<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
DATE OF REPORT (date of earliest event reported): August 4, 2000
Commission File Number 0-29495
World Commerce Online, Inc.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-2205697
(State of Incorporation) (IRS Employer Identification Number)
9677 Tradeport Drive
Orlando, Florida 32827
(Address of Principal Executive Offices and Zip Code)
(407) 240-8999
(Registrant's Telephone Number Including Area Code)
This Form 8-K/A amends the current Report on Form 8-K filed by the Registrant on
August 22, 2000.
Item 2. Acquisition or Disposition of Assets.
On August 4, 2000, World Commerce Online, Inc. ("WCOL") through a
wholly owned subsidiary (the "Subsidiary"), entered into an Agreement and Plan
of Merger and Reorganization (the "Merger Agreement") with ProduceOnline.com,
Inc. ("POL") pursuant to which POL merged with and into the Subsidiary (the
"Merger") with POL surviving and becoming a wholly-owned subsidiary of WCOL.
POL's principal operations provide Internet-based technology products and
services that enable business-to-business electronic commerce, or B2B
e-commerce, intended for the produce industry.
The Merger Agreement provides that each outstanding share of POL common
stock, par value of $0.001 per share, be converted into 0.07764 (the "Exchange
Ratio") shares of WCOL common stock. In addition, each outstanding share of POL
Series A redeemable convertible preferred stock, par value of $0.001 per share,
is convertible into shares of WCOL Series C redeemable convertible preferred
stock, par value of $0.001 per share, at a conversion rate equal to the Exchange
Ratio divided by ten. Each share of Series C preferred stock is convertible into
ten (10) shares of WCOL common stock.
Consideration for the acquisition included 423,592 shares of common
stock, 91,802 shares of Series C redeemable convertible preferred stock,
convertible into 918,021 shares of WCOL common stock, and assumption of
liabilities and transaction costs of approximately $2 million. In addition, WCOL
issued 372,955 shares of common stock that are subject to a repurchase option
that expires over the next 27 months. The Merger Agreement and Certificate of
Designations, Powers, Preferences and Rights of Series C Preferred Stock were
filed as part of the Registrant's Current Report on Form 8-K filed on August 22,
2000, and are incorporated herein by reference.
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired:
<TABLE>
<CAPTION>
Page
----
<S> <C>
(i) Financial Statements of ProduceOnline.com, Inc.;
Report of Independent Certified Public Accountants F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Deficit F-4
Statements of Cash Flows F-6
Notes to Financial Statements F-8
</TABLE>
(b) Pro Forma Financial Information:
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2000 F-16
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1999 F-17
Unaudited Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 2000 F-18
Notes to Unaudited Pro Forma Condensed Combined Financial Statements F-19
</TABLE>
(c) Exhibits:
Exhibit
Number Description of Exhibit
1.1* Agreement and Plan of Merger and Reorganization By and Among
World Commerce Online, Inc., Project Laker, Inc. and
ProduceOnline.com, Inc., dated, August 4, 2000.
3.1* Certificate of Designations, Powers, Preferences and Rights of
Series C Preferred Stock of World Commerce Online, Inc., dated
August 4, 2000.
* Filed as part of the Registrant's Current Report on Form 8-K filed August
22, 2000, and incorporated herein by reference.
<PAGE> 3
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD COMMERCE ONLINE, INC.
(Registrant)
Date: October 20, 2000 /s/ Robert H. Shaw
--------------------------------------------
Robert H. Shaw
Chairman of the Board and Chief Executive
Officer
/s/ Mark E. Patten
--------------------------------------------
Mark E. Patten
Chief Financial Officer and Executive Vice
President (Principal Financial and
Accounting Officer)
<PAGE> 4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of ProduceOnline.com, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of ProduceOnline.com, Inc. (a
development stage enterprise) at December 31, 1999, and the results of its
operations and its cash flows for the period from inception July 13, 1999
through December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As discussed in Note 12, on August 4, 2000, the Company was acquired by World
Commerce Online, Inc.
