SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
April 4, 2000
Date of Report
(Date of Earliest Event Reported)
PACIFIC WEBWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
180 South 300 West, Suite 400
Salt Lake City, Utah 84101
(Address of principal executive offices)
(801) 578-9020
Registrant's telephone number
NEVADA 000-26731 87-0627910
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
Page 1
<PAGE>
ITEM 2: ACQUISITION AND DISPOSITION OF ASSETS
On April 4, 2000, Pacific WebWorks signed an Agreement and Plan of
Reorganization ("Agreement") to acquire all the outstanding and issued common
stock of IntelliPay, Inc., a Delaware corporation, ("IntelliPay"). Pursuant
to the Agreement, Pacific WebWorks's will issue 2,400,000 shares, par value
$0.001, in exchange for 1,000 outstanding shares of IntelliPay. Upon closing
of the Agreement, IntelliPay will become a wholly owned subsidiary of Pacific
WebWorks.
Pacific WebWorks and IntelliPay have been working closely together for
two years. Last year the companies entered into a joint venture to establish
MainStreetSquare.com, an online shopping portal. IntelliPay will continue to
operate its business as it has prior to the acquisition. IntelliPay helps
companies in their use of e-commerce web sites. IntelliPay's major assets
include computer hardware and software that are an integral part of its
operations. It specializes in providing online, secure and real-time payment
processing services for businesses of all sizes. IntelliPay systems use
industry standard security components and methods, the same standards used by
all major commerce sites.
Due to the unknown future potential of both companies, the parties based
the consideration for the acquisition on the market price of shares and
estimated revenues. The parties agreed to value IntelliPay at $9,045,000
based on multiplying its 1999 revenues by 4.5. At the time of the
negotiations, Pacific WebWork's shares were trading at approximately $3.50 per
share resulting in the 2,400,000 shares being valued at $8,400,000. For
accounting purposes, the value of the shares was discounted to $4,320,000 due
to the fact the shares were restricted.
The acquisition was completed pursuant to the statutory requirements of
Delaware and Nevada state law. For tax purposes, the merger was structured as
a tax free exchange pursuant to Section 368 (a)(1) (B) of the Internal Revenue
Code. Upon closing Pacific WebWorks will hold 100% of the IntelliPay shares
and IntelliPay's 18 shareholders will hold 18.7% of Pacific WebWorks
outstanding shares. In addition, IntelliPay shareholders received
registration rights for a portion of their shares in the event Pacific
WebWorks registers a specified amount of shares under the Securities Act of
1933, as amended, within the next two years.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements.
The audited financial statements of IntelliPay for the period ended
December 31, 1999 are attached.
(b) Pro Forma Financial Information.
Page 2
<PAGE>
The pro forma consolidated financial statements of Pacific WebWorks for
the period ended March 31, 2000 are attached. The pro forma consolidated
statements of operation assumes that the entities were together as of January
1, 1999. The pro forma consolidated balance sheet assumes elimination of
intercompany payables and receivables and the issuance of 2,400,000 shares of
common stock valued at $4,320,000 and the amortization of good will.
(c) Exhibits.
Exhibit
No. Exhibit Location
------- ------- ---------------
2.1 Agreement and Plan of Reorganization between Filed April 19, 2000/
Pacific WebWorks and IntelliPay,
dated April 4, 2000.
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 who are duly authorized.
Pacific WebWorks, Inc.
/s/ Christian Larsen 6/19/00
By: _____________________________ Date: ___________________
Christian Larsen, President, C.E.O.
/s/ Mat Dastrup 6/19/00
By: _____________________________ Date: ___________________
Mat Dastrup, Chief Financial Officer
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Intellipay, Inc.
Financial Statements
December 31, 1999
<PAGE> 4
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . . . . . . . . 5
Statement of Stockholders' Equity . . . . . . . . . . . . . . 6
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . 7
Notes to the Financial Statements . . . . . . . . . . . . . . . 8
<PAGE> 5
CROUCH, BIERWOLF & CHISHOLM
Certified Public Accountants
50 West Broadway, Suite 1130
Salt Lake City, Utah 84101
Office (801) 363-1175
Fax (801) 363-0615
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Intellipay, Inc.
We have audited the accompanying balance sheet of Intellipay, Inc. as of
December 31, 1999 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our 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 Intellipay, Inc. as of
December 31, 1999 and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
/S/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
March 8, 2000
<PAGE> 6
Intellipay, Inc.
