UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
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Commission File Number: 000-09322
iEXALT, INC.
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(Exact Name of small business issuer as specified in its charter)
Nevada 75-1667097
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(State of Incorporation) (IRS Employer ID Number)
4301 Windfern Drive, Houston, Texas 77041
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(Address of principal executive offices)
(281) 600-4000
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES [XX] NO[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
December 30, 1999: 22,487,166 Shares.
Transitional Small Business Disclosure Format (check one): YES[ ] NO [XX]
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iEXALT, INC.
Form 10-QSB for the Quarter ended November 30, 1999
Table of Contents
Part I - Financial Information Page
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Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis and Plan of Operation 14
Part II - Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
2
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Part I - Item 1
FINANCIAL INFORMATION
iEXALT, INC.
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1999
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 73,108
Accounts receivable, trade, net............................... 104,982
Accounts receivables, affiliates.............................. 40,192
Inventory..................................................... 74,119
Prepaid expenses.............................................. 33,038
---------
TOTAL CURRENT ASSETS.......................................... 325,439
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PROPERTY AND EQUIPMENT, net....................................... 277,765
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OTHER ASSETS
Goodwill and other intangible assets, net..................... 445,621
Other assets.................................................. 163,562
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$1,212,387
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings......................................... $ 6,897
Current maturities of long-term debt.......................... 150,000
Accounts payable, trade....................................... 310,499
Accounts payables, affiliates................................. 38,303
Royalties payable............................................. 61,756
Other accrued liabilities..................................... 112,241
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TOTAL CURRENT LIABILITIES..................................... 679,696
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LONG-TERM DEBT, net of current maturities......................... 350,000
---------
SHAREHOLDERS' EQUITY
Common stock, $.001 par value, 100,000,000 shares
authorized, 21,987,166 shares issued and outstanding...... 21,987
Paid-in capital............................................... 755,800
Receivable from shareholders.................................. (11,250)
Retained deficit.............................................. (583,846)
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TOTAL SHAREHOLDERS' EQUITY.................................... 182,691
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$1,212,387
==========
3
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iEXALT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999
(UNAUDITED)
REVENUES.................................................... $ 453,655
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COSTS AND EXPENSES
Direct costs............................................ 344,225
Selling, general and administrative..................... 604,368
Depreciation and amortization........................... 12,110
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TOTAL COSTS AND EXPENSES.................................... 960,703
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LOSS FROM OPERATIONS........................................ (507,048)
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OTHER INCOME/(EXPENSES)
Interest income......................................... 4,889
Interest expense........................................ (774)
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TOTAL OTHER INCOME/(EXPENSES)............................... 4,115
---------
LOSS BEFORE INCOME TAXES.................................... (502,933)
INCOME TAXES................................................ --
---------
NET LOSS.................................................... $(502,933)
=========
BASIC LOSS PER SHARE........................................ $ (0.02)
=========
WEIGHTED NUMBER OF SHARES OUTSTANDING....................... 21,613,610
==========
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iEXALT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss...................................................... $(502,933)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization............................. 12,110
Compensation expense for contributed services............. 30,000
Changes in assets and liabilities, net
of effects of acquisitions:
Accounts receivable................................ 12,828
Inventory.......................................... (26,299)
Prepaid expenses................................... (2,894)
Other assets....................................... (87,868)
Accounts payable................................... 212,412
Royalties payable................................. (43,702)
Other accrued expenses............................. (73,270)
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Net cash used in operating activities......... (469,616)
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CASH FLOWS FROM INVESTING ACTIVITIES
Net liabilities of acquisitions, net of cash
acquired.................................................... 454,312
Purchases of property and equipment........................... (161,129)
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Net cash provided by investing activities.............. 293,183
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock........................ 265,397
Repayment of debt............................................. (16,513)
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Net cash provided by financing activities............. 248,884
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NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 72,451
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................... 657
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $ 73,108
=========
5
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, BUSINESS AND BASIS OF PRESENTATIONS - iExalt, Inc.,
("iExalt" or "the Company"), was originally incorporated as Louisiana
Northern Gas, Inc. a Nevada corporation on April 23, 1979. The name of
the Company was changed to Sunbelt Exploration, Inc. on December 21,
1979. From 1989 until September 1, 1999, the Company had no
operations.