PricewaterhouseCoopers LLP
Tampa, Florida
October 16, 2000
F-1
<PAGE> 5
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,360,046 $ 21,815
Prepaid expenses and other current assets 124,495 116,031
----------- -----------
Total current assets 2,484,541 137,846
Property and equipment, net 174,951 532,897
Other assets 10,332 13,951
----------- -----------
Total assets $ 2,669,824 $ 684,694
=========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 382,074 $ 1,276,144
Accrued compensation and benefits 75,156 239,724
Capital lease obligation, current 25,917 27,054
Notes payable to stockholder -- 285,000
Notes payable -- 1,995,000
----------- -----------
Total current liabilities 483,147 3,822,922
Long-term liabilities:
Other accrued liabilities -- 25,937
Capital lease obligation, long-term 33,187 19,370
----------- -----------
Total long-term liabilities 33,187 45,307
Commitments and contingencies (See Notes 10 and 11)
Redeemable convertible preferred stock:
Series A convertible preferred stock, $0.001 par value; authorized
12,000,000 shares, issued and outstanding 6,520,824 and 7,384,202
shares at December 31, 1999 and June 30, 2000, respectively, stated at
liquidation value 3,260,417 3,270,417
Stockholders' deficit:
Common stock, $0.001 par value; authorized 35,000,000 shares, issued and
outstanding 9,800,000 and 10,557,000 shares at December 31, 1999 and
June 30, 2000, respectively 9,800 10,557
Additional paid-in capital 451,301 488,394
Stock subscriptions receivable (16,660) (16,660)
Deficit accumulated during the development stage (1,551,368) (6,936,243)
----------- -----------
Total stockholders' deficit (1,106,927) (6,453,952)
----------- -----------
Total Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Deficit $ 2,669,824 $ 684,694
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 6
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period For the Period
July 13, July 13,
1999 (Date 1999 (Date
of Inception) For the Six of Inception)
through Months Ended through
December 31, June 30, June 30,
1999 2000 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues:
Transaction revenue $ -- $ 3,353 $ 3,353
----------- ----------- -----------
Total revenues -- 3,353 3,353
----------- ----------- -----------
Costs and operating expenses:
Product and technology development 384,364 1,767,352 2,151,716
Sales and marketing 702,832 1,222,242 1,925,074
General and administrative 456,094 2,304,034 2,760,128
Depreciation and amortization 13,683 81,889 95,572
----------- ----------- -----------
Total costs and operating expenses 1,556,973 5,375,517 6,932,490
----------- ----------- -----------
Loss from operations (1,556,973) (5,372,164) (6,929,137)
Net interest income (expense) 7,205 (12,711) (5,506)
Other non-operating income (expense) (1,600) -- (1,600)
----------- ----------- -----------
Net loss $(1,551,368) $(5,384,875) $(6,936,243)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 7
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD JULY 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999 AND
THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN
SHARES AMOUNT CAPITAL
---------- ------- --------
<S> <C> <C> <C>
Issuance of common stock to founders 8,477,600 $ 8,478 $388,531
Issuance of common stock 1,322,400 1,322 62,770
Comprehensive Loss:
Net loss for the period July 13, 1999 (date of inception)
through December 31, 1999 -- -- --
---------- ------- --------
Total comprehensive loss
Balance, December 31, 1999 9,800,000 $ 9,800 $451,301
Issuance of common stock pursuant to the exercise of stock
options 160,000 160 7,840
Issuance of common stock in exchange for professional services 597,000 597 29,253
Comprehensive Loss:
Net loss (unaudited) -- -- --
---------- ------- --------
Total comprehensive loss
Balance, June 30, 2000 (unaudited) 10,557,000 $10,557 $488,394
========== ======= ========
</TABLE>
(Continued)
See accompanying notes to financial statements.
F-4
<PAGE> 8
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT, CONTINUED
FOR THE PERIOD JULY 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999 AND
THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
STOCK DURING THE
SUBSCRIPTION COMPREHENSIVE DEVELOPMENT
RECEIVABLE LOSS STAGE TOTAL
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock to founders $(16,660) $ -- $ -- $ 380,349
Issuance of common stock -- -- -- 64,092
Comprehensive Loss:
Net loss for the period July 13, 1999
(date of inception) through
December 31, 1999 -- (1,551,368) (1,551,368) (1,551,368)
-------- ----------- ----------- -----------
Total comprehensive loss $(1,551,368)
===========
Balance, December 31, 1999 $(16,660) $(1,551,368) $(1,106,927)
Issuance of common stock pursuant to
the exercise of stock options -- -- 8,000
Issuance of common stock in exchange
for professional services -- -- -- 29,850
Comprehensive Loss:
Net loss (unaudited) -- (5,384,875) (5,384,875) (5,384,875)
-------- ----------- ----------- -----------
Total comprehensive loss $(5,384,875)
===========
Balance, June 30, 2000 (unaudited) $(16,660) $(6,936,243) $(6,453,952)
======== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 9
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JULY 13, JULY 13,
1999 (DATE FOR THE SIX 1999 (DATE
OF INCEPTION) MONTHS OF INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,551,368) $(5,384,875) $(6,936,243)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 13,683 81,889 95,572
Stock based compensation 97,470 -- 97,470
Professional fees paid through the issuance
of common stock and warrants -- 29,850 29,850
Change in operating assets & liabilities:
Prepaid expenses & other current assets (124,495) 8,464 (116,031)
Other assets (10,332) (3,619) (13,951)
Accounts payable and accrued liabilities 382,074 920,007 1,302,081
Accrued compensation and benefits 75,156 164,568 239,724
----------- ----------- -----------
Net cash used in operating activities (1,117,812) (4,183,716) (5,301,528)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (123,391) (439,835) (563,226)
----------- ----------- -----------
Net cash used in investing activities (123,391) (439,835) (563,226)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock 346,971 8,000 354,971
