<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 16, 2000
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Date of Report (Date of Earliest Event Reported)
Envision Development Corporation
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(Exact name of registrant as specified in its charter)
Florida
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State of Incorporation
001-15311
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Commission File Number
65-0981457
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IRS Employer Identification No
100 Nickerson Road, Marlboro, Massachusetts 01752
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Address of principal executive offices
(508) 480-3000
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Registrant's telephone number, including area code
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(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On May 30, 2000, Envision Development Corporation ("Envision") filed a Current
Report on Form 8-K (the "Envision Initial Report") describing the acquisition of
certain assets and the assumption of certain liabilities of Envision Development
Corporation, a Massachusetts corporation ("Envision Massachusetts") with the
same name as Envision. This Current Report on Form 8-K/A amends the Envision
Initial Report by including with this Form 8-K/A the financial statements and
pro forma financial information prescribed by Item 7 of Form 8-K. In accordance
with Item 7(a)(4) and Item 7(b)(2) of Form 8-K, such financial statements and
pro forma financial information are filed by amendment to the Envision Initial
Report no later than 60 days after the date the initial report on Form 8-K was
required to be filed.
Item 7. Financial Statements and Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Envision Development Corporation, a Massachusetts
corporation.
Report of Independent Certified Public Accountants
Report of Independent Accountants
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations for the Years Ended December 31, 1999 and 1998
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998
Statements of Changes in Stockholders' (Deficit) for the Years Ended December
31, 1999 and 1998
Notes to Financial Statements
Condensed Balance Sheets as of March 31, 2000 and 1999 (unaudited)
Condensed Statements of Operations for the Three Months Ended March 31, 2000 and
1999 (unaudited)
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2000 and
1999 (unaudited)
Notes to Condensed Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Combined Balance Sheet as of January 29, 2000 (unaudited)
Pro Forma Combined Statement of Earnings for the Fiscal Year Ended January 29,
2000 (unaudited)
Pro Forma Combined Statement of Earnings for the Three Months Ended April 29,
2000 (unaudited)
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized this 31st day of July, 2000.
ENVISION DEVELOPMENT CORPORATION
By: /s/ MICHAEL E. AMIDEO
---------------------------------------
Michael E. Amideo
Chief Financial Officer
<PAGE> 4
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
ENVISION DEVELOPMENT CORPORATION
December 31, 1999 and 1998
<PAGE> 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors of
Envision Development Corporation
We have audited the balance sheet of Envision Development
Corporation (a Massachusetts corporation) (the "Company") as of December 31,
1999, and the related statements of operations, stockholders' (deficit), 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. The financial
statements of the Company as of and for the year ended December 31, 1998, were
audited by other auditors whose report dated December 10, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. 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 1999 financial statements referred to
above present fairly, in all material respects, the financial position of
Envision Development Corporation as of December 31, 1999, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Grant Thornton LLP
Boston, Massachusetts
July 27, 2000
2
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Envision Development Corporation:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' (deficit) and cash flows present fairly, in all
material respects, the financial position of Envision Development Corporation at
December 31, 1998 and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
3
<PAGE> 7
Envision Development Corporation
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 684,300 $ --
Accounts receivable 80,800 105,200
Prepaid expenses 5,400 6,200
----------- -----------
Total current assets 770,500 111,400
Fixed assets, net 82,300 49,200
----------- -----------
Total assets $ 852,800 $ 160,600
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Checks written in excess of bank balances $ -- $ 900
Accounts payable and accrued expenses 230,700 56,300
Fair value of common stock accrued for consulting services 549,200 41,700
Capital lease obligation 15,600 9,800
Deferred revenues 56,600 78,900
----------- -----------
Total current liabilities 852,100 187,600
Capital lease obligation, less current portion 25,300 14,300
----------- -----------
Total liabilities 877,400 201,900
----------- -----------
Commitments
Stockholders' (deficit):
Common stock, no par value; 1,000,000 shares authorized, 692,128 and 526,824
issued and outstanding at December 31,
1999 and 1998, respectively -- --
Paid-in capital 1,696,400 1,000
Deferred compensation (380,000) --
Retained earnings (accumulated deficit) (1,279,900) 8,700
----------- -----------
36,500 9,700
Less: note receivable from stockholder (61,100) (51,000)
----------- -----------
Total stockholders' (deficit) (24,600) (41,300)
----------- -----------
Total liabilities and stockholders' (deficit) $ 852,800 $ 160,600
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 8
Envision Development Corporation
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 930,600 $ 603,100