On September 1, 1999 the Company acquired all of the issued and
outstanding stock of iExalt, Inc., a Texas corporation
("iExalt-Texas"). In connection with this merger, the Company changed
its name to iExalt, Inc.
The Company is currently developing Internet resources created to
support a safe and efficient environment for families, businesses and
Christian organizations. The Company currently operates as a
nationwide filtered Internet Service Provider, publishes Christian
electronic books and reference materials as well as a Christian events
magazine, and operates one of the largest speakers bureaus dedicated
to Christian speakers. In addition, the Company sells tickets for
Christian events and owns and markets its own business-to-business
content management products.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated.
INTERIM RESULTS - The accompanying unaudited condensed consolidated
financial statements 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 November 30, 1999 are not necessarily
indicative of the results that may be expected for an entire year.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended August 31, 1999.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
debt instruments having maturities of three months or less at the date
of purchase to be cash equivalents.
6
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVENTORIES - Electronic publishing inventories are comprised of
compact discs and related supplies. Inventory is stated at the lower
of cost, determined by the average cost method, or market.
PROPERTY AND EQUIPMENT - Property and equipment is carried at original
cost or adjusted net realizable value, as applicable. Maintenance and
repair costs are charged to expense as incurred. When assets are sold
or retired, the remaining costs and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is
included in income.
For financial reporting purposes depreciation of property and
equipment is provided using the straight-line method based upon the
expected useful lives of each class of assets. Estimated useful lives
of assets were as follows: Furniture and fixtures five to seven years;
computers and other office equipment three to five years.
FINANCIAL INSTRUMENTS - FAIR VALUE - the carrying values of the
Company's financial instruments, which include cash and cash
equivalents, accounts receivable, due from stockholders and officers,
accounts payable and accrued liabilities, royalties and debt,
approximate their respective fair values.
CREDIT RISK - The Company maintains its cash balances primarily with
one financial institution. At November 30, 1999, the Company does not
believe that it has any credit risk with respect to these balances.
The Company believes that their current accounts receivables, net of
valuation allowances are fully collectible and will experience no
credit risk.
GOODWILL AND OTHER INTANGIBLES - Goodwill represents the cost in
excess of fair value of the assets of businesses acquired and is being
amortized using the straight-line method over 40 years. Other
intangible assets represent costs allocated to covenants not to
compete and other intangibles acquired in business acquisitions. Other
intangible assets are being amortized using the straight-line method
over their estimated useful lives, which range from three to ten
years. Accumulated amortization at November 30, 1999 was $5,475.
REVENUE RECOGNITION - The Company recognizes revenue on services as
they are performed and on products when they are sold net of sales
returns. The Company grants refunds and returns on electronic
publishing products if the software and publications sold are returned
within thirty days. Revenue from ticket operations is recognized as
tickets are sold. Although the Company collects ticket receipts
representing the full ticket price on behalf of its clients, it only
records as revenue the convenience charges and handling fees included
in the ticket price.
7
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES - The Company operates as a corporation. No tax provision
has been reflected because of the net operating loss for the Company.
The tax benefits related to the net operating losses are fully
reserved by a valuation allowance.
MANAGEMENT'S 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.
While it is believed that such estimates are reasonable, actual
results could differ from those estimates.
CONDITIONS AFFECTING ONGOING OPERATIONS - The Company hopes to obtain
additional debt and equity financing from various sources in order to
finance its operations and to continue to grow through merger and
acquisition opportunities. In the event the Company is unable to
obtain additional debt and equity financing, the Company will not be
able to continue its current level of operations. If the Company is
unable to continue its current level of operations, the value of the
Company's assets will experience a significant decline in value from
the net book values reflected in the accompanying consolidated balance
sheet.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to comply with the terms of its financing agreements, to
obtain additional financing or refinancing as may be required, and
ultimately to attain profitability.
NOTE B ACQUISITIONS
On September 1, 1999 the Company acquired all of the issued and
outstanding stock of iExalt, Inc., a Texas corporation
("iExalt-Texas"). The acquisition was effected through the issuance of
18,393,666 shares of the Company common stock to the shareholders of
iExalt-Texas in exchange for all of the outstanding shares of
iExalt-Texas common stock. Upon the closing of the transaction, there
were 20,874,166 shares of common stock issued and outstanding. The
acquisition has been accounted for as a reverse takeover.
