<PAGE>
PCS&F DRAFT: 8/1/2000
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
---------------------
Date of report: May 19, 2000
(Date of earliest event reported)
LEARNCOM, INC.
(Exact name of Registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation)
0-29379 87-0622927
(Commission File No.) (I.R.S. Employer
Identification No.)
720 Industrial Drive
Bensenville, Illinois 60106
(Address of principal executive offices; zip code)
(630) 227-1080
(Registrant's telephone number, including area code)
525 South 300 East
Salt Lake City, Utah 84111
(Former name or former address, if changed since last report)
<PAGE>
On May 19, 2000, LearnCom, Inc., a Nevada corporation (the "Registrant"),
LearnCom, Inc., an Illinois corporation ("LC Illinois"), and the stockholders of
LC Illinois (the "LC Illinois Stockholders") executed an Agreement and Plan of
Reorganization (the "Plan"), whereby the Registrant acquired 100% of the common
stock of LC Illinois in exchange for 500,000,000 shares of common stock of the
Registrant, which shares represented approximately 66% of the outstanding shares
of common stock of the Registrant after giving effect to the transaction.
The Plan provided for:
1. The acquisition of 100% of the outstanding equity securities of LC
Illinois;
2. The issuance and exchange of 500,000,000 shares of the Registrant's
common stock for the outstanding common stock of LC Illinois, which
shares of common stock of the Registrant were "restricted
securities" under the Securities Act of 1933, as amended;
3. The resignation of Ariika Mason and Brett Mayer as the sole
directors and executive officers of the Registrant; and
4. The election of Denis Armand Mola, Lloyd W. Singer, Dr. Paul Selden
and Robert R. Redwitz to the Board of Directors of the Registrant.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
The following financial statements and notes thereto are filed
herewith beginning at page F-1.
Report of Independent Auditors.............................. F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Shareholders' Equity.............. F-5
Consolidated Statements of Cash Flow........................ F-6
Notes to Consolidated Financial Statements.................. F-7
(b) Pro Forma Financial Information.
Pro form financial information is not required as the transaction
described in Items 1 and 2 was a reverse acquisition and accounted for as a
recapitalization under applicable accounting literature.
<PAGE>
(c) Exhibits.
The Registrant hereby furnishes the following exhibit:
2.1 Agreement and Plan of Reorganization dated as of May 19,
2000 among the Registrant, LearnCom, Inc., an Illinois
corporation, and the stockholders of LearnCom, Inc.*
----------------------
* Previously filed.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEARNCOM, INC.
Date: August 1, 2000 By:/s/ Lloyd W. Singer
---------------------------------
Lloyd W. Singer
Chief Executive Officer
3
<PAGE>
Report of Independent Auditors
To the Board of Directors
LearnCom, Inc. and Subsidiary
Bensenville, Illinois
We have audited the accompanying consolidated balance sheet of LearnCom, Inc.
and Subsidiary as of December 31, 1999, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LearnCom, Inc. and
Subsidiary as of December 31, 1999, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 28, 2000
F-1
<PAGE>
LearnCom, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 1999
June 30
2000 December 31
(unaudited) 1999
--------------------------------
Assets
Current assets:
Cash and cash equivalents $ 23,780 $ 79,167
Accounts receivable, net of allowance
of $54,021 in 1999 and $17,592 in 2000 746,608 653,743
Inventory 414,951 404,152
Prepaid expenses and other current
assets 132,314 82,909
--------------------------------
Total current assets 1,317,653 1,219,971
Furniture, fixtures and office equipment 466,086 381,661
Less accumulated depreciation (59,106) (26,870)
--------------------------------
406,980 354,791
Other assets:
Publishing rights and masters, net of
amortization of $123,225 in 1999 and
$283,574 in 2000 2,279,289 2,280,848
Deposits 13,169 12,914
--------------------------------
Total other assets 2,292,458 2,293,762
--------------------------------
Total assets $ 4,017,091 $ 3,868,524
================================
F-2
<PAGE>
June 30
2000 December 31
(unaudited) 1999
--------------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 406,490 $ 232,812
Accrued expenses 269,766 317,012
Revolving of credit 425,000 375,000
Note payable--employee 120,000 -
Note payable--related party 50,000 50,000
Current portion of purchase
consideration payable 266,239 275,000
Current portion of note payable 897,500 1,000,000
--------------------------------
Total current liabilities 2,434,995 2,249,824
Long-term liabilities:
Purchase consideration payable,
net of current portion 875,000 875,000
Shareholders' equity:
Common stock, $.001 par value,
2,000,000,000 shares authorized,
500,000,000 and 757,500,000 shares
issued and outstanding at December
31, 1999 and June 30, 2000, 757,000 500,000
respectively
Additional paid in capital 102,000 359,500
Accumulated deficit (152,404) (115,800)
--------------------------------
Total shareholders' equity 707,096 743,700
--------------------------------
Total liabilities and shareholders'
equity $ 4,017,091 $ 3,868,524
================================
See accompanying notes.