Issuance of redeemable preferred stock 3,260,417 10,000 3,270,417
Proceeds from stockholder loans -- 285,000 285,000
Proceeds from other debt -- 1,995,000 1,995,000
Payments on capital leases (6,139) (12,680) (18,819)
----------- ----------- -----------
Net cash provided by financing activities 3,601,249 2,285,320 5,886,569
----------- ----------- -----------
Net change in cash 2,360,046 (2,338,231) 21,815
Cash and cash equivalents, beginning of period -- 2,360,046 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 2,360,046 $ 21,815 $ 21,815
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 10
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JULY 13, JULY 13,
1999 (DATE FOR THE SIX 1999 (DATE
OF INCEPTION) MONTHS OF INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, JUNE 30, JUNE 30,
1999 2000 2000
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,362 $ 2,321 $ 3,683
=========== =========== ===========
Noncash investing and financing:
Equipment acquired through capital lease $ 65,243 $ -- $ 65,243
=========== =========== ===========
Common stock sold in exchange for stock
subscription receivable $ 16,660 $ -- $ 16,660
=========== =========== ===========
Preferred stock sold in exchange for
note receivable $ 421,684 $ -- $ 421,684
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 11
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
1. NATURE OF BUSINESS:
ProduceOnline LLC (the "Company") was formed as a California limited
liability company on July 13, 1999. On October 22, 1999, the Company
was reorganized as a Delaware corporation, ProduceOnline.com, Inc. The
Company is a provider of business-to-business electronic commerce
solutions to the produce industry. The Company was formed to provide
its customers with access to the Company's secure Internet-based
trading systems and to industry-specific Internet communities supplying
comprehensive industry data and information resources as well as
communication tools.
Since its inception, the Company has devoted substantially all of its
efforts to business planning, research and development, marketing,
recruiting of management and technical staff, acquiring operating
assets, developing the sales infrastructure and raising capital.
Accordingly, the Company is considered to be in the development stage
as defined in Statement of Financial Accounting Standards ("SFAS") No.
7.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents - The Company considers all highly liquid
instruments with a maturity of three months or less at time of purchase
to be cash equivalents.
Computer Software Costs - The Company has adopted Statement of Position
("SOP") 98-1, which requires computer software costs associated with
internal use software to be charged to operations as incurred until
certain capitalization criteria are met. Costs incurred in the
preliminary project stage of software development have been expensed as
incurred. Costs incurred in the application development stage will be
capitalized, subject to consideration of recovery. As of December 31,
1999 and June 30, 2000, all costs have been expensed as incurred.
Property and Equipment - Property and equipment, stated at cost, is
comprised of computer and office equipment. Gains and losses on
disposition are recognized in the year of the disposal. Expenditures
for maintenance and repairs are expensed as incurred.
Depreciation is computed using the straight-line method over the
following estimated lives:
<TABLE>
<S> <C>
Computer hardware 3 years
Furniture and fixtures 7 years
</TABLE>
Fair Value of Financial Instruments - The carrying amounts of the
Company's financial instruments, which include cash and cash
equivalents, receivable from stockholders, accounts payable and accrued
liabilities, notes payable and a capital lease obligation approximate
their fair values at December 31, 1999 and June 30, 2000, due to the
short maturities of these instruments.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of cash and cash equivalents. The Company maintains the majority of its
cash balances at one financial institution.
Revenue Recognition - The Company recognizes revenues at the time that
services are performed. The Company currently earns revenue from only
one source, transaction fees. Transaction fee revenue represents a fee
equal to a percentage of the transaction order value and is earned as
transactions are conducted through the Company's trading systems.
Advertising Costs - Advertising costs are expensed as incurred.
Advertising expenditures reflected in the accompanying statements of
operations amounted to approximately $120, $213,000 and $213,120 for
the period from July 13, 1999 (date of inception) through December 31,
1999, the six months ended June 30, 2000, and for the cumulative
period from July 13, 1999 (date of inception) through June 30, 2000,
respectively.
F-8
<PAGE> 12
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes - Prior to October 1999, the Company elected to be taxed
as a Limited Liability Company ("LLC") under the provision of the
Internal Revenue Code whereby taxable income is generally reported by
the shareholders on their individual income tax returns. The LLC
election was terminated on October 22, 1999 and subsequently the
Company became subject to the U.S. federal and state income taxes as a
C-Corporation. The Company utilizes the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes
are recorded to reflect the tax consequences on future years
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation
allowance is provided against the future benefit of deferred tax assets
if it is determined that it is more likely than not that the future tax
benefits associated with the deferred tax asset will not be realized.
Stock-Based Compensation - The Company accounts for employee
stock-based compensation using the intrinsic value method. Stock-based
compensation to non-employees is accounted for using the fair value
method. The Company also provides disclosure of certain pro forma
information as if the Company accounted for its employee stock-based
compensation using the fair value method.
