UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[OR]
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2000
Commission File Number: 000-09322
iEXALT, INC.
NEVADA 75-1667097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4301 WINDFERN DRIVE
HOUSTON, TEXAS 77041
(Address of principal executive offices)
(281) 600-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Registrant's revenues for the twelve months ending August 31, 2000 were
$4,276,883.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the last sales price as quoted by the OTC Electronic
Bulletin Board on November 15, 2000 was $12,354,455. As of November 15, 2000 the
registrant had 33,522,282 shares of common stock outstanding.
Documents Incorporated by Reference: The Registrant's Notice of Annual Meeting
of Shareholders and Definitive Proxy Statement pertaining to the 2000 Annual
Meeting of Shareholders (the "Proxy Statement") and filed pursuant to Regulation
14A is incorporated herein by reference into Part III of the report.
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TABLE OF CONTENTS
PART I
ITEMS
PAGE
ITEM 1. DESCRIPTION OF BUSINESS........................................ 2
ITEM 2. DESCRIPTION OF PROPERTIES...................................... 13
ITEM 3. LEGAL PROCEEDINGS.............................................. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS....... 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS..... 16
ITEM 7. FINANCIAL STATEMENTS........................................... 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................... 22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............. 23
ITEM 10. EXECUTIVE COMPENSATION......................................... 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 23
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................... 23
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-KSB for iExalt,
Inc. discuss future expectations, contain projections of results of operation or
financial condition or state other forward-looking information. iExalt, Inc.
wishes to caution readers not to place undue reliance on any forward-looking
statements as these statements are subject to known and unknown risks,
uncertainties, and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Important factors that may cause actual results to differ from
projections include, for example:
o the success or failure of management's efforts to implement their business
strategy;
o the ability to raise sufficient capital to meet operating requirements;
o the uncertainty of consumer demand for iExalt's products;
o the ability to compete with major established companies;
o the effect of changing economic conditions;
o the ability to develop profitable operations;
o the ability to assimilate acquisitions in a profitable manner;
o the ability to attract and retain quality employees; and
o other risks which may be described in future filings with the SEC.
iExalt, Inc. does not undertake, and specifically disclaims any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements, except
for iExalt's ongoing obligation to disclose material information as required by
the Federal Securities laws.
GENERAL
HISTORY
iExalt, Inc. was formerly Sunbelt Exploration, Inc., ("Sunbelt"), which
originally was incorporated as Louisiana Northern Gas, Inc., a Nevada
corporation on April 23, 1979. Sunbelt changed its name to iExalt, Inc., in
connection with a reverse merger on September 1, 1999, with iExalt, Inc., a
Texas corporation ("iExalt-Texas"). iExalt-Texas was the acquiror in the reverse
merger for accounting purposes. iExalt-Texas had been incorporated on January 7,
1999.
From the date of its organization until approximately 1989, Sunbelt was
primarily engaged in the exploration, development and production of oil and gas
reserves. From 1989 until September 1, 1999 Sunbelt had no significant
operations. In February 1990, the U.S. Bankruptcy Court approved an Amended Plan
of Reorganization under Chapter 11 of the U.S. Bankruptcy Code ("Plan") for
Sunbelt. The Plan was affirmed by a Final Decree of the Court on May 11, 1993.
On September 1, 1999 Sunbelt acquired 100% of the stock of iExalt-Texas,
for 18,393,666 shares of Sunbelt common stock. At the conclusion of the
transaction 20,874,166 shares of stock were issued and outstanding. (Subsequent
to the stock record date, 30,000 additional share were issued as of August 31,
1999, pursuant to the iExalt-Texas Private Placement, described later.) Prior to
that event, at a shareholders' meeting of Sunbelt held on August 30, 1999 the
shareholders of Sunbelt voted to change the name of the corporation to iExalt,
Inc. and elected Jack I. Tompkins, Donald Sapaugh, Morris Chapman, Jonathan C.
Gilchrist and Hunter M. A. Carr to the board of directors. Joe Reynolds was
elected to the Board subsequent to that event. 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. Any references to "iExalt", "the
Company", "we" or "us" refer to activities of iExalt including activities of
iExalt-Texas prior to the reverse merger on September 1, 1999.
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DEVELOPMENTS PRIOR TO THE REVERSE MERGER
iExalt is a company formed to meet the needs of the Christian community.
Our mission is to develop and deliver products, services and Internet solutions
to support families, businesses and other organizations that share Christian
principles and values. We are developing and acquiring proprietary products and
services to perform our mission.
iExalt-Texas was incorporated in Texas on January 7, 1999, with the
issuance of 11,250,000 shares to the founding shareholders. On February 4, 1999,
we acquired certain intangible assets from one of our shareholders in exchange
for 750,000 shares of iExalt common stock.
On May 31, 1999, we acquired all of the assets and assumed certain
liabilities of Hunter Community Interests, LTD. and AgroSource, Inc. (d/b/a
NetXpress), a Houston, Texas based Internet Service Provider ("ISP") from
certain shareholders of the Company. In this purchase, we issued 3,000,000
shares of common stock and assumed a non-interest bearing note payable to a
shareholder for $350,000.
On June 21, 1999, we 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. These acquisitions formed the basis for us to begin offering
nationwide filtered Internet access.
On July 1, 1999, we 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. As consideration for this
purchase, we executed a non-interest bearing note payable in the amount of
$150,000 and issued 900,000 shares of common stock to the sellers. This
acquisition formed the basis for iExalt Electronic Publishing.
RECENT DEVELOPMENTS
On October 1, 1999 we acquired all of the issued and outstanding stock of
WordCross Enterprises, Inc. d/b/a Christian Happenings, of Columbus, Ohio for
850,000 shares of common stock of iExalt. Options to purchase 250,000 shares of
our common stock at $1.80 per share vest ratably over five years on the
anniversary date, subject to employment agreements with the former owners.
Christian Happenings magazine is a bi-monthly events publication that had a
circulation of 250,000 in thirteen regions when acquired and now has a
circulation of 360,000 in eighteen regions covering the states east of the
Mississippi River plus Texas and Oklahoma. The events information from Christian
Happenings is available online at www.IEVENTS.NET. Christian Happenings also
supplies ticketing services for events throughout the country.
As a platform for its filtering technology, iExalt acquired all of the
proprietary assets of netFilter Technologies, a proxy-filtering software company
on October 1, 1999 in exchange for 60,000 shares of our common stock plus
$60,000. This acquisition gave iExalt proprietary control over its own filtering
technology.
On November 16, 1999, we acquired Solutions Global, Inc., for 40,000
shares of iExalt common stock. Options to purchase 60,000 shares of our common
stock at $1.80 per share vest ratably over three years on the anniversary date,
subject to employment agreements with the former owners. Solutions Global had
developed a Christian portal website which became the basis for our portal site,
www.iExalt.com. This website serves as a starting point for families and church
leaders seeking to find Christian-based Internet content and leadership resource
materials. Links are provided to various channels such as news, weather, kid's
activities, sports and religion, as well as all of our other websites.
Effective December 1, 1999, we acquired all of the 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 consisted of 500,000 shares of
our common stock and $40,000. Options to purchase 250,000 shares of our common
stock at $1.80 per share vest ratably over five years on the anniversary date,
subject to an employment agreement with the former owner. ChristianSpeakers.com
is a leading speakers bureau of Christian speakers.
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Effective December 31, 1999, we acquired all of the stock of First Choice
Marketing, Inc. ("First Choice"), a Texas corporation, in exchange for 2,302,000
shares of Company common stock, assumption of a $156,000 short-term note
payable, and certain contingent shares, warrants and options based on reaching
specific earnings goals. We also issued 190,890 shares to the principals of
Consulting & Strategy International, Inc., for their consulting services in
effecting the acquisition. First Choice launched its network marketing of
benefit and financial plans under the name of iExaltFamily.com in the spring of
2000.
Effective May 1, 2000, we acquired the proprietary assets of LIFE
PERSPECTIVES, an hour-long radio program broadcast five nights per week in 48
markets with an estimated audience of 170,000, for 20,000 of our common shares.
An additional 30,000 common shares will be issued over the next three years in
the amount of 10,000 shares per year on the anniversary date of the acquisition,
subject to the founder's continuing to host the program under an employment
agreement with the Company.
Effective July 1, 2000, we acquired all of the member interests in
PremierCare LLC, a limited liability company engaged in the delivery of
healthcare counseling services for senior citizens at hospitals in five states.
The former beneficial owners of PremierCare LLC received 540,000 shares of
iExalt common stock and will receive up to an additional 560,000 shares,
depending on certain future financial events and results. Our current chairman,
chief executive officer, and president was also the president, chief executive
officer, and a 22.8% indirect owner of PremierCare LLC. He will continue to
serve both iExalt and PremierCare (as a subsidiary of iExalt) in these same
officer capacities.
Our print publications were expanded with the acquisition of Christian
Times newspapers effective July 1, 2000, through the acquisition of all of the
issued and outstanding stock of Keener Communications Group, Inc., for 450,000
shares of our common stock. Options to purchase 125,000 shares of our common
stock at $1.80 per share vest ratably over five years on the anniversary date,
subject to an employment agreement with the former owner. Keener publishes
Christian Times newspapers monthly with a circulation of 180,000 in eight
editions in southern California.
SUBSEQUENT EVENTS
On September 13, 2000, the Chairman of the Board and Chief Executive
Officer Jack I. Tompkins, Board member Jim P. Wise, and the Chief Operating
Officer Kirwin Drouet resigned. Both the Board of Directors and the resigning
directors and officers stated that the resignations resulted from philosophical
management differences and were unrelated to operating performance or accounting
issues. Donald W. Sapaugh, who was the President of iExalt, was elected as our
Chairman and Chief Executive Officer.
In late September, 2000, we re-evaluated our business mix and projected
cash flows which resulted in the disposition of two businesses and the decision
to terminate our acquisition efforts on a third business. After disappointing
early results, we divested all of our interest in First Choice to the management
of that subsidiary for their assumption of future liabilities. And, in order to
remain focused on our mission, we divested ourselves of our filtering software
and related technologies to the management of that function for their assumption
of future liabilities, while retaining the rights to use the filtering software
in our ISP business and to market it in the Christian market. Our management
believed that the effort to take this technology to other markets would have
diverted too much of our capital and management attention away from our central
mission. We terminated the acquisition of a start-up Internet company with which
we had signed a funding agreement in April 2000, because of our perception of
delays in business prospects necessary for it to reach positive cash flow. The
value of goodwill and intangible assets on our books as of August 31, 2000,
relating to First Choice and the prospective acquisition were fully impaired and
written down to zero within the year then ended. The carrying value of the
filtering and related software was reduced to the value of future cost savings
that we estimate will be realized by having our own filtering technology rather
than having to license it as is generally the case with other filtered ISPs. In
addition to writing off the associated assets and paying expenses through the
time of disposition, we have made a supplemental payment of $25,000 to First
Choice and have issued 150,000 shares of our common stock to the filtering
software acquirer and 100,000 shares to the terminated acquisition target. We
have a note receivable from the filtering software acquirer of $84,359 and a
note receivable from the terminated acquisition target of $368,112, the latter
of which has been fully reserved due to the low likelihood of collection. Also,
as a result of the funding agreement, we retained a 49% interest in the
acquisition target unless the note is paid in full by January 1, 2001.
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On September 29, 2000, we acquired an indirect seven percent interest in
Sonora Behavioral Health Hospital, LLC, a 30+ bed psychiatric hospital in
Arizona. Management believes this acquisition provides us with an opportunity to
expand our counseling activities. Our interest is held through Integral
Behavioral Health Service, Inc., in which we acquired a seven percent interest
in exchange for 150,000 shares of our common stock.
On October 3, 2000, we acquired all of the stock of ListenFirst.com, Inc.,
which operates a music news website, for 60,000 shares of our common stock. If
certain revenue and profit levels are reached over the next three years, a
maximum of 50,000 additional shares of common stock will be issued. This
acquisition provides us with another element to our mix of Internet websites
oriented to the Christian market. Management also believes it provides potential
synergies with radio programs and Christian events.
On October 18, 2000, we acquired substantially all of the assets of
Northwest Christian Journal for 37,500 shares of our common stock plus $7,500.
Northwest Christian Journal is a monthly Christian newspaper with a circulation
of about 20,000 published in the Seattle area. The newspaper is being renamed
Northwest Christian Times and is now operated by our Christian Times subsidiary.
On October 24, 2000, we acquired all of the outstanding stock of CleanWeb,
Inc., another filtered ISP, for 2,313,000 shares. iExalt is combining the
operations of iExalt.net and CleanWeb, but will continue to market under both
names. With the addition, we have over 7,000 subscribers to our filtered ISP
services.
On October 29, 2000, we acquired all of the assets of Christian Blue
Pages, LLC in exchange for 60,000 shares of our common stock and 25%-50% of the
first year's advertising revenues. Christian Blue Pages produces a "yellow
pages" of Christian businesses in four editions in southern California. Its
operations are now conducted through our Christian Times subsidiary.
Effective November 1, 2000, we acquired the assets of Rapha from PsyCare
America, LLC, expanding our counseling services to Christian inpatient mental
health management. Under the terms of the acquisition, we issued 200,000 shares
of common stock; if the average price of our common stock for the twenty trading
days preceding October 29, 2002, is less than $5.00 per share, we will issue
additional shares so that the total shares issued when multiplied by the average
price described above equals $1.0 million. Our chairman, chief executive
officer, and president had been president of Rapha Treatment Centers from 1987
to 1996, prior to its sale to PsyCare America, LLC.
On November 21, 2000, in exchange for 30,000 shares of our common stock,
we acquired from Alive Communications all of its speaker contracts and speaking
engagements relating to the Christian market. Alive is a leading provider of
speakers to the Christian community. Their business will be combined with
ChristianSpeakers.com.
In addition to these completed acquisitions, in June 2000, we entered into
a funding agreement with an Internet company under which we are advancing funds
and directing their management, pending the completion of a definitive
acquisition agreement. Under the funding agreement, if the acquisition is not
consummated, we will be entitled to repayment of the advances with interest plus
a fifty percent ownership interest in the company. As of November 29, 2000 the
acquisition is still anticipated but has not been consummated.
BUSINESS SEGMENTS
Our operating units are grouped into three business segments: (1) Internet
& Technology Applications, (2) Print Publications, and (3) Healthcare Services.
At yearend, Internet & Technology Applications consisted of our ISP
(iExalt.net), Electronic Publishing, our filtering technology, our portal
(iExalt.com), ChristianSpeakers.com, iExaltFamily.com, and the Life Perspectives
radio program. Since yearend, within this business segment, we have disposed of
iExaltFamily.com and the filtering software (outside of its use in the Christian
market) and we have added ListenFirst.com, contracts from Alive Communications,
and CleanWeb. Print Publications consisted of Christian Happenings and Christian
Times at yearend. Since the fiscal yearend, we added Northwest Christian Journal
and Christian Blue Pages. Healthcare Services consisted of PremierCare at
yearend and, since that time, we added our interest in Sonora Behavioral Health
Hospital and Rapha. See Note L to the Financial Statements and Item 6. below for
financial information by segment.