The Company acquired the proprietary assets of netFilter Technologies,
a proxy-filtering software company on October 1, 1999 for $60,000 and
60,000 shares of the Company's common stock.
8
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE B ACQUISITIONS (continued)
On October 1, 1999, the Company acquired Wordcross Enterprises, Inc.
d/b/a Christian Happenings ("Wordcross"). In consideration for this
purchase, the selling shareholders received 850,000 shares of common
stock of iExalt, Inc. and 250,000 common stock options exercisable at
$1.80 per share. The options vest in the amount of 50,000 shares per
year on the anniversary date of the acquisition. Both former
shareholders of Wordcross have employment agreements with the Company
for a period of five years. The transaction was accounted for as a
purchase and the amount of goodwill recorded was $272,000.
On November 16, 1999, the Company acquired Solutions Global, Inc.
("Solutions Global"). In consideration for this purchase, the selling
shareholders received 40,000 shares of common stock of iExalt, Inc.
and 60,000 common stock options exercisable at $1.80 per share. The
options vest in the amount of 20,000 shares per year on the
anniversary date of the acquisition. Both former shareholders of
Solutions Global have employment agreements with the Company for a
period of three years. The transaction was accounted for as a purchase
and goodwill will be recorded when the final allocation of purchase
price is determined.
The unaudited pro forma results of operations of the Company for the
three months ended November 30, 1999 and 1998 (assuming iExalt-Texas
and Wordcross had been acquired as of the beginning of the respective
periods) are shown below.
PRO FORMA FOR
THREE MONTHS ENDED
NOVEMBER 30,
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1999 1998
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REVENUES ..................... $550,344 $475,859
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NET INCOME(LOSS) ............. ( 500,788) 45,069
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EARNINGS/(LOSS) PER SHARE.... ( 0.023) 0.002
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Pro Forma Weighted Average
Shares Outstanding.......... 21,613,610 20,786,493
========== ==========
In management's opinion, the pro forma combined results of operations
may not be indicative of the actual results that would have occurred
had the acquisitions been consummated at the beginning of the
respective periods or of the future operations of the combined
companies.
9
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE C PROPERTY AND EQUIPMENT
Property and equipment as of November 30, 1999 consisted primarily of
furniture and fixtures, computers, other office equipment with an
original cost of $284,400. The accumulated depreciation at November
30, 1999 was $6,635.
NOTE D LONG-TERM DEBT
Long-term debt at November 30, 1999 consisted of the following:
Note payable to shareholder $350,000
Note payable to shareholder 150,000
--------
500,000
Less: current maturities (150,000)
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$350,000
========
In connection with the September 1, 1999 acquisition of iExalt-Texas,
the Company assumed a $350,000 non-interest bearing promissory note
payable to a shareholder of the Company. The shareholder note is
$350,000 secured by certain assets and is payable at such time that
the Company's net assets are equal to or exceed $5,000,000. The
Company also assumed a $150,000 non-interest bearing note payable to a
shareholder of the Company. The $150,000 note is payable on July 1,
2000.
In addition, in connection with the acquisition of iExalt-Texas, the
Company assumed a short-term revolving line of credit with a bank for
$50,000. As of November 30, 1999, no borrowings were outstanding under
this line of credit.
NOTE E SHAREHOLDERS' EQUITY
The Company currently has a Private Placement Memorandum ("PPM")
offering 1,000,000 shares of iExalt common stock to qualified
purchasers at a price of $1.80 per share. The Company has reserved the
right to offer an additional 1,000,000 of its common shares under the
terms of the PPM. Funds resulting from the sale of the Company's
common stock will be used for funding the day-to-day operations of the
Company, development of new products and services, marketing, and
acquisitions of other businesses in similar industries, among other
things. There is no assurance that the offering will be successful, or
if it is, whether there will be adequate cash resulting from this
transaction to accomplish the above stated objectives. The Company has
committed to pay six percent of the offering proceeds raised to
registered brokers as finder's fees related to the sale of common
stock subject to this offering. As of November 30, 1999 163,000 shares
had been issued pursuant to this offering.
10
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE E SHAREHOLDERS' EQUITY (continued)
Prior to the acquisition of iExalt-Texas, a shareholder of the Company
purchased 2,250,000 shares of iExalt's common stock for cash of
$500,000. In connection with this purchase, the shareholder also
committed the services of an executive to assist the Company in the
initial start-up and structuring of its business for up to one year at
no cash cost to the Company. The Company recorded compensation expense
of $30,000 for the three month period ending November 30, 1999 for
such services.
