<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): May 25, 2000
------------------
Forefront, Inc.
(Exact name of registrant as specified in its charter)
Nevada 0-25389 98-0199128
------ ------- ----------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
540 N. Tamiami Trail
Sarasota, Florida 34236
------------------------------------------ -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 954-1144
---------------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
On May 25, 2000, the shareholders of Web Partners, Inc. (hereinafter "Web
Partners") and Forefront Technologies, Inc. (hereinafter "Forefront
Technologies") approved an Agreement and Plan of Merger merging Web Partners
with and into Forefront Technologies, a wholly owned subsidiary of Forefront,
Inc. (hereinafter "Forefront" and formerly "Anyox Resources Inc."). Upon the
effective date of the merger, Web Partners ceased to exist and all of its assets
and liabilities became those of Forefront Technologies.
The merger transaction is the culmination of a plan put in place on March
5, 2000, to have Forefront acquire the business of Web Partners. The overall
plan called for each stockholder of Web Partners to receive two (2) shares of
Forefront stock for each one (1) share of Web Partners stock that they own. In
order
1. to provide Web Partners with access to capital beginning in March,
2. to comply with securities laws and
3. to achieve favorable tax treatment
the overall plan was broken into two major steps. In the first step, which
closed on March 15, 2000, Mark Gray and Wyly Wade each exchanged 1,000,000 of
their Web Partners shares for 2,000,000 Forefront shares. Because it then owned
57% of Web Partners, Forefront (then known as Anyox Resources Inc.) began
advancing cash to Web Partners under a promissory note so that Web Partners
could continue to operate. The second step in the overall plan was the merger,
which is intended
1. to result in the business of Web Partners being wholly-owned by
Forefront, and
2. to provide the remaining Web Partners stockholders other than
Forefront with two (2) shares of Forefront stock for each one (1)
share of Web Partners stock that they own.
The merger transaction was conducted pursuant to an exemption from
registration, namely Rule 506 of Regulation D. As a result, the Forefront shares
are "restricted securities" subject to Rule 144 of the Securities Act of 1933.
Following the merger, the three major stockholder groups own approximately
the following numbers of shares:
Early stockholders in Anyox Resources 6,000,000
March 2000 private placement stockholders 6,000,000
Former Web Partners stockholders 7,800,000
----------
19,800,000
==========
In addition, existing Web Partners stock options were converted into
approximately 1,600,000 Forefront stock options, subject to the Forefront stock
option plan, but on the same basic economic terms and conditions as the existing
Web Partners stock options. Forefront also will be able to grant approximately
an additional 14,000,000 stock options to its directors,
2
<PAGE>
executive officers, employees and consultants over the next two years at a
minimum exercise price of $6.00 per share. Forefront's ability to grant some of
the additional options depends on its success in achieving revenue milestones.
Web Partners also has non-employee option and warrant holders that can convert
their options and warrants into approximately 175,000 shares. Forefront intends
to offer these Web Partners option and warrant holders the right to exchange
their existing options and warrants for Forefront warrants on the same basic
economic terms and conditions (and on the same 2-for-1 basis that applies to the
transaction generally) as the existing Web Partners options and warrants.
Finally, the overall transaction has been structured to provide favorable
tax treatment as a tax-free reorganization.
For a detailed description of Web Partners' business, see the Anyox
Resources Inc. Form 8-K, dated March 15, 2000 and filed on March 30, 2000.
Terms of the Merger
Web Partners was merged with and into Forefront Technologies pursuant to
Chapter 607 of the Florida Statutes and Chapters 78 and 92A of the Nevada
Revised Statutes, as amended, and in accordance with the terms and conditions of
the Agreement and Plan of Merger. A majority of the shares entitled to vote of
record for each of the corporations voted in favor of the merger. Therefore,
upon execution by the surviving entity of the Articles of Merger and filing of
the Articles of Merger with the Secretaries of State of the States of Florida
and Nevada, the merger became effective (the "Effective Time of the merger").
The Articles of Merger were filed with each respective Secretary of State on
June 2, 2000.
The Board of Directors of Web Partners approved the merger transaction by
resolution on May 5, 2000. The Boards of Directors of Forefront and Forefront
Technologies approved the merger transaction by resolution on April 19, 2000.
Pursuant to Nevada Revised Statutes 94A.130, no shareholder vote was necessary
for approval of the merger by Forefront.
Certificate of Incorporation and Bylaws
---------------------------------------
The Amended and Restated Articles of Incorporation and Bylaws of Forefront
Technologies remained the Articles of Incorporation and Bylaws of the surviving
entity. As part of the merger transaction, the name of the subsidiary changed
from Web Partners of Nevada, Inc. to Forefront Technologies, Inc.
Officers and Directors
----------------------
The executive officers and directors of Forefront Technologies in office at
the Effective Time of the merger remained those of Forefront Technologies.
3
<PAGE>
Purpose of Merger
-----------------
The main purpose of the merger is to provide stockholders of Web Partners
with a liquid market for their shares and to transfer the remaining interest in
Web Partners to Forefront's control.
Conversion of Shares
--------------------
The mechanics of the merger consists of an exchange of all existing common
shares of Web Partners for common shares of Forefront. All stockholders of Web
Partners received two (2) shares of common stock of Forefront for every one (1)
outstanding share of common stock of Web Partners. In the aggregate, 6,947,254
shares of common stock of Forefront was issued to stockholders of Web Partners.
Each stockholder of Web Partners had to surrender their current share
certificates in Web Partners in exchange for common share certificates in
Forefront. By so doing, each stockholder of Web Partners took all the rights
incident to their current shares and turn them in for rights incident to the new
common shares.
Amendment to the Agreement and Plan of Merger
---------------------------------------------
The Agreement and Plan of Merger may not be amended or supplemented after
having been approved by the stockholders of Web Partners except by a vote or
consent of stockholders of Web Partners in accordance with applicable law.
Effects of the Merger
---------------------
The exchange of shares of outstanding common stock of Web Partners for
common stock of Forefront doubles the number of shares of common stock held by
Web Partners' stockholders. In addition, the liquidity and market value of the
Forefront common stock is greater than the common stock of Web Partners. More
importantly, Web Partners' stockholders received restricted shares subject to a
holding period of at least one year pursuant to Rule 144 of the Securities
Exchange Act of 1934.
Item 7. Financial Statements, Pro Forma Information and Exhibits
Financial Statements
--------------------
Accompanying this Form 8-K are the financial statements of Web Partners
required by Regulation S-B, Item 310(c).
Index to Financial Statements of Web Partners
<TABLE>
<S> <C>
Report of Independent Auditors, dated October 29, 1999.................................................................. F-1
Balance Sheets as of January 31, 2000 (unaudited) and October 25, 1999.................................................. F-2
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Income Statements for the three months ended January 31, 2000 (unaudited) and the period
ended October 25, 1999...................................................................... F-4
Statements of Cash Flows for the three months ended January 31, 2000 (unaudited) and the
period ended October 25, 1999............................................................... F-6
Statement of Stockholders Equity for the period ended October 25, 1999...................... F-8
Notes to Financial Statements (unaudited as to periods after October 25, 1999).............. F-10
</TABLE>
Pro Forma Financial Information
-------------------------------
Accompanying this Form 8-K are the pro forma financial statements required
by Regulation S-B, Item 310(d).