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INDUSTRY BACKGROUND
CHRISTIAN MARKET
When Americans are asked if they are Christians, over 80% respond that
they are. While many do not attend churches on a regular basis, they share
Christian principles and values. This large cross-section of America,
particularly families, constitutes our target market. The Christian market cuts
across the estimated 149 million Internet users in America and across the 39
million Americans who are age 65 or over. With respect to the Internet, a study
that is now over one year old found that 25 million adults access the Internet
each month for religious purposes.
The Internet provides a unique and universal media that can support the
efforts of local churches by uniting them with Christians around the world. The
Internet presents a platform from which millions can be reached and strengthened
through the development of community and the delivery of high quality
information resources.
THE INTERNET AND THE WORLD WIDE WEB
The Internet is a global collection of thousands of computer networks
interconnected to enable organizations, educational institutions, government
agencies and individuals to communicate electronically, access and share
information, and conduct business. The Internet was historically used by a
limited number of academic institutions, defense contractors and government
agencies. It was used primarily for remote access to host computers and for
sending and receiving electronic mail. Today, commercial organizations and
individuals are dominating the use of the Internet. Recent technological
advances, improved microprocessor speed and the development of easy-to-use
graphical user interfaces, combined with cultural and business changes, have
enabled the Internet to be integrated into the operations, strategies, and
activities of countless organizations and individuals.
The Internet and the World Wide Web are fundamentally changing the way
information can be produced, distributed and consumed, lowering the cost of
publishing information and extending its potential reach. Companies from many
industries are publishing product and company information or advertising
materials, collecting customer feedback and demographic information
interactively, and offering their products for sale on the Web. The Web, by
facilitating the publishing and exchange of information, is dramatically
increasing the amount of information available to users. The Internet now
delivers large amounts of negative information along with vast amounts of
positive content.
GROWTH OF THE INTERNET AND ONLINE COMMERCE
Growth in Internet usage has been fueled by a number of factors, including
the large and growing installed base of personal computers in the workplace and
home, advances in the performance and speed of personal computers and modems,
improvements in network infrastructure, easier and cheaper access to the
Internet, and increased awareness of the Internet among businesses and
consumers.
The Internet and other online services are evolving into a unique sales
and marketing channel, just as retail stores, mail-order catalogs and television
shopping have done. Online retailers can interact directly with customers by
frequently adjusting their featured selections, editorial insights, shopping
interfaces, pricing, and visual presentations. The minimal cost to publish on
the Web, the ability to reach and serve a large and global group of customers
electronically from a central location, and the potential for personalized
low-cost customer interaction provides additional economic benefits for online
retailers. Unlike traditional retail channels, online retailers do not have many
of the costs of managing and maintaining a significant retail store
infrastructure or the continuous printing and mailing costs of catalog
marketing. Because of these advantages over traditional retailers, online
retailers have the potential to build large, global customer bases quickly and
to achieve superior economic returns over the long term. Online retail sales in
the U.S. in 1999 were estimated to be $20 billion; in 2004 they are projected to
be $184 billion. Online advertising in the U.S. in 1999 was estimated to be $3
billion; in 2004 it is projected to be $22 billion.
RECENT PROBLEMS FOR CONTENT PROVIDERS AND E-RETAILERS
Despite the tremendous potential of the Internet, beginning earlier this
year, a large number of Internet companies, particularly consumer-oriented
content providers and e-commerce retailers, have announced layoffs or
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closures, with further layoffs and closures expected to continue for at least
the near term. In addition, other cash-strapped Internet companies have sought
combination with their competitors or more traditional "old economy" companies
in an effort to survive. Many theories have been suggested for this phenomena
including an over supply of e-commerce securities offerings, a more selective
initial public offering market, a tightening financing market, increased
competition from traditional brick-and-mortar chains, and a return to a
traditional form of stock analysis. Many Internet companies were running deep
losses as they spent heavily on personnel and marketing, and had come to rely on
regular external cash infusions to fund operations. As these financing dollars
dried up, several of these companies had to either liquidate or enter into
unfavorable financing arrangements and/or initiate extensive cost saving
measures.
HEALTHCARE COUNSELING SERVICES FOR SENIORS
Demand for elderly healthcare services is steadily increasing, driving
family members to the Internet for information and in search of vital resources.
The U.S. population of people age 65 and older, already 39 million, is expected
to double by 2030. Among the elderly, 15 to 20 percent suffer from significant
symptoms of mental illness, particularly depression, but less than 5 percent
receive appropriate care. Serving this market is particularly meaningful for
iExalt since this demographic segment embraces the Christian faith at a higher
rate than any other segment. Currently over $100 billion is spent on healthcare
for seniors.
THE ROLE OF iExalt, INC.
It is our goal to deliver products, services, and technology solutions
that protect and promote the values of the family based on Christian principles.
This includes effective screening of offensive and destructive content through
our filtered Internet service. In addition, we have developed an effective
portal through which families and members of the target market can access
information they seek on the Internet. We have added to our web presence through
websites for Christian Happenings, Christian Times, ListenFirst,
ChristianSpeakers, and PremierCare, and we expect to continue to add depth and
breadth to our Internet offerings.
The market for printed Christian periodicals is a highly fragmented
industry. We produce a leading group of events-based Christian magazines with
Christian Happenings and a leading Christian newspaper with Christian Times. We
expect to continue to add to these publications both through acquisition and
launches of editions in new geographic areas.
Similarly, the market for partial hospitalization geriatric psychiatric
counseling services is a highly fragmented market. Providing Christian-oriented
services to those in need of health services is a valuable and profitable
service that we can provide. PremierCare is a leading provider of these services
in the U.S.
PRODUCTS AND SERVICES - INTERNET & TECHNOLOGY APPLICATIONS
iExalt.NET
At www.iExalt.NET, we provide server-based filtered ISP service to
families, businesses and organizations. We have purchased and integrated two
ISPs in the Houston area and provide nationwide service through two national
backbone providers. The ISP provides a controlled, filtered access to the
Internet that generally prevents users from accessing pornography, hate sites,
bomb building and other objectionable Internet sites. Unlike many filtered ISPs,
we own our filtering software and this software provides not only filtering
based on a continually-updated database of offensive Internet addresses, but
also through a proprietary dynamic heuristic filter that evaluates unknown
webpage content "on the fly". With acquisition of CleanWeb in October, 2000, we
have over 7,000 users, making us one of the leading Christian filtered ISPs. We
expect to continue to expand our presence in this market though acquisition and
internal growth.
iExalt ELECTRONIC PUBLISHING
Our Electronic Publishing division, in business since 1988, publishes
hundreds of books and reference works in CD ROM format. Using the foundation of
this content, we will develop and deploy Web-based content products. Its website
address is www.WordSearchBible.com.
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iExalt.com
At www.iExalt.com, we have developed a comprehensive Christian resource
website to serve as the primary portal to the Internet and to our complete
family of services. iExalt.com will function as both a gateway to the complete
family of iExalt Internet services, and as a starting point for Christian
references throughout the Internet. We have included communication tools such as
Christian discussion groups, chat rooms, bulletin boards, and web-based email
into the portal.
In the next year, through development and acquisition, we expect to build
our portal into a high traffic site with additional features for singles, prayer
requests, and a sense of community that will connect to and promote the complete
family of our businesses and services. iExalt.com is designed to become an
income source through the sale of advertising and through promotional alliances
with businesses and Christian organizations that want to promote their products
to the Christian community.
LISTENFIRST.com
Acquired in October, 2000, www.ListenFirst.com is a leading online
Christian music news site. It combines original editorial content with
interactive online audio and video. The site provides world premiers, daily
music news, album and concert reviews, interviews, artist biographies, music
videos, digital downloads and contests. The Christian artists promoted on
ListenFirst have the potential to gain increased exposure to the Christian
market through our integrated products and services.
CHRISTIANSPEAKERS.com
Founded in 1990, ChristianSpeakers.com is a leading Christian speakers'
bureau in the United States. The company coordinates with other agencies
throughout the country to match clients with the appropriate speakers, including
athletes, business representatives, entertainers and other inspirational
speakers. In November 2000, we added the Christian speakers and contracts of
Alive Communications. The Internet has driven significant growth to this
business from our website www.christianspeakers.com.
LIFE PERSPECTIVES RADIO
Life Perspectives is a live call-in radio program that seeks to provide
individuals with positive encouragement and insight from a distinctively
Christian-based perspective. The hour-long program, which is distributed by USA
Network, airs nightly in more than 45 markets nationwide and is also available
on the Internet. In addition to issues of faith, the program covers social,
financial, legal and Internet topics. Information is available online at
www.iExaltRADIO.com. Don Hawkins, the host, founded the radio program in 1990.
This program provides multiple opportunities to promote other iExalt products
and services, as well as providing another medium for Christian advertisers.
PRODUCTS AND SERVICES - PRINT PUBLICATIONS
CHRISTIAN HAPPENINGS
Christian Happenings, in business since 1983, publishes a bi-monthly
periodical promoting Christian events that is circulated in 18 regions east of
the Mississippi and in Texas and Oklahoma to over 360,000 readers, representing
an increase of five regions and 110,000 readers since its acquisition. We intend
to continue the expansion of its circulation into additional regions west of the
Mississippi. Christian Happenings also provides ticketing services to numerous
events each year. We expect to expand the ticketing services of Christian
Happenings and to use the talent and information collected from the publishing
enterprise to populate both www.christianhappenings.com and our events website,
www.iEvents.net.
The Christian community has historically been an event-oriented culture.
Recognizing this inclination, we have developed a nationwide calendar of
Christian events at www.iEvents.net. The calendar currently has over 7,500
events listed across the nation targeted to Christians of all ages and
denominations. This product allows Internet users to quickly determine what
events are available in their community. It will allow artists, speakers, and
churches the potential to promote events to their community at very little cost
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CHRISTIAN TIMES
Christian Times is a leading newspaper in the Christian Newspaper
Association. Christian Times is published in eight regional editions in
California with a monthly circulation of approximately 180,000 copies.
Distributed through churches and individual subscriptions, the newspaper reports
on current events from a Christian perspective, focusing on traditional family
values and church trends. Its website address is www.CHRISTIANTIMES.com. In
addition to providing another cost-free avenue for advertising the entire line
of iExalt products and services, Christian Times provides a valuable source of
content for our online event resources. In October, 2000, we made two additions
to the operations of Christian Times by acquiring Northwest Christian Journal, a
newspaper in the Seattle area with a monthly circulation of 20,000, and by
acquiring Christian Blue Pages, a Christian yellow pages directory produced in
four editions in southern California. We plan to develop a nationwide chain of
regional Christian newspapers that will further enhance our content and drive
traffic to our web sites.
PRODUCTS AND SERVICES - HEALTHCARE SERVICES
PREMIERCARE
PremierCare is a healthcare management company focusing on the mental
health needs of senior citizens. Formed in 1996 to meet the needs of senior
adults struggling with mental health issues, the company provides healthcare
management services to hospitals nationwide, currently managing geriatric
programs in five states. PremierCare provides turnkey management, including
administrators, nurses, counselors, other therapy personnel and physicians. It
is a leading provider of partial hospitalization programs for geriatric
psychiatric counseling in the U.S. In September 2000, through our acquisition of
a seven percent interest in the Sonora Behavioral Health Hospital, we have added
another opportunity to expand our counseling activities.
RAPHA
In October 2000, we expanded our healthcare services into Christian
inpatient mental health management with the acquisition of Rapha from PsyCare
America, LLC. When it was an independent company, Rapha Treatment Centers
generated management fee revenues in excess of $30 million in 1993. With current
management fee revenues running at an annual rate of only $1.2 million, we
believe significant growth opportunities exist.
SALES AND MARKETING
We have begun to deploy a multi-faceted marketing approach intended to
leverage the cross-marketing potential of our products and services. For
example, Christian Happenings magazine is used to market the filtered ISP and
Electronic Publishing products as well as to promote iEvents. No single client
exceeds five percent of our annual revenue.
Recognized leaders and affinity groups (churches, para church
organizations, seminaries, ministries, etc.) play a major role within the
Christian community. One of our key marketing strategies is to leverage the
strong relationships that Company management has within the Christian community
and to build alliances with these affinity groups for the marketing of services
to group constituents. Through key relationships and ministry alliances, we
believe we will have the opportunity to introduce the members of these
ministries to iExalt products. Management believes the customer acquisition cost
of this marketing program is lower than traditional marketing techniques with a
better potential for retention.
By providing access to the Christian market through a variety of media --
print, radio, and the Internet -- we have positioned ourselves uniquely within
the Christian community. Marketing to this group has historically entailed
advertising with a wide variety of highly fragmented companies to reach the
Christian market through multiple media. We now offer advertisers a single
source for reaching the community through printed media, radio, and the
Internet.
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COMPETITION
Management believes iExalt is unique in the breadth of offerings it has to
reach the Christian community and serve its needs. We face competitors in all
areas, but no competitors that have our reach across different media. Our
printed publications have a combined circulation of nearly 600,000; our radio
audience is about 170,000; and our Internet sites are approaching 2 million
pageviews per month. Within a year, we are targeting circulation of 750,000; a
radio audience of 1 million; and monthly pageviews of 10 million. We believe
that this will give us a distinct competitive advantage over time.
Our competition will fall into two broad analytical categories. First, we
will experience competition from large well-financed Internet and technology
companies seeking to dominate various Internet markets. Second, we will face
direct competition from competitors attempting to attract similar target
markets.
The number of users of major Internet providers such as America On-Line,
Mindspring and Internet America has grown dramatically in recent years. In
addition, electronic commerce and Internet services markets are new, rapidly
evolving and intensely competitive. We expect competition to intensify in the
future. We will be competing with a variety of other companies in the service
and technology areas that are currently being pursued. iExalt.net will face
competition from existing filtered Internet companies such as Rated-G,
FamilyClick, Mayberry USA, Family.net and Integrity OnLine, and we expect other
major companies to begin expanding filtering options in the next year. With the
CleanWeb acquisition, we have now become a significant filtered ISP, but still
relatively small as compared to the leading ISP companies.
In other sectors of operations, we face significant competition in the
marketplace as well. Several nonprofit companies have initiated Internet portals
aimed at serving the Christian community such as Christianity.com. In addition,
CrossWalk.com, Inc. has established itself as a public company and early leader
in providing information and business services to this target market. We may
also face competition from other well-financed Internet start-up companies
targeting the same target market. With the rationalization of Internet companies
that began in the early summer, we have seen at least one significant portal
competitor, iBelieve.com, go out of business.
iExalt's electronic publishing products face competition from other
electronic publishers such as Logos, BibleSoft and FindEx (Parson's Technology).
It is expected that some or all of these competitors of iExalt Electronic
Publishing will create Internet-based products competitive with our plans for
online libraries. We also expect to see traditional Christian print publishers
compete with our Internet products, including Zondervan, Thomas Nelson and
Broadman Holman.
The principal competitive factors affecting the market for our services
are the ability to attract customers at favorable customer acquisition costs,
operate Web sites in an uninterrupted manner and with acceptable speed, provide
effective customer service and obtain services at satisfactory prices. We may
not be able to maintain our competitive position against current and potential
competitors, especially those with greater financial, marketing, customer
support, technical and other resources.