When options are granted to employees, a non-cash charge representing
the difference, if any, between the exercise price and the fair value
of the common stock underlying the vested options on the date of grant
is recorded as stock-based compensation expense and the balance is
deferred and amortized over the remaining vesting period.
Other Comprehensive Income - The Company has adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying
comprehensive income and its components in a financial statement with
the same prominence as the other financial statements.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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.
Interim Financial Information - The financial statements as of June 30,
2000, and for the six months ended June 30, 2000, are unaudited but
reflect only normal and recurring adjustments which are, in the opinion
of management, necessary for the fair presentation of its financial
position and the results of its operations. Operating results for the
six month period ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the full year.
F-9
<PAGE> 13
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
--------- ---------
(Unaudited)
<S> <C> <C>
Computer hardware $ 47,074 $ 267,550
Furniture and fixtures 26,450 245,809
Computer hardware under capital lease 115,110 115,110
--------- ---------
188,634 628,469
Less accumulated depreciation (13,683) (95,572)
--------- ---------
$ 174,951 $ 532,897
========= =========
</TABLE>
Depreciation expense for the period from July 13, 1999 (date of
inception) through December 31, 1999, the six months ended June 30,
2000, and for the cumulative period from July 13, 1999 (date of
inception) through June 30, 2000 was $13,683, $81,889, and $95,572,
respectively.
4. NOTES PAYABLE:
Convertible Promissory Notes
In April 2000, the Company issued convertible promissory notes in the
amount of $1,995,000. The notes provided for an interest rate of 9% per
annum and were automatically convertible into Series B Preferred Stock
upon completion of the closing of the Series B Preferred Stock
financing (the "Promissory Note"). In connection with these promissory
notes, the note holders were entitled to warrants representing the
right to purchase Series B Preferred Stock at a per share price equal
to the price at which the Company's shares of Series B preferred stock
were sold for an aggregate number of shares up to 20% of the principal
amount of the Promissory Note (the "Warrant Agreement").
In contemplation of the acquisition of the Company by World Commerce
Online, Inc., (the "Acquisition") the Promissory Note and Warrant
Agreement were amended in July 2000 to provide for the elimination of
the warrant obligation, the conversion of the outstanding principal
balance of the Promissory Notes into Series A Preferred Stock at a
purchase price of $0.50 per share and the forfeiture of all accrued and
unpaid interest. (See Note 12).
Note Payable to Stockholder
During 2000, the Company received loans in the amount of $285,000 from
a founding stockholder to finance its operations. The loans bear no
interest and are included in notes payable as of June 30, 2000. In
August 2000, approximately $225,000 of this amount was converted into
Series A preferred stock, at a purchase price of $0.50 per share, in
contemplation of the acquisition of the Company by World Commerce
Online, Inc. (See Note 12).
5. EQUITY:
Including the effects of amendments to the Certificate of Incorporation
on May 31, 2000, and July 26, 2000, the authorized capital stock of the
Company consists of (i) 35,000,000 shares of voting common stock
("Common Stock") for issuance with a par value of $0.001 and (ii)
12,000,000 shares of preferred stock with a par value of $0.001
designated as Series A Convertible Preferred Stock ("Series A").
F-10
<PAGE> 14
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
5. EQUITY (CONTINUED):
On March 10, 2000, the Company effected a two-for-one stock split for
both common and preferred shares. All share amounts have been
retroactively adjusted in the accompanying financial statements to
reflect this stock split.
Common Stock
Each share of common stock is entitled to one vote. The Company issued
shares of its common stock to certain employees under stock purchase
agreements, some of which contain repurchase provisions in the event of
termination of employment. The shares are generally released from
repurchase provisions ratably over four years. Included in common stock
as of December 31, 1999 and June 30, 2000 are 6,004,967 and 4,945,267
shares, respectively, subject to repurchase.
In October 1999, the Company issued 1,949,400 shares of common stock to
two founding shareholders. In connection with this issuance, the
Company recognized $97,470 in stock-based compensation expense.
In June 2000, in partial consideration for entering into an agreement
with a customer, the Company issued 560,000 shares of common stock.
The stock was issued subject to an irrevocable repurchase option which
entitles the Company to initially repurchase 50% of the stock, for a
purchase price of $0.001 per share, within the first 180 days of the
agreement and the remaining shares will be released from the
repurchase provisions as transaction volume milestones are met by the
customer. The Company has recognized $28,000 in sales and marketing
expense related to this stock grant based on the fair value of the
common stock in June 2000. Additional expense could be recognized to
the extent of any increase in common stock value through the date the
repurchase provisions lapse.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In November and December 1999, the Company sold 6,520,834 shares of
Series A at $0.50 per share. In May 2000, the Company sold an
additional 863,368 shares at $0.50 per share.
