SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 29, 2000.
A1 Internet.com, Inc.,
----------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 000-274243 03-7392107
------ ---------- ----------
(State or Other (Commission File Number) (I.R.S. Employee
Jurisdiction of Identification Number)
Incorporation)
15825 Shady Grove Road, Rockville, Maryland 20850
-------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(301) 947-0100
--------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) Acquisition of Commonwealth Telecommunications of North America, Inc., (the
"CTNA Acquisition")
Pursuant to an Stock Purchase Agreement (the "CTNA Purchase Agreement"), dated
as of June 29, 2000, by and among the Registrant, Commonwealth
Telecommunications of North America, Inc ("CTNA"), each of the shareholders of
CTNA (CTNA shareholders), the Registrant acquired 100% of the outstanding shares
of CTNA from the CTNA Shareholders. In consideration for the CTNA Acquisition,
the Registrant issued to the CTNA shareholders 1,200,000 shares of Common Stock.
Certain additional information regarding the CTNA Acquisition and the
transactions contemplated by the CTNA Purchase Agreement is included in the CTNA
Purchase Agreement which is filed as an exhibit hereto. The foregoing summary of
the CTNA Purchase Agreement is qualified in its entirety by reference to the
complete text thereof, attached hereto as Exhibit 2.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Commonwealth Telecommunications of North America,
Inc.
(b) Pro Forma Financial Information
(c) Exhibits
The following exhibit is included as part of this report:
2.1 Stock Purchase Agreement, dated as of June 29, 2000, by and among A1
Telecommunications, Inc., a newly formed fully owned subsidiary of the
Registrant, Commonwealth Telecommunications of North America, Inc., and
each of the Shareholders of Commonwealth Telecommunications of North
America, Inc.
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.
A1 Internet.com, Inc.,
(Registrant)
Date: July 29, 2000
By: /S/ Bruce Bertman
---------------------
(Signature)
Name: Bruce Bertman
Title: President,
Chief Executive Officer
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
FINANCIAL STATEMENTS
PERIOD FROM INCEPTION
(JANUARY 20, 2000) THROUGH MAY 31, 2000
TABLE OF CONTENTS
Page
----
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Changes in Shareholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 - F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CommonWealth Telecommunications of North America, Inc.
We have audited the accompanying balance sheet of CommonWealth
Telecommunications of North America, Inc. ("Company") as of May 31, 2000, and
the related statements of operations, changes in shareholders' equity and cash
flows for the period from inception (January 20, 2000) through May 31, 2000.
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 CommonWealth Telecommunications
of North America, Inc. as of May 31, 2000, and the results of its operations and
its cash flows for the period from inception (January 20, 2000) through May 31,
2000, in conformity with generally accepted accounting principles.
/S/ SPICER, JEFFRIES & CO.
--------------------------
SPICER, JEFFRIES & CO.
Denver, Colorado
July 28, 2000
F-2
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
BALANCE SHEET
MAY 31, 2000
ASSETS
------
CURRENT ASSETS
Cash $ 81,337
Accounts receivable, net of allowance for
bad debts of $15,012 271,030
Accounts receivable-officer (Note 2) 82,990
Deposits 3,250
---------
Total current assets 438,607
---------
FURNITURE AND EQUIPMENT, AT COST
Furniture and fixtures 20,018
Equipment 45,083
Less: accumulated depreciation (5,960)
---------
Net furniture and equipment 59,141
---------
$ 497,748
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 438,539
Other accrued liabilities 4,288
Note payable (Note 2) 54,400
---------
Total current liabilities 497,227
---------
SHAREHOLDERS' EQUITY
Common stock, no par value, 25,000 shares
authorized, 12,000 shares issued and outstanding 120
Additional paid-in capital 59,730
Accumulated deficit (59,329)
---------
Total shareholders' equity 521
---------
$ 497,748
=========
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (JANUARY 20, 2000)
THROUGH MAY 31, 2000
REVENUES, NET $ 586,527
COST OF SALES 536,805
---------
Gross profit 49,722
---------
OPERATING EXPENSES:
General and administrative 101,640
Depreciation 5,960
---------
Total operating expenses 107,600
---------
OTHER EXPENSE - interest 1,451
---------
$ (59,329)
NET LOSS =========
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
PERIOD FROM INCEPTION (JANUARY 20, 2000) THROUGH MAY 31, 2000
Additional
Common Stock Paid-In
Shares Amount Capital Deficit
------ ------ ------- -------
Balances, January 20, 2000 -- -- -- --
Issuance of Common Stock 12,000 120 -- --
Capital Contributed -- -- 59,730 --
Net Loss -- -- -- (59,329)
---------------------------------------
Balances, May 31, 2000 12,000 $ 120 $ 59,730 $(59,329)
=======================================