The Internet is a rapidly developing communication medium that presents
competitive challenges from the introduction of new technologies, new software
capabilities, new marketing strategies and new business models. Because we are a
direct provider of Internet access and Web hosting services, we will face
competitive challenges from each new emerging technology.
In our healthcare business segment, we face significant competition. The
partial hospitalization and out-patient mental care industry is a highly
competitive industry. We expect that this industry will become even more
competitive in the future given the continuing health care cost containment
pressures. We compete with numerous other companies providing similar
psychiatric service alternatives. We currently operate in five states, and each
community in which we operate provides a unique market. In markets where we have
competition, our competitors include other companies that provide out-patient
psychiatric services and private psychiatric and psychological counselors.
We expect to face increased competition from new market entrants as
out-patient psychiatric services for seniors receives increased attention and
the number of states which include out-patient psychiatric services for seniors
in their Medicaid waiver programs increases. These new market entrants will
include publicly and privately held companies, including not for profit
corporations. Some of our present and potential competitors are
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significantly larger and have, or may obtain, greater financial resources than
we do. Consequently, we cannot guarantee that we will not encounter increased
competition in the future which could limit our ability to attract clients or
expand our business and could have a material adverse effect on our financial
condition and results of operations and prospects.
PERSONNEL
As of October 15, 2000, iExalt had 122 persons (of whom 86 were full-time
employees) working in various phases of the business. No employees or
contractors are covered by a collective bargaining agreement. Management
considers relations with its employees and contractors to be satisfactory.
We plan to continue to expand our operations and expect that significant
expansion of the operations will be required in order to address potential
market opportunities. This rapid growth is expected to place a significant
strain on management, operational and financial resources. Our new employees
will include a number of key managerial and technical employees who will need to
be integrated into the management team. We will also need to expand our
accounting and technical staff. Our current personnel, systems, procedures and
controls may not be adequate to support future operations, management may not be
able to identify, hire, train, retain, motivate and manage required personnel or
management may not be able to manage and exploit existing and potential market
opportunities successfully.
Our success will be significantly impacted by our ability to attract and
maintain key personnel. In particular, our success depends on the continued
efforts of our senior management team. The loss of the services of any executive
officers or other key employees could have a material adverse effect on our
business. If we are unable to manage growth effectively, our business will be
materially adversely affected.
Our business is labor intensive. There is significant competition for
employees with the skills required to perform the services that we offer.
Qualified project managers and senior technical staff are in great demand and
are likely to remain a limited resource for the foreseeable future. We may not
be successful in attracting a sufficient number of highly-skilled employees in
the future, or may not be successful in retaining, training and motivating
employees, and any inability to do so could impair the ability to adequately
manage and complete existing projects and to bid for or obtain new projects. If
our employees are unable to achieve expected performance levels, our business
could be adversely affected.
In the Healthcare Services segment, we compete with other providers of
both short-term and long-term psychiatric care with respect to attracting and
retaining qualified personnel. A shortage of qualified personnel may require us
to enhance our wage and benefits packages in order to compete. In addition to
the program director (which is typically a counselor or nurse), we provide
registered nurses, mental health workers, therapists or masters of social work,
and community education/patient education coordinators. We cannot guarantee that
our labor costs will not increase, or that, if they do increase, they can be
matched by corresponding increases in revenues.
INTELLECTUAL PROPERTY
Our success is dependent, in part, upon our proprietary methodology and
other intellectual property rights. We rely upon a combination of trade secrets,
non-disclosure and other contractual arrangements, and copyright and trademark
laws to protect our proprietary rights. We acquired proprietary rights to URL's
such as iExalt.com, iExalt.net, netFilter.com, iEvents.net, etc. and will seek
to protect our brand in the marketplace. In addition, we have rights to the
source code to netFilter software acquired from netFilter Technologies. We have
entered into confidentiality agreements with our employees and contractors, and
generally require that consultants and clients enter into such agreements, and
limit access to and distribution of proprietary information. Despite these
efforts to protect such proprietary rights, unauthorized parties may attempt to
copy aspects of our services or to obtain and use information that is
proprietary. We may not be able to secure significant protection for service
marks or trademarks. It is possible that competitors will adopt product or
service names similar to ours, possibly leading to customer confusion. Policing
unauthorized use of our proprietary information is difficult, and litigation may
be necessary to enforce or protect such intellectual property rights or to
defend against claims of infringement or invalidity. The steps in this regard
may not be adequate to deter misappropriation of proprietary information or we
may not be able to detect unauthorized use and take appropriate steps to enforce
our intellectual property rights. Effective trademark, service mark, copyright
and trade secret protection may not be available in every country in which our
services are distributed or made available through the Internet, and policing
unauthorized use of our proprietary information is difficult.
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During the fiscal year ended August 31, 2000, we spent approximately
$108,000 in product research and development costs.
REGULATION
Our Internet & Technology Applications and Print Publications are not
currently subject to direct regulation by any governmental agency, other than
regulations applicable to businesses generally, and laws or regulations directly
applicable to online commerce. However, due to the increasing popularity and use
of the Internet and other online services, it is possible that a number of laws
and regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet or
other online services, which could, in turn, decrease the demand for our
services and increase the cost of doing business. Moreover, the applicability to
the Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
to the Internet could have a material adverse affect on our business.
Our Healthcare Services are subject to significant government regulation.
PremierCare provides contract management services; we are not a provider of
care. We do not have a provider number for any healthcare service, nor are we
required to have a provider number. However, hospitals that offer programs
managed by us recover all of the program costs through direct payments received
from Medicare and related co-payments. There are continuing efforts by
governmental and private third-party payors to contain or reduce the costs of
health care by lowering reimbursement rates, increasing case management review
of services and negotiating reduced contract pricing. Our revenues and
profitability will be affected if these efforts are successful. Also, there has
been, and our management expects that there will continue to be, a number of
proposals attempting to reduce the federal and some state budget deficits by
limiting reimbursement in general. Adoption of any of these proposals at either
the federal or the state level could have a material adverse effect on our
business, financial condition, results of operations and prospects.
The Balanced Budget Act ("BBA") of 1997, Public Law 105-33, included
sweeping changes to Medicare and Medicaid. The BBA requires the Secretary of
Health and Human Services to establish and implement a prospective payment
system under which hospitals offering our programs will be reimbursed on a per
diem basis for cost reporting periods beginning on and after October 1, 2000. In
November 1999, President Clinton signed into law the Medicare, Medicaid and
State Children's Health Insurance Programs Balanced Budget Refinement Act
("Budget Refinement Act") which reduces some of the reimbursement cutbacks under
the BBA. The Budget Refinement Act delays implementation of cost-cutting
measures and increases payments from the BBA to some sectors of the health care
industry. The extent of the relief provided by the Budget Refinement Act to the
industry is estimated to be $16 billion over five years.
On April 7, 2000, the Health Care Financing Administration issued the
final rule related to Medicare program prospective payment systems for hospital
outpatient services. Under the final rule, which became effective August 1,
2000, hospital outpatient reimbursement transitioned from a cost-based
reimbursement system to an ambulatory payment classification (fee schedule)
system. Under this system, services related to partial hospitalization will be
reimbursed at approximately $202 per patient day. These changes could change the
way hospitals contract for their services with PremierCare.
The hospitals offering programs that we manage are subject to federal and
state laws prohibiting fraud by health care providers, including criminal
provisions which prohibit filing false claims or making false statements to
receive payment or certification under Medicare or Medicaid, or failing to
refund overpayments or improper payments. Violation of these provisions is a
felony punishable by up to five years imprisonment and/or $25,000 fines. Civil
provisions prohibit the knowing filing of a false claim or the knowing use of
false statements to obtain payment. The penalties for such a violation are fines
of not less than $5,000 nor more than $10,000, plus treble damages, for each
claim filed.
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against health care providers. The Health
Insurance Portability and Accountability Act of 1996 ("HIPAA") and the BBA
expand the penalties for health care fraud, including broader provisions for the
exclusion of providers from Medicare and Medicaid programs. We have established
policies and procedures that we believe are sufficient to ensure that our
programs will be operated in substantial compliance with these anti-fraud and
abuse requirements.
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While we believe that our business practices are consistent with program
criteria, those criteria are often vague and subject to interpretation.
Aggressive anti-fraud actions, however, could have an adverse effect on our
financial position, results of operations or cash flows.
The development and operation of out-patient and partial hospitalization
psychiatric programs are subject to federal laws, and state and local licensure,
certification and inspection laws that regulate among other matters:
o the number of licensed facilities
o the provision of services
o staffing, including professional licensing and criminal background
checks
o operating policies and procedures
o environmental matters
o physical design and compliance with building and safety codes
o confidentiality of medical information
o safe working conditions
o family leave, and
o disposal of medical waste.
In the ordinary course of our business, we have never received notices of
deficiencies for failure to comply with any regulatory requirements.
Health care and related services is an area of extensive and dynamic
regulatory change. Changes in the law, new interpretations of existing laws, or
changes in payment methodology, which may be applied retroactively, may have a
dramatic effect on:
o the definition of permissible or impermissible activities
o the relative costs associated with doing business, and
o the amount of reimbursement by both government and other third-party
payors.
Congress and state legislatures, from time to time, consider and enact
various health care reform proposals. Congress and state legislatures can be
expected to continue to review and assess alternative health care delivery
systems and payment methodologies. Also, public debate of these issues can be
expected to continue in the future. We cannot predict the ultimate timing or
effect of legislative efforts or their impact on us. We cannot guarantee that
either the various states or the federal government will not impose additional
regulations upon our activities which might adversely affect our business,
financial condition, results of operations or prospects.
ITEM 2. DESCRIPTION OF PROPERTIES
We own no real property and currently rent office space under leases of
various terms in the following metropolitan areas: Houston TX, Austin TX,
Columbus OH, Marmet WV, Nashville TN, and San Diego CA. We use central offices
in Houston for executive, marketing, administrative, finance and management
personnel. Other locations are the offices for our various subsidiaries. In
addition, our ISP operations are co-located at a secure location of Level 3
Communications, Inc., in Houston, providing both a high degree of redundancy and
security as well as improved access speeds by sitting directly on a backbone of
the Internet.
ITEM 3. LEGAL PROCEEDINGS
Subsequent to yearend, a shareholder holding demand notes payable totaling
$545,000 has made demand for payment though his attorney. The Company is
negotiating to reach a mutually acceptable alternative repayment plan.
In October 2000, we have received written demand from three shareholders
who purchased shares of our common stock in March and May 2000, claiming the
right to 647,930 additional shares of our common stock based on claimed
anti-dilution provisions associated with their initial investment. The three
shareholders are The Haskell Maurice Limited Partnership, Houston Partners
Blalock Ventures Limited Partnership, and Houston Partners Technology Group,
LLC. We are currently evaluating this claim.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to September 1, 1999, there was no trading market for our common
stock; however, our common shares were eligible for quotation on the OTC
Electronic Bulletin Board under the symbol "SUNX." On September 13, 1999, we
changed the symbol of our common stock to "IXLT" and began trading on the OTC
Bulletin Board on September 13, 1999. The nature of the market for common stocks
on the OTC Bulletin Board is limited, sporadic and highly volatile. The
following table sets forth the high and low bid prices per share of the common
stock since inception as reported by the OTC Bulletin Board. These prices
reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions,
and may not necessarily represent actual transactions.
FISCAL 2000 HIGH LOW
----------- -------- -------
First Quarter $ 6.00 $ 2.00
Second Quarter $ 10.88 $ 3.00
Third Quarter $ 18.03 $ 2.13
Fourth Quarter $ 2.31 $ 1.13
On November 15, 2000, the last bid price of iExalt's common stock as
reported by the OTC Bulletin Board was $0.6250. Transfer agent records show that
as of November 15, 2000, there were approximately 3,448 record owners of our
common stock.
It is our current policy not to pay cash dividends and to retain future
earnings to support growth. Any payment of cash dividends in the future will be
dependent upon the amount of funds legally available therefore, earnings,
financial condition, capital requirements and other factors that the Board of
Directors may deem relevant. iExalt does not anticipate paying any cash
dividends in the foreseeable future.
SALES OF UNREGISTERED SECURITIES
During the three months ended August 31, 2000, we issued unregistered
shares of our common stock in the following transactions which we have not
previously disclosed in our last three Quarterly Reports on Form 10-QSB:
o During the fiscal year we issued a total of 11,334 shares to two
persons for various services rendered on behalf of iExalt.
We believe these transactions, and those disclosed in prior Reports, were
exempt from registration pursuant to Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering. The recipients in
such transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access to information about iExalt. None of the foregoing transactions,
or those disclosed in prior Reports, involved any underwriters, underwriting
discounts or commissions.
During the fiscal year we have granted options and warrants as described
below for which shares have not been registered and which we have not previously
disclosed in our last three Quarterly Reports on Form 10-QSB:
1. Effective September 1, 1999, we granted 486,000 in options to
employees to vest one-third each on each subsequent September 1. As
of our fiscal yearend, 60,000 had been cancelled for former
employees that had left. The exercise price is $1.80 per share.
2. Effective September 1, 1999, we granted options to purchase 50,000
shares at $1.80 per share to a Director. These options vested
immediately.
3. On May 11, 2000, we granted options to purchase 75,000 shares at
$1.80 per share to a Director. These options vested immediately.
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4. On June 16, 2000, we granted 375,000 in options to employees to vest
one-third each on each subsequent September 1. The exercise price is
$1.80 per share.
5. On June 16, 2000, we granted 150,000 in options to an employee to
vest on September 1, 2000 with an exercise price of $1.80 per share.
6. On June 16, 2000, we granted warrants to purchase 11,867 shares at
$1.80 to Houston Partners Technology Group LLC as part of their
compensation for raising funds under our Private Placement. These
warrants vested when granted.
7. On July 12, 2000, we granted options to purchase 125,000 shares at
$1.80 to the owner of Keener Communications Group in conjunction
with his employment agreement. The options vest ratably over the
next five anniversary dates.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read together with our financial
statements, which are included elsewhere in this Form 10-KSB. The following
discussion contains certain forward-looking statements regarding our
expectations for our business and our capital resources. These expectations are
subject to various uncertainties and risks that may cause actual results to
differ significantly from these forward-looking statements. For a discussion of
certain limitations inherent in such statements, see "Forward-looking
Statements" below.
For a description of the history and development of iExalt, see the
"General" discussion under Item 1. above. Since January 1999, we have completed
nineteen acquisitions, disposed of two operations, and cancelled one prospective
acquisition. As of our fiscal yearend, we are currently producing revenues at an
annual rate of about $9.5 million. We are aggressively implementing our vision
to blend the Internet and traditional media to develop and deliver products and
services to meet the needs of families, businesses and organizations that share
the principles of the Christian community. We group our operations into three
business segments: (1) Internet & Technology Applications, (2) Print
Publications, and (3) Healthcare Services.
Despite our efforts, we may not be successful in implementing our vision
based on the recent trends within the Internet industry, particularly with
respect to consumer-oriented content providers and e-commerce retailers.