Index to Pro Forma Financial Statements
<TABLE>
<S> <C>
Pro Forma Balance Sheet as of March 31, 2000 (unaudited).................................... F-32
Pro Forma Income Statements for the nine months ended March 31, 2000 and the year ended
June 30, 1999 (unaudited)................................................................... F-33
</TABLE>
Exhibits
--------
2 Agreement and Plan of Merger
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FOREFRONT, INC.
Dated: June 8, 2000
By: /s/ Santu Rohatgi
------------------------------
Name: Santu Rohatgi
Title: President
5
<PAGE>
[LETTERHEAD OF CHRISTOPHER, SMITH, LEONARD, BRISTOW, STANELL & WELLS, P.A.]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Web Partners, Inc.
We have audited the accompanying balance sheet of Web Partners, Inc. (a
development stage enterprise) at October 25, 1999 and the related statements of
operations, stockholders' equity, and cash flows for the year ended October 25,
1999 and for the period from September 11, 1998 (inception) to October 25, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Web Partners, Inc. (a
development stage enterprise) as of October 25, 1999, and the results of its
operations and its cash flows for the year ended October 25, 1999 and for the
period from September 11, 1998 (inception) to October 25, 1999, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Christopher, Smith, Leonard,
Bristow, Stanell & Wells, P.A.
CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
October 29, 1999
F-1
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
Assets
Current Assets
Cash $ 18,985
Prepaid expenses 12,891
Employee advances 50
Shareholder receivable 24,267
Other receivable 127
--------------------
Total current assets 56,319
Property and Equipment
Furniture and fixtures 20,013
Office equipment 12,424
Computer equipment 116,182
Software 13,599
Leasehold improvements 26,539
Accumulated depreciation and amortization (14,760)
--------------------
Total property and equipment 173,998
Other Assets
Deposits 5,667
Capitalized software cost less accumulated amortization of $18,591 255,750
Patent rights less accumulated amortization of $11,940 44,121
--------------------
Total other assets 305,538
Total Assets $ 535,854
====================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 516,306
Accrued liabilities 111,938
Notes payable 205,000
--------------------
Total liabilities 833,244
Stockholders' Equity
Preferred stock, $.005 par value, 3,000,000 shares authorized; 66,665
issued and outstanding 333
Class A - Common stock, $.005 par value, 2,000,000 shares authorized;
1,000,000 issued and outstanding 5,000
Class B - Common stock, $.005 par value, 5,000,000 shares authorized;
1,917,487 issued and outstanding 9,587
Additional paid in capital 953,144
Deficit accumulated during the development stage (1,265,454)
--------------------
Total stockholders' equity (297,390)
Total liabilities and stockholders' equity $ 535,854
====================
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these
internally prepared financial statements.
F-2
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
OCTOBER 25, 1999
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash $ 166,055
Prepaid expenses - CyberQuest - Note 6 54,000
Employee advances 22,500
Shareholder receivable - Note 6 3,143
Accrued interest receivable 20,000
---------
Total current assets $ 266,043
Property and Equipment - Note 1
Office equipment 924
Computer equipment 69,113
Software 13,265
Accumulated depreciation (2,926)
---------
Total property and equipment 80,376
Other Assets - Note 1
Deposits 1,000
Capitalized software costs less accumulated amortization of $2,772 34,016
Patent rights, less accumulated amortization of $3,957 13,937
Loan costs, less accumulated amortization of $767 7,937
---------
Total other assets 56,186
---------
TOTAL ASSETS $ 402,605
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 155,282
Accrued liabilities 1,685
Stock subscription liability - Note 3 165,000
Notes payable - Note 3 175,000
---------
Total current liabilities 496,967
Long-term debt - Note 3 100,000
Commitments and contingencies - Note 2
Stockholders' equity - Note 3
Preferred stock, $.005 par value, 3,000,000 shares authorized;
-0- issued and outstanding -0-
Class A - Common stock, $.005 par value, 2,000,000 shares
authorized; issued and outstanding 1,000,000 5,000
Class B - Common stock, $.005 par value, 5,000,000 shares
authorized; 1,000,000 issued and outstanding 5,000
Additional paid-in capital 446,850
Deficit accumulated during the development stage (651,212)
---------
Total stockholders' equity (deficit) (194,362)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 402,605
=========
</TABLE>
The accompanying notes are in integral part of these financial statements.
F-3
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
Costs and Expenses
Amortization $ 23,922
Accounting and auditing expense 307
Advertising and promotion 115,198
Auto expenses 408
Bank charges 244
Charitable contributions 145
Computer support 2,000
Conferences and seminars 1,600
Depreciation 10,948
Dues and subscriptions 640
Employee benefit programs 6,359
Gifts expense 1,411
Interest 5,445
Internet service provider expense 6,774
Leased employees 101,939
Legal and professional 8,697
Licenses 25
Maintenance expense 993
Management information systems expense 7,344
Merit bonus 74,114
Moving expense 8,731
Office expense 3,026
Postage expense 5,846
Recruiting expense 26,731
Rent or lease expense 39,228
Research and development 117,794
SBO bonus 12,822
Security expense 97
Signing bonus 12,500
Telephone 5,267
Temporary wages 10,532
Travel and meals 20,701
Utilities expense 2,210
Overhead allocation (18,914)
-------------------
Total costs and expenses 615,087
-------------------
Operating loss (615,087)
Interest income 845
-------------------
Net Loss $ (614,242)
===================
Basic loss per share $0.18
Shares used in basic per share computation 3,452,961
Diluted loss per share $0.15
Shares used in diluted per share computation 3,991,782
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these
internally prepared financial statements.
F-4
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
COSTS AND EXPENSES
Amortization $ 7,496
Advertising and promotion 154,801
Auto expenses 167
Bank charges 540
Computer support 750
Depreciation 2,926
Interest 1,685
Legal and professional 35,085
Licenses 907
Office expense 7,219
Research and development 419,542
Telephone 1,302
Travel and meals 19,252
------------
Total costs and expenses 651,672
------------
Operating (loss) (651,672)
Interest income 460
------------
NET LOSS $ (651,212)
============
Basic loss per share $ (1.31)
============
Shares used in basic per share
computation 489,630
============
Diluted loss per share $ (1.25)
============
Shares used in diluted per share
computation 519,831
============
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FROM OCTOBER 26, 1999 to JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Cash Flows From Operating Activities
Net loss $ (914,242)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 34,870
Changes in operating assets and liabilities:
Decrease in prepaid expenses 63,609
Decrease in employee receivable 3,093
Increase in shareholder receivable (4,267)
Decrease in other receivable 218
Increase in deposits (4,667)
Increase in accounts payable 361,024
Increase in accrued liabilities 110,253
----------
Net cash used in operating activities (350,109)
Cash Flows from Investing Activities
Capital expenditures (105,456)
Intangible asset expenditures (267,721)
----------
Net cash used in investing activities (373,177)
Cash Flows from Financing Activities
Proceeds from notes payable 105,000
Proceeds from equity investors net of issue costs 652,216
Accounts payable converted to capital (6,000)
Debt converted to capital (175,000)
----------
Net cash provided by financing activities 576,216
Net Decrease in cash (147,070)
Cash - beginning of period 166,055
----------
Cash - end of period $ 18,985
==========
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these
internally prepared financial statements.
