================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 8-K/A-1
------------------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 1, 2000 (Amending Form 8-K dated March 1, 2000
filed on March 16, 2000)
SEAL HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-05667 64-0769296
(State or other jurisdiction Commission File Number (I.R.S. Employer
incorporation or organization) Identification Number)
5601 N. Dixie Highway, Suite 411
Fort Lauderdale, Florida 33334
-----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(954) 771-1772
-----------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Explanatory Note
- ----------------
This Report amends the Current Report on Form 8-K dated March 1, 2000 (filed on
March 16, 2000) to report the Company's investment in Healthology, Inc.
("Healthology"). The Registrant hereby provides the information required by
paragraphs (a) and (b) of Item 7 of such Current Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired
The following audited financial statements of Healthology, LLC as of December
31, 1999 and 1998 and for the year ended December 31, 1999 and the period July
10, 1998 (date of inception) to December 31, 1998 are filed as Schedule A to
this Report. Healthology, LLC is the predecessor to Healthology as a result of
the conversion on March 1, 2000 of Healthology, LLC to a C corporation.
Report of Independent Certified Public Accountants
Financial Statements
Balance Sheets
Statements of Operations and Members' Equity
Statements of Cash Flows
Notes to Financial Statements
The following unaudited financial statements of Healthology, Inc. (and its
predecessor, Healthology, LLC) as of March 31, 2000 and for the three month
periods ended March 31, 2000 and 1999 are filed as Schedule B to this Report.
Balance Sheet
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
-2-
<PAGE>
(b) Pro forma financial information
On March 27, 2000, Seal Holdings Corporation (the "Company") completed the
purchase of an approximate 21% interest in the issued shares of Healthology,
Inc. ("Healthology"), such interest having been computed on an as-converted
basis. Including capitalized transaction costs, the Company acquired
approximately 3.1 million shares of Healthology Series A Convertible Voting
Preferred Stock ("Healthology Preferred Shares") for cash of approximately $3.5
million. The Company obtained the funds for the Healthology acquisition through
the issuance of its Class A common stock to the Company's majority stockholder
at a purchase price of $5.25 per share. For further information on the
Healthology acquisition and related funding, including additional pro forma
financial information, please refer to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended March 31, 2000.
The unaudited Pro-Forma Condensed Statements of Operations (the "Pro Forma
Statements") presented below for the year ended December 31, 1999 and the three
months ended March 31, 2000 give effect to the Company's investment in
Healthology as if it had occurred on January 1, 1999. The Pro Forma Statements
are based on the following:
o The historical results of operations of the Company,
o The pro forma effect of the Company's 21% equity in the loss of Healthology,
and
o The pro-forma effect of amortization of the Company's net excess investment
over its equity in Healthology.
The Pro Forma Statements and the accompanying notes (collectively the "Pro Forma
Financial Information") should be read in conjunction with and are qualified by
the historical financial statements of the Company and notes thereto. The Pro
Forma Financial Information is intended for informational purposes only and is
not necessarily indicative of the future results of operations of the Company
after the investment in Healthology or of the results of operations of the
Company that would have actually occurred had the investment in Healthology
occurred as of January 1, 1999.