Beginning earlier this year, a large number of these Internet companies have
announced layoffs or closures, with further layoffs and closures expected to
continue for at least the near term. In addition, other cash-strapped Internet
companies have sought combination with their competitors or more traditional
"old economy" companies in an effort to survive. Many theories have been
suggested for this phenomena including an over supply of e-commerce offerings, a
more selective initial public offering market, a tightening financing market,
increased competition from traditional brick-and-mortar chains, and a return to
a traditional form of stock analysis. Many Internet companies were running deep
losses as they spent heavily on personnel and marketing, and had come to rely on
regular external cash infusions to fund operations. As these financing dollars
dried up, several of these companies had to either liquidate or enter into
unfavorable financing arrangements and/or initiate extensive cost saving
measures.
The health care services industry is currently experiencing market-driven
reforms from forces within and outside the industry pressuring health care and
related companies to reduce health care costs. These market-driven reforms are
resulting in industry-wide consolidation that is expected to increase the
downward pressure on health care service providers' margins, as larger buyer and
supplier groups exert pricing pressure on health care providers. We cannot
predict the ultimate timing or effect of these market-driven reforms. We cannot
guarantee that any of these reforms will not have a material adverse effect on
our financial position, results of operations or cash flows.
On April 7, 2000, the Health Care Financing Administration issued the
final rule related to Medicare program prospective payment systems for hospital
outpatient services. Under the final rule, which became effective August 1,
2000, hospital outpatient reimbursement transitioned from a cost-based
reimbursement system to an ambulatory payment classification (fee schedule)
system. Under this system, services related to partial hospitalization will be
reimbursed at approximately $202 per patient day. These changes could change the
way hospitals contract for their services with PremierCare.
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PLAN OF OPERATIONS
We plan to assemble the means to reach the Christian community through a
broad variety of media. Through our mix of media -- print, radio, and Internet
-- we can promote and deliver products and services that are meaningful to our
target market. By owning multiple channels, we believe that we are unique in the
marketplace and can achieve competitive advantage in bringing product to our
community and in offering access to our community to potential advertisers. In
addition, we plan to develop alliances with various ministries that will enhance
our ability to connect with our target market.
We are expanding our offerings in all three of our business segments. In
Internet & Technology Applications, we have expanded to become a leading
filtered ISP, a leading provider of electronic Christian reference materials, a
leading source of speakers for Christian events, a robust and growing Christian
portal/community, a nightly radio presence for 170,000 Christian listeners, and
a leading voice on Christian music. We have an online subscription product in
development and scheduled for beta release in December 2000. We expect to
continue to grow this business segment aggressively through both internal
development and acquisition. In Print Publications, we now reach nearly 600,000
with Christian newspapers on the west coast and Christian events magazines
primarily in the east and central parts of the U.S. Our plans are to produce
both newspapers and events magazines nationwide. We expect to achieve this
through a combination of acquisitions and internal growth. In Healthcare
Services, we made our first acquisition in July 2000, and have since made two
additional acquisitions with more in the planning stages. Providing
Christian-oriented services to those in need of health services is a valuable
and profitable service that we can provide, and also promote through our diverse
media channels to draw-in clients from our target market. As we continue to
expand all three of our segments, we anticipate continued growth in the number
of employees. Growth in plant and equipment will also continue, but our current
businesses are not capital asset intensive.
Our capital needs and liquidity are described in the "Liquidity and
Capital Resources" section below.
RESULTS OF OPERATIONS
As of August 31, 2000, Internet & Technology Applications consists of our
ISP (iExalt.net), Electronic Publishing, our filtering technology, our portal
(iExalt.com), ChristianSpeakers.com, iExaltFamily.com, and the Life Perspectives
radio program; Print Publications consists of Christian Happenings and Christian
Times; and, Healthcare Services consists of PremierCare.
iExalt-Texas, the accounting acquiror, was incorporated on January 7,
1999, and had limited revenues or expenses from inception through August 31,
1999. In fiscal year 1999, the only business we conducted were ISP operations
beginning on May 31, 1999, and electronic publishing beginning on July 1, 1999.
In fiscal year 2000, we have added Internet content sites, a speakers bureau, a
benefits marketing group, a radio program, an events magazine publication, a
Christian newspaper, and healthcare counseling services for seniors. Therefore,
the results of operations for fiscal year 2000 are not comparable to the results
for the same period in 1999. Much of the discussion of results analyzes
operations solely for the twelve months ended August 31, 2000.
Several of our products and services have a significant seasonality to
their revenues. In particular, Electronic Publishing is expected to have about
50% of its annual sales in the five months of September through January; the
five months April through August are usually the weakest, generating about 33%
of annual sales. ChristianSpeakers, which recognizes revenues when speaking
events occur, recognizes peak monthly revenues in March, April, May, September,
and October and troughs in November, December, July and August which may be 50%
or less than in the peak months. Christian Happenings also experiences weak
revenue in the months preceding the yearend holidays and the summer vacation
season, when there are fewer events. Christian Times revenues in the quarter
ending May 31 are about 15% above and for the quarter ending November 30 about
15% below the average for the year. Our only business that maintains a backlog
of business is ChristianSpeakers, which may contract for speaking engagements up
to a year (or more) ahead of the actual engagement. Revenues are not recognized
until the engagement occurs. At August 31, 2000, the backlog of contracted
speaking engagements represented approximately $891,000 in future revenue.
Our net loss for the twelve months ending August 31, 2000 was
approximately $7,739,000. However, this loss includes the large non-cash
write-offs of assets associated with businesses that we disposed of in
September, 2000, as described in Item 1. above. We impaired the carrying value
of the assets at the end of August because we
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did not recover the cost of the associated goodwill and intangible assets in the
subsequent dispositions. This resulted in writing off $2,934,000 related to
First Choice, $380,000 related to the terminated acquisition effort, and
$137,000 related to the filtering technology.
In addition, we recorded three other large unusual non-cash expenses
during the year. We recorded an expense of $398,000 relating to 250,000 shares
of common stock issued to Consulting and Strategy International, Inc. for
consulting services beyond their contractual obligations (and registered on our
Form S-8 filed August 17, 2000). Second, we recorded $261,000 in expense to
increase the allowance for bad debt associated with a receivable of PremierCare
that is over one year old. Third, interest expense of $92,000 was recorded as
the value of options granted to the Chairman and Chief Executive Officer in
connection with his no-interest loan to the Company during the year.
Excluding these non-cash unusual expenses, the loss for the year was
approximately $3,537,000.
REVENUES
Revenues were $4,276,883 for the year ended August 31, 2000 compared with
$180,933 last year. Our revenues by segment for the two years are shown below.
As of yearend the annualized revenue run rate was approximately $3.5 million for
Internet & Technology Applications, $2.5 million for Print Publications, and
$3.5 million for Healthcare Services.
Fiscal Yr 2000 Fiscal Yr 1999
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
REVENUES -------------------- --------------------
Internet & Technology
Applications $2,556,492 60% $180,933 100%
Print Publications 1,094,891 25% - - %
Healthcare Services 625,500 15% - - %
Internet & Technology Applications generate revenues from product sales,
speaker fees, subscriptions, user fees, and advertising. Revenues for Print
Publications consist of advertising and ticket service fees. Healthcare Services
revenues are revenues earned from hospitals for providing services in accordance
with our contracts.
COST OF SALES AND SERVICES
The Cost of Sales and Services was $3,329,654 for the year ended August
31, 2000 compared with $142,684 last year. Our Cost of Sales and Services by
segment for the two years are shown below.
Fiscal Yr 2000 Fiscal Yr 1999
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
COST OF SALES AND SERVICES -------------------- --------------------
Internet & Technology
Applications $2,164,047 65% $ 142,684 100%
Print Publications 788,492 24% - - %
Healthcare Services 377,115 11% - - %
Cost of Sales and Services for Internet & Technology Applications include
royalties, direct labor, payments to speakers, Internet connectivity, and
communications costs. Cost of Sales and Services for Print Publications consist
of printing, shipping, delivery, credit card fees and direct labor. Healthcare
Services Cost of Sales and Services are primarily direct personnel costs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative costs were $4,956,706 for the year
ended August 31, 2000 compared with $370,308 last year. This year's costs
include approximately $563,000 in non-cash expense for stock issued for services
(including the $398,000 transaction described above in this "Results of
Operations" section) and $261,000 in non-cash increase in allowance for doubtful
accounts relating to PremierCare. Selling, General and Administrative costs by
segment for the two years are shown below.
18
<PAGE>
Fiscal Yr 2000 Fiscal Yr 1999
-------------- --------------
SELLING, GENERAL AND AMOUNT PERCENT AMOUNT PERCENT
ADMINISTRATIVE -------------------- --------------------
Internet & Technology
Applications $2,396,691 48% $ 75,755 20%
Print Publications 361,449 7% - - %
Healthcare Services 430,373 9% - - %
Corporate overhead 1,768,193 36% 294,533 80%
Selling, General and Administrative costs for Internet & Technology
Applications include primarily personnel and advertising costs. Selling, General
and Administrative costs for Print Publications consist of personnel and
communication services. Healthcare Selling, General and Administrative costs are
primarily personnel, travel and transportation. Corporate overhead costs are
mostly personnel and professional fees.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2000, iExalt had $1,295,486 in current assets, $2,894,951
in current liabilities and a retained deficit of $8,075,282. We had a net loss
of $7,739,419 for the year ended August 31, 2000. Negative cash flow from
operating activities for period was $3,348,033.
To fund the development and implementation of our business plan, we
offered through a Private Placement up to two million shares of common stock at
a price of $1.80 per share. Under this private placement, we have issued
1,915,389 shares (including 30,000 shares in fiscal 1999) of unregistered common
stock for cash invested of $3,447,700 (including $54,000 in fiscal 1999) from
sixty-six accredited investors. We closed the Private Placement offering in June
2000. In addition, holders of options to purchase 600,000 shares of our common
stock at a price of $1.00 per share exercised their options in April 2000. As
detailed in agreements dated July 27, 2000, and filed as Exhibits to our
Registration Statement on Form S-8 dated August 17, 2000, the exercise of those
options was rescinded and the option period was extended. The options were
exercised subsequent to filing the S-8 in August 2000.
In January and February 2000, a shareholder loaned $300,000 to iExalt and
was repaid in March 2000. In August 2000 shareholders loaned funds to iExalt on
demand notes totaling $207,000 and an additional $55,000 was loaned by a
shareholder in September 2000. A shareholder loan of $350,000 was assumed in May
1999 with the acquisition of NetXpress. Demand for payment has been made by a
shareholder on notes totaling $545,000 and the company is currently negotiating
to arrange payment.
On December 17, 1999, we increased our revolving line of credit with a
bank from $50,000 to $150,000. The line of credit is secured by a personal
guarantee of a shareholder of the Company. The line of credit was fully drawn
down during December and January, and it was fully repaid in March 2000. In
conjunction with the acquisition of PremierCare LLC, we repaid certain existing
indebtedness of PremierCare LLC in July 2000, in the amount of $677,609
including $85,408 which had been guaranteed by the Company's president. In July
2000, we borrowed $550,000 from a bank under a term loan that is due on June 30,
2001 and in August 2000, fully drew down our line of credit, which comes up for
renewal on December 18, 2000. The term loan is guaranteed by certain
shareholders. The guarantor of our line of credit has indicated that he will not
renew his guarantee on the line or term loan. The Company is considering
alternatives to secure, replace, or repay the line of credit and term loan when
they expire, in December and June, respectively.
Subsequent to August 31, 2000, we raised $1,072,000 in new capital and
expect to complete a transaction that has been announced to raise an additional
$1,200,000. On September 20, 2000, we agreed to issue $500,000 in convertible
debentures with interest 1/2% above prime, and convertible into common stock at
the lesser of $0.50 per share or 50% of the current market price and to grant
five-year warrants to purchase 1,000,000 shares at an exercise price of $1.13
per share. The debentures and warrants were granted one-half to Travin Partners
LLLP and one-half to TCA Investments, Inc. The original due date of October 20,
2000, for the debentures has been extended to January 15, 2001. On September 25,
2000, we granted options to the principals of Consulting and Strategy
International Inc. to purchase 600,000 shares at an option price of $0.02 as
compensation for extra services since August, 2000. The underlying shares were
registered on our Form S-8 filed with the Commission on October 6, 2000, and we
received $12,000 to exercise the options on October 10, 2000. On October 17,
2000, we sold 879,906
19
<PAGE>
unregistered shares of common stock to an accredited investor for $560,000. In
November 2000, we agreed to terms for issuing convertible debentures for
$1,200,000. The agreement is with Thomson Kernaghan & Co. Limited and provides
for two year debentures carrying a 10% accumulating interest and convertible
into common shares at 75% of the average closing bid price for the 10 trading
days before the closing date or the conversion date, whichever price is less.
Upon closing, we would issue five-year warrants to purchase 1,250,000 shares of
our common stock with an exercise price equal to 110% of the average closing bid
price for the three trading days preceding closing. Definitive agreements have
not been signed, and while the proposed transaction has been announced, there is
no guarantee that the transaction will be consummated. The agreed terms provide
for closing on or before December 1, 2000, and for filing a registration
statement within thirty days of closing.
In addition, on September 16, 2000, we agreed to issue 300,000 shares to
Sunstate Equity Trading, Inc., a Florida corporation, as compensation for
consulting services as a financial advisor to the company.
Our 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. Our on-going business will
require substantial working capital. We anticipate that we will need to raise
substantial additional capital in order to succeed and to continue in business.
Since inception, we have experienced negative cash flow from operations and will
continue to experience negative cash flow for some time into the future. As of
October 31, 2000, our regular monthly cash operating expenditures exceed our
monthly cash receipts by approximately $225,000. Current estimates indicate that
Print Publications are operating at approximate breakeven, subject to seasonal
variation; Healthcare Services are generating about $25,000 in cash flow per
month; Internet & Technology Applications are losing about $125,000 per month
(primarily in ISP operations and portal operations); and overhead costs are
being incurred at the rate of about $125,000 per month. However, our overall
"burn rate" is anticipated to be reduced to $100,000 per month by early next
calendar year. Further improvements are anticipated that could produce breakeven
cash flow from operating activities by summer, 2001. Nonetheless, 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, we intend to
rely upon external sources for liquidity. As of August 31, 2000, our sources of
external and internal financing are limited.
We have not entered into any arrangements with any other financial
institutions or third parties to provide additional financing, other than as
described above. If we are unable to obtain additional financing or raise
adequate working capital in the amounts desired and on acceptable terms, we will
be required to significantly reduce the scope of our presently anticipated
activities or may fail as a going concern.
Substantial amounts of our common stock have recently or soon will become
eligible for sale in the public market, which may adversely affect prevailing
market prices for our common stock and could impair our ability to raise capital
through the sale of our equity securities or to use stock as a currency for our
acquisition program. Of the 33,522,282 shares of common stock issued and
outstanding (as of November 15, 2000), we believe that approximately 4,121,390
of the shares are freely tradable without restriction or further registration
under the Securities Act. Many of the remaining shares have recently or soon
will become eligible for resale subject to Rule 144 as follows:
DATES THAT HOLDING PERIOD EXPIRES NUMBER OF SHARES
--------------------------------- ----------------
September 2000 18,483,666
October 2000 973,000
November 2000 50,000
December 2000 2,802,000
January 2001 35,000
February 2001 252,278
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned such shares for
one year, may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of our common stock or (ii) the average weekly trading volume in our common
stock on the OTC Bulletin Board during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain limitations on the manner
of sale, notice requirements and availability of current public information
about us. A person (or persons whose shares are aggregated) who is deemed not to
have been an "affiliate" of ours at any time during the 90 days preceding a sale
by that person and who has beneficially owned his shares for at least two years,
will be able to sell his shares in the
20
<PAGE>
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, notice requirements or availability of current information
referred to above. Restricted shares properly sold in reliance upon Rule 144 are
thereafter freely tradable without restrictions or registration under the
Securities Act, unless thereafter held by our affiliates.