F-3
<PAGE>
LearnCom, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
2000 1999 1999
(unaudited) (unaudited)
-----------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,387,189 $ 747,013 $ 2,291,304
Cost of sales 975,660 185,865 746,752
-----------------------------------------------
Gross profit 1,411,529 561,148 1,544,552
Selling, marketing, general and
administrative expenses 1,366,716 505,666 1,522,978
-----------------------------------------------
Operating income 44,813 55,482 21,574
Other income (expenses):
Interest expense (81,638) (53,012) (121,446)
Other income (expense), net 221 8,436 (15,928)
-----------------------------------------------
Total other (expenses) (81,417) (44,576) (137,374)
-----------------------------------------------
Income (loss) before taxes (36,604) 10,906 (115,800)
Income tax provision - 4,400 -
-----------------------------------------------
Net income (loss) $ (36,604) $ 6,506 $ (115,800)
===============================================
Basic and diluted income (loss)
per share - - -
===============================================
Weighted-average shares outstanding 541,666,000 270,629,000 347,086,000
===============================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
LearnCom, Inc. and Subsidiary
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-in Capital Deficit Total
Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 24, 1998 (date of inception) - $ - $ - $ - $ -
Issuance of founders' stock 270,629,342 - - - -
------------------------------------------------------------------------------
Balance at December 31, 1998 270,629,342 - - - -
Issuance of stock in exchange of notes payable
to related parties 84,102,575 84,103 15,897 - 100,000
Issuance of stock for cash 145,268,083 415,897 343,603 - 759,500
Net loss (115,800) (115,800)
------------------------------------------------------------------------------
Balance at December 31, 1999 500,000,000 500,000 359,500 (115,800) 743,700
Merger with Smoky Hill Services, Inc. accounted
for as a recapitalization (Note 4) (unaudited) 257,500,000 257,500 (257,500) - -
Net loss (unaudited) (36,604) (36,604)
------------------------------------------------------------------------------
Balance at June 30, 2000 (unaudited) 757,500,000 $ 757,500 $ 102,000 $ (152,404) $ 707,096
==============================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
LearnCom, Inc. and Subsidiary
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
2000 1999 1999
(unaudited) (unaudited)
----------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) (36,604) $ 6,506 $(115,800)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation expense 32,236 4,065 26,780
Amortization expense 160,349 32,174 142,849
Loss on disposal of equipment - - 7,094
Changes in operating assets and
liabilities
Accounts receivable (92,865) (57,610) 25,310
Inventory (10,799) (15,819) 8,007
Prepaid expenses and other assets (49,660) (21,152) (23,523)
Accounts payable 173,678 9,932 105,198
Accrued expenses (47,246) (26,916) 73,403
----------------------------------------------
Total adjustments (26,892) (111,665) 188,395
----------------------------------------------
Net cash provided (used) by operating
activities 129,089 (68,920) 249,318
Investing activities
Purchases of property and equipment (84,425) (37,347) (209,921)
Payments for publishing rights and (158,790) - (31,846)
masters
Business acquisitions, net of cash - 40,528 (382,884)
acquired
----------------------------------------------
Net cash provided (used) by investing
activities (243,215) 3,181 (624,651)
Financing activities:
Issuance of common stock - 550,000 759,500
Proceeds from revolving line of credit 50,000 60,000 375,000
Proceeds from note payable - employee 120,000 - -
Proceeds from note payable - related - - 250,000
party
Principal payments on notes payable (111,261) (187,886) (300,000)
Principal payments on notes payable - - (330,000) (630,000)
related party
----------------------------------------------
Net cash provided by financing activities 58,739 92,114 454,500
----------------------------------------------
Net increase (decrease) in cash and cash
equivalents (55,387) 26,375 79,167
Cash at beginning of period 79,167 - -
----------------------------------------------
Cash at end of period $23,780 $ 26,375 $ 79,167
==============================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
1. Organization and Nature of Business
LearnCom, Inc. (LearnCom or the Company) was incorporated in Illinois in May
1998. From May 1998 until January 1999, the Company had no operations, and its
only activity was to issue 270,629,342 shares of common stock to its founders
with no value ascribed. In January 1999, the Company acquired the operating
assets and liabilities of WingsNet, Inc., at which point the actual operations
of the Company began. In August 1999, the Company acquired 100% of the common
stock of BNA Communications, Inc. These acquisitions are further described in
Note 3.