-3-
<PAGE>
Seal Holdings Corporation and Subsidiaries
Unaudited Pro Forma Condensed Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Seal Holdings Pro Forma Pro Forma
Corporation Adjustments As Adjusted
-------------- ----------- --------------
<S> <C> <C> <C>
Revenue
Interest Income $ - $ - $ -
-------------- ----------- --------------
- - -
-------------- ----------- --------------
Expenses:
Salaries and benefits 359,158 - 359,158
Professional fees 306,073 - 306,073
General and administrative 112,357 - 112,357
-------------- ----------- --------------
Total expenses 777,588 - 777,588
-------------- ----------- --------------
Operating loss (777,588) - (777,588)
-------------- ----------- -------------
Other income (expense):
Equity in loss of Healthology - (186,735)(a) (186,735)
Amortization of excess investment - (574,626)(b) (574,626)
-------------- ----------- --------------
- (761,361) (761,361)
-------------- ----------- --------------
Loss from continuing operations $ (777,588) $ (761,361) $ (1,538,949)
============== =========== ==============
Net loss from continuing operations attributable to
common stockholders $ (855,241) $ (761,361) $ (1,616,602)
============== ============= ==============
Basic and diluted loss per share from continuing
operations $ (0.04) $ (0.07)
============== ==============
Average basic and diluted shares outstanding
$ 22,300,143 669,880(c) 22,970,023
============== ============= ==============
</TABLE>
Notes to the Unaudited Pro Forma Condensed Statement of Operations for the year
ended December 31, 1999:
(a) Represents approximately 21% of the Healthology net loss for the year ended
December 31, 1999 of $879,169.
(b) Represents amortization of the Company's net excess investment over its
equity in Healthology computed as of the date the investment was
consummated amortized over 5 years.
(c) The purchase price of the Healthology investment of approximately $3.5
million was financed through the issuance of Class A common stock to the
Company's majority stockholder at a purchase price of $5.25 per share.
Accordingly, the pro forma effect of the Healthology investment reflects an
increase in the number of such shares issued.
-4-
<PAGE>
Seal Holdings Corporation and Subsidiaries
Unaudited Pro Forma Condensed Statement of Operations
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Seal Holdings Pro Forma Pro Forma
Corporation Adjustments As Adjusted
-------------- ----------- --------------
<S> <C> <C> <C>
Revenue
Interest Income $ 1,194 $ - $ 1,194
-------------- ----------- --------------
1,194 - 1,194
-------------- ----------- --------------
Expenses:
Salaries and benefits 349,494 - 349,494
Professional fees 264,458 - 264,458
General and administrative 100,059 - 100,059
-------------- ----------- --------------
Total expenses 714,011 - 714,011
-------------- ----------- --------------
Operating loss (712,817) - (712,817)
-------------- ----------- --------------
Other income (expense):
Equity in loss of Healthology - (112,444)(d) (112,444)
Amortization of excess investment - (143,657)(e) (143,657)
-------------- ----------- --------------
- (256,101) (256,101)
-------------- ----------- --------------
Loss from continuing operations $ (712,817) $ (256,101) $ (968,918)
============== =========== ==============
Net loss from continuing operations attributable to
common stockholders $ (767,067) $ (256,101) $ (1,023,168)
============== ============ ==============
Basic and diluted loss per share from continuing
operations $ (0.02) $ (0.03)
============= ==============
Average basic and diluted shares outstanding
32,066,919 669,880(f) 32,736,799
================== ============ ==============
</TABLE>
Notes to the Unaudited Pro Forma Condensed Statement of Operations for the three
months ended March 31, 2000:
(d) Represents approximately 21% of the Healthology net loss for the three
months ended March 31, 2000 of $529,398.
(e) Represents amortization of the Company's net excess investment over its
equity in Healthology computed as of the date the investment was
consummated amortized over 5 years.
(f) The purchase price of the Healthology investment of approximately $3.5
million was financed through the issuance of Class A common stock to the
Company's majority stockholder at a purchase price of $5.25 per share.
Accordingly, the pro forma effect of the Healthology investment reflects an
increase in the number of such shares issued.
-5-
<PAGE>
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.
SEAL HOLDINGS CORPORATION
By: /s/ Cecilio M. Rodriguez
----------------------------------------
Cecilio M. Rodriguez, Chief Financial Officer
Treasurer and Secretary
Dated: May 15, 2000
-6-
<PAGE>
SCHEDULE A
Healthology L.L.C.