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (JANUARY 20, 2000) THROUGH MAY 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (59,329)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 5,960
Bad debt expense 15,012
Increase in accounts receivable (309,302)
Increase in deposits (3,250)
Increase in accounts payable 438,539
Increase in accrued expenses 4,288
---------
Net cash provided by operating activities 91,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (65,101)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 120
Issuance of note payable 4,400
---------
Net cash provided by financing activities 54,520
---------
NET INCREASE IN CASH 81,337
CASH, beginning of period --
---------
CASH, end of period $ 81,337
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,451
=========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital contributed for officer account receivable $ 59,850
=========
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM INCEPTION (JANUARY 20, 2000) THROUGH MAY 31, 2000
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
-------------------------
The Company was originally incorporated in the state of Nevada as Tech Tools
2000, Inc. on January 20, 2000. The Company changed its name to CommonWealth
Telecommunications of North America, Inc. in April 2000. The Company provides
long distance telephone services primarily to residential customers.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash Flows
----------
For purposes of reporting cash flows, cash includes cash in commercial bank
accounts.
Fair Value of Financial Instruments
-----------------------------------
Financial instruments, including cash, receivables and other current assets, are
carried at amounts which approximate fair value. Accounts payable, notes payable
and other accrued liabilities are carried at amounts which approximate fair
value.
Furniture and Equipment
-----------------------
Furniture and equipment are stated at cost. The cost of maintenance and repairs
is charged to operations as incurred; significant additions and betterments are
capitalized. Deprecation is computed using the straight line method over
estimated useful lives of 7 years for furniture and fixtures and 3 years for
equipment.
Income Taxes
------------
The Company utilizes the asset and liability method of accounting for income
taxes, as prescribed by Statement of Financial Accounting Standards No. 109
(SFAS 109). Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply in the years in which these temporary
differences are expected to be recovered or settled. Changes in tax rates are
recognized in income in the period that includes the enactment date.
F-7
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM INCEPTION (JANUARY 20, 2000) THROUGH MAY 31, 2000
(continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Long-Lived Assets
-----------------
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company has an account receivable from its President totaling $82,990.
The Company has a note payable to a company owned by the Company's President for
$54,400. This note bears interest at 8% and is due August 1, 2000. This note was
paid in August 2000.
The Company has an agreement with a company owned by the Company's President
whereby the Company pays $1,000 per month for the right to use the other
company's FCC license. The agreement has no expiration date.
NOTE 3 - INCOME TAXES
As of May 31, 2000, the Company has a net operating loss of approximately
$50,000 for income tax purposes. However, the ability to utilize such losses to
offset future taxable income is subject to various limitations imposed by the
rules and regulations of the Internal Revenue Service. A portion of the
Company's net operating losses are limited each year to offset future taxable
income, if any, due to the change of ownership in the Company's outstanding
shares of common stock. This net operating loss may result in future income tax
benefits of approximately $7,500; however, because realization is uncertain at
this time, a valuation reserve in the same amount has been established. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
F-8
<PAGE>
COMMONWEALTH TELECOMMUNICATIONS
OF NORTH AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM INCEPTION (JANUARY 20, 2000) THROUGH MAY 31, 2000
(continued)
NOTE 3 - INCOME TAXES (Continued)
Significant components of the Company's deferred tax liabilities and assets as
of May 31, 2000 are as follows:
Deferred tax liabilities $ --
=========
Deferred tax assets:
Net operating loss $ 7,500
---------
Total deferred tax assets 7,500
Valuation allowance for deferred tax assets (7,500)
---------
$ --
=========
The valuation allowance for deferred tax assets was increased by $7,500 during
the period from inception (January 20, 2000) through May 31, 2000.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company has an agreement with an unrelated company to provide verification
of customer orders. The agreement provides for a monthly minimum charge of
$4,500 and expires in May 2001.