LearnCom operates in a single business segment producing and distributing
proprietary video programs, ancillary materials and consulting services for use
in management and employee training, motivational, and skills enhancement
programs. The programs and consulting contracts are sold to corporations,
professional organizations, government agencies, and financial institutions
primarily in North America. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. Losses from credit
sales are provided for in the financial statements and have historically been
within management's expectations.
Prior to the reverse acquisition with Smoky Hill Services, Inc. (the Registrant
or Smoky Hill) in May 2000 (see Note 4. - Reverse Acquisition), LearnCom was a
privately held corporation. Subsequent to the reverse acquisition, the former
shareholders of LearnCom own 66% of the Registrant.
2. Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
BNA Communications, Inc., a wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Information Related to Interim Financial Statements
The unaudited financial statements as of June 30, 2000 and for the six months
ended June 30, 2000 and 1999 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures relating to the six month periods ended June 30, 2000 and 1999
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not misleading.
These unaudited financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly present the results of operations, changes in cash flows and financial
position as of and for the periods presented. The results for the interim
periods presented are not necessarily indicative of results to be expected for a
full year.
F-7
<PAGE>
2. Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories consist of program tapes, blank tape stock, printed program
materials, tape cases, and packaging materials and are stated at the lower of
average cost or market.
Furniture, Fixtures and Office Equipment
Furniture, fixtures and office equipment are stated at cost. Maintenance and
repairs are charged to expense as incurred. Major acquisitions and improvements
are capitalized. Depreciation is computed principally using the straight-line
method over the estimated useful lives of assets. The useful lives are seven
years for furniture and fixtures, five years for office equipment and three
years for computer equipment and software, including website development costs.
Publishing Rights and Masters
Publishing rights and masters represents the exclusive rights to publish and
distribute the Company's products. Publishing rights and masters consists
primarily of acquired film libraries, which are amortized using the income
forecast method. Management periodically reviews the value of publishing rights
and masters and adjusts such amount if a permanent decline in value has occurred
relative to its unamortized value.
Revenue Recognition
The Company recognizes revenue when product is shipped or when services are
rendered.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense for the year
ended December 31, 1999 was approximately $110,900.
Income Taxes
The Company uses the liability method in measuring the provision for income
taxes and recognizing deferred tax assets and liabilities in the balance sheet.
The liability method requires that deferred income taxes reflect the tax
consequences of currently enacted rates for differences between tax and
financial reporting basis of assets and liabilities.
F-8
<PAGE>
2. Significant Accounting Policies (continued)
Stock Compensation
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations and accordingly,
recognizes no compensation expense for stock options granted at fair value.
Under APB 25, compensation expense is recognized for all options granted at less
than the fair market value of the Company's common shares on the date of grant.
Income (Loss) Per Share
Basic and diluted income (loss) per common share amounted to less than $0.01 for
all periods presented and are based upon the weighted average number of shares
of common stock outstanding, giving retroactive effect of the merger discussed
in Notes 1 and 4. The Company has excluded all outstanding stock options from
the calculation of diluted loss per share because they would have an
anti-dilutive effect.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Acquisitions
WingsNet, Inc.
On January 19, 1999, the Company purchased certain operating assets of WingsNet,
Inc. for $530,000 in notes payable to related parties, $300,000 in a note
payable to a bank and the assumption of approximately $243,900 of liabilities.
WingsNet, Inc. produced and distributed video-based training programs and
content for executive and management development courses and seminars.
BNA Communications, Inc.
On August 30, 1999, the Company purchased 100% of the outstanding common stock
of BNA Communications, Inc. for $341,756 in cash, a note payable to a bank
amounting to $1,000,000 and purchase consideration payable to seller of
$1,250,000 (see Note 5). The purchase price allocation related to this
acquisition is preliminary and will be finalized during the third quarter of
2000. BNA Communications, Inc. was a wholly owned subsidiary of the Bureau of
National Affairs and performed human resources consulting and training services
and safe expectation services. The human resources operations consisted of
sexual harassment, diversity and employment law video-based courseware, and the
safe expectation operations consisted of video-based courseware in the area of
business and governmental safety and
F-9
<PAGE>
3. Acquisitions (continued)
environmental health, primarily for regulatory compliance under the Federal
Occupational Safety and Health Act.