F-6
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (651,212)
Adjustment to reconcile net loss to
net cash used in operating activities 10,422
Depreciation and amortization
Changes in operating assets and
liabilities
Increase in prepaid expenses (76,500)
Increase in employee receivable (3,143)
Increase in shareholder receivable (20,000)
Increase in interest receivable (345)
Increase in deposits (1,000)
Increase in accounts payable 155,282
Increase in accrued liabilities 1,685
-------------
Net cash (used) in operating activities (584,811)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (83,302)
Intangible asset expenditures (62,682)
-------------
Net cash used in investing activities (145,984)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 175,000
Proceeds from long-term debt 100,000
Proceeds from equity investors net of issue costs 446,850
Proceeds from stock subscription 165,000
Issuance of common stock 10,000
-------------
Net cash provided by financing activities 896,850
-------------
NET INCREASE IN CASH 166,055
Cash - beginning of period -0-
-------------
CASH - END OF PERIOD $ 166,055
=============
SUPPLEMENTAL INFORMATION
------------------------
Cash paid for interest $ -0-
=============
Cash period for income taxes $ -0-
=============
The accompanying notes are in integral part of these financial statements.
F-7
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Capital Stock Additional During the
----------------------------- Paid In Development
Shares Amount Capital Phase
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - October 25, 1999 2,000,000 10,000 446,850 (651,212)
Preferred Stock
issued in connection with bridge loan conversion 66,665 333 - -
Class A - Common Stock - - - -
Class B - Common Stock
issued in private placement 640,826 3,203 - -
issued in payment of fees 4,000 20
issued in conversion of debt 213,333 1,067
issued per escrow agreement 8,000 40
issued per stock option agreements 51,328 257
Additional paid-in-capital, net of offering cost - - 506,294 -
Net loss -
Three months ended January 31, 2000 - - - (614,242)
--------------------------------------------------------------
Balance - January 31, 2000 2,984,152 14,920 953,144 (1,265,454)
==============================================================
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these
internally prepared financial statements.
F-8
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
DEFICIT
ACCUMULATED
CAPITAL STOCK ADDITIONAL DURING THE
------------------- PAID IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
--------- --------- ----------- -----------
Balance - September 11, 1998 -0- -0- -0- -0-
Class A - Common Stock
issued in connection
with technology rights 1,000,000 5,000 -0- -0-
Class B - Common Stock
issued in connection
with technology rights 1,000,000 5,000 -0- -0-
Additional paid-in-capital,
net of offering costs -0- -0- 466,850 -0-
Net loss -
Year ended
October 25, 1999 -0- -0- -0- (651,212)
--------- --------- ----------- -----------
BALANCE - October 25, 1999 2,000,000 $ 10,000 $ 446,850 $ (651,212)
========= ========= =========== ===========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------
The Company
-----------
Web Partners, Inc. (the "Company") is a development stage company formed
in the State of Florida on September 11, 1998. This entity remained
dormant until August, 1999. The Company is engaged in research and
development of new web based technologies. The Company is in the
process of filing for United States patent protection for a family of
technologies which allow the rapid development of online, thirty second
commercial spot advertisements, providing online advertisers with the
first reliable audience delivery verification system. The Company's
business is predominately based in the United States.
The Company is in the development stage and its efforts through January
31, 2000 have been principally devoted to organizational activities,
research and development of its technologies and raising capital.
Management anticipates incurring substantial additional losses as it
pursues its research and development efforts.
The Company shares facilities and certain other resources with
CyberQuest Group, Inc. Certain of CyberQuest Group, Inc.'s officers
serve as officers of the Company and the Company obtains management and
administrative support from CyberQuest Group, Inc.'s staff.
The Company has raised capital through the form of a subscription
agreement. The Company expects that the proceeds from this and any
additional capital campaigns will enable it to fund its operations at
least through the year 2000.
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
at the date of the financial statements and the reported amounts of
revenue and expenses during the period. Despite management's best
effort to establish good faith estimates, actual results may differ from
these estimates.
Advertising Costs
-----------------
The Company charges advertising costs to expense when the advertising
takes place. Advertising expenses approximated $115,000 for the period
ended January 31, 2000.
F-10
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
-----------------------------------------------------------
Depreciation and Amortization
-----------------------------
Depreciation is computed using the straight-line method over an
estimated useful life of three years for computer equipment and computer
software, and five years for office equipment.
Amortization is computed using the straight-line method over the
estimated useful lives of the assets, not to exceed 5 years.
Capitalized Software
--------------------
The Company capitalized costs of materials and consultants, incurred in
developing internal-use computer software once technological feasibility
is attained. Technological feasibility is attained when software
products reach Beta release. Costs incurred prior to the establishment
of technological feasibility are charged to product development expense.
The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs
require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies.
Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized (using the straight-
line method) on a product by product basis over the estimated life which
is generally three years.
All research and development expenditures are charged to research and
development expense in the period incurred.
Capitalized software costs and accumulated amortization as of January
31, 2000 and related software amortization expense for the period then
ended was as follows:
Capitalized software $274,342
Accumulated amortization (18,591)
--------
$255,751
========
Amortization expense $ 15,819
========
F-11
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
-----------------------------------------------------------
Intangible Assets
-----------------
The Company, in an agreement dated July 27, 1999, received the right to
use certain proprietary technology(s) systems methodologies and/or
combination of elements which may be deemed patentable ("Patent Rights")
for a period of one year. These patent rights were exchanged for common
stock totaling $10,000 (see Note 3). The capitalized patent rights and
accumulated amortization at January 31, 2000 and related amortization
expense for the period then ended was as follows:
<TABLE>
<S> <C>
Patent Rights:
From exchange agreement $10,000
Patent expenses 46,061
-------
56,061
Accumulated amortization 11,940
-------
44,121
Amortization expense $ 7,983
=======
</TABLE>
Revenue Recognition
-------------------
The Company will contract with customers for providing online, thirty
second commercial spot advertisements. Revenues are generally
recognized when a fixed period license agreement has been signed, the
software product has been developed, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable, and
collection is considered probable. For customer license agreements,
which meet these recognition criteria, the portion of the fees related
to software licenses will generally be recognized in the current period,
while the portion of the fees related to services is recognized as the
services are performed. However, for the period ending January 31,
2000, the Company had not entered into any contracts for the sale or use
of its products.
