUES 1,469,191 11,527,811
COST AND
Cost of sales 1,329,373 10,785,250
----------- -----------
GROSS PROFIT 139,818 742,561
OPERATING EXPENSES:
Sales and marketing 1,014,103 3,247,014
General and administrative 1,023,030 903,973
Technology and development 339,031 552,005
----------- -----------
Total operating expenses 2,376,164 4,702,992
----------- -----------
LOSS FROM OPERATIONS (2,236,346) (3,960,431)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 6,025 20,188
Interest expense (305,516) (105,428)
----------- -----------
Total other income (expense) (299,491) (85,240)
----------- -----------
NET LOSS (2,535,837) (4,045,671)
=========== ===========
</TABLE>
<PAGE>
HardwareStreet.com, Inc.
Unaudited Statements of Cash Flows
For the Seven Months Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (2,535,837) $ (4,045,671)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 139,594 125,054
Changes in operating assets and liabilities:
Trade accounts receivable 1,424,037 (699,940)
Prepaid expenses and other assets 766,398 (533,864)
Accrued liabilities 65,173 321,363
---------------- --------------
Net cash used in operating activities (140,635) (4,833,058)
INVESTING ACTIVITIES:
Purchase of property and equipment (3,654) (273,089)
---------------- --------------
Net cash used in investing activities (3,654) (273,089)
FINANCING ACTIVITIES:
Note payable (225,710) 615,938
Long term debt (14,432) 6,420,000
Repayment of long term debt - (443,612)
Repayment of borrowings under asset purchases - (75,000)
Issuance of common stock 390,819 19,317
---------------- --------------
Net cash provided by financing activities 150,677 6,536,643
INCREASE IN CASH AND CASH EQUIVALENTS 6,388 1,430,496
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 90,932 350,834
---------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 97,320 $ 1,781,330
================ ==============
</TABLE>