FINANCIAL STATEMENTS
December 31, 1999 and 1998
C O N T E N T S
Page
----
Report of Independent Certified Public Accountants 8
Financial Statements
Balance Sheets 9
Statements of Operations and Members' Equity 10
Statements of Cash Flows 11
Notes to Financial Statements 12- 19
-7-
<PAGE>
Accountants and Grant Thornton
Management Consultants
Grant Thornton LLP
The US Member Firm of
Grant Thornton International
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Members of
Healthology L.L.C.
We have audited the accompanying balance sheets of Healthology L.L.C. as of
December 31, 1999 and 1998 and the related statements of operations and members'
equity and cash flows for the year ended December 31, 1999 and the period July
10, 1998 (date of inception) to December 31, 1998. 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 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 audits provide 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 Healthology L.L.C. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the year ended December 31, 1999 and the period July 10, 1998 (date of
inception) to December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
/s/ Grant Thornton, LLP
New York, New York
March 8, 2000
THE CHRYSLER CENTER
666 Third Avenue
New York, NY 10017
Tel: 212 599-0100
Fax: 212 370-4520
-8-
<PAGE>
Healthology L.L.C.
BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 155,596 $ 3,566
Accounts receivable 53,718
Due from related parties 77,273
Due from officer 4,216
Prepaid expenses and other current assets 18,055 885
--------- -------
Total current assets 308,858 4,451
EQUIPMENT (net of accumulated depreciation
and amortization) 425,417 29,300
--------- -------
$ 734,275 $33,751
========= =======
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 311,888 $ 1,895
Due to related parties 51,245
Deferred revenue 25,625
Current portion of capital lease obligations 4,460
Loan payable 18,940
--------- -------
Total current liabilities 412,158 1,895
CAPITAL LEASE OBLIGATIONS 10,325
--------- -------
Total liabilities 422,483 1,895
COMMITMENTS
MEMBERS' EQUITY 612,683 31,856
EQUITY-BASED COMPENSATION (300,891)
--------- -------
311,792 31,856
--------- -------
$ 734,275 $33,751
========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
Healthology L.L.C.
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
Period from
inception
(July 10, 1998)
Year ended through
December 31, December 31,
1999 1998
----------- ----------
<S> <C> <C>
Revenues $ 962,148 $ 2,000
Cost of revenues 834,083 80,006
---------- ----------
Gross profit 128,065 (78,006)
---------- ----------
Expenses
General and administrative 542,089 56,947
Sales and marketing 447,880 12,672
Depreciation and amortization 16,283
---------- ----------
1,006,252 69,619
---------- ----------
Loss from operations (878,187) (147,625)
Other income 738 110
---------- ----------
Loss before state and local
income taxes (877,449) (147,515)
State and local income taxes 1,720
---------- ----------
NET LOSS (879,169) (147,515)
Members' equity - beginning of period 31,856
Net equity contributions 642,629 164,371
---------- ----------
(204,684) 16,856
Equity-based compensation 817,367 15,000
---------- ----------
Members' equity - end of period $ 612,683 $ 31,856
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE>
Healthology L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
inception
(July 10, 1998)
Year ended through
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(879,169) $(147,515)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 85,886
Equity-based expense 516,476 55,371
Changes in assets and liabilities
Accounts receivable (53,718)
Due from related parties (77,273)
Due from officer (4,216)
Prepaid expenses and other assets (17,170) (885)
Accounts payable and accrued expenses 309,993 1,895
Due to related parties 51,245
Deferred revenue 25,625
--------- ---------
Net cash used in operating activities (42,321) (91,134)
--------- ---------
Cash flows from investing activities
Purchases of equipment (464,999) (29,300)
-------- ---------
Net cash used in investing activities (464,999) (29,300)
-------- ---------
Cash flows from financing activities
Contributions from members 662,629 124,000
Distribution to member (1,060)
Payments on capital lease obligation (2,219)
---------- ---------
Net cash provided by financing activities 659,350 124,000
-------- --------
NET INCREASE IN CASH 152,030 3,566
Cash at beginning of period 3,566
---------- -----------
Cash at end of period $ 155,596 $ 3,566
======== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Income taxes $ 1,720
Noncash financing activities in 1999:
Capital lease obligations of $17,004 were incurred when the Company entered into leases for new equipment,
and members' equity of $20,000 was converted into a loan of $18,940.