Operating expenses:
Project costs 398,700 190,900
Selling and marketing 296,900 121,000
General and administrative 580,500 291,400
Noncash compensation for consulting services 549,200 41,700
Noncash compensation for common stock 385,800 --
----------- -----------
2,211,100 645,000
----------- -----------
Loss from operations (1,280,500) (41,900)
----------- -----------
Interest income 4,800 2,600
Interest expense (9,600) (700)
----------- -----------
Net loss $(1,285,300) $ (40,000)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 9
Envision Development Corporation
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,285,300) $ (40,000)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 26,300 6,300
Compensation charge associated with fair value of
common stock payable for performance of services 549,200 41,700
Compensation charge associated with issuance of common stock 385,800 --
Imputed interest on shareholder loan (3,300) (2,600)
Changes in assets and liabilities:
Accounts receivable 24,400 (63,000)
Prepaid expenses 800 (5,300)
Accounts payable and accrued expenses 167,400 41,800
Deferred revenue (22,300) 73,300
----------- -----------
Net cash (used in) provided by operating activities (157,000) 52,200
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (32,000) (26,700)
----------- -----------
Cash flows from financing activities:
Checks written in excess of bank balance (900) (19,600)
Payment to shareholder under note receivable (15,500) (1,100)
Repayment of capital lease obligations (10,600) (4,800)
Proceeds from the issuance of common stock 900,300 --
----------- -----------
Net cash provided by (used in) financing activities 873,300 (25,500)
----------- -----------
Net change in cash 684,300 --
Cash, beginning of year -- --
----------- -----------
Cash, end of year $ 684,300 $ --
=========== ===========
</TABLE>
6
<PAGE> 10
Envision Development Corporation
STATEMENTS OF CASH FLOWS - CONTINUED
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 9,600 $ 700
======== ========
Cash paid for taxes $ 2,200 $ 3,300
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment purchased under capital lease obligations $ 27,400 $ 26,600
======== ========
Fair value of common stock issued for services $415,100
========
Fair value of common stock issuable for consulting services $549,200
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 11
Envision Development Corporation
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Retained Note
Earnings Receivable Total
Paid-in Deferred (Accumulated from Stockholders'
Shares Capital Compensation Deficit) Stockholder (Deficit)
------ ------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 526,824 $ 1,000 $ -- $ 51,300 $ (49,900) $ 2,400
Increase on note receivable from stockholder -- -- -- -- (1,100) (1,100)
Accrued interest on note receivable from
stockholder -- -- -- (2,600) -- (2,600)
Net loss -- -- -- (40,000) -- (40,000)
------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 526,824 1,000 -- 8,700 (51,000) (41,300)
Issuance of common stock 80,768 900,300 -- -- -- 900,300
Issuance of common stock to Board of Directors 26,000 385,800 -- -- -- 385,800
Issuance of common stock under consulting
agreement 58,536 29,300 -- -- -- 29,300
Deferred compensation related to stock options 380,000 (380,000) -- -- --
Increase on note receivable from stockholder -- -- -- -- (10,100) (10,100)
Accrued interest on note receivable from
stockholder -- -- -- (3,300) (3,300)
Net loss -- -- -- (1,285,300) -- (1,285,300)
------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 692,128 $ 1,696,400 $ (380,000) $(1,279,900) $ (61,100) $ (24,600)
======= =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 12
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - BUSINESS
Envision Development Corporation (the "Company") was incorporated in 1990.
The Company is a provider of Internet and electronic commerce professional
services and solutions, including strategic consulting, Internet-based
application development, electronic commerce systems integration and
electronic commerce outsourcing. Principal markets include domestic companies
and the federal government.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk are primarily comprised of accounts
receivable. Management believes its credit policies reflect normal industry
terms and business risk. The Company does not anticipate nonperformance by
the counterparties and, accordingly, does not require collateral. Credit
losses have not been significant to date.
At December 31, 1999, 78%, 11% and 9% of the Company's accounts receivable
were due from three customers, respectively, while at December 31, 1998,
47%, 17% and 10% of the Company's accounts receivable were due from three
different customers, respectively.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful life of the asset. Equipment acquired
under capital leases is stated at the lower of the fair value of the
equipment or the present value of the minimum lease payments at the
inception of the lease and amortized on a straight-line basis over the
useful life of the asset.
REVENUE RECOGNITION
Revenues from time and material contracts are recognized based upon fixed
hourly rates for direct labor hours expended. Revenues pursuant to
fixed-price contracts are recognized as services are performed. Amounts
billed to clients in excess of revenue recognized are classified as
deferred revenue.
PROJECT COSTS
Project costs consist principally of payroll and payroll related expenses
for personnel dedicated to client assignments.
9
<PAGE> 13
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109").
This standard requires that deferred income taxes be recorded for all
temporary differences between the financial statement and tax basis of
assets and liabilities and loss carryforwards, and that deferred tax
balances be based on enacted tax laws at tax rates that are expected to be
in effect when the temporary differences reverse.