NOTE F STOCK OPTIONS AND WARRANTS
Certain stock options and warrants have been granted as of November
30, 1999, and none of these have been exercised as of that date.
An employee was granted an option to purchase 100,000 shares of common
stock for $1.80 at the end of each of the first three years of his
employment by iExalt based upon the achievement of certain sales and
marketing goals.
The former owners of Christian Happenings were granted options to
purchase 50,000 shares of common stock for $1.80 at the end of each of
the first five years of their employment by iExalt upon the successful
completion of their employment requirements.
On September 1, 1999 an agreement for consulting services with
Consulting & Strategy International, Inc., ("CSI") went into effect.
In partial consideration for the consulting services to be offered by
CSI, CSI was granted the right to purchase 600,000 shares of iExalt
stock at $1.00 per share within six months of the execution date of
the agreement. In addition, CSI was granted 250,000 warrants to
purchase unregistered common stock at $3.00 per share; 250,000
warrants to purchase unregistered common stock at $4.00 per share;
250,000 warrants to purchase unregistered common stock at $5.00 per
share; and 250,000 warrants to purchase unregistered common stock at
$7.00 per share.
On August 30, 1999, the shareholders approved an Employees Stock
Option Plan ("Plan") setting aside 1,000,000 shares of authorized but
unissued stock to be distributed by the compensation committee of the
board of directors pursuant to the Plan. On November 12, 1999 the
compensation committee elected to issue stock options to current
employees and contract consultants of the Company pursuant to the Plan
at a price of $1.80 per share for 561,000 shares of Company common
stock. These options vest over a three year period. In addition, the
compensation committee elected to issue stock options to a current
director of the Company pursuant to the Company's Director Stock
Option Plan at a price of $1.80 per share for 50,000 shares of Company
common stock.
11
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE G LEASES
The Company's corporate offices are leased on a month-to-month basis
from a related party. The related party lease expense during the three
months ended November 30, 1999 was $9,158. The Company's other office
and warehouse space are leased under long-term operating leases from
third parties. Rental expense attributable to long-term leases for the
three months ended November 30, 1999 was $16,115.
NOTE H SUBSEQUENT EVENTS
Effective December 1, 1999, the Company acquired, in an arms-length
transaction, all of the issued and outstanding stock of Premiere
Speakers Bureau, Inc. d/b/a Christianspeakers.com ("Christian
Speakers"), a Tennessee corporation in the business of scheduling
well-known speakers to speak to groups on Christian issues. The
consideration issued to the sole stockholder of Christian Speakers,
was: (i) 500,000 shares of Company common stock, (ii) an aggregate
$40,000, of which $10,000 was payable at closing, and $5,000 is
payable monthly for a period of six months beginning January 2000, and
(iii) a stock option to purchase an aggregate 250,000 shares of
Company common stock at an exercise price of $1.80 per share. The
stock option vests in the amount of 50,000 shares per year on the
anniversary date of the agreement, and is subject to the former owner
of Christian Speakers remaining in the employ of the Company. The term
of the stock option is three years from the date of vesting. The
former owner of Christian Speakers has entered into a five-year
employment agreement with the Company. The transaction will be
accounted for as a purchase and goodwill will be recorded when the
final allocation of purchase price is determined.
On December 17, 1999, the Company increased its revolving line of
credit with a bank from $50,000 to $150,000. As of January 4, 2000,
$150,000 in borrowings was outstanding under this line of credit. The
line of credit is secured by the personal guarantee of a shareholder
of the Company.