Our 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, we do not have
significant cash or other material liquid assets, nor do we have an established
source of revenues sufficient to cover our operating costs and to allow us to
continue as a going concern. We may in the future experience significant
fluctuations in our results of operations. Such fluctuations may result in
volatility in the price and/or value of our common stock. Shortfalls in revenues
may adversely and disproportionately affect our results of operations because a
high percentage of our operating expenses are relatively fixed. Accordingly, we
believe that period-to-period comparisons of results of operations should not be
relied upon as an indication of future results of operations. We may never
achieve profitability. We will be required to obtain additional financing or
capital to attain profitable operations, and that capital may have provisions
that could suppress future stock prices or cause significant dilution to current
shareholders. Our internally generated cash flows from operations have
historically been and continue to be insufficient for our cash needs. As of
November 29, 2000, our sources of external and internal financing are very
limited. It is not expected that the internal source of liquidity will improve
until significant net cash is provided by operating activities (which will not
be achieved in the near term, if ever), and until such time, we will rely upon
external sources for liquidity. We believe 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 our business plan. However, our anticipated offerings may not be
undertaken, and if undertaken, may not be successful or the proceeds derived
from such offerings may not, in fact, be sufficient to fund operations and meet
the needs of our business plans or our revenues may not be realized as
projected. Our current working capital may not 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. We may not ever become profitable and could
fail as a going concern.
FORWARD-LOOKING STATEMENTS
This report on Form 10-KSB includes "forward-looking statements" within
the meaning of SECTION 27A of the Securities Act of 1933 and SECTION 21E of the
Securities Exchange Act of 1934. These forward-looking statements may relate to
such matters as anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services, anticipated
market performance and similar matters. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. To comply
with the terms of the safe harbor, we caution readers that a variety of factors
could cause our actual results to differ materially from the anticipated results
or other matters expressed in our forward-looking statements. These risks and
uncertainties, many of which are beyond our control, include (i) the sufficiency
of our existing capital resources and our ability to raise additional capital to
fund cash requirements for future operations, (ii) uncertainties involved in the
rate of growth and acceptance of the Internet, (iii) adoption by the Christian
community of electronic technology for gathering information, facilitating
e-commerce transactions, and providing new products, websites, and services,
(iv) volatility of the stock market, particularly within the technology sector,
and the ability to use our capital stock as a currency for acquisitions, and (v)
general economic conditions. Although we believe that the expectations reflected
in these forward-looking statements are reasonable, the expectations reflected
in these forward-looking statements may prove to have been incorrect.
We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-KSB after the date of this
report.
ITEM 7. FINANCIAL STATEMENTS
ACCOUNTING AND FINANCIAL DISCLOSURE
iExalt's financial statements are included herein commencing on page F-1.
21
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
22
<PAGE>
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required in response to this Item 9 is incorporated herein
by reference to the Company's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by the report.
ITEM 10. EXECUTIVE COMPENSATION
The information required in response to this Item 10 is incorporated
herein by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by the report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item 11 is incorporated
herein by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by the report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item 12 is incorporated
herein by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by the report.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See "Index to Exhibits" below which lists the documents filed as
exhibits herewith.
(b) Reports on Form 8-K:
Form 8-K dated July 26, 2000 reporting the acquisition by iExalt of
PremierCare, LLC.
Form 8-K dated July 27, 2000 reporting the acquisition by iExalt of
Keener Communications Group.
23
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
3.1 Restated Articles of Incorporation of the Company (filed
as Exhibit 3.1 to the Company's Quarterly Report on Form
10-QSB for the quarter ending February 29, 2000, as
filed with the Commission on April 14, 2000, is
incorporated herein by reference).
3.2 Amended Bylaws of the Company as adopted on April 24,
1979 (filed as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-QSB for the quarter ending February
29, 2000, as filed with the Commission on April 14,
2000, is incorporated herein by reference).
4.1 Registration Rights Agreement, dated June 28, 2000
(filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on July 26, 2000,
is incorporated herein by reference).
4.2 First Addendum to Registration Rights Agreement, dated
June 30, 2000 (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K, as filed with the Commission
on July 27, 2000, is incorporated herein by reference).
4.3 Investor's Rights Agreement, dated October 24, 2000 by
and among iExalt, Inc., certain shareholders of iExalt,
and Ted L. Parker (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K, as filed with the Commission
on November 8, 2000, is incorporated herein by
reference).
*4.4 Convertible Debenture issued to TCA Investments, Inc. on
September 20, 2000.
*4.5 Convertible Debenture issued to Travin Partners LLLP on
September 20, 2000.
*4.6 Warrants issued to TCA Investments, Inc. on September
20, 2000.
*4.7 Warrants issued to Travin Partners LLLP on September 20,
2000.
10.1 Exchange Agreement among the Company, iExalt,
Inc.-Texas, and the Shareholders of iExalt, Inc.-Texas
dated August 12, 1999 (filed as Exhibit 1.1 to the
Company's Current Report on Form 8-K, as filed with the
Commission on September 14, 1999, is incorporated herein
by reference).
10.2 Company's Directors' Stock Option Plan (filed as Exhibit
2.1 to the Company's Current Report on Form 8-K, as
filed with the Commission on September 14, 1999, is
incorporated herein by reference).
10.3 Company 1998 Stock Option Plan (filed as Exhibit 2.2 to
the Company's Current Report on 8-K, as filed with the
Commission on September 14, 1999, is incorporated herein
by reference).
10.4 Contract for Sale and Purchase of Wordcross Enterprises,
Inc. between the Company and Wordcross Enterprises, Inc.
d/b/a Christian Happenings dated October 1, 1999 (filed
as Exhibit 1.1 to the Company's Current Report on Form
8-K, as filed with the Commission on October 15, 1999,
is incorporated herein by reference).
10.5 Employment Agreement - Stan Coffee (filed as Exhibit
10.2 to the Company's Annual Report on Form 10-KSB for
the period ending August 31, 1999, as filed
24
<PAGE>
with the Commission on November 29, 1999, is
incorporated herein by reference).
10.6 Employment Agreement - Ed Novak (filed as Exhibit 10.3
to the Company's Report on Form 10-KSB for the period
ending August 31, 1999, as filed with the Commission on
November 29, 1999, is incorporated herein by reference).
10.7 Services Agreement between Consulting & Strategy
International, Inc. and the Company (filed as Exhibit
10.4 to the Company's Annual Report on Form 10-KSB for
the period ending August 31, 1999, as filed with the
Commission on November 29, 1999, is incorporated herein
by reference).
10.8 Stock Purchase Agreement between the Company and
Christian Speakers, Inc. dated December 1, 1999 (filed
as Exhibit 1.1 to the Company's Current Report on Form
8-K, as filed with the Commission on December 16, 1999,
is incorporated herein by reference).
10.9 Stock Purchase Agreement between the Company and First
Choice Marketing, Inc. dated December 31, 1999 (filed as
Exhibit 1.1 to the Company's Current Report on Form 8-K,
as filed with the Commission on January 28, 2000, is
incorporated herein by reference).
10.10 Agreement and Plan of Reorganization, dated June 28,
2000, among iExalt, Inc. and its Merger Subsidiaries and
PremierCare, LLC and its Direct and Indirect Members
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on July 26, 2000,
is incorporated herein by reference).
10.11 Agreement and Plan of Merger, dated June 28, 2000, among
iExalt, Inc., PCII Combination Corp., and PremierCare
Investors, Inc. (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, as filed with the Commission
on July 26, 2000, is incorporated herein by reference).
10.12 Agreement and Plan of Merger, dated June 28, 2000, among
iExalt, Inc., PBH Combination Corp., and Premier
Behavioral Healthcare, Inc. (filed as Exhibit 2.3 to the
Company's Current Report on Form 8-K, as filed with the
Commission on July 26, 2000, is incorporated herein by
reference).
10.13 Agreement and Plan of Reorganization, dated June 30,
2000, among iExalt, Inc., KCG Combination Corp., and
Keener Communications Group and its Shareholders (filed
as Exhibit 2.1 to the Company's Current Report on Form
8-K, as filed with the Commission on July 27, 2000, is
incorporated herein by reference).
10.14 Agreement of Merger, dated June 30, 2000, among iExalt,
Inc., KCG Combination Corp., and Keener Communications
Group (filed as Exhibit 2.2 to the Company's Current
Report on Form 8-K, as filed with the Commission on July
27, 2000, is incorporated herein by reference).
10.15 Stock Purchase Agreement, dated September 27, 2000,
between iExalt, Inc. and iExalt Financial Services, Inc.
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on October 12,
2000, is incorporated herein by reference).
10.16 Stock Exchange Agreement, dated October 24, 2000,
between iExalt, Inc. and Ted L. Parker, the sole
shareholder of Cleanweb, Inc. (filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K, as filed with
the Commission on November 8, 2000, is incorporated
herein by reference).
25
<PAGE>
*21.1 List of Subsidiaries
*23.1 Independent Auditors' Consent
*27.1 Financial Data Schedule
---------------
*Filed herewith.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
iExalt, INC.
By: /s/ DONALD W. SAPAUGH
---------------------------------------------
Donald W. Sapaugh, Chairman/Chief Executive
Officer/President
November 29, 2000
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ DONALD W. SAPAUGH Director, Chairman of the Board, November 29, 2000
Donald W. Sapaugh Chief Executive Officer and
President (Principal Executive
Officer)
/s/ JAMES W. CARROLL Chief Financial Officer and Chief November 29, 2000
James W. Carroll Accounting Officer (Principal
Financial and Accounting Officer)
/s/ HUNTER M. A. CARR Director November 29, 2000
Hunter M. A. Carr
/s/ VICTORIA R. A. CARR Director November 29, 2000
Victoria R. A. Carr
/s/ MORRIS H. CHAPMAN Director November 29, 2000
Morris H. Chapman
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
------
Independent Auditor's Report ..................................... F-2
Consolidated Balance Sheet ....................................... F-3
Consolidated Statements of Operations ............................ F-4
Consolidated Statements of Changes in Shareholders' Equity ....... F-5
Consolidated Statements of Cash Flows ............................ F-6
Notes to Consolidated Financial Statements ....................... F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
iExalt, Inc.
We have audited the accompanying consolidated balance sheet of iExalt, Inc. and
Subsidiaries as of August 31, 2000 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the year ended
August 31, 2000 and the period January 7, 1999 (date of inception) through
August 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of iExalt, Inc. and
Subsidiaries at August 31, 2000 and the results of its operations and its cash
flows for the year ended August 31, 2000 and the period January 7, 1999 (date of
inception) through August 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As reflected in the
accompanying financial statements and more fully discussed in Note A to the
financial statements, the Company's recurring losses from operations, negative
working capital, and retained deficits raise substantial doubt about its ability
to continue as a going concern. Additionally, subsequent to yearend, demand for
payment has been made on $545,000 of notes payable. The Company expects to
continue to suffer losses and negative cash flow from operations for perhaps all
of the year ended August 31, 2001. If the financing transaction described in
Note N is not consummated, or projected revenues do not meet Management's
expectations, or costs exceed projections, the Company will be required to
obtain substantial additional financing or capital in order to continue as a
going concern. Management's plans in regards to these matters are also discussed
in Note A. If the Company is unable to continue as a going concern, assets as
now reflected on the accompanying consolidated balance sheet, would be severely
impaired resulting in significant charge offs and declines in values coupled
with an increase in contingent liabilities resulting from the Company's
inability to timely and adequately service its debt and credit obligations as
they become due. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amounts and classification of liabilities that might result
should the Company be unable to continue as a going concern.
/s/ HARPER & PEARSON COMPANY
Harper & Pearson Company
Houston, Texas
November 21, 2000
F-2
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................. $ 278,164
Accounts receivable, trade, net of allowance for
doubtful accounts of $358,998 .......................... 665,180
Accounts receivable, affiliate ............................ 86,384
Inventory ................................................. 68,510
Prepaid expenses and other current assets ................. 197,248
-----------
TOTAL CURRENT ASSETS ...................................... 1,295,486
-----------
PROPERTY AND EQUIPMENT, net ................................... 717,025
-----------
OTHER ASSETS
Goodwill and other intangible assets, net ................. 2,462,244
Other assets .............................................. 272,853
-----------
$ 4,747,608
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings ..................................... $ 241,678
Notes payable to shareholders ............................. 557,000
Current maturities of long-term debt ...................... 613,037
Current maturities of obligations under capital
lease .................................................. 8,235
Accounts payable, trade ................................... 622,007
Accounts payable, affiliate ............................... 20,633
Deferred revenue .......................................... 323,035
Other accrued liabilities ................................. 509,326
-----------
TOTAL CURRENT LIABILITIES ................................. 2,894,951
-----------
LONG-TERM DEBT ................................................ 90,050
OBLIGATIONS UNDER CAPITAL LEASE ............................... 8,024
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value, 20,000,000 shares
authorized, no shares issued and outstanding ............ --
Common stock, $.001 par value, 100,000,000 shares
authorized, 28,646,876 shares, issued and
outstanding ............................................. 28,647
Paid-in capital ........................................... 9,810,457
Receivable from shareholder ............................... (9,239)
Retained deficit .......................................... (8,075,282)
-----------
TOTAL SHAREHOLDERS' EQUITY ................................ 1,754,583
-----------
$ 4,747,608
===========
See accompanying notes.
F-3
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000 AND
FROM INCEPTION (JANUARY 7, 1999) THROUGH AUGUST 31, 1999
2000 1999
------------ ------------
REVENUES ................................... $ 4,276,883 $ 180,933
COST OF SALES AND SERVICES ................. 3,329,654 142,684
------------ ------------
GROSS PROFIT ............................... 947,229 38,249
SELLING, GENERAL, AND ADMINISTRATIVE ....... 4,956,706 370,308
DEPRECIATION AND AMORTIZATION .............. 201,907 5,370
IMPAIRMENT OF LONG LIVED ASSETS ............ 3,451,407 --
------------ ------------
LOSS FROM OPERATIONS ....................... (7,662,791) (337,429)
OTHER INCOME (EXPENSES)
Interest income ..................... 34,399 2,182
Interest expense .................... (111,027) (616)
------------ ------------
LOSS BEFORE INCOME TAXES ................... (7,739,419) (335,863)
INCOME TAXES ............................... -- --
------------ ------------
NET LOSS ................................... $ (7,739,419) $ (335,863)
============ ============
BASIC LOSS PER SHARE ....................... $ (0.31) $ (0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING ............................. 25,138,146 13,925,889
============ ============
See accompanying notes.