STOCK-BASED COMPENSATION
The Company applies the disclosure only provisions of SFAS No. 123
"Accounting for Stock Based Compensation", and applies Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees", and
related interpretations in accounting for employee and director stock-based
compensation. Stock-based compensation issued to nonemployees is accounted
for in accordance with SFAS No. 123.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE C - FIXED ASSETS
Fixed assets (and their estimated useful lives in years) consists of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Capital Capital
Years Owned Leases Owned Leases
----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Furniture and fixtures 5 $ 21,200 $ -- $ 2,200 $ --
Computer equipment 3 38,900 60,000 25,800 32,600
-------- -------- ------- ------
60,100 60,000 28,000 32,600
Less accumulated depreciation
and amortization (17,400) (20,400) (3,000) (8,400)
-------- -------- ------- -------
Fixed assets $ 42,700 $ 39,600 $25,000 $24,200
======== ======== ======= =======
</TABLE>
10
<PAGE> 14
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE D - NOTES RECEIVABLE FROM STOCKHOLDER
At December 31, 1999 and 1998, the Company was owed $61,100 and $51,000,
respectively, from a stockholder of the Company. The noninterest-bearing note
is due on demand. Interest was imputed at the Federal Lending Rate of 4.97%
and 5.35% at December 31, 1999 and 1998, respectively.
NOTE E - COMMON STOCK
In November 1998, the Company amended its Articles of Organization to
increase the number of authorized shares from 200,000 to 1,000,000 of its no
par value common stock. Concurrent with the amendment of the Articles of
Organization, the Company effected a 526.824-for-1 stock split through a
stock dividend of 525.824 shares of common stock for each share of common
stock outstanding. All prior periods have been restated to reflect this stock
split.
During 1998, the Company entered into a restricted stock agreement with a
third party ("Stock Agreement") authorizing the Company to issue up to
115,384 shares of the common stock of the Company for consulting services
rendered by the third party. During 1999, the Company amended the Stock
Agreement authorizing the Company to issue up to 131,706 shares of common
stock. The Company has recorded a noncash compensation charge of $41,700
related to the value of 83,333 shares of common stock as of December 31, 1998
for services performed in 1998, which is recorded as an accrued liability.
During 1999, the Company issued 58,536 shares of common stock to the third
party as partial payment for services rendered in 1998. In addition, the
Company has recorded a noncash compensation charge of $549,200 in 1999
related to the fair value of 48,373 shares of common stock payable for
services performed in 1999, which is recorded as an accrued liability. In
January 2000, the Company issued all common stock due to the third party for
services rendered in 1998 and 1999.
At December 31, 1999 and 1998, the Company had 100,000 shares of its common
stock reserve for issuance of stock upon exercise of options issued or
issuable under the 1998 Stock Option Plan.
In December 1999, the Company elected to grant each member of the Board of
Directors 6,500 shares of common stock for a total of 26,000 shares. The
Company has recorded a noncash compensation charge of $385,800 related to the
fair value of the shares of common stock issuance.
11
<PAGE> 15
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - STOCK OPTION PLAN
On November 30, 1998, the Company approved the 1998 Stock Option Plan (the
"Plan") which is administered by the Board of Directors. The Plan provides
for the issuance of a maximum 100,000 shares of common stock. On January 21,
2000, the Board of Directors amended the Plan to allow for the issuance of up
to 150,000 shares of common stock.
Awards granted under the Plan may include incentive stock options and
nonqualified stock options. For incentive stock options, the exercise price
shall not be less than the fair market value of a share of common stock on
the date of grant or the par value of the common stock. Options expire no
later than ten years after the date of grant. If the options are held by a
10% shareholder of the Company, the exercise price of the option shall not be
less than 110% of the fair market value of the share on the date of grant.
These options expire no later than six years after the grant date. For
nonqualified stock options, the exercise price and expiration date of options
shall be determined by the Board of Directors of the Company.
During 1999, the Company granted stock options to employees with an exercise
price of $1.00 and $1.50 per share, which was below the estimated fair market
value of the common stock at date of grant. Deferred compensation of $380,000
was recorded in accordance with APB No. 25 and related interpretations and
will be amortized over the related vesting period. No compensation expense
has been amortized for employee-stock based compensation in 1999. No
stock-based awards were granted prior to 1999. Pursuant to certain employment
contracts, the Company granted an additional 12,820 stock options with an
exercise price of $0.50 on March 20, 2000.
Had compensation expense been determined based on the fair value at the grant
dates for awards in 1999, consistent with the provisions of SFAS No. 123, the
Company's net loss would have been $(1,382,900). Because options vest over
several years and additional option grants are expected to be made in future
years, the above pro forma results are not representative of the pro forma
results for future years.
For purposes of pro forma disclosure, the fair value of each option grant was
estimated on the date of grant using the minimum value method with the
following weighted-average assumption for grants in 1999; no dividend yield;
risk-free interest rates of 5.68%; and expected lives of 5.92 years.