</TABLE>
The accompanying notes are an integral part of these statements.
-11-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE A - NATURE OF OPERATIONS
Healthology L.L.C. (the "Company"), a Limited Liability Company, was formed
in the State of Delaware on July 10, 1998. The Company is an online health
media company. The Company produces and distributes original content that
is generated by health professionals. In addition, the Company has
developed a network of content partners from the healthcare industry. The
Company is also a producer of health-related streaming media. A Web site at
www.healthology.com is maintained by the Company as a vehicle for its
services.
The Company has distribution arrangements with other Web sites. The Company
transmits content to and receives hypertext links from these sources.
The Company's primary revenue sources are the sponsorship and licensing of
health-related content and streaming media, and fees charged for the
development of Web sites, health-related content and streaming media.
For the period from inception (July 10, 1998) to December 31, 1998, the
Company was considered to be in the development stage. During the year
ended December 31, 1999, the Company emerged from the development stage,
and has raised significant funding through private placements of its
securities in order to build its business. Should this funding not be
sufficient, the Company will be required to raise additional funds in order
to continue its current growth and spending rates. Should sources of
capital not be available, the Company will scale back planned growth (see
Note J).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
2. Equipment
Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
ranging from three to five years. Amortization of assets under capital
leases is computed using the straight-line method over the lease term
or the estimated useful lives of the assets, ranging from three to five
years.
-12-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE B (continued)
3. Web Site Development Costs
Web site development costs are accounted for in accordance with SOP
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This statement requires capitalization of
various costs related to the development of software that will be used
to operate the Company's Web site and related back-end server
technology. Capitalized software development costs are amortized over
the estimated useful life of the software, generally three years.
Software development costs incurred in the pre-production and
post-implementation phases of software development projects are
expensed as incurred. The cost of developing content and streaming
media that is published on the Web site is expensed as incurred.
4. Revenue Recognition
Revenue from fees charged for Web site development projects is
recognized in the period in which the service has been performed.
Revenue from sponsored content and streaming media is recognized in the
period in which the content or streaming media premiers. Revenue from
licensing of content is recognized monthly based on the number of
impressions delivered.
5. Cost of Revenues
Cost of revenues consists primarily of content fees to third parties,
payroll and other related expenses for the Company's editorial,
programming and design staff who are responsible for creating content
on its Web site. Also included are payments to certain content
providers and to technology suppliers (such as hosting companies) and
amortized Web site development costs. Amortized Web site development
costs amounted to $69,603 and $0 for the periods ended December 31,
1999 and 1998, respectively.
6. Sales and Marketing Expenses
Selling and marketing expenses consist primarily of advertising and
promotion costs and payroll expenses for the Company's staff who are
responsible for marketing activities.
-13-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE B (continued)
7. General and Administrative Expenses
General and administrative expenses consist of salary and related costs
for executive, finance and accounting, technical and administrative
functions, as well as professional service fees. General and
administrative expenses also include rent, office supplies and
telephone charges.
8. Stock-based Compensation
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting
for Stock-Based Compensation," and elected to continue the accounting
set forth in Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees." This opinion requires that
for options granted at less than fair market value, a compensation
charge be recognized for the difference between the exercise price and
fair market value over the vesting period.
9. Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions in determining the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C - EQUIPMENT
Equipment consists of the following:
1999 1998
-------- -------
Computer equipment $ 36,130 $29,300
Computer software 432,967
Office equipment 42,206
-------- -------
511,303 29,300
Less accumulated depreciation
and amortization (85,886)
-------- -------
$425,417 $29,300
======== =======
-14-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE C (continued)
Assets under capital lease at December 31, 1999 and 1998 were $17,004 and
$0, respectively, and related accumulated amortization was $0.