F-12
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
-----------------------------------------------------------
Per Share Data
--------------
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share ("SFAS 128"), requiring public
companies to exclude the dilutive effect of stock options in calculating
basic earnings per share. Basic income per share as required under SFAS
128 is computed using the weighted average number of common shares
outstanding during the period. Diluted income per share is computed
using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent
shares consist of the shares issuable upon the exercise of stock options
(using the treasury stock method). The following table sets forth the
computation of basic and diluted income per share for the period ended
January 31, 2000:
<TABLE>
<S> <C>
Numerator:
Net Loss $ (614,242)
Denominator:
Denominator for basic income per share -
weighted average shares 2,592,848
Stock options 366,370
Convertible debt 94,696
----------
Denominator for diluted income per share -
adjusted weighted average shares and
assumed exercises 3,422,511
Basic loss per share $ (0.20)
==========
Diluted loss per share $ (0.18)
==========
</TABLE>
Newly Effective Accounting Standards
------------------------------------
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", SOP
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions",
were issued in October 1997, March 1998, and December 1998, respectively
and address software revenue recognition matters primarily from a
conceptual level and do not include specific implementation guidance.
These standards supersede SOP 91-1 and, in part, are effective for
transactions entered into for fiscal years beginning after December 15,
1997. Based on it's reading and interpretation of SOPs 97-2 and 98-4,
the Company believes it is currently in compliance with the standards.
Complying with SOP 98-9 or additional detailed implementation guidance,
once issued, could lead to unanticipated changes in the Company's
current revenue accounting practices, and such changes could adversely
impact the Company's ability to recognize revenue consistent with its
current practice.
F-13
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 25, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
-----------------------------------------------------------
Newly Effective Accounting Standards - Continued
------------------------------------------------
This new standard is not effective until the year 2000. Web Partners,
Inc. has not fully assessed its ability to comply with SOP 98-9 using
current contracting and business practices. However, Web Partners, Inc.
believes that SOP 98-9 will not significantly effect its reporting of
revenues.
Risks and Concentrations
------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. As of the
balance sheet date of January 31, 2000, the cash balances were not in
excess of insured amounts. The financial institution has a strong credit
rating and management believes that credit risk related to these
deposits is minimal. During the year, the Company has monies held in
various bank accounts. Funds in these accounts could exceed insurable
limits during the course of the year.
Until December 12, 1999, the Company had incurred the majority of its
research and development, marketing and promotional activities from
CyberQuest Group, Inc., a related party (NOTE 6). Until that date, the
Company's concentration for such services had been critical to the
operations of Web Partners, Inc. From December 13, 1999 to January 31,
2000 Web Partners, Inc. has not used the services of CyberQuest Group,
Inc.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is not aware of any legal disputes and proceedings arising
from the ordinary course of general business activities. However,
depending on the amount and the timing, an unfavorable resolution of
some unreported matters could materially affect the Company's future
results of operations or cash flows in a particular period.
Acquisitions
------------
In an agreement dated August 9, 1999, the Company has entered into an
acquisition agreement with 547341 BC Ltd. (Newco.). Newco will acquire
30% of the issued and outstanding Class B common stock of the Company in
exchange for $3,000,000 or a pro-rata amount not to exceed 30%. In
circumstances where Newco acquires less than all of the issued and
outstanding shares of the Company, the number of
F-14
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 2 - COMMITMENTS AND CONTINGENCIES - CONTINUED
-----------------------------------------
Acquisitions - Continued
------------------------
acquisition shares shall be adjusted accordingly, provided that in any
event Newco will not complete the acquisition of the Company unless
persons holding at least 90% of the shares of the Company shall have
entered into the Share Exchange Agreement or otherwise consented to the
proposed reorganization of the Company.
Pursuant to the August 9, 1999 agreement, and management
representations, it is acknowledged and agreed that it is a condition
precedent to the completion of the Share Exchange Agreement that Newco
shall have forwarded as either a loan or in the form of securing equity
investors, or both, to the Company certain monies. Such monies, if
advanced as a loan are to be considered an interest free loan secured by
a first charge over the assets of the Company. Should the Share
Exchange Agreement terminate, these monies are due within two years of
termination. Newco retains the right to convert any outstanding loans
for the pro-rata earned equity of the Company. As of January 31, 2000,
Newco converted a $100,000 loan to equity at $0.75 per share. Newco has
also secured and advanced equity investors funds of $650,000 in
compliance with this agreement.
This Agreement shall terminate and be of no further force and effect in
circumstances where the Closing has not taken place as of February 15,
2000 or if Newco has failed to meet the funding obligations as outlined
above. Said Closing deadline may be extended by mutual agreement for
additional periods. The exception that the obligation of the Company to
repay any monies advanced to it will remain in effect.
NOTE 3 - CAPITALIZATION
--------------
The Company has been initially capitalized from the exchange of certain
proprietary technology(s), systems, methodologies and/or combination of
elements which may be deemed patentable (Patent Rights) from Mark Gray
and Wyle Wade in an agreement dated July 27, 1999. Mark Gray was issued
1,000,000 shares Class A common stock with a par value of $5,000 and
Wyle Wade was issued 1,000,000 shares Class B common stock, par value
$5,000. The purchase price was determined without independent
appraisal.
The Company has also been capitalized from funding raised through the
subscription of the Company's Class B Common Stock totaling $956,000.
Costs of the subscription approximated $70,636 and are treated as a
reduction of additional paid-in capital.
F-15
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 3 - CAPITALIZATION - CONTINUED
--------------------------
Notes Payable - Continued
-------------------------
Preferred Stock
---------------
The Company has authorized the issuance of 3,000,000 shares of Preferred
Stock, par value $0.005 per share. The Board of Directors of the
Company has broad discretion to create one or more series of preferred
stock and to determine the rights, preferences and privileges of any
such series. This stock has a preference in involuntary liquidation
compared to all other classes of common stock. At January 31, 2000,
66,665 shares of preferred stock have been issued in connection with a
debt conversion.
Notes Payable
-------------
Notes payable at January 31, 2000 consisted of the following:
The Company has issued $100,000 of notes payable dated October 21, 1999
which carry no interest, payable 180 days after receipt of funds. These
notes are convertible by the holder to the following:
1. At any time prior to maturity, the holder can convert to shares
of preferred stock at $1.50 per share and common stock warrants
exercisable twelve months after maturity of the debt at a price
of $1.50 per warrant; or
2. At maturity, the holder can convert to principal in cash plus
common stock warrants, exercisable twelve months after the debt
matures, at a price of $1.50 per warrant.
In addition, the Company issued notes as follows to a major shareholder
at 10% interest payable in 30 days:
<TABLE>
<S> <C>
January 7, 2000 $ 30,000
January 14, 2000 20,000
January 21, 2000 30,000
January 27, 2000 25,000
--------
$105,000
--------
</TABLE>
F-16
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 3 - CAPITALIZATION - CONTINUED
--------------------------
Notes Payable - Continued
-------------------------
The table below summarizes the Company's outstanding preferred stock
options and common stock warrants, and the options and warrants
currently exercisable at January 31, 2000. This presentation represents
the more dilutive of the two options available to the holders.