12
<PAGE> 16
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - STOCK OPTION PLAN - Continued
The following table summarizes the activity of the Company's stock option
plan for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
------- -----
<S> <C> <C>
Outstanding - beginning of period -- $ --
Granted at fair market value 34,446 1.54
Granted below fair market value 32,036 1.36
Exercised --
Cancelled --
------
Outstanding - end of period 66,482 $1.45
====== =====
Weighted average grant date fair value $6.37
</TABLE>
Summarized information about stock options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Options Contractual Exercise of Options Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.50 - $1.50 64,682 4.81 $ 1.36 2,564 $0.50
$14.85 1,800 5.98 $14.85 -- --
</TABLE>
NOTE G - INCOME TAXES
At December 31, 1999 and 1998, the Company had net deferred tax assets of
approximately $480,000 and $16,000, respectively resulting principally from
net operating loss carryforwards against which was provided a valuation
allowance since realization of any future benefit cannot be sufficiently
assumed as of that date.
13
<PAGE> 17
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - INCOME TAXES - Continued
At December 31, 1999 and 1998, the Company had federal and state net
operating loss carryforwards of approximately $1,200,000 and $40,000,
respectively, available to reduce future taxable income and which expire at
various dates through 2018.
Under the Internal Revenue Code, certain substantial changes in the Company's
ownership could result in an annual limitation on the amount of net operating
loss carryforwards which can be utilized in future years to offset future
taxable income or liability.
NOTE H - SIGNIFICANT CUSTOMERS
During 1999, approximately 51% of the Company's revenue was derived from two
customers comprising 39% and 12%. During 1998, approximately 62% of the
Company's revenue was derived from two different customers comprising 44% and
18%.
NOTE I - COMMITMENTS
CAPITAL LEASES
The Company has capital leases for computer and office equipment. Future
minimum payments under the capital leases together with the present value
of net minimum lease payments as of December 31, 1999 are as follows:
2000 $22,100
2001 20,700
2002 7,800
-------
Total minimum lease payments 50,600
Less amount representing interest 9,700
-------
Present value of net minimum lease payments 40,900
Less current maturities 15,600
-------
$25,300
=======
14
<PAGE> 18
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - COMMITMENTS - Continued
OPERATING LEASES
The Company has entered into operating lease agreements for the use of its
office facilities and vehicle expiring at various dates through 2002. On
January 18, 2000, the Company entered into a new operating lease for
additional office space until July 2005 at an annual rate of $222,400 with
periodic increase to a maximum annual rental rate of $257,900. Minimum
future rental payments under operating leases are as follows:
2000 $ 251,800
2001 268,900
2002 269,000
2003 242,400
2004 249,700
Thereafter 128,300
----------
Total minimum lease payments $1,410,100
==========
Total rent expense for 1999 and 1998 was $38,400 and $27,000, respectively.
NOTE J - DEBT
On August 4, 1999, the Company entered into a $100,000 unsecured line of
credit with Fleet Bank. The interest rate for the line of credit is a
floating rate based upon Fleet Bank Prime Rate plus an initial margin of 3%.
The line of credit is personally guaranteed by the majority shareholder of
the Company. At December 31, 1999 there were no borrowings outstanding under
this line of credit.
On January 3, 2000 the Company entered into a $75,000 secured line of credit
with BankBoston. The interest rate is a variable annual percentage rate plus
one percentage point. The line of credit is collateralized by the assets of
the Company.
15
<PAGE> 19
Envision Development Corporation
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE K - SUBSEQUENT EVENTS
On February 1, 2000, the Company entered into an Agreement and Plan of Merger
with Envision Development Corp. (formerly perfumania.com, inc.) (the
"Purchaser"). In accordance with the agreement the Purchaser planned to
acquire all of the issued and outstanding shares of stock of the Company.
Concurrent with that agreement, the Company entered into a Loan Commitment
Letter Agreement ("Loan Agreement") with the Purchaser whereby the Purchaser
agreed to loan the Company a principal amount of up to $1.5 million at an
annual interest rate equal to the prime rate of interest with the operating
principal and interest accrued payable in its entirety on the one-year
anniversary of the date of issuance of the principal. The Company currently
has $750,000 outstanding against the Loan Agreement.
On May 16, 2000, the Company completed its merger with and into Envision
Development Corporation (formerly perfumania.com, inc.). Envision Development
Corporation acquired all of the common stock outstanding of the Company at
that date in return for 1,513,072 shares of common stock of Envision
Development Corporation.