The holders of Series A are entitled to vote, together with the holders
of common stock, on all matters submitted to stockholders for a vote.
Each preferred stockholder is entitled to the number of votes equal to
the number of shares of common stock into which each preferred share
is convertible at the time of such vote. The holders of Series A are
entitled to receive, when and as declared by the Board of Directors
and out of funds legally available, noncumulative dividends at the
rate of 10% of the original issue price. No dividends or other
distributions shall be made with respect to common stock, until all
dividends on the Series A have been paid. Through June 30, 2000, no
dividends have been declared or paid by the Company.
In the event of any liquidation, dissolution or winding up of the
affairs of the Company, the holders of the then outstanding shares of
Series A shall receive for each share an amount equal to the sum of
$0.50 per share, plus all accrued but unpaid dividends, payable in
preference and priority to any payments made to the holders of the then
outstanding common stock. Since the Company's Certificate of
Incorporation includes in the definition of a liquidating event the
sale of all or substantially all of the assets of the Company, Series A
is considered mandatorily redeemable stock and is presented in the
mezzanine section of the balance sheet.
Each share of Series A, at the option of the holder, is convertible
into a number of fully paid shares of common stock as determined by
dividing the Series A issue price by the conversion price in effect at
the time.
F-11
<PAGE> 15
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED):
The initial conversion price of Series A is $0.50, and is subject to
adjustment in accordance with antidilution provisions contained in the
Company's Certificate of Incorporation. Conversion is automatic
immediately upon the closing of a firm commitment underwritten public
offering if the public offering price equals or exceeds $3 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) in which the aggregate proceeds raised exceed
$10,000,000. At December 31, 1999 and June 30, 2000, 3,260,417 shares
and 7,384,202 shares, respectively, of the Company's common stock have
been reserved for conversion.
7. STOCK OPTION PLAN:
In 1999, the Company adopted the 1999 Equity Incentive Plan (the
"Plan") under which 1,820,000 shares of the Company's common stock were
reserved for issuance to employees, directors and consultants. Stock
awards granted under the Plan may be incentive stock options,
non-statutory stock options, stock bonuses and rights to acquire
restricted stock. Incentive stock options may only be granted to
employees. The Board of Directors determines the period over which
options become exercisable. The exercise price of incentive stock
options and nonstatutory stock options shall be no less than 100% and
85%, respectively, of the fair market value per share of the Company's
common stock on the grant date. If an individual owns stock
representing more than 10% of the outstanding shares, the price of each
share shall be at least 110% of fair market value, as determined by the
Board of Directors. The Plan allows the Company to grant options that
may be subject to early exercise provisions. Any options exercised
early are subject to a repurchase provision in the event of termination
of employment. The shares are generally released from the repurchase
provision ratably over four years. These terms of the options require
the options to be accounted for under variable plan accounting. As a
result, the Company could be subject to compensation expense
recognition to the extent of future market value increases in the
Company's common stock. The term of the options is ten years.
The Company applies APB 25 and related interpretations in accounting
for employee and director options granted under the Plan. No
compensation cost has been recognized for employee stock-based
compensation related to options in 1999 or 2000. Had compensation cost
been determined based on the fair value at the grant dates for awards
in 2000, consistent with the provisions of SFAS No. 123, the Company's
net loss would have increased to $5,449,875. Because options vest over
several years and additional option grants are expected to be made in
future years, the above pro forma results are not representative of the
pro forma results for future years.
For purposes of pro forma disclosure, the fair value of each option
grant was estimated on the date of grant using the Black Scholes option
pricing model with the following assumptions for grants in 2000:
expected volatility of 80%; no dividend yield; risk-free interest rate
of 5.75%; and expected lives of four years.
F-12
<PAGE> 16
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
7. STOCK OPTION PLAN (CONTINUED):
The following table summarizes the activity of the Company's stock
option plan. No options were granted during 1999:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30, 2000
(UNAUDITED)
-----------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding options beginning of period ......................... -- --
Granted: ........................................................ 2,078,000 $ 0.05
Exercised: ...................................................... (160,000) $ 0.05
Forfeited: ...................................................... (323,500) $ 0.05
Outstanding at end of period: ................................... 1,594,500 $ 0.05
Exercisable at end of period: ................................... 1,055,000 $ 0.05
Weighted average fair value of options granted during the period: $ 0.03
</TABLE>
The following table summarizes the status of the Plan for options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Weighted Average Weighted
Total Remaining Contractual Life Average
Range of Exercise Prices Outstanding (Years) Exercise Price
------------------------ ----------- ------- --------------
<S> <C> <C> <C>
$ 0.05 1,594,000 10 $ 0.05
---------
Total 1,594,500 $ 0.05
=========
</TABLE>
8. INCOME TAXES:
Prior to October 22, 1999, the Company elected to be taxed as a Limited
Liability Company ("LLC") and thus, all income was passed through to
the members and taxed at the member level. Effective October 22, 1999,
the LLC election was terminated and the Company adopted SFAS No. 109,
"Accounting for Income Taxes."