F-4
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 2000 AND
FROM INCEPTION (JANUARY 7, 1999) THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK RECEIVABLE TOTAL
------------------------- PAID-IN FROM RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT EQUITY
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1999 ................. -- $ -- $ -- $ -- $ -- $ --
Issuance of stock to founders .......... 11,250,000 11,250 -- (11,250) -- --
Issuance of stock for acquisitions ..... 4,722,000 4,722 (314,521) -- -- (309,799)
Sale of stock .......................... 2,405,000 2,405 579,370 -- -- 581,775
Issuance of stock for services ......... 46,666 47 69,953 -- -- 70,000
Contribution of services ............... -- -- 30,000 -- -- 30,000
Net loss ............................... -- -- -- -- (335,863) (335,863)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - August 31, 1999 ................. 18,423,666 18,424 364,802 (11,250) (335,863) 36,113
Reverse merger ......................... 2,480,500 2,481 (15,344) -- -- (12,863)
Issuance of stock for acquisitions ..... 4,952,890 4,953 4,860,068 -- -- 4,865,021
Sale of stock .......................... 1,902,042 1,902 3,358,318 (9,239) -- 3,350,981
Exercise of Options .................... 600,000 600 599,400 -- -- 600,000
Issuance of stock for services ......... 287,778 287 461,213 -- -- 461,500
Contribution of services ............... -- -- 90,000 11,250 -- 101,250
Options issued in lieu of interest on
notes payable to shareholder ......... -- -- 92,000 -- -- 92,000
Net loss .............................. -- -- -- -- (7,739,419) (7,739,419)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - August 31, 2000 ................. 28,646,876 $ 28,647 $ 9,810,457 $ (9,239) $(8,075,282) $ 1,754,583
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2000 AND
FROM INCEPTION (JANUARY 7, 1999) THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net loss .............................................................................. $(7,739,419) $ (335,863)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization ..................................................... 201,907 5,370
Impairment of long lived assets ................................................... 3,451,407 --
Compensation expense for contributed services ..................................... 101,250 30,000
Compensation and other expense for common shares issued for services .............. 452,501 70,000
Interest expense for options issued ............................................... 92,000 --
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable ........................................................... 105,020 (25,790)
Inventory ..................................................................... (20,690) 7,439
Prepaid expenses and other current assets ..................................... (40,758) (3,553)
Other assets .................................................................. (617,780) (11,353)
Accounts payable .............................................................. 366,258 (3,897)
Deferred revenue .............................................................. 112,310 --
Other accrued liabilities ..................................................... 187,961 15,702
----------- -----------
Net cash used by operating activities ......................................... (3,348,033) (251,945)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (cash paid) liabilities assumed for acquisitions ................................. (759,352) 54,279
Purchases of property and equipment ................................................... (543,549) (29,095)
----------- -----------
Net cash (used by) provided by investing activities ........................... (1,302,901) 25,184
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................................ 3,350,981 581,775
Proceeds from exercise of options ..................................................... 600,000 --
Net proceeds from short-term borrowings ............................................... 183,200 --
Proceeds from issuance of debt ........................................................ 1,057,000 --
Repayments of debt .................................................................... (613,395) (3,702)
----------- -----------
Net cash provided by financing activities ..................................... 4,577,786 578,073
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ......................................... (73,148) 351,312
BEGINNING OF PERIOD .......................................................................... 351,312 --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ..................................................... $ 278,164 $ 351,312
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
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 very limited
operations.
On September 1, 1999, the Company consummated a merger (hereinafter
referred to as the "Merger") with iExalt, Inc., a Texas corporation
incorporated on January 7, 1999, ("iExalt-Texas") whereby the
shareholders of iExalt-Texas acquired an approximate 89% ownership
interest in the Company. The acquisition was effected through the
issuance of 18,393,666 shares of the Company's 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. Subsequent to the stock record date, 30,000 additional
shares were issued as of August 31, 1999 pursuant to the iExalt-Texas
Private Placement (see Note H). The Merger has been accounted for as a
reverse takeover with the Company being the surviving legal entity and
iExalt-Texas being the acquiror for accounting purposes. Concurrent
with the Merger, the Company changed its name from Sunbelt
Exploration, Inc. to iExalt, Inc.
The Company blends the Internet and traditional media to provide
products and services to Christian families, businesses, schools and
other organizations. The Company currently operates as a nationwide
filtered Internet Service Provider, publishes Christian electronic
books and reference materials, a Christian events magazine, a
Christian newspaper, produces a radio program in 48 markets five
nights per week, and operates one of the largest speakers bureaus
dedicated to Christian speakers. In addition, the Company sells
tickets for Christian events, owns and markets its own
business-to-business Internet content management products, and
utilizes independent sales representatives to market and sell a
variety of products and services at discounted prices for the
individual, home and family.
Through its healthcare division, ("PremierCare"), the Company also
provides psychiatric counseling services for senior citizens in 5
states. Healthcare revenues are earned from the implementation and
management of geriatric psychiatric programs for hospitals and other
health facilities.
Congress and state legislature, from time to time, consider and enact
various health care reform proposals. On April 7, 2000, the Health
Care Financing Administration issued the final rule related to
Medicare program prospective payment systems for hospital outpatient
services. Under the final rule, which became effective August 1, 2000,
hospital outpatient reimbursement transitioned from a cost-based
reimbursement system to an ambulatory payment classification (fee
schedule) system. Under this system, services related to partial
hospitalization will be reimbursed at approximately $202 per patient
day. These changes could change the way hospitals contract for their
services with PremierCare.
Congress and state legislatures can be expected to continue to review
and assess alternative health care delivery systems and payment
methodologies. Also, public debate of these issues can be expected to
continue in the future. The Company cannot predict the ultimate timing
or effect of legislative efforts or their impact on the Company's
business, financial condition, or results of operations.
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.
F-7
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The financial statements presented for the period from inception
(January 7, 1999) to August 31, 1999 are the financials of
iExalt-Texas, the accounting acquiror in the reverse merger. For
further information, refer to the consolidated financial statements
and footnotes thereto included in Sunbelt Exploration's annual report
on Form 10-KSB for the year ended August 31, 1999, as well as the
information contained in Sunbelt's report on Form 8-K filed on
September 14, 1999, and in iExalt's report on Form 8-K/A filed on
November 15, 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.
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 software - three to five years; automobiles -
three to five years; and leasehold improvements - over the estimated
useful life or the remaining life of the lease, whichever is shorter.
FINANCIAL INSTRUMENTS - FAIR VALUE - The carrying values of the
Company's financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities, royalties and debt, approximate their respective fair
values because of short lives and the use of market interest rates.
CREDIT RISK - The Company maintains its cash and cash equivalents with
high credit quality institutions and limits the credit exposure to any
one institution. The Company's accounts receivable arise from sales to
customers and the Company periodically evaluates its credit exposure
with its customers. Included in accounts receivable at August 31, 2000
is $326,338 due from one customer of PremierCare. The Company has
fully reserved this receivable since the payment has been disputed for
more than twelve months, however, management is vigorously pursuing
collection of this balance.
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 20 years. During July
2000, the Company reviewed goodwill for its past and pending
acquisitions in comparison to other companies in similar industries
and determined that 20 years was more representative of the life of
its businesses. In prior periods, goodwill was amortized using the
straight-line method over 40 years. The change in amortization period
represents a change in an accounting estimate. Had the Company used 20
years to calculate amortization at the beginning of the year, the
Company would have incurred $68,000 in additional expense. 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 two to five years.
Accumulated amortization at August 31, 2000 was $39,626.
F-8
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
STOCK BASED COMPENSATION - Under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected the method that
requires disclosure of stock-based compensation. Because of this
election, the Company accounts for its employee stock-based
compensation plan under Accounting Principles Board ("APB") Opinion
No. 25 and the related interpretations. Accordingly, deferred
compensation is recorded for stock-based compensation grants to
employees based on the excess of the estimated fair value of the
common stock on the measurement date over the exercise price. The
deferred compensation is amortized over the vesting period of each
unit of stock-based compensation. If the exercise price of the
stock-based compensation grant is equal to or greater than the
estimated fair value of the Company's stock on the date of grant, no
compensation expense is recorded. Additionally, for stock-based
compensation grants to consultants, the Company recognizes as
compensation expense the estimated fair value of such grants as
calculated pursuant to SFAS No. 123, recognized over the related
service period.
REVENUE RECOGNITION - The Company generally recognizes revenue on
services as they are performed and on products when they are sold net
of sales returns. Speaker revenues are recognized when the speech or
event occurs. 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 iExalt collects ticket receipts
representing the full ticket price on behalf of its clients, the
Company only records as revenue the convenience charges and handling
fees included in the ticket price.
RECLASSIFICATIONS - Certain reclassifications of costs and expenses
have been made in the accompanying 1999 financial statements to
conform to current year presentation with no effect on net income.
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'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 the Company have an established source of revenues sufficient to
cover operating costs and to allow the Company 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 results of operations because a high percentage of the
operating expenses are relatively fixed. Accordingly, management
believes that period-to-period comparisons of results of operations
should not be relied upon as an indication of future results of
operations.
F-9
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company will be required to obtain additional financing or capital
to attain profitable operations, and that capital may have provisions
that could suppress future stock prices or cause significant dilution
to current shareholders. The Company's internally generated cash flows
from operations have historically been and continue to be insufficient
for the Company's cash needs. As of November 29, 2000 the Company's
sources of external and internal financing are very limited. It is not
expected that the internal source of liquidity will improve until
significant net cash is provided by operating activities (which will
not be achieved in the near term, if ever), and until such time, the
Company will rely upon external sources for liquidity. Management
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 the
Company's business plan. However, the anticipated offerings may not be
undertaken, and if undertaken, may not be successful or the proceeds
derived from such offerings may not, in fact, be sufficient to fund
operations and meet the needs of the Company's business plans or the
Company's revenues may not be realized as projected. The Company's
current working capital may not 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. The Company may not ever
become profitable and could fail as a going concern.
As of October 31, 2000, the Company's regular monthly cash operating
expenditures exceed monthly cash receipts by approximately $225,000.
Management estimates indicate that Print Publications are operating at
approximate breakeven, subject to seasonal variation; Healthcare
Services are generating about $25,000 in cash flow per month; Internet
& Technology Applications are losing about $125,000 per month
(primarily in ISP operations and portal operations); and overhead
costs are being incurred at the rate of about $125,000 per month.
However, after integrating the acquisition of Clean Web (see Note N)
and another company that the Company manages under a funding agreement
(see Note B), the Company's overall "burn rate" is anticipated to be
reduced to $100,000 per month by early next calendar year. Further
improvements are anticipated that could produce breakeven cash flow
from operating activities by summer, 2001. Many factors can impact
future operations and these improvements cannot be assured.
YEAR 2000 - The Company experienced no operating problems as a result
of the year 2000 and anticipates no problems in the future.
NOTE B ACQUISITIONS
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 750,000 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 was under common control.
F-10
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE B ACQUISITIONS (continued)
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 the Company's common
stock to the sellers. The purchase price in excess of the net value of
assets acquired of $176,425 was recorded as goodwill.
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 October 1, 1999, the Company acquired Wordcross Enterprises, Inc.
d/b/a Christian Happenings ("Wordcross"). Wordcross publishes a
bi-monthly Christian events magazine with circulation of 250,000 at
the date of acquisition and sells tickets nationwide to Christian
events. In consideration for this purchase, the Wordcross shareholders
received 850,000 shares of the Company's common stock 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 $304,028.
On November 16, 1999, the Company acquired Solutions Global, Inc.
("Solutions Global"). Solutions Global had developed a Christian
portal website which the Company used as the basis for its portal
www.iExalt.com. In consideration for this purchase, the Solutions
Global shareholders received 40,000 shares of the Company's common
stock 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 of $30,000 was recorded.
On December 1, 1999, the Company acquired 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 the Company's common
stock, (ii) aggregate cash consideration of $40,000, of which $10,000
was payable at closing, and $5,000 was payable monthly over 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
acquisition. The former owner of Christian Speakers has entered into a
five-year employment agreement with the Company. The transaction was
accounted for as a purchase and goodwill was recorded in the amount of
$518,504.
F-11
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE B ACQUISITIONS (continued)
Effective December 31, 1999, the Company acquired all of the issued
and outstanding stock of First Choice Marketing, Inc., ("First
Choice"), a Texas corporation in the business of directly marketing a
variety of goods and services through commission-based representatives
at discounted prices to individuals and families. The consideration
payable to the shareholders of First Choice, was (i) 2,302,000 shares
of the Company's common stock and (ii) cash consideration of $30,000
paid to key employees in exchange for non-compete agreements.
For the years 2000 through 2002, the shareholders are also entitled to
receive 333,333 additional shares per year if certain financial
benchmarks and employment agreements are satisfied. The Company also
agreed to assume certain warrant obligations of First Choice to a
party related to the Company totaling 810,000 shares of the Company's
common stock at an exercise price of $1.00 per share. One-third of
these warrants become exercisable in each of the years 2000 through
2002 if First Choice achieves the financial benchmarks established in
each of those years for the contingent share issuance to First Choice
shareholders discussed above. Exercisable warrants expire in 2004 if
not previously exercised. These benchmarks were not met prior to the
disposition described in Note N and therefore the contingent shares
and warrants have expired.
As part of the acquisition, a key management employee of First Choice
entered into a three-year employment agreement with the Company. In
addition, the key employee will receive up to 150,000 stock options
subject to the achievement of the financial benchmarks referred to
above. The transaction was accounted for as a purchase and goodwill
and intangible assets were recorded totaling $2,935,098. Subsequent to
the closing of the transaction, the Company negotiated an agreement to
issue 190,890 registered shares of common stock for consulting
services in effecting the acquisition.
Effective May 1, 2000, the Company acquired the proprietary assets of
LIFE PERSPECTIVES, a one-hour evening radio program broadcast five
nights per week in 48 markets for 20,000 shares of the Company's
common stock. An additional 30,000 shares of the Company's common
stock will be issued over the next three years in the amount of 10,000
shares per year on the anniversary date of the acquisition, subject to
the founder's continuing to host the program under an employment
agreement with the Company. The net value of assets acquired
approximated the purchase price.
Effective July 1, 2000, the Company acquired all the membership
interests in PremierCare LLC, a limited liability company engaged in
the delivery of healthcare counseling services for senior citizens at
hospitals in five states. The former beneficial owners of PremierCare
received 540,000 shares of the Company's common stock and will receive
up to an additional 560,000 shares, based on operating results of the
Company and the ultimate collection of the disputed receivable
described in Note A. In addition, at the closing, the Company paid
cash proceeds of $677,609, which was used to repay bank debt and
advances from members. The president, chief executive officer and
22.8% indirect owner of PremierCare was also the president of iExalt
at the date of acquisition and now serves as iExalt's Chairman and
Chief Executive Officer. This transaction was accounted for as a
purchase and goodwill of $835,129 was recorded.
Effective July 1, 2000, the Company also acquired all of the stock of
Keener Communications Group, Inc. d/b/a/ Christian Times ("Christian
Times"). Christian Times is a monthly newspaper with a circulation of
180,000. It is published in eight editions in southern California. In
consideration for this purchase, the selling shareholder received
450,000 shares of common stock of iExalt, Inc. and 125,000 common
stock options exercisable at $1.80 per share. The options vest in the
amount of 25,000 shares per year on the anniversary date of the
acquisition.
F-12
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE B ACQUISITIONS (continued)
The former shareholder of Keener signed an employment agreement with
the Company for a period of five years. The transaction was accounted
for as a purchase and goodwill of $623,800 was recorded.