Effective December 31, 1999, the Company agreed to purchase in an
arms-length transaction, all of the issued and outstanding stock of
First Choice Marketing, Inc., ("First Choice"), a Texas corporation in
the business of providing a variety of discount products and services
to members of its American Classic Benefit Plan ("ACBP"). ACBP is
marketed through a network of independent salespersons and through the
Internet. The finalization of this acquisition is dependent upon all
shareholders consenting in writing to the transaction and the warrant
holders consenting in writing to the terms described below. The
consideration that will be issued to the shareholders of First Choice,
is: (i) 2,727,000 shares of Company common stock, (ii) an aggregate of
up to an additional 1,000,000 shares of Company common stock subject
to two key management personnel performing under their respective
management contracts and certain financial benchmarks being met over
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iEXALT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
(UNAUDITED)
NOTE H SUBSEQUENT EVENTS (continued)
the three year period 2000-2002 by First Choice, and (iii) cash
consideration of $20,000 paid to each of two key employees with
respect to non-compete agreements. In addition, the Company agreed to
assume certain warrant obligations of First Choice to a third party
totaling 810,000 shares of the Company common stock at a price of
$1.00 per share subject to the same financial benchmarks being met
over the three year period 2000-2002 by First Choice. The two key
management employees of First Choice have entered into three-year
employment agreements with the Company at rates of $120,000 and
$84,000 per annum, respectively. In addition, these employees will
receive up to 150,000 stock options each subject to the same financial
benchmarks being met over the three year period 2000-2002 by First
Choice. The transaction will be accounted for as a purchase and
goodwill will be recorded when the final allocation of purchase price
is determined.
On January 11, 2000, the board of directors elected to issue stock
options at a price of $1.80 per share in an amount equal to the number
of dollars loaned to the Company by any officer or director of the
Company who makes a non-interest bearing loan to the Company. As of
January 13, 2000, no loans or options had been issued under this plan.
13
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PART I - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of iExalt, Inc., which are included elsewhere in this Form 10-QSB.
The following discussion contains certain forward-looking statements regarding
iExalt's expectations for its business and its capital resources. These
expectations are subject to various uncertainties and risks that may cause
actual results to differ significantly from these forward-looking statements.
GENERAL
Sunbelt originally incorporated as Louisiana Northern Gas, Inc. a Nevada
corporation on April 23, 1979. The name of the corporation was changed to
Sunbelt Exploration, Inc. on December 21, 1979. From 1989 through August 31,
1999, Sunbelt had no operations.
On September 1, 1999 Sunbelt acquired 100% of the stock of iExalt, Inc.
("iExalt-Texas"), a Texas corporation, for 18,393,666 shares of Sunbelt common
stock. In connection with the reorganization, Sunbelt shareholders adopted and
approved the Amended and Restated Articles of Incorporation, which authorized
changing the name of Sunbelt Exploration, Inc. to iExalt, Inc.
On February 4, 1999, the Company acquired certain intangible assets valued
on the accompanying balance sheet at $750 from a shareholder of the Company in
exchange for shares of iExalt, Inc. common stock.
On May 31, 1999, the Company acquired all of the assets and assumed
certain liabilities of Hunter Community Interests, LTD. and AgroSource, Inc.
(dba NetXpress), a Houston, Texas based Internet Service Provider from certain
shareholders of the Company. Consideration for this purchase included the
issuance of 3,000,000 shares of the Company's common stock and the assumption of
a non-interest bearing note payable to a shareholder for $350,000. The purchase
price in excess of the net book value of assets acquired of $314,000 was
recognized as a reduction in paid-in capital because the business purchased was
under common control.
On June 21, 1999, the Company acquired certain tangible and intangible
assets of Interactive Communications Concepts of Texas, a Houston, Texas based
ISP company, for a combination of $15,000 in cash and 72,000 shares of the
Company's common stock. The purchase price in excess of the value of the assets
acquired of $6,572 was recorded as goodwill.
On July 1, 1999, the Company acquired certain tangible and intangible
assets and liabilities of NavPress Software, a Texas general partnership that
specializes in developing, manufacturing and marketing various types of software
and electronic books for the Christian community. In consideration for this
purchase, the Company executed a non-interest bearing note payable in the amount
of $150,000 due in one year and issued 900,000 shares of common stock of iExalt
to the sellers. The Company, as part of this transaction, is obligated to raise
additional capital from investors outside the group of founders of at least
$1,800,000 within 180 days from June 15, 1999. This requirement may be extended,
by written consent of the seller, for up to two years after June 15, 1999. As
14
<PAGE>
part of the acquisition, the President of NavPress Software signed an employment
agreement for one year. The purchase price in excess of the net value of assets
acquired of $174,623 was recorded as goodwill.