Balance Sheet
Assets
December 31,
1999
---------------
Current assets
Cash and Cash Equivalents (Note 1) $ 15,130
Accounts receivable - related party (Note 4) 7,926
---------------
Total Current Assets 23,056
---------------
Property & Equipment, Net (Note 3) 125,780
---------------
Other assets
Software development costs, net (Note 2) 545,319
---------------
Total Other Assets 545,319
---------------
Total Assets $ 694,155
===============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 271,004
Accrued expenses 7,067
Current portion of long term liabilities (Note 6) 239,619
---------------
Total Current Liabilities 517,690
---------------
Long Term Liabilities (Note 6)
Notes payable - related party 236,997
Capital lease obligation 6,889
Less: current portion (239,619)
---------------
Total long term liabilities 4,267
---------------
Total Liabilities 521,957
---------------
Stockholders' Equity
Common stock, 1,000 no par shares
authorized, 680 shares issued and outstanding 6,000
Retained earnings 166,198
---------------
Total Stockholders' Equity 172,198
---------------
Total Liabilities and Stockholders' Equity $ 694,155
===============
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
Intellipay, Inc.
Statement of Operations
For the year
Ended
December 31,
1999
---------------
Revenues: $ 2,010,405
Cost of Sales 471,374
---------------
Gross Profit 1,539,031
Expenses:
Amortization 274,827
Operating Expenses 1,243,992
---------------
Total Expenses 1,518,819
---------------
Net Income (Loss) from Operations 20,212
---------------
Other Income (Expense):
Interest expense (2,170)
---------------
Total Other Income (Expense) (2,170)
---------------
Net Income (Loss) before Income Taxes 18,042
---------------
Provision for Income Taxes 5,300
---------------
Net Income (Loss) $ 12,742
===============
Net Income (Loss) Per Common Share $ 24.32
===============
Weighted Average Shares Outstanding 524
===============
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
Intellipay, Inc.
Statement of Stockholders' Equity
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
---------- ----------- ---------- ------------
Balance, December 31, 1998 510 $ 1,000 $ - $ 153,456
Common shares issued for
services at $29.41 per
share in December 1999 170 5,000 - -
Net income (loss) for the
year ended December 31, 1999 - - - 12,742
---------- ----------- ---------- ------------
Balance, December 31, 1999 680 $ 6,000 $ - $ 166,198
========== =========== ========== ============
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 9
Intellipay, Inc.
Statement of Cash Flows
For the year
Ended
December 31,
1999
---------------
Cash Flows form Operating Activities
Net income $ 12,742
Adjustments to reconcile
net loss to net cash
provided by operations:
Shares issued for services 5,000
Depreciation & Amortization 297,986
Increase in receivables (7,926)
Increase in payables 300,596
Increase in accrued expenses 4,621
---------------
Net Cash (Used) Provided by Operating Activities 613,019
---------------
Cash Flows from Investment Activities:
Purchase of Equipment (91,895)
Cash paid for software development costs (772,448)
---------------
Net Cash (Used) Provided by Investing Activities (864,343)
---------------
Cash Flows from Financing Activities:
Cash received from debt financing 236,997
Principal payments on long term debt (1,975)
---------------
Net Cash (Used) Provided by Financing Activities 235,022
---------------
Net increase (decrease) in cash (16,302)
Cash, beginning of year 31,432
---------------
Cash, end of year $ 15,130
===============
Supplemental Cash Flow Information:
Cash Paid For:
Interest $ -
===============
Income Taxes $ -
===============
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 10
Intellipay, Inc.
Notes to the Financial Statements
December 31, 1999
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Intellipay, Inc. (the Company) was organized under the laws of the State
of Delaware on June 1, 1995. The Company is currently engaged in the business
of providing financial transaction processing for selling products and
services over the Internet.
b. Accounting Method
The Company recognizes income and expense on the accrual basis of
accounting.
c. Earning (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
d. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
e. Provision for Income Taxes
Deferred income taxes arise from timing differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which they
relate. Deferred taxes arising from timing differences that are not related
to an asset or liability are classified as current or noncurrent, depending
upon the periods in which the timing differences are expected to reverse.
There were no timing differences for the Company at December 31, 1999.
The Deferred tax liability and the provision for income taxes is
calculated as follows at December 31, 1999:
Current provision for income taxes:
Federal $ 3,456
State 1,844
Deferred -
---------
Total provision for income taxes $ 5,300
=========
Income taxes payable $ 5,300
=========
8
<PAGE> 11
Intellipay, Inc.