<TABLE>
<CAPTION>
TOTAL OPTIONS
OUTSTANDING CURRENTLY
PREFERRED STOCK OPTIONS OPTIONS EXERCISABLE
----------------------- ----------- -----------
<S> <C> <C>
Balance October 25, 1999 66,665 66,665
Options exercised by debt
conversion (66,665) (66,665)
------- -------
Balance January 31, 2000 -0- -0-
</TABLE>
The option price for preferred stock is $1.50 per share. No market
value has been established and there are no assurances that a market
will be established.
<TABLE>
<CAPTION>
TOTAL OPTIONS
OUTSTANDING CURRENTLY
COMMON STOCK WARRANTS OPTIONS EXERCISABLE
--------------------- ----------- -----------
<S> <C> <C>
Balance October 25, 1999 66,665 -0-
Grants - Common Stock -0- -0-
------ ---
Balance January 31, 2000 66,665 -0-
</TABLE>
These warrants are exercisable twelve months after maturity of the debt
at a price of $1.50 per warrant. At January 31, 2000, no options were
forfeited or exercised.
NOTE 5 - RESEARCH AND DEVELOPMENT ACTIVITIES
-----------------------------------
The Company has incurred research and development costs through January
31, 2000 totaling $117,794. These charges represent costs associated
with the ongoing development of its E-Commerce applications.
F-17
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 5 - RELATED PARTY TRANSACTIONS
--------------------------
The Company has loaned two shareholders two note agreements for $5,000
each, for a total of $10,000 per shareholder. The first set of notes
are dated August 5,1999 and the second set are dated August 27, 1999.
All four notes bear annual interest at 9% per year and each note is due
12 months from the note agreement dates. At January 31, 2000, interest
income was $630 and interest receivable was $975. The notes carry a
provision that upon the performance of certain agreed upon
accomplishments, the notes become earned income to the individual. As
of the date of this report, the specific accomplishments have not been
identified for purpose of the agreements.
The Company has entered into an agreement with CyberQuest Group, Inc., a
related party, for certain professional services related to the
development of the Company's technologies. The companies are related
through common ownership and control. Costs incurred under this
agreement at January 31, 2000 approximated $142,861, and at the balance
sheet date, the Company has outstanding accounts payable to CyberQuest
Group, Inc. of $202,865. The agreement was terminated effective December
12, 1999. Further, pursuant to the agreement, CyberQuest Group, Inc.
vested, on a monthly pro-rated basis, the option to purchase up to an
aggregate of 400,000 shares of Class B common stock, fully paid for and
nonassessable with voting rights as outlined under the Articles of
Incorporation. At January 31, 2000, 166,667 options are currently
exercisable. If the Company undertakes the filing of a registration
statement with the Securities and Exchange Commission, pursuant to
either the Securities Act of 1933 or the Exchange Act of 1934, or both,
any shares then owned by CyberQuest Group, Inc. shall be granted "piggy
back" registration rights which will provide that said shares may be
registered with all other shares of the Company. Any expenses incurred
in connection with the registration of the Company's shares shall be the
obligation of the Company.
The Company has also incurred expenses for promotional and marketing
services from CyberQuest, Inc. At January 31, 2000, these costs
approximated $54,000.
The company issued promissory notes to a major shareholder totaling
$105,000. These are at 10% annual interest payable in 30 days from the
date of issue.
The Company has become party to a stock repurchase and exchange
agreement between CyberQuest Group, Inc. (a related party) and
CyberQuest Group, Inc. shareholders. The details of this transaction
are as follows:
CyberQuest Group, Inc. will offer its shareholders the option to
exchange three shares of either Class A preferred, Class A common or
Class B common stock of CyberQuest, Inc. owned by a shareholder for one
share of Class B common stock of Web Partners, Inc. As of January 31,
2000, CyberQuest Group, Inc. has options totaling 166,667 shares in Web
Partners, Inc. stock. To accomplish the transaction, CyberQuest Group,
Inc. will exercise these options. The options currently available will
be sufficient to conclude the share portion of the transaction.
F-18
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 1999 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 6 - INCOME TAXES
------------
At January 31, 2000, the Company has an operating loss carry forward for
tax purposes of approximately $1,265,454. While the Company has not
filed a tax return, these losses will be available to offset income in
future years. In addition, the Company has elected to defer and
amortize in future periods certain computer software development, patent
and loan costs amounting to approximately $299,871 at January 31, 2000.
The Company has fully reserved the tax benefit of the operating loss
carry forward because the likelihood of realization of the benefit
cannot be established.
The Internal Revenue Code contains provisions which may limit the loss
carry forwards available if significant changes in stockholder ownership
of the Company occur.
NOTE 7 - STOCK PLANS
-----------
The Company has entered into stock option agreements with its Chief
Financial Officer, certain key professionals, and employees. The
following table summarizes the Company's outstanding stock options and
the options currently exercisable at January 31, 2000:
<TABLE>
<CAPTION>
TOTAL OPTIONS
OUTSTANDING CURRENTLY
OPTIONS EXERCISABLE
------------ ------------
<S> <C> <C>
Balance October 25, 1999 847,200 205,235
Grants - Class B Common Stock 93,765 314,902
Options exercised (51,328) (51,328)
------- -------
Balance January 31, 2000 889,637 468,809
======= =======
</TABLE>
The option price for Class B common stock is $.01 per share. No market
value has been established and there are no assurances that a market
will be established.
NOTE 8 - GOING CONCERN
-------------
The Company's continued existence is dependent upon its ability to
resolve its liquidity problems, principally by obtaining additional debt
financing and equity capital. While pursuing additional debt and equity
funding, the Company must continue to operate on limited cash flows
generated internally. The Company has experienced a net loss from
continuing operations for the period ended January 31, 2000 of $614,242.
The Company will have to minimize its requirements for working capital
by continuing its cost reduction efforts. Working capital limitations
continue to effect day-to-day operations, thus contributing to continued
operating losses. The continued support and forbearance of its lenders
will be required.
F-19
<PAGE>
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM OCTOBER 26, 2000 TO JANUARY 31, 2000
(UNAUDITED)
NOTE 8 - GOING CONCERN - CONTINUED
-------------------------
Management believes operations will improve significantly in mid 2000 as
revenues from services rendered will be applicable upon completion of
its primary research and development of its existing service.
NOTE 10 - SUBSEQUENT EVENTS
-----------------
The Company has entered into negotiations with a non-operational,
publicly trading entity for the purpose of a reverse merger that will
allow the Web Partners, Inc. stock to sell shares in the public market.
F-20
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------
The Company
-----------
Web Partners, Inc. (the "Company") is a development stage company formed in
the State of Florida on September 11, 1998. This entity remained dormant
until August, 1999. Consequently, reported amounts also represent
cumulative reporting since inception. The Company is engaged in research
and development of new web based technologies. The Company is in the
process of filing for United States patent protection for a family of
technologies which allow the rapid development of online, thirty second
commercial spot advertisements, providing online advertisers with the first
reliable audience delivery verification system. The Company's business is
predominately based in the United States.