On October 1, 1999, the Company acquired Wordcross Enterprises, Inc. d/b/a
Christian Happenings ("Wordcross"). In consideration for this purchase, the
selling shareholders received 850,000 shares of common stock of iExalt, Inc. and
250,000 common stock options exercisable at $1.80 per share. The options vest in
the amount of 50,000 shares per year on the anniversary date of the acquisition.
Both former shareholders of Wordcross have employment agreements with the
Company for a period of five years. The transaction was accounted for as a
purchase and the amount of goodwill recorded was $272,000.
The Company acquired the proprietary assets of netFilter Technologies, a
proxy-filtering software company on October 1, 1999 for $60,000 and 60,000
shares of the Company's common stock.
On November 16, 1999, the Company acquired Solutions Global, Inc.
("Solutions Global"). In consideration for this purchase, the selling
shareholders received 40,000 shares of common stock of iExalt, Inc. and 60,000
common stock options exercisable at $1.80 per share. The options vest in the
amount of 20,000 shares per year on the anniversary date of the acquisition.
Both former shareholders of Solutions Global have employment agreements with the
Company for a period of three years. The transaction was accounted for as a
purchase and goodwill will be recorded when the final allocation of purchase
price is determined.
iExalt is currently developing Internet resources to support a safe and
efficient environment for families, businesses and Christian organizations.
iExalt's mission is to use the influence of the Internet as a positive force in
the lives of families, businesses and Christian organizations by providing
filtered Internet access, developing a Christian-based Internet portal and by
creating content-based Web sites that will provide information and resources for
its target markets.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1999, iExalt had $325,439 in current assets, $679,696
in current liabilities, a net loss of $502,933, a retained deficit of $583,846
and a negative cash flow from operations of $469,616.
To fund the development of its Internet products and services, iExalt
offered through a Private Placement up to two million shares of common stock at
a price of $1.80 per share. Pursuant to this Private Placement memorandum,
iExalt has issued 163,000 shares of unregistered common stock for cash
investment of $293,400 from eleven investors as of November 30, 1999.
iExalt's post-merger working capital requirements and cash flow provided
by operating activities can vary from quarter to quarter, depending on revenues,
operating expenses, capital expenditures and other factors. iExalt's on-going
business will require substantial working capital. It is expected that iExalt
will need to raise additional capital in order to succeed and to continue in
business. Since inception, iExalt has experienced negative cash flow from
operations and will continue to experience negative cash flow for some time into
the future. As of January 13, 2000, iExalt's monthly cash operating expenditures
exceed its monthly cash receipts by approximately $150,000.
15
<PAGE>
In connection with the acquisition of iExalt-Texas, the Company assumed a
short-term revolving line of credit with a bank for $50,000. As of November 30,
1999, no borrowings were outstanding under this line of credit. On December 17,
1999, the Company increased its revolving line of credit with a bank from
$50,000 to $150,000. As of January 4, 2000, $150,000 in borrowings was
outstanding under this line of credit. The line of credit is secured by the
personal guarantee of a shareholder of the Company.
iExalt has not currently entered into any arrangements with any financial
institutions or third parties to provide additional financing and, accordingly,
iExalt's only other liquidity from current sources will be proceeds from the
Private Placement. If iExalt is unable to obtain additional financing or raise
adequate working capital in the amounts desired and on acceptable terms, iExalt
may be required to reduce significantly the scope of its presently anticipated
activities. Management believes it will be able to eventually generate
sufficient cash flows to meet it obligations on a timely basis, to obtain
additional debt and /or equity financing, and ultimately to attain
profitability.
The Company will be required to obtain additional financing or capital to
attain profitable operations. The Company's internally generated cash flows from
operations have historically been and continue to be insufficient for its cash
needs. As of January 14, 2000 the Company's sources of external and internal
financing were limited. It is not expected that the internal source of liquidity
will improve until significant net cash is provided by operating activities, and
until such time, the Company will rely upon external sources for liquidity.
The Company believes that net proceeds of future anticipated securities
offerings, and giving effect to revenues, which are projected to be realized
from operations, should be sufficient to fund ongoing operations and its
business plan. However, there is no assurance that anticipated offerings will be
undertaken, and if undertaken, will be successful or the proceeds derived from
such offerings will, in fact, be sufficient to fund operations and meet the
needs of the Company's business plans. There is no assurance that the current
working capital will be sufficient to cover cash requirements for the balance of
the current fiscal year or to bring the Company to a positive cash flow
position.