The acquisitions described above were accounted for as purchases. The
consolidated statements of operations of the Company include the results of
operations of the acquired businesses for the period subsequent to the effective
date of these acquisitions.
The pro forma unaudited consolidated results of operations for the year ended
December 31, 1999 assuming the consummation of the acquisitions as of January 1,
1999 would have been as follows:
Total revenue $4,553,304
Net loss (443,800)
Basic and diluted net loss per share -
4. Reverse Acquisition
In May 2000, LearnCom entered into an Agreement and Plan of Reorganization with
Smoky Hill Services, Inc. (Smoky Hill), a Nevada corporation incorporated in
1986, whereby Smoky Hill acquired 100% of the issued and outstanding stock of
LearnCom in exchange for approximately 66% interest in its common stock. In
contemplation of the merger Smoky Hill: 1) increased its authorized common
shares from 50,000,000 to 2,000,000,000; 2) received 14,000,000 shares that were
returned and cancelled from its parent company, VIP Worldnet, Inc.; and 3)
completed a 125-for-1 split of its stock, increasing its outstanding Common
Stock from 2,060,000 shares to 257,500,000.
At the time of the transaction Smoky Hill was inactive, and Smoky Hill's assets
and liabilities were nominal. Shortly before the merger, Smoky Hill changed its
name to LearnCom, Inc. and is the legal successor. The transaction was accounted
for as a reverse acquisition, which results in a recapitalization of the Company
as it is deemed to be the acquiring entity for accounting purposes. Accordingly,
the capital accounts, number of shares of common stock and loss per share have
been retroactively restated to give effect to the recapitalization for all
periods presented.
On June 15, 2000, LearnCom offered for sale up to 75,000,000 shares of Common
Stock (in units of 1,250,000 shares) at a price of $50,000 per unit or $0.04 per
share in a private placement.
F-10
<PAGE>
5. Long-term Obligations
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
Note payable--Employee, interest at 12% per annum,
principal and accrued interest due in full on December 31,
2000 $ 120,000 $ -
Notepayable--Related Party, interest at 12% per annum,
principal and accrued interest due on demand, secured
by inventory, accounts receivable, equipment and
general intangibles. 50,000 50,000
Notepayable to American National Bank, $31,250 principal due
monthly beginning January 31, 2000 plus interest at
the bank's prime plus 1.25% per annum (9.75% at
December 31, 1999). Final payment due August 31, 2000.
Secured by inventory, accounts receivable, equipment
and general intangibles. 897,500 1,000,000
Purchase consideration payable to Bureau of National Affairs, Inc. 1,141,239 1,150,000
----------------------------------------------
Total 2,208,739 2,200,000
Less current portion 1,333,739 1,325,000
----------------------------------------------
$ 875,000 $ 875,000
==============================================
</TABLE>
Cash payments of interest and penalties was $112,380 for the year ended December
31, 1999.
The estimated aggregate principal amounts of scheduled repayments of long-term
obligations are: 2000--$1,325,000; 2001--$525,000 and 2002--$350,000. The
schedule for repayment of the note payable to the Bureau of National Affairs is
based on estimated future sales volume, reflecting the most recent sales
forecast of the acquired business. The repayment schedule will change if actual
sales volume differs from forecasted sales volume.
The Company is in the process of negotiating an extension of the note payable
and revolving line of credit with American National Bank to August 31, 2001 at
comparable terms.
6. Revolving Line of Credit
The Company has a $500,000 line of credit from American National Bank secured by
cash deposits, accounts receivable and other business assets. The available
balance under the line was $125,000 and $75,000 at December 31, 1999 and June
30, 2000, respectively. Interest is payable
F-11
<PAGE>
6. Revolving Line of Credit (continued)
monthly at the bank's prime rate plus 1% per annum (9.5% at December 31, 1999).
The outstanding principal and any accrued interest is due August 31, 2000.
Interest paid for the year ended December 31, 1999 was $6,832.