The Company is in the development stage and its efforts through October 25,
1999 have been principally devoted to organizational activities, research
and development of its technologies and raising capital. Management
anticipates incurring substantial additional losses as it pursues its
research and development efforts.
The Company shares facilities and certain other resources with Cyberquest
Group, Inc. Certain of CyberQuest Group, Inc.'s officers serve as officers
of the Company and the Company obtains management and administrative
support from CyberQuest Group, Inc.'s staff.
The Company has raised capital through the form of a subscription
agreement. However, as of the balance sheet date, the stock associated with
the signed subscription agreements has yet to be issued. The Company
expects that the proceeds from this and any additional capital campaigns
will enable it to fund its operations at least through the year 2000.
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 at
the date of the financial statements and the reported amounts of revenue
and expenses during the period. Despite management's best effort to
establish good faith estimates, actual results may differ from these
estimates.
Advertising Costs
-----------------
The Company charges advertising costs to expense when the advertising takes
place. Advertising expenses approximated $155,000 for the period ended
October 25, 1999.
F-21
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
--------------------------------------------------------------------
Depreciation and Amortization
-----------------------------
Depreciation is computed using the straight-line method over an estimated
useful life of three years for computer equipment and computer software,
and five years for office equipment.
Amortization is computed using the straight-line method over the estimated
useful lives of the assets, not to exceed 5 years.
Capitalized Software
--------------------
The Company capitalized costs of materials and consultants, incurred in
developing internal-use computer software once technological feasibility
is attained. Technological feasibility is attained when software products
reach Beta release. Costs incurred prior to the establishment of
technological feasibility are charged to product development expense.
The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies.
Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized (using the straight-line
method) on a product by product basis over the estimated life which is
generally three years.
All research and development expenditures are charged to research and
development expense in the period incurred.
Capitalized software costs and accumulated amortization as of October 25,
1999 and related software amortization expense (included in cost of license
fees) for the period then ended was as follows:
1999
-------
Capitalized software:
Purchased from third parties $36,788
Accumulated amortization (2,772)
-------
$34,016
=======
Amortization expense $ 2,772
=======
F-22
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Intangible Assets
The Company, in an agreement dated July 27, 1999, received the right to use
certain proprietary technology(s) systems methodologies and/or combination
of elements which may be deemed patentable ("Patent Rights") for a period
of one year. These patent rights were exchanged for common stock totaling
$10,000 (see Note 3). The capitalized patent rights and accumulated
amortization at October 25, 1999 and related amortization expense for the
period then ended was as follows:
1999
-------
Patent Rights:
From exchange agreement $10,000
Patent expenses 7,894
-------
17,894
Accumulated amortization 3,957
-------
13,937
Amortization expense $ 3,957
=======
Revenue Recognition
-------------------
The Company will contract with customers for providing online, thirty
second commercial spot advertisements. Revenues are generally recognized
when a fixed period license agreement has been signed, the software product
has been developed, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable, and collection is
considered probable. For customer license agreements, which meet these
recognition criteria, the portion of the fees related to software licenses
will generally be recognized in the current period, while the portion of
the fees related to services is recognized as the services are performed.
However, for the period ending October 25, 1999, the Company had not
entered into any contracts for the sale or use of its products.
F-23
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTANT POLICIES - CONTINUED
Per Share Data
--------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share ("SFAS 128"), requiring public companies to
exclude the dilutive effect of stock options in calculating basic earnings
per share. Basic income per share as required under SFAS 128 is computed
using the weighted average number of common shares outstanding during the
period. Diluted income per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during
the period. Common equivalent shares consist of the shares issuable upon
the exercise of stock options (using the treasury stock method). The
following table sets forth the computation of basic and dilutive income per
share for the period ended October 25:
1999
---------
Numerator:
Net Loss $(651,212)
Denominator:
Denominator for basic income per share -
weighted average shares 498,630
Stock options 21,630
Convertible debt -0-
---------
Denominator for diluted income per share -
adjusted weighted average shares and assumed
exercises 519,831
Basic loss per share $ (1.31)
=========
Diluted loss per share $ (1.25)
=========
Newly Effective Accounting Standards
------------------------------------
Statement of Positions ("SOP") 97-2, "Software Revenue Recognition", SOP
98-4. "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions", were issued in
October 1997, March 1998, and December 1998, respectively and address
software revenue recognition matters primarily from a conceptual level and
do not include specific implementation guidance.
These standards supersede SOP 91-1 and, in part, are effective for
transactions entered into for fiscal years beginning after December 15,
1997. Based on its reading and interpretation of SOPs 97-2 and 98-4, the
Company believes it is currently in compliance with the standards.
Complying with SOP 98-9 or additional detailed implementation guidance,
once issued, could lead to unanticipated changes in the Company's current
revenue accounting practices, and such changes could adversely impact the
Company's ability to recognize revenue consistent with its current
practice.
F-24
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
-----------------------------------------------------------
Newly Effective Accounting Standards - Continued
------------------------------------------------
Although this new standard is not effective until the year 2000, the
Company, in accordance with its practice of complying with new revenue
recognition standards as soon as issued, may choose to adopt the standard
in 1999, requiring either changes in revenue recognition practices or
changes in the Company's sales and contracting practices in order to
comply. Web Partners, Inc. has not fully assessed its ability to comply
with SOP 98-9 using current contracting and business practices. However,
Web Partners, Inc. believes that SOP 98-9 will not significantly effect its
reporting of revenues.
Risks and Concentrations
------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. As of the
balance sheet date of October 25, 1999, the cash balances were in excess of
insured amounts by $76,645. These financial institutions have a strong
credit rating and management believes that credit risk related to these
deposits is minimal. During the year, the Company has monies held in
various bank accounts at two institutions. Funds in these accounts could
further exceed insurable limits during the course of the year.
On October 25, 1999, the Company has incurred the majority of its research
and development, marketing and promotional activities from CyberQuest
Group, Inc., a related party (NOTE 6). The Company's concentration for such
services have been critical to the operations of Web Partners, Inc. to
date.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is not aware of any legal disputes and proceedings arising from
the ordinary course of general business activities. However, depending on
the amount and the timing, an unfavorable resolution of some unreported
matters could materially affect the Company's future results of operations
or cash flows in a particular period.
Acquisitions
------------
In an agreement dated August 9, 1999, the Company has entered into an
acquisition agreement with 547341 BC Ltd. (Newco.). Newco will acquire 30%
of the issued and outstanding Class B common stock of the Company in
exchange for $3,000,000 or a pro-rata amount not to exceed 30%. In
circumstances where Newco acquires less than all of the issued and
outstanding shares of the Company, the number of
F-25
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 2 - COMMITMENTS AND CONTINGENCIES - CONTINUED
-----------------------------------------
Acquisitions - Continued
------------------------
acquisition shares shall be adjusted accordingly, provided that in any
event Newco will not complete the acquisition of the Company unless persons
holding at least 90% of the shares of the Company shall have entered into
the Share Exchange Agreement or otherwise consented to the proposed
reorganization of the Company.