Included in computer software at December 31, 1999 is $127,313 of
capitalized Web site development costs that were charged to a related party
in terms of an agreement to develop Web sites (See Note I). Healthology
owns the Web site, related content and streaming media, and is able to
generate additional sponsorship and licensing revenues from the Web site.
NOTE D - INCOME TAXES
The Company is a Limited Liability Company. Accordingly, no provision has
been made in the accompanying financial statements for Federal income
taxes, since the income of the Company would be included in the income tax
returns of the members. The Company is, however, responsible for local
taxes and filing fees.
NOTE E - MEMBERS' EQUITY
Through the period ended December 31, 1998, members of the Company
contributed equity totaling $124,000. Officers of the Company received
equity totaling $40,371 in return for paying various expenses on behalf of
the Company. The Company also issued equity totaling $15,000 in return for
professional services provided to the Company.
During 1999, the Company issued 900,000 units at $.50 per unit, and 320,003
units at $.60 per unit. In addition, officers of the Company contributed
additional equity totaling $20,627 during 1999.
In June 1999, the Company entered into consulting agreements with two
individuals for the performance of specified services. Under this
agreement, the individuals were granted 1,000,000 units in the Company. Of
these units, 169,495 units vested immediately, 330,505 units vested equally
over the first eight months of the agreement, and 500,000 units vest once
certain funding thresholds are achieved by the Company. At December 31,
1999, 917,374 units had vested. During the year ended December 31, 1999,
the Company recorded deferred compensation for the above units of $400,000,
of which $383,475 was amortized to expense during 1999.
-15-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE E (continued)
In 1999, the Company also issued 500,000 warrants, exercisable at $.50 to
certain members in connection with their services in securing revenues for
the Company. The warrants expire on December 31, 2009. During 1999, 435,333
warrants were earned and were fully exercisable as at December 31, 1999.
During the year ended December 31, 1999, the Company recorded compensation
expense for the warrants totaling $116,807.
NOTE F - STOCK OPTION PLAN
During 1999, the Board of Directors approved the Healthology L.L.C.
Non-Qualified Option Plan (the "Plan"). Under the Plan approved by the
Board of Directors, the total number of stock options that may be granted
is 2,600,000.
The stock options granted permit the employees and nonemployees the right
and option to purchase Company Units ("units"). Except for a change in
control, as defined, no option may be exercisable after ten years from the
date of grant. Stock options granted to employees vest over a four-year
period, with one-quarter of the options becoming exercisable one year from
the date of grant, or are contingently exercisable once certain
predetermined conditions have been met. Stock options granted to
nonemployees vest over a two-year period. During 1999, pursuant to the
Plan, the Board of Directors granted 802,160 stock options to employees and
non-employees, all exercisable at below fair value. In addition, of the
stock options granted in 1999, 204,000 are contingently exercisable upon
the attainment of certain performance measures.
A summary of the Company's stock option activity and related information
for the period ended December 31, 1999 follows:
Exercise price
Options per unit
------- --------------
Balance, January 1, 1999
Granted 802,160 $.10
Exercised
-------
Balance, December 31, 1999 802,160 $.10
=======
As of December 31, 1999, approximately 18,200 of the Company's stock
options were exercisable.
-16-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE F (continued)
For these options, the Company recorded deferred compensation totaling
$300,560, of which $16,194 was amortized to expense during 1999.
Pro forma information regarding net loss required by SFAS No. 123, as if
the Company had accounted for its stock options under the fair value
method, is not material. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes options-pricing model with the
following weighted-average assumptions used for grants in 1999: risk-free
interest rates of 6.5 percent; expected lives of 10 years.