16
<PAGE> 20
CONDENSED FINANCIAL STATEMENTS
ENVISION DEVELOPMENT CORPORATION
March 31, 2000 and 1999
(Unaudited)
17
<PAGE> 21
Envision Development Corporation
CONDENSED BALANCE SHEETS
March 31,
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 302,872 $ 33,538
Accounts receivable, net 610,956 9,983
Due from Parent 74,000 --
Prepaid expenses 17,825 146
----------- -----------
Total current assets 1,005,653 43,667
Fixed assets, net 385,198 47,669
Other assets 37,066 --
----------- -----------
Total assets $ 1,427,917 $ 91,336
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Checks written in excess of bank balances $ -- $ 6,736
Note payable to Parent 500,000 --
Accounts payable and accrued expenses 549,308 5,721
Fair value of common stock accrued for consulting services 400,176 179,000
Capital lease obligation 41,724 9,800
Deferred revenues 78,833 --
----------- -----------
Total current liabilities 1,570,041 201,257
Capital lease obligation, less current portion 101,557 11,550
----------- -----------
Total liabilities 1,671,598 212,807
----------- -----------
Commitments
Stockholders' (deficit):
Common stock, no par value -- --
Paid-in capital 1,859,720 1,000
Deferred compensation (380,000) --
Retained earnings (accumulated deficit) (1,661,210) (60,963)
Note receivable from stockholder (62,191) (61,508)
----------- -----------
Total stockholders' (deficit) (243,681) (121,471)
----------- -----------
Total liabilities and stockholders' (deficit) $ 1,427,917 $ 91,336
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
18
<PAGE> 22
Envision Development Corporation
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
--------- ---------
Revenues $ 625,187 $ 249,184
Operating expenses:
Project costs 451,503 63,569
Selling and marketing 220,974 63,532
General and administrative 338,242 54,446
Noncash compensation for consulting services -- 137,300
--------- ---------
Loss from operations (385,532) (69,663)
--------- ---------
Interest income, net 4,222 --
Net loss $(381,310) $ (69,663)
========= =========
The accompanying notes are an integral part of these unaudited condensed
financial statements.
19
<PAGE> 23
Envision Development Corporation
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(381,310) $ (69,663)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 19,574 1,531
Compensation charge associated with fair value of
common stock payable for performance of services -- 137,300
Changes in assets and liabilities:
Accounts receivable and due from parent (604,156) 95,217
Prepaid expenses (12,425) 6,054
Other assets (37,066) --
Accounts payable and accrued expenses 318,608 (50,579)
Deferred revenue 22,233 (78,900)
--------- ---------
Net cash (used in) provided by operating activities (674,542) 40,960
--------- ---------
Cash flows from investing activities:
Purchases of fixed assets (322,472) --
--------- ---------
Cash flows from financing activities:
Checks written in excess of bank balance -- 5,836
Issuance of note payable to parent company 500,000 --
Increase in shareholder note receivable (1,091) (10,508)
Repayment of capital lease obligations 102,381 (2,750)
Proceeds from the issuance of common stock 14,296 --
--------- ---------
Net cash provided by (used in) financing activities 615,586 (7,422)
--------- ---------
Net change in cash (381,428) 33,538
Cash, beginning of year 684,300 --
--------- ---------
Cash, end of year $ 302,872 $ 33,538
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
20
<PAGE> 24
Envision Development Corporation
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2000 and 1999
(unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
Envision Development Corporation (the "Company"), a Massachusetts
corporation, without audit, pursuant to generally accepted accounting
principles. Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. These condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1999
financial statements.
In the opinion of management of the Company, the condensed financial
statements reflect all adjustments (which consist only of normal recurring
adjustments) necessary to present the condensed financial position of the
Company as of March 31, 2000 and 1999 and the condensed results of operations
and cash flows for the three-month periods then ended. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
NOTE B - SUBSEQUENT MERGER
On February 1, 2000, the Company entered into an Agreement and Plan of Merger
with Envision Development Corporation (formerly perfumania.com, inc.) (the
"Purchaser"). In accordance with the agreement, the Purchaser planned to
acquire all of the issued and outstanding shares of stock of the Company.
Concurrent with that agreement, the Company entered into a Loan Commitment
Letter Agreement ("Loan Agreement") with the Purchaser whereby the Purchaser
agreed to loan the Company a principal amount of up to $1.5 million at an
annual interest rate equal to the prime rate of interest with the operating
principal and interest accrued payable in its entirety on the one-year
anniversary of the date of issuance of the principal. The Company currently
has $750,000 outstanding against the Loan Agreement.
On May 16, 2000, the Company completed its merger with and into Envision
Development Corporation (formerly perfumania.com, inc.). Envision Development
Corporation acquired all of the common stock outstanding of the Company at
that date in return for 1,513,072 shares of common stock of Envision
Development Corporation.
21
<PAGE> 25
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)
FORWARD LOOKING STATEMENTS
This Report on Form 8-K contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors,
some of which are beyond our control, that may cause the actual results,
performance or achievements of Envision Development Corporation or its industry
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These forward-looking
statements are based on our current expectations and are subject to a number of
risks, uncertainties and assumptions relating to our operations, financial
condition and results of operations, including, among others, rapid
technological and regulatory changes in the industries we serve, the financial
resources of our customers, our numerous competitors and the few barriers to
entry for potential competitors, our uncertain revenue growth, our ability to
attract and retain qualified personnel, our ability to expand our infrastructure
and manage our growth, and our ability to identify, finance and integrate
acquisitions, among others. If any of these risks or uncertainties materialize,
or if any of the underlying assumptions prove incorrect, actual results may
differ significantly from results expressed or implied in any forward-looking
statements made by us. These and other risks are detailed in the Annual Report
on Form 10-K as of and for the year ending January 29, 2000 and in other
documents filed by us with the Securities and Exchange Commission. Envision
undertakes no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
On May 16, 2000, Envision Development Corporation (the "Corporation") acquired
Envision Development Corporation, a Massachusetts corporation ("Envision
Massachusetts") with the same name as the Corporation pursuant to the terms of
the First Amended and Restated Agreement and Plan of Merger, dated March 10,
2000 (the "Agreement"), as amended by Amendment No. 1, dated May 12, 2000 (the
"Amendment"), among the Corporation, Envision Acquisition Corporation ("EAC"),
perfumania.com, inc. ("perfumania.com"), Envision Massachusetts and certain
stockholders of Envision Massachusetts.