All of the above acquisitions were accounted for by the purchase
method and, accordingly, the operations of the acquired companies are
included in the results of the Company for the periods subsequent to
the dates of acquisition.
The following unaudited pro forma combined results of operations of
the Company for the year ended August 31, 2000 and the period
Inception (January 7, 1999) through August 31, 1999 assume Navpress,
Wordcross, Solutions Global, Christian Speakers, First Choice,
PremierCare, and Christian Times ("Acquired Companies") had been
acquired as of the beginning of the respective periods.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 2000 (UNAUDITED)
----------------------------------------------------------------------------------
iExalt & ACQUIRED COMBINED PRO FORMA PRO FORMA AS
SUBSIDIARIES COMPANIES TOTAL ADJUSTMENTS ADJUSTED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 4,276,883 $ 3,824,400 $ 8,101,283 $ -- $ 8,101,283
Loss from operations ...................... $ (7,662,791) $ 127,077 $ (7,535,714) $ (96,329) $ (7,632,043)
Net loss .................................. $ (7,739,419) $ 6,979 $ (7,732,440) $ (96,329) $ (7,828,769)
Earnings/(loss) per share ................. $ (0.29)
ProForma Weighted Average Number of
Shares Outstanding ........................ 27,032,656
<CAPTION>
INCEPTION (JANUARY 7, 1999) THROUGH AUGUST 31, 1999 (UNAUDITED)
--------------------------------------------------------------------------------
iExalt & ACQUIRED COMBINED PRO FORMA PRO FORMA AS
SUBSIDIARIES COMPANIES TOTAL ADJUSTMENTS ADJUSTED
------------ ------------ ------------ ------------ ------------
Revenues ...................................... $ 180,933 $ 3,389,263 $ 3,570,196 $ -- $ 3,570,196
Loss from operations .......................... $ (337,429) $ (90,660) $ (428,089) $ (132,134) $ (560,223)
Net loss ...................................... $ (335,863) $ (79,919) $ (415,782) $ (132,134) $ (547,916)
Earnings/(loss) per share ..................... $ (0.02)
ProForma Weighted Average Number of
Shares Outstanding ............................ 23,236,782
</TABLE>
F-13
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE B ACQUISITIONS (continued)
The pro forma adjustments reflect the amortization of goodwill from
the beginning of the respective periods for each of the Acquired
Companies.
The pro forma financial information is not necessarily indicative of
the combined results that would have occurred had the acquisitions
taken place at the beginning of the period, nor is it necessarily
indicative of results that may occur in the future.
In addition to the acquisitions above, in April 2000, the Company
entered into a management agreement and funding agreement with an
internet company under which iExalt advanced funds and directed the
management of the company pending completion of the definitive
acquisition agreement. If the acquisition was not completed, iExalt
was entitled to repayment of the advances with interest and a
forty-nine percent ownership interest in the internet company. Funds
advanced under this funding agreement totaled $368,112 at August 31,
2000. See Note N regarding the termination of this management and
funding agreement in September 2000.
In June 2000, the Company entered into a similar funding agreement
with an internet company under which iExalt advances funds and directs
the management of the company pending completion of the definitive
acquisition agreement. Funds advanced under this funding agreement
were $155,775 and were included in Other Assets at August 31, 2000. If
the acquisitions is not completed, iExalt will be entitled to
repayment of the advances with interest and a fifty percent ownership
interest in the internet company. This acquisition has not been
completed as of November 21, 2000.
NOTE C PROPERTY AND EQUIPMENT
Property and equipment as of August 31, 2000 consisted of the
following:
Computer equipment and software $ 383,532
Furniture, fixtures and office equipment 224,390
Automobiles 186,090
Leasehold improvements 34,360
---------
828,372
Less accumulated depreciation (111,347)
---------
$ 717,025
=========
NOTE D IMPAIRMENT OF LONG LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No.121 requires
that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicated that the carrying amount of an
asset may not be recoverable. If the sum of the expected future cash
flows from the use of the asset and its eventual disposition is less
than the carrying amount of the asset, an impairment loss is
recognized based on the fair value of the asset. In September 2000,
management made the decision to dispose of two acquisitions and
terminate a funding arrangement with another potential acquisition.
See Note N. The carrying values of goodwill and intangible assets of
the related dispositions were not recovered. Therefore, an impairment
loss of $3,451,407 was recognized for the year ended
August 31, 2000 on these assets. Management believes there is no other
impairment of goodwill and other intangibles.
F-14
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE E SHORT-TERM BORROWINGS
Short-term borrowings at August 31, 2000 consisted of the following:
Revolving line of credit with bank, interest at prime
payable monthly, due December 18, 2000, guaranteed by
shareholder and secured by Company assets $150,000
Other unsecured revolving lines of credit in the form
of credit cards, interest ranging from 9.9% to 20.8%,
payable monthly 91,678
--------
$241,678
========
During August 1999, the Company negotiated a $50,000 revolving line of
credit with a bank. The Company increased the line to $150,000 in
December 1999. The line is secured by certain assets of the Company
and is guaranteed by a shareholder. The line matures December 18,
2000. As of October 2000, the shareholder/guarantor of the line has
indicated that he will not renew his guarantee. The Company is
considering alternatives to secure the line, replace it, or repay it.
NOTE F NOTES PAYABLE TO SHAREHOLDERS
Notes payable to shareholders consist of the following at August 31,
2000:
Non-interest bearing note payable to shareholder,
due on demand, secured by all assets of NetXpress $350,000
Unsecured notes payable to shareholder, 8% interest,
due on demand 195,000
Unsecured note payable to shareholder, 8% interest,
due on demand 12,000
--------
$557,000
========
In connection with the acquisition of NetXpress, the Company assumed a
$350,000 note payable to a shareholder of the Company. Under the terms
of this note, the balance became payable on demand when the Company's
net assets exceeded $5,000,000. During the third quarter of 2000, the
Company reached this benchmark. As of November 2000, the shareholder
has made demand for payment through his attorney and the Company is
attempting to negotiate the repayment terms.
In January and February 2000, the Company entered into note agreements
totaling $300,000 with a shareholder of the Company to fund working
capital requirements. The Company issued 450,000 options to this
shareholder in lieu of interest payments on these notes and for his
personal guarantee of the Company's $150,000 revolving line of credit.
Accordingly, the Company has recognized $92,000 in interest expense
associated with the options issued.
F-15
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31,2000 AND 1999
NOTE F NOTES PAYABLE TO SHAREHOLDERS (continued)
During August 2000, two shareholders loaned the Company $195,000 and
$12,000, respectively under two separate demand notes each with an 8%
interest rate. The $12,000 demand note was repaid in November 2000.
Demand for payment of the $195,000 has been made through an attorney
and the company is currently attempting to negotiate repayment terms.
NOTE G LONG-TERM DEBT
Long-term debt at August 31, 2000 consisted of the following:
Note payable to bank, interest at prime payable
quarterly, due June 30, 2001, unsecured, guaranteed
by shareholder $550,000
Vehicle notes payable, interest ranging from 1.9% to
14.25%, maturing June 2001 to June 2004, secured by
vehicles 131,173
Note payable on insurance policy, interest at 10.7%,
$1,765 payable monthly, maturing July 2001 19,414
Other unsecured notes payable, interest at 8%, due on
demand 2,500
--------
703,087
Less: current maturities 613,037
--------
$ 90,050
========
In the December 31, 1999 acquisition of First Choice, the Company
assumed a $156,000 unsecured note payable with interest at 10%
maturing June 2000. The note and accrued interest were paid in full on
April 28, 2000.
The aggregate principal repayments and reductions required in each of
the years ending August 31, 2001 through August 31, 2004 for the
Company's long-term debt is as follows:
2001 $613,037
2002 29,817
2003 26,677
2004 22,841
2005 10,715
--------
Total $703,087
========
F-16
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE H SHAREHOLDERS' EQUITY
In June 1999, the Company issued 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. In February 2000, the
Company extended this PPM to offer an additional 1,000,000 shares for
a total of 2,000,000 shares. Funds resulting from the sale of the
Company's common stock were used for funding the day-to-day operations
of the Company, development of new products and services, marketing,
and acquisitions. The Company committed to pay in cash or stock 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. The Company concluded its efforts to sell shares under the
PPM in June 2000. During the years ended August 31, 2000 and 1999, the
Company issued 1,885,389 and 30,000 shares, respectively, for proceeds
totaling $3,393,700 and $54,000, respectively, pursuant to this
offering. Finder's fees paid during Fiscal 2000 consisted of $42,720,
warrants to purchase 11,867 shares of common stock at $1.80 per share,
and 11,520 shares of common stock.
On June 29, 1999, a shareholder of the Company purchased 2,250,000
shares of iExalt's common stock for cash of $500,000. As part of 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 $90,000 and $30,000 for the
years ended August 31, 2000 and 1999, respectively, for such services.
On July 27, 2000, the Company issued 250,000 shares of common stock to
Consulting and Strategy International, ("CSI") for consulting services
provided related to the acquisitions made by the Company during the
year. The Company recorded consulting fees of $397,500 for these
services. See Note I regarding the consulting agreement between the
Company and CSI and the exercise of options by CSI during 2000. The
Company issued an additional 37,778 shares during 2000 and 46,666
shares during 1999 for various other professional services. The
Company has recorded $55,250 in expense and $8,750 in prepaid expenses
in 2000 and $70,000 in expense in 1999, relating to these services.
An additional 5,133 shares of the Company's common stock were sold to
an accredited investor for a receivable in the amount of $9,239.
NOTE I STOCK OPTIONS AND WARRANTS
The Company has an Employees Stock Option Plan and a Directors Stock
Option Plan ("Plans") which reserve 1,000,000 shares and 800,000
shares, respectively, of authorized but unissued common stock to be
distributed by the compensation committee of the board of directors
pursuant to the Plans. At yearend, the Employee plan has 49,000
options available for grant and the Director plan has 675,000 options
available for grant. Employee options vest over three years and have a
three year term from vesting and Director options vest when granted
and have a five year term.
F-17
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE I STOCK OPTIONS AND WARRANTS (continued)
The Company has granted stock options both within and outside of the Plans
during the year ended August 31, 2000. All grants are summarized below:
<TABLE>
<CAPTION>
AVERAGE
REMAINING AVERAGE
CONTRACTUAL EXERCISE NUMBER
LIFE PRICE OF SHARES
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding at 8-31-99* ............................................ 0.7 yrs $ 1.00 600,000
Options granted relating to acquisitions* .................................. 3.0 yrs $ 1.80 835,000
Options granted relating to loans* ......................................... 3.0 yrs $ 1.80 450,000
Other employee options granted ............................................. 3.0 yrs $ 1.80 1,011,000
Directors options granted .................................................. 5.0 yrs $ 1.80 125,000
Options cancelled .......................................................... 3.0 yrs $ 1.80 (210,000)
Options exercised .......................................................... 0.7 yrs $ 1.00 (600,000)
------------
Options outstanding at 8-31-00 ............................................. 3.1 yrs $ 1.80 2,211,000
============
Options exercisable at 8-31-00 ............................................. 3.4 yrs $ 1.80 575,000
============
*See explanation below.
</TABLE>
In addition, the Company has granted warrants to purchase its common shares, as
summarized below:
<TABLE>
<CAPTION>
AVERAGE
REMAINING AVERAGE
CONTRACTUAL EXERCISE NUMBER
LIFE PRICE OF SHARES
------------ ------------ ------------
<S> <C> <C> <C>
Warrants outstanding at 8-31-99* ........................................... 5.0 yrs $ 4.75 1,000,000
Warrants issued relating to acquisitions
(subject to specific earnings hurdles)* .................................. 5.0 yrs $ 1.00 810,000
Warrants issued to Houston Partners
Technology Group ........................................................ 5.0 yrs $ 1.80 11,867
Warrants cancelled ......................................................... 5.0 yrs (810,000)
------------
Warrants outstanding at 8-31-00 ............................................ 4.0 yrs $ 4.72 1,011,867
============
Warrants exercisable at 8-31-00 ............................................ 4.0 yrs $ 2.95 261,867
============
*See explanation below.
</TABLE>
F-18
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE I STOCK OPTIONS AND WARRANTS (continued)
On September 1, 1999 an agreement for consulting services with CSI
went into effect. In partial consideration for the consulting services
to be offered by CSI, CSI had been granted an option to purchase
600,000 shares of iExalt stock at an exercise price of $1.00 per share
on or before six months after the first day upon which the Company's
stock begins full reporting, full compliance and publicly trading. CSI
exercised this option on April 28, 2000. In addition, CSI had been
granted 250,000 warrants to purchase common stock at an exercise price
of $3.00 per share; 250,000 warrants to purchase common stock at an
exercise price of $4.00 per share; 250,000 warrants to purchase common
stock at an exercise price of $5.00 per share; and 250,000 warrants to
purchase common stock at an exercise price of $7.00 per share. As of
the date of grant, the value of these options and warrants was
considered immaterial.
Options and warrants issued in conjunction with acquisitions are
described in Note B.
On January 11, 2000, the board of directors elected to issue stock
options at an exercise price of $1.80 per share to any director or
officer of the Company for a number of shares equal to the number of
dollars loaned to the Company which is either personally guaranteed by
any such officer or director, or is made by such officer or director
on a non-interest bearing basis. Within the year ended August 31,
2000, borrowings and guarantees in the amount of $450,000 had been
outstanding pursuant to this agreement. Accordingly, options to
purchase an aggregate 450,000 shares of common stock have been
granted.
SFAS No. 123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB 25 to present pro
forma disclosures of results of operations and earnings per share as
if compensation cost was measured at the date of grant based on the
fair value of the award. The fair value for each option or warrant
grant was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions: a risk-free interest
rate of six percent, no dividend yield, an expected volatility of 120%
and expected lives of between three and five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's stock
options and warrants have characteristics different from those of
traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options and
warrants.
Had the compensation cost for all stock options and warrants been
determined under SFAS No. 123, the Company's net loss for the year
ended August 31, 2000 and the period Inception (January 7, 1999) to
August 31, 1999, would have changed to the following pro forma
amounts:
INCEPTION
YEAR ENDED THROUGH
AUGUST 31, AUGUST 31,
2000 1999
------------ ------------
Net (loss):
As reported ................ $ (7,739,419) $ (335,863)
Pro Forma .................. $ (8,839,754) $ (335,863)
Basic and diluted net
(loss) per share:
As reported ................ $ (0.31) $ (0.02)
Pro Forma .................. $ (0.35) $ (0.02)
F-19
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE I STOCK OPTIONS AND WARRANTS (continued)
The pro forma amounts may not be representative of the future effects
on reported net income and earnings per share that will result from
the future granting of stock options since future pro forma
compensation expense may be allocated over the periods in which
options become exercisable and new option awards may be granted each
year.
NOTE J INCOME TAXES
The Company has had losses since inception and, therefore, has not
been subject to federal income taxes. As of August 31, 2000 the
Company had an accumulated taxable net operating loss ("NOL")
carryforward for income tax purposes of approximately $4.4 million,
resulting in a deferred tax asset of $1.5 million. These carryforwards
begin to expire in 2019. Additionally, because U.S. tax laws limit the
time during which NOL and tax credit carryforwards may be applied
against future taxable income and tax liabilities, the Company may not
be able to take full advantage of its NOL and tax credits for federal
income tax purposes. A valuation allowance has been established to
fully offset the deferred tax assets.