There is no provision (benefit) for income taxes for the period from
October 22, 1999 through December 31, 1999 or the six months ended June
30, 2000 as a result of the net operating loss and net deferred tax
assets being fully reserved.
As of December 31, 1999 and June 30, 2000, the Company had a net
operating loss of approximately $831,000 and $4,970,000 respectively,
available to reduce future federal income taxes. This net operating
loss carryforward will begin to expire in 2019 and is subject to
limitation in any given year in the event of certain changes in
ownership as set forth in the Internal Revenue Code Section 382 and
related Treasury Regulations.
F-13
<PAGE> 17
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
8. INCOME TAXES (CONTINUED):
The tax effect of the temporary differences that give rise to deferred
assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
----------- -----------
<S> <C> <C>
Noncurrent deferred tax assets:
Net operating loss $ 315,934 $ 1,888,879
Accrued expenses 118,139 511,442
Deferred compensation -- 47,679
Other 4,474 21,269
----------- -----------
438,547 2,469,269
----------- -----------
Noncurrent deferred tax liabilities:
----------- -----------
-- --
----------- -----------
Noncurrent net deferred tax asset 438,547 2,469,269
Deferred tax asset valuation allowance (438,547) (2,469,269)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
The Company has provided a valuation allowance for the full amount of
its net deferred tax assets since realization of any future benefit
from deductible temporary differences and net operating loss and tax
credit carryforwards cannot be sufficiently assured at December 31,
1999, or June 30, 2000.
The following table accounts for the differences between the actual tax
provision and amounts obtained by applying the statutory U.S. federal
income tax rate of 35% to the income before income taxes:
<TABLE>
<CAPTION>
Period from
July 13, 1999
(date of
inception) Six months
through ended
December 31, June 30,
1999 2000
------------ -----------
<S> <C> <C>
Statutory provision $ (542,979) $(1,884,706)
State taxes net of federal benefit (46,541) (161,546)
LLC loss not subject to tax 134,626 --
Non-deductible expenses 16,347 15,530
----------- -----------
(438,547) (2,030,722)
Change in valuation allowance 438,547 2,030,722
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
9. 401(K) SAVINGS PLAN:
During 2000, the Company established a defined contribution savings
plan under Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees who meet minimum age and service
requirements and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Company contributions to the plan may
be made at the discretion of the Board of Directors. To date there were
no contributions made to the plan by the Company.
F-14
<PAGE> 18
PRODUCEONLINE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO THE SIX MONTHS ENDED JUNE 30, 2000 IS
UNAUDITED)
10. RELATED PARTY TRANSACTIONS:
During 2000, the Company received loans in the amount of $285,000 from
a founding stockholder to finance operations. The loans bear no
interest and are included in notes payable as of June 30, 2000. In
August 2000, approximately $225,000 of this amount was converted into
Series A preferred stock, at a purchase price of $0.50 per share, in
contemplation of the Acquisition (see Note 12).
In May 2000, the Company entered into an agreement with a stockholder
to provide management consulting services. The agreement provides
compensation in the amount of $415,000 over the two-year agreement. As
of June 30, 2000, the Company has accrued approximately $25,000 in
management consulting fees related to this agreement.
11. LEASES:
The Company leases its office space and certain office equipment under
noncancelable operating leases. In addition, the Company has a capital
lease for computer hardware. Total rent expense under the operating
leases for the period from July 13, 1999 (date of inception) through
December 31, 1999, the six months ended June 30, 2000, and for the
cumulative period from July 13, 1999 (date of inception) through June
30, 2000 was approximately $15,000, $98,000, and $113,000,
respectively.
Future minimum lease payments under noncancelable leases at June 30,
2000 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASE
--------- ---------
<S> <C> <C>
Remainder of 2000 $ 54,077 $ 15,001
2001 - 30,003
2002 - 5,000
--------- ---------
Total minimum payments $ 54,077 50,004
=========
Less amount representing interest (3,580)
----------
Present value of minimum lease payments 46,424
Less current portion (27,054)
----------
Long-term capital lease obligation $ (19,370)
==========
</TABLE>
12. SUBSEQUENT EVENT:
On August 4, 2000, the entire equity interest in the Company was
acquired by World Commerce Online, Inc. ("World Commerce"). The
consideration paid by World Commerce included the issuance of 423,592
shares of World Commerce common stock, 91,802 shares of its Series C
redeemable, convertible, preferred stock, convertible into 918,021
shares of World Commerce common stock, and the assumption of
approximately $2,000,000 in liabilities. In addition, World Commerce
issued 372,955 shares of World Commerce common stock that are subject
to a repurchase option that expires over the next 27 months.
F-15
<PAGE> 19
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
WORLD
COMMERCE PRODUCEONLINE.COM, INC.