Envision Massachusetts merged with and into EAC, a wholly-owned subsidiary of
the Corporation, with Envision Massachusetts surviving as a wholly-owned
subsidiary of the Corporation. All the issued and outstanding common stock of
Envision Massachusetts was converted into 1,513,072 shares of common stock, par
value $0.01 (the "Common Stock"), of the Corporation, and all the issued and
outstanding options for common stock of Envision Massachusetts were converted
into 373,421 options for Common Stock of the Corporation. The number of shares
and options of the Corporation given in exchange for shares and options of
Envision Massachusetts was determined by negotiations among the parties to the
Agreement.
Envision Massachusetts delivers complete eBusiness products and services that
support a wide range of eCommerce applications for customers, including building
customized eStructures to replace legacy infrastructure, providing
InternetPowered(TM) products and solutions and delivering professional services
to business clients.
22
<PAGE> 26
The total purchase price is valued at approximately $112,000,000, consisting of
1,886,493 shares of Envision common stock. The shares issued by the Corporation
in connection with the Envision Massachusetts acquisition are not registered
under the Securities Act of 1933 and are subject to restrictions on
transferability for a period of 12 months from the date of issuance. The value
of Envision's shares included in the purchase price was calculated net of an
estimated 15% market value discount to reflect the restrictions on the
transferability. The market value was calculated using the average of the
closing price of the previous ten trading days of Envision common stock prior to
consummation of the transaction.
The following presents the pro forma financial information (unaudited) of
Envision as of and for the fiscal year ended January 29, 2000 as if the
acquisition of Envision Massachusetts was consummated at the beginning of the
fiscal period for income statement purposes and at the end of the fiscal period
for balance sheet purposes. The pro forma income statement for the three months
ended April 29, 2000 is presented as if the acquisition was consummated at the
beginning of the prior fiscal year. The historical financial information for
Envision Massachusetts is derived from the historical financial statements of
Envision Massachusetts as of and for the year ended December 31, 1999 and as of
and for the three months March 31, 2000 and is intended only for presentation of
the Company's pro forma financial information. The pro forma financial
information is provided for informational purposes only and should not be
construed to be indicative of the Company's results of operations had the
acquisition been consummated on the dates assumed and does not project the
Company's results of operations for any future period. The pro forma adjustments
are described below.
23
<PAGE> 27
PRO FORMA COMBINED BALANCE SHEET AS OF JANUARY 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Envision Envision
Historical As Massachusetts Pro Forma Pro Forma
Adjusted (7) (1) Adjustments Results
------------- ------------ - ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9,208,501 684,300 -- 9,892,801
Accounts receivable -- 80,800 -- 80,800
Prepaid expenses -- 5,400 -- 5,400
------------- ------------- ------------- -------------
Total current assets 9,208,501 770,500 -- 9,979,001
Net assets from discontinued
operations 832,208 -- -- 832,208
Property and equipment, net -- 82,300 -- 82,300
Intangible assets -- -- 112,313,642 (2) 112,313,642
------------- ------------- ------------- -------------
Total assets $ 10,040,709 852,800 112,313,642 123,207,151
============= ============= ============= =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 322,900 230,700 -- 553,600
Fair value of common stock in
exchange for services -- 549,200 -- 549,200
Capital lease obligation -- 15,600 -- 15,600
Deferred revenues -- 56,600 -- 56,600
------------- ------------- ------------- -------------
Total current liabilities 322,900 852,100 -- 1,175,000
Capital lease -- 25,300 -- 25,300
------------- ------------- ------------- -------------
322,900 877,400 -- 1,200,300
------------- ------------- ------------- -------------
Shareholders' equity (deficit):
Common stock 75,000 -- -- 75,000
Additional paid in capital 15,194,771 1,696,400 (1,696,400)(3)
112,730,142 127,924,913
Deferred compensation -- (380,000) -- (380,000)
Accumulated deficit (5,551,962) (1,279,900) 1,279,900 (3) (5,551,962)
Note receivable from stockholder -- (61,100) -- (61,100)
------------- ------------- ------------- -------------
Total shareholders' equity 9,717,809 (24,600) 112,313,642 122,006,851
------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity $ 10,040,709 852,800 112,313,642 123,207,151
============= ============= ============= =============
</TABLE>
24
<PAGE> 28
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR
ENDED JANUARY 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Envision Envision
Historical As Massachusetts Pro Forma
Adjusted (7) (4) Adjustments Pro Forma Results
------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Revenue $ -- 930,600 -- 930,600
Operating expenses:
Project costs -- (398,700) -- (398,700)