Pursuant to the August 9, 1999 agreement, and management representations,
it is acknowledge and agreed that it is a condition precedent to the
completion of the Share Exchange Agreement that Newco shall have forwarded
as either a loan or in the form of securing equity investors, or both, to
the Company certain monies. Such monies, if advanced as a loan are to be
considered an interest free loan secured by a first charge over the assets
of the Company. Should the Share Exchange Agreement terminate, these monies
are due within two years of termination. Newco retains the right to convert
any outstanding loans for the pro-rata earned equity of the Company. At
October 25, 1999, Newco has advanced as a loan $100,000 to the Company.
Newco has also secured and advanced equity investors funds of $643,750 in
compliance with this agreement.
This Agreement shall terminate and be of no further force and effect in
circumstances where the Closing has not taken place as of February 15, 2000
or if Newco has failed to meet the funding obligations as outlined above.
Said Closing deadline may be extended by mutual agreement for additional
periods. The exception that the obligation of the Company to repay any
monies advanced to it will remain in effect.
NOTE 3 - CAPITALIZATION
--------------
The Company has been initially capitalized from the exchange of certain
proprietary technology(s), systems, methodologies and/or combination of
elements which may be deemed patentable (Patent Rights) from Mark Gray and
Wyle Wade in an agreement dated July 27, 1999. Mark Gray was issued
1,000,000 shares Class A common stock with a par value of $5,000 and Wyle
Wade was issued 1,000, shares Class B common stock, par value $5,000. The
purchase price was determined without independent appraisal.
The Company has also been capitalized from funding raised through the
subscription of the Company's Class B Common Stock totaling $643,750. Costs
of the subscription approximated $31,900 and are treated as a reduction of
additional paid-in capital. As of October 25, 1999, the Company has not
formally issued any Class B Stock certificates. Further, of the $643,750
raised, $478,750 was received from investors who have signed stock
subscription agreements and is recorded in additional paid in capital. The
remaining $165,000 was received from investors who have not signed stock
subscription agreements and is therefore reported in current liabilities.
F-26
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 3 - CAPITALIZATION - CONTINUED
--------------------------
Notes Payable - Continued
-------------------------
Preferred Stock
---------------
The Company has authorized the issuance of 3,000,000 shares of Preferred
Stock, par value $0.005 per share. The Board of Directors of the Company
has broad discretion to create one or more series of preferred stock and to
determine the rights, preferences and privileges of any such series. This
stock has a preference in involuntary liquidation compared to all other
classes of common stock. At October 25, 1999, no preferred stock had been
issued.
Note Payable
------------
Notes payable at October 25, 1999 consisted of the following:
The Company issued three notes payable of $25,000 each dated August 4, 1999
with an annual interest rate of 10% payable 120 days after receipt of
funds. In addition, at maturity the holder shall receive one third of one
percent (.033%) of Preferred Stock issued and outstanding at that time as a
loan origination fee. These notes, at any time prior to maturity, are
convertible by the holder to one percent (1%) of the issued and outstanding
shares of Preferred Stock. An additional option exists for the Company to
convert the principle sum to one and two thirds percent (1.66%) of the
issued and outstanding shares of Preferred Stock. At October 25, 1999, no
Preferred stock has been issued.
The Company has issued $100,000 of notes payable dated October 21, 1999
which carry no interest, payable 180 days after receipt of funds. These
notes are convertible by the holder to the following:
1. At any time prior to maturity, the holder can convert to shares of
preferred stock at $1.50 per share and common stock warrants
exercisable twelve months after maturity of the debt at a price of
$1.50 per warrant; or
2. At maturity, the holder can convert to principal in cash plus common
stock warrants, exercisable twelve months after the debt matures, at a
price of $1.50 per warrant.
F-27
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 3 - CAPITALIZATION - CONTINUED
Notes Payable - Continued
The table below summarizes the Company's outstanding preferred stock
options and common stock warrants, and the options and warrants currently
exercisable at October 25, 1999. This presentation represents the more
dilutive of the two options available to the holders.
TOTAL OPTIONS
OUTSTANDING CURRENTLY
PREFERRED STOCK OPTIONS OPTIONS EXERCISABLE
----------------------- ----------- -----------
Balance September 11, 1998 -0- -0-
1999 Grants - Preferred Stock 66,665 66,665
------ ------
Balance October 25, 1999 66,665 66,665
The option price for preferred stock is $1.50 per share. No market value
has been established and there are no assurances that a market will be
established. At October 25, 1999, no options were forfeited or exercised.
TOTAL WARRANTS
OUTSTANDING CURRENTLY
COMMON STOCK OPTIONS OPTIONS EXERCISABLE
-------------------- ----------- -----------
Balance September 11, 1998 -0- -0-
1999 Grants - Common Stock 66,665 -0-
------ ------
Balance October 25, 1999 66,665 -0-
These warrants are exercisable twelve months after maturity of the debt at
a price of $1.50 per warrant. At october 25, 1999, no options were
forfeited or exercised.
NOTE 4 - LONG-TERM DEBT
--------------
Long-term debt at October 25, 1999 consisted of the following:
Note payable to 547341 BC Ltd. (Newco)
due October 25, 2001. This note bears no
interest and is not collateralized. $100,000
========
NOTE 5 - RESEARCH AND DEVELOPMENT ACTIVITIES
-----------------------------------
The Company has incurred research and development costs through October 25,
1999 totaling $419,542. These charges represent costs associated with the
ongoing development of its E-Commerce applications
F-28
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 6 - RELATED PARTY TRANSACTIONS
--------------------------
The Company has loaned two shareholders two note agreements for $5,000
each, for a total of $10,000 per shareholder. The first set of notes are
dated August 5, 1999 and the second set are dated August 27, 1999. All four
notes bear annual interest at 9% per year and each note is due 12 months
from the note agreement dates. At October 25, 1999, interest income and
interest receivable was $345. The notes carry a provision that upon the
performance of certain agreed upon accomplishments, the notes become earned
income to the individual. As of the date of this audit report, the
specific accomplishments have not been identified for purpose of the
agreements.
The Company has entered into an agreement with CyberQuest Group, Inc., a
related party, for certain professional services related to the development
of the Company's technologies. The companies are related through common
ownership and control. Costs incurred under this agreement at October 25,
1999 approximated $404,829, and at the balance sheet date, the Company has
outstanding accounts payable to CyberQuest Group, Inc. of $115,319. In
addition to development costs, the Company has paid $54,000 in prepaid
services to CyberQuest Group, Inc. which represents a prepayment for future
services to be rendered by CyberQuest Group, Inc. Further, pursuant to the
agreement, CyberQuest Group, Inc. shall vest, on a monthly pro-rated basis,
the option to purchase up to an aggregate of 400,000 shares of Class B
common stock, fully paid for and nonassessable with voting rights as
outlined under the Articles of Incorporation. At October 25, 1999, 94,444
options are currently exercisable. If the Company undertakes the filing of
a registration statement with the Securities and Exchange Commission,
pursuant to either the Securities Act of 1993 or the Exchange Act of 1934,
or both, any expenses incurred in connection with the registration of the
Company's shares shall be the obligation of the Company.