ONLINE, INC. ----------------------- PRO FORMA PRO FORMA
ASSETS & SUBSIDIARIES HISTORICAL ADJUSTMENTS COMBINED
------ -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,932,008 $ 21,815 3,953,823
Prepaid expenses and other current assets 409,985 116,031 526,016
------------ ----------- ------------- ------------
Total current assets 4,341,993 137,846 4,479,839
Property and equipment, net 16,254,667 532,897 16,787,564
Intangible assets, net 1,327,565 -- 11,314,888 3a 12,642,453
Other assets 24,238 13,951 38,189
------------ ----------- ------------- ------------
Total assets $ 21,948,463 $ 684,694 $ 11,314,888 $ 33,948,045
============ =========== ============= ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND STOCKHOLDERS' DEFICIT
--------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 3,564,794 $ 1,276,144 (38,862)4b 4,802,076
Accrued compensation and benefits 327,454 239,724 567,178
Capital lease obligation, current 210,377 27,054 237,431
Notes payable to stockholder 285,000 (225,000)3b 60,000
Notes payable -- 1,995,000 (1,995,000)3b --
------------ ----------- ------------- ------------
Total current liabilities 4,102,625 3,822,922 (2,258,862) 5,666,685
Long-term liabilities:
Capital lease obligation 369,883 19,370 389,253
Other accrued liabilities -- 25,937 25,937
------------ ----------- ------------- ------------
Total long-term liabilities 369,883 45,307 415,190
Redeemable convertible preferred stock:
Preferred stock Series A 8,478,211 3,270,417 (3,270,417)3c 8,478,211
Preferred stock Series B 19,620,772 -- 19,620,772
Preferred stock Series C -- -- 6,968,389 3c 6,968,389
------------ ----------- ------------- ------------
Total redeemable convertible
preferred stock 28,098,983 3,270,417 3,697,972 35,067,372
Stockholders' deficit:
Common stock 15,465 10,557 (9,760)3d 16,262
Additional paid-in capital 56,123,198 488,394 2,949,295 3e 59,560,887
Deferred stock-based compensation (3,805,387) -- (3,805,387)
Stock subscriptions receivable -- (16,660) (16,660)
Accumulated deficit (62,839,419) (6,936,243) 6,936,243 3f (62,839,419)
Accumulated comprehensive loss (116,885) -- (116,885)
------------ ----------- ------------- ------------
Total stockholders' deficit (10,623,028) (6,453,952) 9,875,778 (7,201,202)
------------ ----------- ------------- ------------
Total liabilities, redeemable convertible
preferred stock, and stockholders' deficit $ 21,948,463 $ 684,694 $ 11,314,888 $ 33,948,045
============ =========== ============= ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-16
<PAGE> 20
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRODUCEONLINE.COM, INC.
-----------------------
HISTORICAL
FOR THE PERIOD
WORLD FROM
COMMERCE JULY 13, 1999 TO
ONLINE, INC. DECEMBER 31, PRO FORMA PRO FORMA
ASSETS & SUBSIDIARIES 1999 ADJUSTMENTS COMBINED
------ -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Advertising revenue $ 14,145 -- $ 14,145
Subscription revenue 7,909 -- 7,909
Transaction revenue 21,076 -- 21,076
------------ ----------- ------------- ------------
Total revenues 43,130 -- 43,130
Costs and operating expenses:
Product and technology
development 2,836,605 384,364 3,220,969
Sales and marketing 5,464,989 702,832 6,167,821
General and administrative 3,848,221 456,094 4,304,315
Depreciation & amortization 421,167 13,683 3,771,963 4a 4,206,813
------------ ----------- ------------- ------------
Total costs and
operating expenses 12,570,982 1,556,973 3,771,963 17,899,918
------------ ----------- ------------- ------------
Loss from operations (12,527,852) (1,556,973) (3,771,963) (17,856,788)
Net interest income (expense) (166,129) 7,205 (158,924)
Other non-operating income
(expense) (56,587) (1,600) (58,187)
------------ ----------- ------------- ------------
Net loss $(12,750,568) (1,551,368) (3,771,963) (18,073,899)
Deemed dividend on redeemable
convertible preferred stock (28,000,000) (28,000,000)
------------ ------------
Net loss available to common
stockholders $(40,750,568) $(1,551,368) $ (3,771,963) $(46,073,899)
============ =========== ============= ============
Basic and diluted net loss per
common share $ (2.67) 4b $ (2.87)
============ ============
Weighted average number of
shares used in computing
basic and diluted net loss
per common share 15,271,152 796,539 4c 16,067,691
============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-17
<PAGE> 21
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
WORLD
COMMERCE PRODUCEONLINE.COM, INC.