NOTE G - EQUITY-BASED COMPENSATION
The amount of deferred compensation expense that has been recorded relating
to the units and options issued and described in Notes E and F, is as
follows:
1999 1998
----------- --------
Employee stock options $ 286,055 $
Nonemployee stock options 14,505
Nonemployee units 400,000 15,000
Nonemployee warrants 116,807
--------
817,367 15,000
Current period amortization (516,476) (15,000)
-------- --------
$ 300,891 $
========= =========
The amount of equity-based expense to be recognized is as
follows:
Year ended December 31,
2000 $100,593
2001 79,235
2002 73,884
2003 47,179
--------
$300,891
-17-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE H - COMMITMENTS
Capital Lease Obligations
The annual maturities of capital lease obligations for equipment at
December 31, 1999 are as follows:
Year ending December 31,
2000 $ 5,995
2001 5,995
2002 5,628
-------
17,618
Less amount representing interest (2,833)
-------
Present value of net minimum lease payments
including current portion of $4,460 $14,785
=======
NOTE I - RELATED PARTY TRANSACTIONS
During 1999, the Company together with OmegaMed, Inc. (a company which is
owned by two members of the Company), jointly secured sponsorships for the
development of two Web sites, www.alphacancer.com and
www.alphaoncology.com. These Web sites publish health-related content and
streaming media. The Company earned revenues from the related party
totaling approximately $683,200 for the technical and editorial resources
content that it contributed in the development of these Web sites. In
addition, the Company billed related parties $96,800 for technical and
editorial resources contributed in the development of content and streaming
media in connection with additional sponsorships that were jointly secured
which were unrelated to the above two Web sites. Amounts due from related
parties at December 31, 1999 were approximately $77,300.
During 1999, the Company recorded equity-based compensation expense of
$116,807 in respect of warrants issued to members of the Company in
connection with services provided by the members in securing revenue for
the Company (see Notes E and G).
The Company incurred consulting, other professional and administrative
expenses from related parties amounting to approximately $142,500 and
$45,400 for the year ended December 31, 1999 and the period ended December
31, 1998, respectively. Amounts due to related parties were approximately
$51,200 and $0 at December 31, 1999 and December 31, 1998, respectively.
-18-
<PAGE>
Healthology L.L.C.
NOTES TO FINANCIAL STATEMENTS (continued)
Period from inception (July 10, 1998) to December 31, 1998
and the year ended December 31, 1999
NOTE J - SUBSEQUENT EVENTS (UNAUDITED)
1. Conversion to C Corporation Status
As a result of a private placement that the Company finalized on March
1, 2000, the Company converted to a C Corporation and will be subject
to Federal and all applicable state income taxes. The Company is in the
process of determining the amount of any deferred tax liability that
may need to be recognized.
Each membership interest in the Company was converted into one share of
common stock in the new company. The new company has 30,000,000 shares
of common stock authorized, of which 11,150,505 are issued and
outstanding. The new company has reserved 2,600,000 shares of common
stock, which will be issued in accordance with the Healthology
Non-Qualified Stock Option Plan. All outstanding stock options and
warrants for units will convert at a rate of 1 to 1 into stock options
and warrants of common stock.
The new company also has 15,000,000 shares of preferred stock, of
which, 3,500,000 will be designated as noncumulative Series A Preferred
Stock. The Series A Preferred Stock can be converted at the option of
the holder at any time into fully paid shares of common stock at a
predetermined conversion rate. The Series A Preferred Stock will be
automatically converted into fully paid shares of common stock if the
Company undertakes an Initial Public Offering in which the Company
receives gross proceeds of at least $20,000,000 and has a post-Initial
Public Offering valuation of at least $60,000,000. The conversion rate
will initially be one share of Series A Preferred Stock converted into
one share of common stock.
2. Private Placement
During January and February 2000, the Company issued 100,000 units at
$.60 per unit as part of a private placement.