RESULTS OF OPERATIONS
iExalt currently operates as a nationwide filtered Internet Service
Provider ("ISP"), publishes Christian electronic books and reference materials
as well as a Christian events magazine, and operates one of the largest speakers
bureaus dedicated to Christian speakers. In addition, the Company sells tickets
for Christian events and owns and markets its own business-to-business content
management products.
Revenues
iExalt's ISP division had revenues for the three months ended November 30,
1999 of approximately $9,000. The Company's did not begin significant marketing
of its filtered ISP product on a nationwide basis until December 1999.
iExalt's Electronic Publishing division had revenues of approximately
$318,000 for the three month period ending November 30, 1999, which represented
approximately 70% of iExalt's total revenues for the period.
16
<PAGE>
iExalt's Events division, which includes Christian Happenings had revenues
of approximately $127,000 for the three month period ending November 30, 1999,
which represented approximately 28% of iExalt's total revenues for the period.
The Christian Happenings acquisition was made effective October 1, 1999 and
these revenues represent only one month of revenues for this division during the
three months ended November 30, 1999. During this period, Christian Happenings
magazine was distributed in thirteen regions of the country east of the
Mississippi and had a circulation of approximately 250,000. The revenue for the
Events division is almost entirely due to advertising and ticket sales.
Direct Costs
iExalt's ISP division had direct costs for the three months ended November
30, 1999 of $95,142 or approximately 27% of the total direct costs for the
period. These direct costs for this division reflect the high start up costs
associated with acquiring the management services required to operate the
equipment and provide services for a nationwide filtered ISP product and consist
principally of Internet connection costs, communications costs, and direct
labor.
iExalt's Electronic Publishing division had direct costs for the three
months ended November 30, 1999 of $184,453 or approximately 53% of the total
direct costs for the period. These direct costs for this division are
principally cost of materials, royalties and direct labor.
iExalt's Events division had direct costs for the three months ended
November 30, 1999 of $67,547 or approximately 20% of the total direct costs for
the period. These direct costs for this division were for only one month and are
principally cost of materials, shipping and credit card fees.
Selling, General, and Administrative
iExalt's ISP division had selling, general and administrative costs for
the three months ended November 30, 1999 of $32,906 or approximately 5% of the
total selling, general and administrative costs for the period. These costs for
this division are principally cost of administrative labor.
iExalt's Electronic Publishing division had selling, general and
administrative costs for the three months ended November 30, 1999 of $138,674 or
approximately 23% of the total selling, general and administrative costs for the
period. These costs for this division are principally salaries, advertising, and
travel expenses.
iExalt's Events division had selling, general and administrative costs for
the three months ended November 30, 1999 of $68,204 or approximately 11% of the
total selling, general and administrative costs for the period. These costs for
this division were for only one month and are principally salaries,
communication expenses and other outside services.
iExalt's Corporate division had selling, general and administrative costs
for the three months ended November 30, 1999 of $361,668 or approximately 60% of
the total selling, general and administrative costs for the period. These costs
for this division are principally salaries and contract labor, advertising, and
professional fees.
17
<PAGE>
PLAN OF OPERATIONS
After the close of iExalt's fiscal year-end on August 31, 1999, iExalt
entered into a number of transactions that has significantly expanded its
operations.
iExalt-Texas owns NetXPress, a Houston, Texas based Internet Service
Provider, ("ISP"), and operates the ISP as iExalt.net. In addition, iExalt-Texas
acquired the assets and customers of a second Houston ISP formerly operated by
Interactive Communication Concepts. These two ISPs form the infrastructure for
iExalt to offer Internet service to its customers. iExalt-Texas has established
a strategic relationship with two wholesale access providers that allows it to
sell its filtered ISP services nationally.
iExalt-Texas' Electronic Publishing division manufactures and markets
books and reference materials of interest to the Christian community using a CD
ROM format. iExalt expects to migrate these resources to the Internet as a first
stage in the development of its Web-based research products.
iExalt also acquired 100% of the stock of Wordcross Enterprises, Inc.
d/b/a Christian Happenings, of Columbus, Ohio. Christian Happenings magazine is
an events publication that circulates almost 300,000 copies in fifteen regions
of the country every two months. iExalt intends to expand the circulation of
Christian Happenings magazine to primary regions west of the Mississippi in
2000.