Notes to the Financial Statements
December 31, 1999
NOTE 1 - Summary of Significant Accounting Policies (continued)
f. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements
and expenses during the reporting period. In these financial statements,
assets, liabilities and expenses involve extensive reliance on management's
estimates. Actual results could differ from those estimates.
g. Revenue Recognition
The Company generates revenue from providing financial transaction
processing capability for internet commerce. Revenue is recognized when the
Company establishes technical competence with a particular financial
institution.
h. Fair Value of Financial Instruments
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amounts.
Based on borrowing rates currently available to the Company for loans
with similar terms, the carrying value of notes payable approximate fair
value.
NOTE 2 - Software Development Costs
Software development costs represent costs incurred for internally
developed software. Pursuant to SOP 98-1, the Company capitalizes costs
incurred during the application development stage (designing, coding,
installing and testing) of its software development. Costs incurred during
the preliminary project stage and post-implementation and operation stage are
expensed as incurred. The Company capitalized $772,448 in 1999. The costs
are being amortized over a three year period and amortization expense charged
to operations in 1999 was $274,827.
9
<PAGE> 12
Intellipay, Inc.
Notes to the Financial Statements
December 31, 1999
NOTE 3 - Property and Equipment
Property and Equipment consists of the following at December 31, 1999:
Furniture & Equipment $ 25,742
Computer Equipment 125,775
Accumulated Depreciation (25,737)
-----------
Total Property & Equipment $ 125,780
===========
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of assets or
convert the assets to a new use, are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense. When
items are disposed of, the cost and accumulated depreciation are eliminated
from the accounts, and any gain or loss is included in the results of
operations.
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. The useful lives of
equipment, furniture and computers are 5 years, 7 years and 5 years,
respectively. Depreciation expense for the period ended December 31, 1999 is
$23,159.
NOTE 4 - Related Party Transactions
At December 31, 1999 the Company has an account receivable from U.S.
Merchant Systems, Inc., a company under common ownership, in the amount of
$7,926.
During 1999, the Company received loans from U.S. Merchant Systems,
Inc., a company under common ownership, in the amount of $236,997. The balance
due at December 31, 1999 is $236,997.
NOTE 5 - Commitments and Contingencies
The Company sub-leases its office space from U.S. Merchant Systems, Inc.
a company under common ownership. The agreement is month-to-month and
requires monthly rent of $4,791.
NOTE 6 - Long Term Liabilities
Notes payable - related party are detailed as follows: December 31,
1999
---------------
Note payable to a corporation under
common ownership, bears interest at 1%,
due within one year and unsecured $ 236,997
---------------
Total Notes Payable - Related Party $ 236,997
---------------
Capital lease obligations are detailed as follows:
Capital lease obligation to a corporation, for a
copier, lease payments due monthly of $286 through
April 2002, bears interest at 10% secured by copier $ 6,889
---------------
Total Capital Lease Obligations $ 6,889
---------------
Total Long Term Liabilities $ 243,886
---------------
10
<PAGE> 13
Intellipay, Inc.
Notes to the Financial Statements
December 31, 1999
NOTE 6 - Long Term Liabilities (continued)
December 31,
1999
---------------
Less current portion $ (239,619)
---------------
Net Long Term Liabilities $ 4,267
===============
Future minimum principle payments on notes payable - related party are
as follows at December 31, 1999:
2000 236,997
-----------
Total Notes Payable $ 236,997
===========
Future minimum lease payments are as follows at December 31, 1999:
2000 $ 3,432
2001 3,432
2002 1,144
------------
Less: Portion Representing Interest (1,119)
Total Capital Lease Obligations $ 6,889
============
NOTE 7 - Stockholders' Equity
In December 1999, the Company issued 170 shares of its common stock to
Tom Hill, an officer and director, for services valued at $5,000.
11
<PAGE> 14
Pacific Webworks, Inc.
Pro Forma Consolidated Financial Statements
March 31, 2000
<PAGE> 15
Pacific Webworks, Inc.