The Company has also incurred expenses for promotional and marketing
services from CyberQuest, Inc. At October 25, 1999, these costs
approximated $56,000.
F-29
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
------------
At October 25, 1999, the Company has an operating loss carry forward for
tax purposes of approximately $655,583. While the Company has not filed a
tax return, these losses will be available to offset income in future
years. In addition, the Company has elected to defer and amortize in future
periods certain computer software development, patent and loan costs
amounting to approximately $55,186 at October 25, 1999. The Company has
fully reserved the tax benefit of the operating loss carry forward because
the likelihood of realization of the benefit cannot be established.
The Internal Revenue Code contains provisions which may limit the loss
carry forwards available if significant changes in stockholders ownership
of the Company occur.
NOTE 8 - STOCK PLANS
-----------
The Company has entered into stock option agreements with its Chief
financial Officer and certain key professionals. The following table
summarizes the Company's outstanding stock options and the options
currently exercisable at October 25, 1999:
TOTAL OPTIONS
OUTSTANDING CURRENTLY
OPTIONS EXERCISABLE
----------- -----------
Balance September 11, 1998 -0- -0-
1999 Grants - Class B Common Stock 847,200 205,235
------- -------
Balance October 25, 1999 847,200 205,235
======= =======
The option price for Class B common stock is $.01 per share. No market
value has been established and there are no assurances that a market will
be established. At October 25, 1999, no options were forfeited or
exercised.
NOTE 9 - GOING CONCERN
-------------
The Company's continued existence is dependent upon its ability to resolve
its liquidity problems, principally by obtaining additional debt financing
and equity capital. While pursuing additional debt and equity funding, the
Company must continue to operate on limited cash flows generated
internally. The Company has experienced a net loss from continuing
operations for the year ended October 25, 1999 of $651,212.
The Company will have to minimize its requirements for working capital by
continuing its cost reduction efforts. Working capital limitations continue
to effect day-to-day operations, thus contributing to continued operating
losses. The continued support and forbearance of its lenders will be
required.
F-30
<PAGE>
--------------------------------------------------------------------------------
WEB PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FROM SEPTEMBER 11, 1998 (INCEPTION) TO OCTOBER 25, 1999
(AUDITED)
--------------------------------------------------------------------------------
NOTE 9 - GOING CONCERN - CONTINUED
-------------------------
Management believes operations will improve significantly in mid 2000 as
revenues from services rendered will be applicable upon completion of its
primary research and development of its existing service.
NOTE 10 - SUBSEQUENT EVENTS
-----------------
Subsequent to the financial statement date, the Company has become party to
a stock repurchase and exchange agreement between CyberQuest Group, Inc. (a
related party) and CyberQuest Group, Inc. shareholders. The details of this
transaction are as follows:
CyberQuest Group, Inc. will offer its shareholders the option to exchange
three shares of either Class A preferred, Class A common or Class B common
stock of CyberQuest, Inc. owned by a shareholder for one share of Class B
common stock of Web Partners, Inc.
As of October 25, 1999, CyberQuest Group, Inc. has options totaling 94,444
shares in Web Partners, Inc. stock. To accomplish the transaction,
CyberQuest Group, Inc. will exercise these options and purchase the
remaining necessary shares from Web Partners, Inc. Management of CyberQuest
Group, Inc. has represented that a straw poll of the CyberQuest Group, Inc.
shareholders taken in October 1999 indicates that the options currently
available of 94,444 shares will be sufficient to conclude the share portion
of the transaction.
F-31
<PAGE>
UNAUDITED COMBINED CONDENSED
PRO FORMA BALANCE SHEET
FOREFRONT INC (FORMERLY ANYOX RESOURCES, INC)
AND FOREFRONT TECHNOLOGIES, INC. (FORMERLY WEB PARTNERS, INC.)
MARCH 31, 2000
<TABLE>
<CAPTION>
(Unaudited)
March 31, 2000
---------------
<S> <C>
ASSETS
------
CASH $1,221,901
NOTES RECEIVABLE 3,187,575
OTHER CURRENT ASSETS 172,490
FIXED ASSETS, NET 249,645
GOODWILL AND OTHER INTANGIBLES, NET 5,059,942
OTHER ASSETS 12,715
----------
TOTAL $9,904,268
==========
</TABLE>
LIABILITIES AND EQUITY
----------------------
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES $ 680,236
NOTES PAYABLE TO SHAREHOLDERS 500,000
LONG TERM DEBT 17,965
EQUITY:
CAPITAL STOCK 23,500
PAID IN CAPITAL 11,423,285
RETAINED EARNINGS (2,736,718)
TREASURY STOCK (4,000)
-----------
TOTAL EQUITY 8,706,067
-----------
TOTAL LIABILITIES AND EQUITY $ 9,904,268
===========
</TABLE>
F-32
<PAGE>
UNAUDITED COMBINED CONDENSED
PRO FORMA STATEMENT OF OPERATIONS
FOREFRONT INC (FORMERLY ANYOX RESOURCES, INC)
AND FOREFRONT TECHNOLOGIES, INC. (FORMERLY WEB PARTNERS, INC.)
TWELVE MONTHS ENDED JUNE 30, 1999 AND
NINE MONTHS ENDED MARCH 31, 2000
(Unaudited) (Unaudited)
12 Months 9 Months
Ending Ending
June 30, 1999 March 31, 2000
------------- --------------
<TABLE>
<CAPTION>
<S> <C> <C>
REVENUES $ - 0 - $ - 0 -
EXPENSES 355,361 2,388,023
----------- ------------
NET LOSS $ (355,361) $ (2,388,023)
=========== ============
NET LOSS PER SHARE $ (0.03) $ (0.12)
=========== ============
SHARES OUTSTANDING 13,500,000 19,500,000
=========== ============
</TABLE>
Pro forma adjustments for the 12 Months Ending June 30, 1999 and the Balance
Sheet at March 31, 2000, represent the acquisition of Web Partners by Forefront
and the resultant goodwill being amortized over 15 years.
Pro forma adjustments for the 9 Months Ending March 31, 2000 represent the
acquisition of Web Partners by Forefront, the resultant goodwill being amortized
over 15 years and the private placement executed during the quarter ending March
31, 2000 for 6,000,000 common shares for a total of $5,100,000. As of March 31,
2000 this private placement was 100% subscribed and 38% funded, the balance of
$3,187,500 recorded as notes receivable and, at that time, the balance of the
funding expected to be completed during the quarter ending June 30, 2000. At the
date of this report, the underlying promissory notes are in default and
Forefront has sent notice of defaults to the 4 shareholders involved.
Web Partners most recently raised $500,000 in the form of bridge financing from
a Web Partners shareholder group. Since March 31, 2000 the notes have become
due and management is discussing the repayment of these notes with the
shareholder group. Management expects repayment to take place as the funds are
received from the proceeds of the promissory notes discussed above.
F-33