Selling and marketing -- (296,900) -- (296,900)
General and administrative (1,143,177) (580,500) -- (1,723,677)
Noncash compensation for
consulting services -- (549,200) -- (549,200)
Noncash compensation for common
stock -- (385,800) -- (385,800)
Amortization of intangibles -- -- (37,437,881)(5) (37,437,881)
----------- ----------- ----------- -----------
Loss from continuing operations
before interest (1,143,177) (1,280,500) (37,437,881) (39,861,558)
Interest income 180,886 4,800 -- 185,686
Interest expense (176,238) (9,600) -- (185,838)
----------- ----------- ----------- -----------
Loss from continuing operations $(1,138,529) (1,285,300) (37,437,881) (39,861,710)
=========== =========== =========== ===========
Basic and diluted loss per common
share:
Loss from continuing operations $ (0.19) $ (5.16)
=========== ===========
Weighted average number of common
shares outstanding used in basic
and diluted calculation 5,844,780 -- 1,886,493 (6) 7,731,273
=========== =========== =========== ===========
</TABLE>
25
<PAGE> 29
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE FISCAL QUARTER
ENDED APRIL 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Envision
Envision Massachusetts Pro Forma
Historical (4) Adjustments Pro Forma Results
------------ ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Revenue $ -- 625,187 -- 625,187
Operating expenses:
Project costs -- (451,503) -- (451,503)
General and administrative (2,494,855) (338,242) -- (2,833,097)
Selling and marketing -- (220,974) -- (220,974)
Amortization of intangibles (2,889,445) -- (9,359,470)(5) (12,248,915)
----------- ----------- ----------- -----------
Loss from continuing operations
before interest (5,384,300) (385,532) (9,359,470) (15,129,302)
Interest income, net 90,828 4,222 -- 95,190
----------- ----------- ----------- -----------
Loss from continuing operations $(5,293,472) (381,310) (9,359,470) (15,034,112)
=========== =========== =========== ===========
Basic and diluted loss per common
share:
Loss from continuing operations $ (0.67) (1.53)
=========== ===========
Weighted average number of common
shares outstanding used in basic
and diluted calculation 7,921,181 -- 1,886,493 (6) 9,807,674
=========== =========== =========== ===========
</TABLE>
26
<PAGE> 30
Notes to Pro Forma Combined Financial Statements:
The acquisition of Envision Massachusetts has been accounted for using the
purchase method of accounting, and, accordingly, the purchase price of the
Envision Massachusetts acquisition was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the acquisition
date.
The purchase price for the above acquisitions was allocated as follows:
Fair value of net assets acquired (net liabilities assumed):
Accounts receivable $ 521,930
Property and equipment, net 413,903
Other assets 119,490
-----------
Total assets acquired 1,055,323
Accounts payable and accrued expenses (423,104)
Note payable to parent (750,000)
Other liabilities (202,949)
-----------
Total liabilities assumed (1,480,019)
-----------
Net non-cash liabilities assumed (424,696)
Cash acquired 166,970
-----------
Net liabilities assumed $ (257,726)
===========
The following is a reconciliation of the purchase price to the excess of the
estimated fair value of net assets acquired allocated to intangible assets:
Purchase price $112,055,916
Net assets acquired 257,726
------------
Amount allocated to intangible assets $112,313,642
============
In connection with the acquisition of Envision Massachusetts, approximately
$112,000,000 was assigned to intangible assets. The amount assigned to
intangible assets is preliminary and is subject to adjustment upon finalization
of the purchase accounting, including the valuation of the note receivable from
stockholder and options. The finalization of the purchase accounting for
Envision Massachusetts may result in a significant portion of the aggregate
purchase price being identified as in-process research and development, which
will be charged to operations during fiscal year 2001 when the amounts are
determined. Various factors are being considered in determining the amount of
the purchase price to be allocated to in-process research and development, such
as estimating the stage of development of each in-process research and
development project at the date of acquisition, estimating cash flows resulting
from the expected revenues generated from such projects and discounting the net
cash flows, in addition to other assumptions. The estimate of the cash flows
resulting from the expected revenues generated from the projects is dependent
upon a number of risk factors and uncertainties, including the rate of market
acceptance of the projects, rapid technological changes, the financial resources
of our customers and the low barriers to entry for potential competitors, some
of which have access to greater resources than the Company. The remaining
identified intangibles, including the value of purchased technology and other
intangibles, will be amortized
27
<PAGE> 31
on a straight-line basis over a period of three years. These intangible assets
are subject to review of recoverability based on various factors including
Envision's ability to generate future revenues sufficient to warrant the
intangible amounts capitalized.