On March 1, 2000, subject to certain closing conditions, the Company
agreed to sell 3,211,453 shares of the Series A Preferred Stock to Seal
Holdings Corp., f/k/a Seal Fleet Inc. ("Seal"), pursuant to a Series A
Preferred Stock Purchase Agreement dated March 1, 2000 between the
Company and Seal. The total purchase price for the Preferred Stock was
$3,211,453, of which $1,000,000 (for 1,000,000 Preferred Shares) was
paid at the initial closing on March 1, 2000 and $2,211,453 (for
2,211,453 Preferred Shares) will be paid at a second closing on March
27, 2000. In addition, the transaction provided for Seal to have up to
two representatives on the Company's Board of Directors.
-19-
<PAGE>
SCHEDULE B
Healthology, Inc.
UNAUDITED INTERIM CONDENDSED FINANCIAL STATEMENTS
March 31, 2000
C O N T E N T S
Page
----
Condendsed Balance Sheet 21
Condendsed Statements of Operations 22
Condendsed Statements of Cash Flows 23
Notes to Unaudited Condensed Financial Statements 24 - 25
-20-
<PAGE>
Healthology, Inc.
UNAUDITED CONDENDSED BALANCE SHEET
March 31, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,757,874
Accounts receivable 262,476
Due from related parties 37,254
Prepaid expenses and other current assets 54,715
-----------
Total current assets 3,112,319
EQUIPMENT (net of accumulated depreciation
and amortization) 446,226
-----------
$ 3,558,545
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 252,618
Due to related parties 137,500
Deferred revenue 114,042
Current portion of capital lease obligations 7,946
-----------
Total current liabilities 512,106
CAPITAL LEASE OBLIGATIONS 15,653
-----------
Total liabilities 527,759
-----------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value per share. Authorized
15,000,000 shares. Issued and outstanding 3,211,453 shares.
Common stock, $0.01 par value per share. Authorized
30,000,000 shares. Issued and outstanding 11,180,505
Additional paid-in capital 1,617,562
Accumulated deficit (1,556,082)
Equity-based compensation (261,997)
-----------
Total shareholders' equity 3,030,786
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,558,545
===========
</TABLE>
The accompanying notes are an integral part of these statements.
-21-
<PAGE>
Healthology, Inc.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
2000 1999
----------- ------------
<S> <C> <C>
Revenues $ 194,346 $ 49,781
Cost of revenues 310,048 49,333
----------- ------------
Gross (loss) profit (115,702) 448
----------- ------------
Expenses
General and administrative 263,970 84,950
Sales and marketing 153,776 45,803
Depreciation and amortization 5,990 2,442
----------- ------------
423,736 133,195
----------- ------------
Loss from operations (539,438) (132,747)
Other income 10,040 -
----------- ------------
Loss before state and local
income taxes (529,398) (132,747)
State and local income taxes - -
----------- ------------
NET LOSS $ (529,398) $ (132,747)
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
-22-
<PAGE>
Healthology, Inc.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (529,398) $(132,747)
Adjustments to reconcile net loss to net cash used in
Operating activities
Depreciation and amortization 5,990 2,442
Gain or disposal of equipment (2,500) -
Equity-based expense 38,894 4,000
Changes in assets and liabilities
Accounts receivable (208,758) (77,629)
Due from related parties 44,235 -
Due from officer - -
Prepaid expenses and other assets (36,660) -
Accounts payable and accrued expenses 44,051 -
Due to related parties (17,066) -
Deferred revenue 88,417 100,000
----------- -----------
Net cash used in operating activities (572,795) (103,934)
----------- -----------
Cash flows from investing activities
Purchases of equipment (16,344) -
Proceeds from disposal of equipment 2,500 -
----------- -----------
Net cash used in investing activities (13,844) -
----------- -----------
Cash flows from financing activities
Proceeds from sale of common and prefered stock 3,209,498 185,000
Payment on note payable (18,940) -
Payments on capital lease obligations (1,641) -
----------- -----------
Net cash provided by financing activities 3,188,917 185,000
----------- -----------
NET INCREASE IN CASH 2,602,278 81,066
Cash at beginning of period 155,596 3,566
----------- -----------
Cash at end of period $ 2,757,874 $ 84,632
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-23-
<PAGE>
Healthology , Inc.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
March 31, 2000
NOTE A - NATURE OF OPERATIONS
Healthology, Inc. is a Delaware Corporation formed on March 1, 2000 as a
result of the conversion of its predecessor, Healthology, LLC, from a
Delaware Limited Liability Company to a C Corporation (See Note C).