The Company leases its office space in Orlando, Florida for $3,250 per month.
Future minimum rentals are as follows:
Year
Ending
May 31, Amount
------- ---------
2001 $ 39,000
2002 39,000
2003 35,750
---------
$ 113,750
=========
Rental expense was $6,678 for the period ended May 31, 2000.
NOTE 5 - SUBSEQUENT EVENT
In June, 2000, the Company was acquired by A1 Telecommunications, Inc., a
wholly-owned subsidiary of A1 Internet.com, Inc. ("A1") for 1,200,000 shares of
A1's common stock.
F-9
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations reflects
the acquisition of Commonwealth Telecommunications of North America, Inc.
("CTNA") by A1 Internet.com, Inc. as if it had occurred on CTNA's date of
inception (January 20, 2000).
The acquisition of CTNA consisted of the issuance of 1,200,000 shares of common
stock at $2.25 per share. The acquisition was accounted for using the purchase
method of accounting. Under the purchase method of accounting, assets acquired
and liabilities assumed are recorded at their fair values. Assets acquired and
liabilities assumed in the transaction were $497,748 and $497,227, respectively,
resulting in goodwill of $2,699,469.
A1 Internet.com, Inc. and Subsidiaries' June 30, 2000 historical consolidated
balance sheet as filed on Form 10QSB already reflects the acquisition of CTNA,
therefore a balance sheet is not presented as part of the accompanying pro forma
financial statements.
The pro forma adjustments on the accompanying statement represent the results of
operations of CTNA since its inception (January 20, 2000) through May 31, 2000.
CTNA's results of operations for the month of June 2000 are already reflected in
the consolidated statement of operations of A1 Internet.com, Inc. and
Subsidiaries as filed on Form 10QSB and included in the accompanying pro forma
statement.
F-10
<PAGE>
<TABLE>
<CAPTION>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
Pro Forma
A1 Internet.com, Inc. Pro Forma After
and Subsidiaries Adjustments Acquisition
---------------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 5,501,328 $ 586,527 $ 6,087,855
COST OF SALES (4,596,306) (536,805) $ (5,133,111)
------------ ------------ ------------
GROSS PROFIT 905,022 49,722 954,744
------------ ------------ ------------
OPERATING EXPENSES:
Salaries and related expenses 750,702 27,770 778,472
Travel and entertainment 48,836 26,581 75,417
Bad debt expense 12,683 15,012 27,695
Legal and professional 137,800 1,778 139,578
Occupancy costs 226,291 10,015 236,306
General and administrative 200,594 20,485 221,079
Consulting 144,471 -- 144,471
Depreciation and amortization 1,388,402 5,960 1,591,090
196,728(a)
------------ ------------ ------------
Total operating expenses 2,909,779 304,329 3,214,108
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Consulting fees (50,000) -- (50,000)
Other income 16,196 -- 16,196
Interest expense (8,799) (1,451) (10,250)
------------ ------------ ------------
Total other income (expense) (42,603) (1,451) (44,054)
------------ ------------ ------------
NET LOSS FROM
CONTINUING OPERATIONS $ (2,047,360) $ (256,058) $ (2,303,418)
============ ============ ============
NET LOSS PER SHARE OF
COMMON STOCK FROM
CONTINUING OPERATIONS $ (0.22) $ (0.22)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 9,405,187 10,585,407(b)
============ ============
See Notes to Pro Forma Consolidated Statement of Operations.
F-11
</TABLE>
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(a) Amount represents the adjustment to record additional amortization of
goodwill of $2,699,469 over 60 months for the period from January 20, 2000
through May 31, 2000. Amortization for the month of June 2000 is already
reflected in the statement of operations of A1 Internet.com, Inc. and
Subsidiaries for the six months ended June 30, 2000.
(b) The weighted average number of common shares outstanding after the
acquisition represents the issuance of 1,200,000 shares of common stock of
A1 Internet.com, Inc. to the shareholders of CTNA. The weighted average
number of common shares outstanding was computed as if the shares issued in
connection with the acquisition had been outstanding for the entire period.
F-12
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Asset Purchase Agreement, dated as of June 29, 2000, by and among the
Registrant, Commonwealth Telecommunications of North America, Inc., and
each of the shareholders of Commonwealth Telecommunications of North
America, Inc.