ONLINE, INC. ----------------------- PRO FORMA PRO FORMA
ASSETS & SUBSIDIARIES HISTORICAL ADJUSTMENTS COMBINED
------ -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Advertising revenue $ 8,588 $ -- $ 8,588
Subscription revenue 15,427 -- 15,427
Transaction revenue 73,864 3,353 77,217
------------ ----------- ----------- ------------
Total revenues 97,879 3,353 101,232
Costs and operating expenses:
Product and technology
development 5,070,809 1,767,352 6,838,161
Sales and marketing 7,100,953 1,222,242 8,323,195
General and administrative 3,022,183 2,304,034 5,326,217
Depreciation and amortization 1,826,825 81,889 1,885,982 4a 3,794,696
------------ ----------- ------------ ------------
Total costs and operating
expenses 17,020,770 5,375,517 1,885,982 24,282,269
------------ ----------- ------------ ------------
Loss from operations (16,922,891) (5,372,164) (1,885,982) (24,181,037)
Net interest income (expense) 196,164 (12,711) 38,862 4b 222,315
Other non-operating income
(expense) (10,319) -- (10,319)
------------ ----------- ------------ ------------
Net loss $(16,737,046) $(5,384,875) $ (1,847,120) $(23,969,041)
Deemed dividend on redeemable
convertible preferred stock (500,000) -- (500,000)
------------ ----------- ------------ ------------
Net loss available to common
stockholders $(17,237,046) $(5,384,875) $ (1,847,120) $(24,469,041)
============ =========== ============= ============
Basic and diluted net loss per
common share $ (1.12) 4c $ (1.51)
============ ============
Weighted average number of
shares used in computing
basic and diluted net loss
per common share 15,442,352 796,539 4d 16,238,891
============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-18
<PAGE> 22
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. OVERVIEW:
The pro forma condensed combined financial statements are unaudited and
give effect to the acquisition of the ProduceOnline.com, Inc.
("ProduceOnline") on August 4, 2000, by World Commerce Online, Inc.
(the "Company").
The unaudited pro forma condensed combined financial statements are
based on the historical financial statements of the Company and
ProduceOnline giving effect to the transaction under the purchase
method of accounting and the assumptions and adjustments discussed
below. The Company has made preliminary estimates of fair value for the
net assets acquired from ProduceOnline and has allocated the purchase
price using these estimates.
These unaudited pro forma financial statements may not be indicative of
the financial position or results of operations that actual would have
occurred if the combination had been in effect on January 1, 1999 or
2000 or which may obtained in the future. The pro forma financial
statements should be read in conjunction with the audited financial
statements of the Company, contained in the Company's Form 10 for the
year ended December 31, 1999 and Form 10-Q for the six months ended
June 30, 2000, and the financial statements of ProduceOnline contained
elsewhere herein.
2. ACQUISITION:
On August 4, 2000, the Company acquired the entire equity interest in
ProduceOnline.com, Inc. ("POL"). The consideration included 423,592
shares of common stock, 91,802 shares of Series C redeemable
convertible preferred stock convertible into 918,021 shares of Company
common stock, and assumption of liabilities. In addition, the Company
issued 372,955 shares of common stock to the founding stockholders of
POL that are subject to a repurchase option in the event that
stockholders terminate employment within the next 27 months. The
shares subject to the repurchase option will be accounted for as
contingent consideration and will be recorded as additional cost of
the acquisition at the then fair value of the underlying stock as the
repurchase option expires.
3. PRO FORMA ADJUSTMENTS AS OF JUNE 30, 2000:
The unaudited pro forma condensed combined balance sheet combines the
balance sheets of the Company and ProduceOnline. In combining the
companies, the pro forma adjustments reflect the following:
a. Record excess of purchase price over estimated fair
value of net assets acquired.
b. Record conversion of ProduceOnline notes payable to
ProduceOnline Series A convertible preferred stock.
c. Remove historical cost of ProduceOnline Series A
convertible preferred stock ($3,270,417) and record
Company Series C convertible preferred stock issued
($6,968,389).
d. Remove historical cost of ProduceOnline common stock
($10,557) and record par value of Company common
stock issued ($797).
e. Remove historical amount of ProduceOnline additional
paid in capital ($488,394) and record additional paid
in capital of Company common stock issued
($3,437,689).
f. Remove historical amount of ProduceOnline accumulated
deficit.
F-19
<PAGE> 23
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
4. PRO FORMA ADJUSTMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE SIX
MONTHS ENDED JUNE 30, 2000:
The unaudited pro forma condensed combined statements of operations for
the year ended December 31, 1999 and the six months ended June 30,
2000, combines the statements of operations of the Company and
ProduceOnline. In combining the companies, the pro forma adjustments
reflect the following:
a. Record amortization of goodwill over the estimated
useful life of three years.
b. Write-off accrued interest payable on ProduceOnline
notes payable converted to Series A convertible
preferred stock.
c. Pro forma combined loss per share giving effect to
the pro forma adjustments.
d. Record Company common stock issued. Weighted average
shares include shares subject to a repurchase option.
F-20