(1) To add the assets and liabilities of Envision Massachusetts as of December
31, 1999
(2) To add goodwill as of January 29, 2000
(3) To eliminate Envision Massachusetts, additional paid-in-capital and retained
earnings and record the acquisition
(4) To add the expenses of Envision Massachusetts for the year ended December
31, 1999 and the three months ended March 31, 2000, respectively
(5) To add pro forma amortization expense for the fiscal year ended January 29,
2000 and the fiscal quarter ended April 29, 2000, respectively
(6) To adjust the weighted average number of shares outstanding for the
consideration of 1,886,493 shares of Envision common stock
(7) On May 10, 2000, Envision sold its wholly-owned subsidiary, perfumania.com,
inc. ("perfumania.com") to E Com Ventures, Inc. ("E Com Ventures"), formerly
known as Perfumania, Inc., pursuant to the terms of a Stock Purchase
Agreement, dated April 29, 2000, among Envision, ZERO.NET, Inc. ("ZERO.NET")
and E Com Ventures. ZERO.NET is a significant shareholder of Envision.
Envision exchanged all of the common stock of perfumania.com for 400,000
shares of common stock of Envision held by E Com Ventures. The sales price
was determined by negotiation between the parties. The transaction requires
approval by Envision's shareholders. Management expects to recognize a gain
on the disposal of the discontinued operation. The disposition of
perfumania.com is accounted for as a discontinued operation, and
accordingly, amounts in the accompanying pro forma financial statements have
been restated to reflect discontinued operations accounting.
The following pro forma financial information illustrates the historical
presentation of Envision as presented in the Annual Report on Form 10-K as of
and for the fiscal year ending January 29, 2000 filed by us with the Securities
and Exchange Commission with discontinued operations accounting for the
disposition of perfumania.com. The Envision Historical As Adjusted column is
used in the presentation of the pro forma financial information for the Envision
Massachusetts acquisition as management believes this is indicative of the
continuing impact of the transaction. The pro forma financial information is
provided for informational purposes only and should not be construed to be
indicative of the Company's results of operations had the acquisition or
disposition been consummated on the dates assumed and does not project the
Company's results of operations for any future period. The pro forma adjustments
are described below.
28
<PAGE> 32
PRO FORMA BALANCE SHEET AS OF JANUARY 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Envision
Envision Historical As
Historical perfumania.com Adjusted
------------ -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9,208,501 $ -- $ 9,208,501
Accounts receivable 38,937 (38,937) --
Inventory 1,651,327 (1,651,327) --
Prepaid expenses 102,357 (102,357) --
------------ ------------ ------------
Total current assets 11,001,122 (1,792,621) 9,208,501
Net assets of discontinued operations -- 832,208 832,208
Property and equipment, net 236,375 (236,375) --
------------ ------------ ------------
Total assets $ 11,237,497 $ (1,196,788) $ 10,040,709
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Amounts due to affiliate $ 255,201 $ (255,201) $ --
Accounts payable and accrued expenses 1,264,487 (941,587) 322,900
------------ ------------ ------------
Total current liabilities 1,519,688 (1,196,788) 322,900
------------ ------------ ------------
Shareholders' equity (deficit):
Common stock 75,000 -- 75,000
Additional paid in capital 15,194,771 -- 15,194,771
Accumulated deficit (5,551,962) -- (5,551,962)
------------ ------------ ------------
Total shareholders' equity 9,717,809 -- 9,717,809
------------ ------------ ------------
Total liabilities and shareholders'
equity $ 11,237,497 $ (1,196,788) $ 10,040,709
============ ============ ============
</TABLE>
29
<PAGE> 33
PRO FORMA STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Envision
Envision perfumania. Historical As
Historical com Adjusted
----------- ------------ -----------
<S> <C> <C> <C>
Net sales $ 2,290,149 $(2,290,149) $ --
Cost of goods sold 1,832,094 (1,832,094) --
----------- ----------- -----------
Gross profit 458,055 (458,055) --
----------- ----------- -----------
Operating expenses:
General and administrative expense 3,234,910 (2,091,733) 1,143,177
Sales and marketing expense 1,548,742 (1,548,742) --
Web site development expense 196,673 (196,673) --
Consulting fees 277,190 (277,190) --
Management fees to affiliate 433,655 (433,655) --
----------- ----------- -----------
Total operating expenses 5,691,170 (4,547,993) 1,143,177
----------- ----------- -----------
Loss from continuing operations before
interest (5,233,115) 4,089,938 (1,143,177)
Interest income 180,886 -- 180,886
Interest expense to affiliate (176,238) -- (176,238)
----------- ----------- -----------
Loss from continuing operations $(5,228,467) $ 4,089,938 $(1,138,529)
=========== =========== ===========
</TABLE>
30