References to the "Company" relate to Healthology, Inc. and its
aforementioned predecessor. The Company is an online health media company.
The Company produces and distributes original content that is generated by
health professionals. In addition, the Company has developed a network of
content partners from the healthcare industry. The Company is also a
producer of health-related streaming media. A Web site at
www.healthology.com is maintained by the Company as a vehicle for its
services.
The Company has distribution arrangements with other Web sites. The Company
transmits content to and receives hypertext links from these sources.
The Company's primary revenue sources are the sponsorship and licensing of
health-related content and streaming media, and fees charged for the
development of Web sites, health-related content and streaming media.
For the period from inception (July 10, 1998) to December 31, 1998, the
Company was considered to be in the development stage. During the year
ended December 31, 1999 and the first quarter of 2000, the Company emerged
from the development stage, and has raised significant funding through
private placements of its securities in order to build its business. Should
this funding not be sufficient, the Company will be required to raise
additional funds in order to continue its current growth and spending
rates. Should sources of capital not be available, the Company intends to
scale back planned growth.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements for the periods ended March 31, 2000 and
1999 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included elsewhere herein for the year
ended December 31, 1999.
-24-
<PAGE>
Healthology, Inc.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (continued)
March 31, 2000
NOTE C - CONVERSION TO C CORPORATION STATUS
As a result of a private placement that the Company finalized on March
1, 2000, the Company converted to a C Corporation and will be subject
to Federal and all applicable state income taxes. The Company is in the
process of determining the amount of any deferred tax liability that
may need to be recognized.
Each membership interest in Healthology, LLC was converted into one
share of common stock in Healthology, Inc. The Company has reserved
2,600,000 shares of common stock, to be issued in accordance with the
Healthology Non-Qualified Stock Option Plan. All outstanding stock
options and warrants for units of Healthology, LLC converted at a rate
of 1 to 1 into stock options and warrants of common stock of
Healthology, Inc. At March 31, 2000, the Company had granted options to
purchase approximately 1.1 million shares of common stock at an average
exercise price of $0.32 per share. In addition, at March 31, 2000,
there were 500,000 warrants outstanding to purchase common stock at
$0.50 per share.
Of the Company's 15,000,000 authorized shares of preferred stock,
3,500,000 have been designated as noncumulative Series A Preferred
Stock. The Series A Preferred Stock can be converted at the option of
the holder at any time into fully paid shares of common stock at a
predetermined conversion rate. The Series A Preferred Stock will be
automatically converted into fully paid shares of common stock if the
Company undertakes an Initial Public Offering in which the Company
receives gross proceeds of at least $20,000,000 and has a post-Initial
Public Offering valuation of at least $60,000,000. The conversion rate
will initially be one share of Series A Preferred Stock into one share
of common stock.
NOTE D - PRIVATE PLACEMENT
During January and February 2000, the Healthology, LLC issued 100,000
units at $.60 per unit as part of a private placement.
On March 1, 2000, the Company agreed to sell 3,211,453 shares of the
Series A Preferred Stock to Seal Holdings Corp., ("Seal"), pursuant to
a Series A Preferred Stock Purchase Agreement dated March 1, 2000
between the Company and Seal. The total purchase price for the
Preferred Stock was $3,211,453, of which $1,000,000 (for 1,000,000
Preferred Shares) was paid at the initial closing on March 1, 2000 and
$2,211,453 (for 2,211,453 Preferred Shares) was paid at a second
closing on March 27, 2000. In addition, the transaction provided for
Seal to have up to two representatives on the Company's Board of
Directors.
-25-