7. Leases
The Company leases office space and office equipment under operating leases due
to expire at dates varying from April 2000 to August 2004. Rent expense from
these leases totaled $40,815 during 1999. The following is a schedule of future
minimum rental payments required under the above operating leases as of December
31, 1999:
Year Ended December 31 Amount
---------------------------------------------------------
2000 $ 156,946
2001 86,969
2002 84,135
2003 77,784
2004 31,696
---------------
$ 437,530
===============
8. Stock Option Plan
Under the Company's stock option plan, shares of common stock have been made
available to grant at the discretion of the Board of Directors to officers,
directors and key employees in the form of stock options, stock appreciation
rights and restricted stock awards. Currently only stock options have been
granted. The options have a maximum ten-year term and generally vest over a
three year period.
In connection with the reverse acquisition (see Note 4 - Reverse Acquisition),
the options outstanding under the Company's plan were assumed by the LearnCom,
Inc. 2000 Employee Stock Option Plan (the "Option Plan"). LearnCom has reserved
102,000,000 shares of Common Stock for issuance under the Option Plan.
The number of options and weighted-average exercise prices of options for the
periods indicated are as follows (adjusted for the effect of the 125 for 1 split
in May 2000 as part of the reverse acquisition):
F-12
<PAGE>
8. Stock Option Plan (continued)
<TABLE>
<CAPTION>
Number of Options Exercise Prices
<S> <C> <C>
Options outstanding at December 31, 1998
Granted 66,501,690 $0.007
Exercised - -
Cancelled - -
Options outstanding at December 31, 1999 66,501,690 $0.007
Exercisable at December 31, 1999 22,167,230 $0.007
</TABLE>
As of December 31, 1999, the weighted average remaining contractual life of the
options is 7.85 years.
The Company has elected to follow APB 25 and related Interpretations and
accordingly, recognizes no compensation expense for stock options granted at
fair value. Management believes that the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting For Stock Based
Compensation" ("SFAS 123"), requires use of option valuation methods that were
not developed for use in valuing employee stock options. Pro forma information
regarding net income and earnings per share is required by SFAS 123 and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. For purposes of pro forma disclosures,
the estimated value of the options is amortized to expense over the options'
vesting period. The pro forma results are not necessarily indicative of what
would have occurred had the Company adopted SFAS 123. The Company's pro forma
information as of December 31, 1999 indicates an increase in the net loss of
$20,220 to $(136,020), and no change in basic and diluted loss per share.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option-pricing model. The Company assumed a dividend yield rate of
0% and a weighted-average expected life of the options of 3 years. The risk-free
interest factor utilized was 6.5%, and the volatility factor of the expected
market price of the Company's stock was 1.15.
9. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
F-13
<PAGE>
9. Income Taxes (continued)
Accrued expenses $ 63,500
Net operating loss carryforwards 30,700
Valuation allowance (94,200)
--------
Net deferred taxes $ --
========
As of December 31, 1999, the Company had Federal net operating loss
carryforwards of approximately $80,800, which will expire in fiscal years
ending 2014.
The Company's effective tax rate differs from the federal statutory rates
primarily due to deferred tax asset valuation allowances and nondeductible
items. For financial reporting purposes, a valuation allowance was recognized to
offset the Company's net deferred tax assets at December 31, 1999.
10. Commitments and Contingencies
The Company has an irrevocable standby letter of credit for $50,000 from
American National Bank as security for rental payments on leased office space.
The letter of credit expires June 30, 2001 and is secured by cash deposits,
accounts receivable and other business assets. As of December 31, 1999 the
balance was $0.
The Company is involved in various disputes, arising in the ordinary course of
its business, which may result in pending or threatened litigation. Management
does not expect these matters to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
11. Related Party Transactions
The Company has engaged The Armand Group, an investment banking firm of which
the Chairman of the Board of Directors of the Company is a Managing Director, to
provide banking services and advice in connection with proposed acquisitions,
proposed financings and other financial and strategic matters. Under the terms
of the engagement, The Armand Group is paid a retainer of $5,000 per month,
reimbursed for out-of-pocket expenses and paid commissions in amounts agreed
upon from time to time for services rendered in connection with specific merger,
acquisition or financing transactions. During the year ended December 31, 1999,
the Company paid The Armand Group approximately $154,000.
The Company has engaged R. Redwitz & Co., an accounting and financial consulting
firm, of which the acting Chief Financial Officer and a director of the Company
is the Managing Partner,
F-14
<PAGE>
11. Related Party Transactions (continued)
to provide certain accounting services to the Company. Under the terms of the
engagement, R. Redwitz & Co. is paid a retainer of $5,000 per month and
reimbursed for out-of-pocket expenses. During the year ended December 31, 1999
amounts paid to R. Redwitz & Co. amounted to approximately $31,000.
F-15