As a platform for its filtering technology, iExalt acquired the
proprietary assets of netFilter Technologies, a proxy-filtering software company
on October 1, 1999. This acquisition gives iExalt proprietary control over its
own filtering technology and over the development of future markets for this
technology including managed access services for the business community. iExalt
intends to market this product to businesses in 2000.
On November 16, 1999, the Company acquired Solutions Global, Inc.
("Solutions Global"). Solutions Global developed a Christian portal on the
Internet named Word2u.com. iExalt has converted this site to its own Christian
portal named iExalt.com and will continue to maintain and expand the portal with
its own content, products and services as well as link to third party content
and sites.
The Company's financial statements are prepared using principles
applicable to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. However, the
Company does not have significant cash or other material liquid assets, nor does
it have an established source of revenues sufficient to cover its operating
costs and to allow it to continue as a going concern. The Company may in the
future experience significant fluctuations in its results of operations. Such
fluctuations may result in volatility in the price and/or value of the Company's
common stock. Shortfalls in revenues may adversely and disproportionately affect
the Company's results of operations because a high percentage of the Company's
operating expenses are relatively fixed. Accordingly, the Company believes that
period-to-period comparisons of results of operations should not be relied upon
as an indication of future results of operations. There can be no assurance that
the Company will be profitable.
18
<PAGE>
The Company will be required to obtain additional financing or capital to
attain profitable operations. The Company's internally generated cash flows from
operations have historically been and continue to be insufficient for its cash
needs. As of January 13, 2000, the Company's sources of external and internal
financing were limited. It is not expected that the internal source of liquidity
will improve until significant net cash is proved by operating activities, and
until such time, the Company will rely upon external sources for liquidity.
The Company believes that net proceeds of future anticipated securities
offerings, and giving effect to revenues, which are projected to be realized
from operations, should be sufficient to fund ongoing operations and its
business plan. However, there is no assurance that anticipated offerings will be
undertaken, and if undertaken, will be successful or the proceeds derived from
such offerings will, in fact, be sufficient to fund operations and meet the
needs of the Company's business plans. There is no assurance that the current
working capital will be sufficient to cover cash requirements for the balance of
the current fiscal year or to bring the Company to a positive cash flow
position.
19
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults on Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
The following reports on Form 8-K and Form 8-K/A were filed during the three
months ended November 30, 1999:
Form 8-K dated September 14, 1999, reporting (1) under Item 1 the change in
control of iExalt and the issuance of common stock to various individuals and a
company, and (2) under Item 2 the acquisition by iExalt of iExalt, Inc., a Texas
corporation in the business of providing Internet services and software, and
content targeted towards the Christian community.
Form 8-K dated October 15, 1999, reporting under Item 2 the acquisition by
iExalt of Wordcross Enterprises, Inc. d/b/a Christian Happenings ("Wordcross"),
an Ohio corporation in the business of publishing and events advertising.
Form 8-K/A dated November 15, 1999, reporting (1) under Item 1 the change in
control of iExalt and the issuance of common stock to various individuals and a
company, (2) under Item 2 the acquisition by iExalt of iExalt, Inc., a Texas
corporation in the business of providing Internet services and software, and
content targeted towards the Christian community, and (3) under Item 7 the
financial statements and pro forma financial information related to the
acquisition.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
iEXALT, INC.
January 14, 2000 /s/ KIRWIN DROUET
----------------------
Kirwin Drouet
Executive Vice President and
Chief Accounting Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM iEXALT, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 73,108
<SECURITIES> 0
<RECEIVABLES> 145,174
<ALLOWANCES> 0
<INVENTORY> 74,119
<CURRENT-ASSETS> 325,439
<PP&E> 284,400
<DEPRECIATION> (6,635)
<TOTAL-ASSETS> 1,212,387
<CURRENT-LIABILITIES> 679,696
<BONDS> 0
0
0
<COMMON> 21,987
<OTHER-SE> 160,704
<TOTAL-LIABILITY-AND-EQUITY> 1,212,387
<SALES> 453,655
<TOTAL-REVENUES> 453,655
<CGS> 344,225
<TOTAL-COSTS> 960,703
<OTHER-EXPENSES> 4,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (774)
<INCOME-PRETAX> (502,933)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (502,933)
<EPS-BASIC> (0.02)
<EPS-DILUTED> 0
</TABLE>