Proforma Consolidated Balance Sheet
March 31, 2000
<TABLE>
<CAPTION>
Pacific Proforma
Webworks Intellipay Eliminating Consolidated
Balance Balance Adjustments Balance
03/31/00 03/31/00 DR CR 03/31/00
----------- ----------- ----------- ---------- ------------
Assets
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and Cash Equivalents 127,087 4,090 131,177
Accounts Receivable (Net of
Allowance of $12,798) 433,010 - 433,010
Employee Receivable 7,474 - 7,474
Prepaid Expenses 9,022 - 9,022
Note Receivable 153,000 - 153,000 -
----------- ----------- ------------
Total Current Assets 729,593 4,090 580,683
Property and Equipment 183,127 116,851 299,978
Other Assets
Goodwill, net 237,687 - 4,532,774 566,596 4,203,865
Deposits 5,250 - 5,250
Computer Software Costs 4,333 - 4,333
Software Development Costs - 476,613 476,613
----------- ----------- ------------
Total Other Assets 247,270 476,613 4,690,061
----------- ----------- ------------
Total Assets 1,159,990 597,554 5,570,722
=========== =========== ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable 415,152 89,233 504,385
Accrued Expenses 127,123 273,947 401,070
Current Portion of Long
Term Debt 1,178,730 447,148 153,000 1,472,878
----------- ----------- ------------
Total Current Liabilities 1,721,005 810,328 2,378,333
Stockholders' Equity
Common Stock, authorized
50,000,000 shares of no par
value, issued and outstanding
10,400,342 shares 10,400 6,000 6,000 2,400 12,800
Additional Paid in Capital 2,759,080 - 4,317,600 7,076,680
Retained Earnings (3,330,495) (218,774) 566,596 218,774 (3,897,091)
----------- ----------- ------------
Total Stockholders Equity (561,015) (212,774) 3,192,389
----------- ----------- ------------
Total Liabilities and
Stockholders Equity 1,159,990 597,554 5,570,722
=========== =========== ============
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION
Pacific Webworks, Inc.
Proforma Statement of Operations
Pacific
Webworks Intellipay
For January For January Proforma
1, 2000 1, 2000 Consolidated
through through Proforma Balance
March 31, March 31, Adjustments March 31,
2000 2000 2000
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues 1,992,032 114,242 2,106,274
----------- ----------- ------------
Cost of Goods Sold 266,893 31,837 298,730
----------- ----------- ------------
Gross Profit 1,725,139 82,405 1,807,544
General & Administrative 741,157 206,184 947,341
Selling Expenses 1,431,393 57,977 1,489,370
Amortization - - 113,319 113,319
Research & Development 81,116 197,290 278,406
----------- ----------- ------------
Total Operating Expenses 2,253,666 461,452 2,828,436
----------- ----------- ------------
Income/(Loss) from Operations (528,527) (379,047) (1,020,893)
Other income/(expenses) (15,215) (5,925) (21,140)
----------- ----------- ------------
Net (Loss) (543,742) (384,972) (1,042,033)
=========== =========== ============
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Pacific Webworks, Inc.
Proforma Statement of Operations
Pacific
Webworks Intellipay
For January For January Proforma
1, 1999 1, 1999 Consolidated
through through Proforma Balance
December December Adjustments December 31,
31, 1999 31, 1999 dr cr 1999
----------- ----------- ----------- ---------- ------------
(audited) (audited)
<S> <C> <C> <C> <C> <C>
Revenues 305,628 2,010,405 2,316,033
Cost of Goods Sold 42,874 471,374 514,248
----------- ----------- ------------
Gross Profit 262,754 1,539,031 1,801,785
----------- ----------- ------------
General & Administrative 1,137,791 1,518,819 2,656,610
Selling Expenses 406,917 - 406,917
Amortization - - 453,277 453,277
----------- ----------- ------------
Total Operating Expenses 1,544,708 1,518,819 3,516,804
----------- ----------- ------------
Income/(Loss) from Operations (1,281,954) 20,212 (1,715,019)
Other income/(expenses) (1,285,581) (7,470) (1,293,051)
----------- ----------- ------------
Net (Loss) (2,567,535) 12,742 (3,008,070)
=========== =========== ============
</TABLE>
<PAGE> 18
Pacific Webworks, Inc.
Notes to Pro Forma Consolidated Financial Statements
March 31, 2000
NOTE 1 - Summary of Transaction
On April 4, 2000, the Company completed an Agreement and Plan of
Reorganization between Pacific Webworks, Inc. a public Utah corporation
(Pacific) (the Company) and Intellipay, Inc. a private California corporation
(Intellipay). Pacific issued 2,400,000 shares of common stock for all the
stock of Intellipay. Thereby Intellipay became a wholly owned subsidiary of
Pacific Webworks, Inc. The transaction was recorded using the purchase method
of accounting.
NOTE 2 - Management Assumptions
The pro forma consolidated statements of operations assumes that the
entities were together as of January 1, 1999 and amortization of goodwill was
deducted to reflect a full year and subsequent quarter of activity.
The pro forma consolidated balance sheet assumes the elimination of
intercompany payables and receivables, the issuance of 2,400,000 shares of
common stock valued at $4,320,000, and the amortization of goodwill.