NOTE K LEASES
The Company's corporate offices are leased on a month-to-month basis
from a related party. Management believes that the rent paid by the
Company is consistent with market rates for similar office space. The
lease expense on the corporate offices during the years ended August
31, 2000 and 1999 was $47,600 and $14,800, respectively. 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 years ended August 31, 2000 and 1999 was $118,256 and
$18,670, respectively.
Future minimum lease payments under non-cancelable operating leases
were as follows:
2001 $129,656
2002 105,224
2003 92,233
2004 76,417
2005 7,429
--------
Total $410,959
========
At August 31, 2000, the Company had computer equipment under a capital
lease totaling $16,259 with accumulated depreciation of $419. Future
minimum payments under capital leases at August 31, 2000 were as
follows:
2001 $ 8,988
2002 8,988
-------
Total minimum payments
under capital leases 17,976
Less amounts relating to
interest (1,717)
-------
Total obligations under
capital lease 16,259
Less current maturities (8,235)
-------
Obligations under capital
lease $ 8,024
=======
F-20
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE L BUSINESS SEGMENTS
The Company's operations are grouped into three business segments based on
types of service and delivery media: internet and technology applications, print
publications, and healthcare services. Internet and technology applications
consist of the filtered ISP and portal, Electronic Publishing, First Choice,
Christian Speakers and Life Perspectives. Print publications consist of
Christian Happenings and Christian Times and healthcare services consist of the
counseling programs of PremierCare.
The Company's reportable segment information was as follows:
<TABLE>
<CAPTION>
INTERNET & PRINT HEALTHCARE CORPORATE REPORTABLE
TECHNOLOGY PUBLICATIONS SERVICES AND OTHER SEGMENTS
---------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
2000 $2,556,492 $1,094,891 $ 625,500 $ - $4,276,883
1999 180,933 - - - 180,933
Gross Profit:
2000 $392,445 $ 306,399 $ 248,385 $ - $947,229
1999 38,249 - - - 38,249
Depreciation:
2000 54,312 $ 7,952 $ 20,758 $ 25,325 $ 108,347
1999 1,750 - - 1,250 3,000
Assets:
2000 $1,491,860 $1,337,236 $1,538,616 $379,896 $4,747,608
</TABLE>
The following table reconciles reportable segment gross profit to the
Company's consolidated loss before income taxes:
2000 1999
----------- -----------
Gross profit of reportable segments ... $ 947,229 $ 38,249
Other expenses ...................... 8,610,020 375,678
----------- -----------
Loss from operations .................. (7,662,791) (337,429)
----------- -----------
Other Income/(Expense)
Interest income ..................... 34,399 2,182
Interest expense .................... (111,027) (616)
----------- -----------
Loss before income taxes .............. $(7,739,419) $ (335,863)
=========== ===========
F-21
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE M SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid by the Company during the years ended August 31, 2000,
and 1999 amounted to $9,608 and $616, respectively.
Common stock issued for services during the year August 31, 2000 and
1999 was $461,500 and $70,000, respectively. Interest expense for
stock options issued on non-interest bearing notes was $92,000 for the
year ended August 31, 2000.
In conjunction with business combinations during the years ended
August 31, 2000 and 1999 assets acquired, liabilities assumed, notes
issued to shareholders and common stock issued were as follows:
2000 1999
----------- -----------
Fair value of assets acquired .......... $ 1,306,420 $ 179,147
Goodwill and other intangible assets ... 5,248,362 188,831
Liabilities assumed .................... (943,272) (235,056)
Notes issued to shareholders ........... -- (500,000)
Common stock issued .................... (4,852,158) (1,722)
Purchase price in excess of net book
value for acquisitions under common
control ............................. -- 314,521
----------- -----------
Net cash paid (liabilities assumed) for
acquisitions ........................ $ 759,352 $ (54,279)
=========== ===========
NOTE N SUBSEQUENT EVENTS
During September 2000, the Company experienced a change in management
and subsequently went through a period of restructuring and
reorganization. On September 13, 2000, the Chairman of the Board and
Chief Executive Officer, the Chief Operating Officer and another
member of the board resigned over a disagreement in management
direction.
The Company re-evaluated its business mix and projected cash flows and
made decisions to dispose of First Choice and the Company's filtering
software and related technology. First Choice was sold to a company
owned by a former member of the Board of Directors in exchange for the
assumption of future liabilities. As a part of the transaction, the
Company made a payment to First Choice of $25,000 during October and
issued 25,000 shares of the Company's common stock to an employee for
past services rendered. The filtering software and related technology
was sold to a former employee of the Company. The Company issued
150,000 shares of the Company's common stock with piggyback
registration rights to the former employee in exchange for a note
receivable of $84,359, the total of existing liabilities related to
the filtering technology at the closing. The note will be repaid upon
sale of the stock or six months, whichever occurs first. The Company
retained the right to use and market the filtering technology to the
Christian market. The August 31, 2000 financial statements reflect
impairment of approximately $2,934,000 for the goodwill and related
intangibles of First Choice and $137,000 for the internally developed
software related to the filter. The additional loss to be recorded
from discontinued operations in the first quarter of 2001 is estimated
to be $300,000.
F-22
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE N SUBSEQUENT EVENTS (continued)
In addition, the Company made the decision to cancel its acquisition
efforts related to a start-up internet company. The Company had been
funding the start-up under a management and funding agreement since
April. Under the Termination Agreement, the Company issued 100,000
shares of the Company's common stock with piggyback registration
rights, retained a 49% interest in the start-up, and received a note
for the total funds advanced of $368,112. Nonetheless, an impairment
loss of $380,000, the total of all funds advanced and the related
acquisition costs incurred, was recorded at August 31, 2000 due to the
low probability of collecting the note or realizing future income from
the equity interest.
On September 16, 2000, the Company issued 300,000 shares of common
stock to a financial advisor for consulting services.
On September 20, 2000, the Company agreed to issue $500,000 in
convertible debentures. The debentures are convertible into common
stock at the lesser of $0.50 per share or fifty percent of the current
market price and bear interest at prime plus one half. Originally,
principal and interest were due on October 20, 2000 but the due date
was extended to January 15, 2001. As additional consideration, the
Company issued a five-year warrant to purchase 1 million shares at
$1.13 per share to the holders of the convertible debentures. The
Company has estimated non-cash expense of approximately $619,000 for
the fair value of the warrants under SFAS No. 123.
On September 25, 2000 the Company granted a one-year option to
purchase 600,000 shares of the Company's common stock at an exercise
price of $0.02 per share to CSI for consulting services provided as
part of the Company's reorganization and restructuring. These options
were exercised on October 10, 2000 for $12,000. The Company has
estimated non-cash expense of approximately $682,000 for the fair
value of the options under SFAS No. 123.
On September 29, 2000 the Company acquired a seven percent indirect
interest in Sonora Behavioral Hospital, a 30-plus bed psychiatric
hospital in Arizona. The Company exchanged 150,000 shares of its
common stock for the interest in Integral Behavioral Health Services,
Inc., the 100% owner and operator of Sonora. This acquisition will be
accounted for under the equity method.
On October 3, 2000, the Company acquired all the stock of
ListenFirst.com ("ListenFirst"), a Christian music news website for
60,000 shares of the Company's common stock. If certain revenue or
profit levels are reached over the next three years, a maximum of
50,000 additional shares will be issued for the acquisition. The
transaction was accounted for as a purchase and a preliminary estimate
of goodwill was recorded in the amount of $67,000.
On October 17, 2000, the Company sold 879,906 shares of common stock
to an accredited investor for $560,000.
On October 18, 2000, the assets of Northwest Christian Journal
("NWCJ"), a monthly Christian newspaper in the Seattle area, were
acquired for 37,500 shares of the Company's common stock and cash
proceeds of $7,500. The transaction was accounted for as a purchase
and a preliminary estimate of goodwill was recorded in the amount of
$42,000. On October 29, 2000, the assets of the Christian Blue Pages,
LLC ("Blue Pages") which produces a directory of Christian businesses
in four editions in Southern California, were acquired in exchange for
60,000 shares of the Company's common stock and a percentage of the
first year's advertising revenues. The transaction was accounted for
as a purchase and a preliminary estimate of goodwill was recorded in
the amount of $113,000. Both of these asset additions were added to
the operations of Christian Times.
F-23
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE N SUBSEQUENT EVENTS (continued)
All the outstanding stock of Clean Web, Inc. ("Clean Web"), a national
filtered ISP with approximately 6,000 users, was acquired on October
24, 2000 for 2,313,000 shares of the Company's common stock. The
transaction was accounted for as a purchase and a preliminary estimate
of goodwill was recorded in the amount of $1,928,000. The Company is
combining the operations of Clean Web and its filtered ISP, but will
continue to market its services under both names.
On October 24, 2000, the Company received written demand from three
shareholders claiming the right to 647,930 additional shares of the
Company's common stock based on claimed anti-dilution provisions
associated with the shareholders' initial investment in the PPM.
Management is evaluating these claims.
Effective November 1, 2000, the Company acquired all the assets of
Rapha ("Rapha"), a Christian inpatient mental health management
company. Under the terms of the acquisition agreement, the Company
issued 200,000 shares of common stock at closing. If on October 29,
2002, the average price of the Company's stock for the 20 preceding
days does not equal or exceed $5.00 per share, the company will issue
additional common stock such that, the total shares multiplied by the
average price determined above is equal to $1 million. The transaction
was accounted for as a purchase and a preliminary estimate of goodwill
was recorded in the amount of $129,000.
On November 21, 2000, in exchange for 30,000 shares of the Company's
common stock, the Company acquired all of the speaker contracts and
speaking engagements related to the Christian market from Alive
Communications ("Alive"). The transaction was accounted for as a
purchase and a preliminary estimate of goodwill was recorded in the
amount of $13,000. Alive is a leading provider of speakers to the
Christian community and the business will be combined with Christian
Speakers.
In November 2000, the Company agreed to terms for issuing convertible
debentures for $1,200,000. The agreement is with Thomson Kernaghan &
Co. Limited and provides for two year debentures carrying a 10%
accumulating interest and convertible into common shares at 75% of the
average closing bid price for the 10 trading days before the closing
date or the conversion date, whichever price is less. On closing, the
Company would issue five-year warrants to purchase 1,250,000 shares of
its common stock with an exercise price equal to 110% of the average
closing bid price for the three trading days preceding closing. In
addition, the agreement provides for an 18-month equity line in the
amount of $3,000,000 and calls for filing a registration statement
within thirty days of closing. Definitive agreements have not been
signed, but the proposed transaction has been announced. The agreed
terms provide for closing on or before December 1, 2000.
F-24
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE N SUBSEQUENT EVENTS (continued)
The following unaudited pro forma balance sheet of the Company for the
year ended August 31, 2000 assumes ListenFirst, NWCJ, Blue Pages,
Clean Web, Rapha and Alive ("Subsequent Acquisitions") had been
acquired on August 31, 2000.
<TABLE>
<CAPTION>
AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------
iExalt & SUBSEQUENT COMBINED PRO FORMA PRO FORMA
SUBSIDIARIES ACQUISITIONS TOTAL ADJUSTMENTS AS ADJUSTED
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Current assets ..................... $ 1,295,486 $ 142,273 $ 1,437,759 $ (7,500) $ 1,430,259
Property, plant & equipment ........ 717,025 196,762 913,787 -- 913,787
Goodwill and other intangibles ..... 2,462,244 -- 2,462,244 2,292,643 4,754,887
Other assets ....................... 272,853 1,000 273,853 -- 273,853
--------------- --------------- --------------- --------------- ---------------
Total Assets ....................... $ 4,747,608 $ 340,035 $ 5,087,643 $ 2,285,143 $ 7,372,786
=============== =============== =============== =============== ===============
Current liabilities ................ $ 2,894,951 $ 203,148 $ 3,098,099 $ 44,000 $ 3,142,099
Long-term debt and other ........... 98,074 82,723 180,797 -- 180,797
Shareholders' equity ............... 1,754,583 54,164 1,808,747 2,241,143 4,049,890
--------------- --------------- --------------- --------------- ---------------
Total Liabilities .................. $ 4,747,608 $ 340,035 $ 5,087,643 $ 2,285,143 $ 7,372,786
=============== =============== =============== =============== ===============
</TABLE>
The following unaudited pro forma results of operations of the Company
for the year ended August 31, 2000 and the period Inception (January
7, 1999) through August 31, 1999 assume the Subsequent Acquisitions
had been acquired as of the beginning of the respective period.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------
PRO FORMA SUBSEQUENT COMBINED PRO FORMA PRO FORMA
NOTE B ACQUISITIONS TOTAL ADJUSTMENTS AS ADJUSTED
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 8,101,283 $ 1,169,429 $ 9,270,712 $ -- $ 9,270,712
Loss from operations ............... $ (7,632,043) $ (975,201) $ (8,607,244) $ (114,632) $ (8,721,876)
Net loss ........................... $ (7,828,769) $ (987,103) $ (8,815,872) $ (114,632) $ (8,930,504)
Earnings/(loss) per share .......... $ (0.29) $ (0.30)
ProForma Weighted Average
Number of Shares Outstanding ....... 27,032,656 29,733,156
</TABLE>
F-25
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000 AND 1999
NOTE N SUBSEQUENT EVENTS (continued)
<TABLE>
<CAPTION>
INCEPTION (JANUARY 7, 1999) THROUGH AUGUST 31, 1999 (UNAUDITED)
-------------------------------------------------------------------------------------------
PRO FORMA
AS ADJUSTED
PRO FORMA SUBSEQUENT COMBINED PRO FORMA FOR SUBSEQUENT
NOTE B ACQUISITIONS TOTAL ADJUSTMENTS ACQUISITIONS
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues ............................ $ 3,570,196 $ 432,089 $ 4,002,285 $ -- $ 4,002,285
Loss from operations ................ $ (560,223) $ (1,132,307) $ (1,692,530) $ (76,421) $ (1,768,951)
Net loss ............................ $ (547,916) $ (1,136,295) $ (1,684,211) $ (76,421) $ (1,760,632)
Earnings/(loss) per share ........... $ (0.02) $ (0.07)
ProForma Weighted Average
Number of Shares Outstanding ........ 23,236,782 25,937,282
</TABLE>
Pro forma adjustments primarily reflect the acquisition purchases and
associated goodwill at August 31, 2000 and the related amortization of
goodwill from the beginning of the respective periods for each of the
Subsequent Acquisitions.
The pro forma financial information is not necessarily indicative of
the combined results that would have occurred had the acquisitions
taken place at the beginning of the respective periods, nor is it
necessarily indicative of results that may occur in the future.
F-26
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
3.1 Restated Articles of Incorporation of the Company (filed
as Exhibit 3.1 to the Company's Quarterly Report on Form
10-QSB for the quarter ending February 29, 2000, as
filed with the Commission on April 14, 2000, is
incorporated herein by reference).
3.2 Amended Bylaws of the Company as adopted on April 24,
1979 (filed as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-QSB for the quarter ending February
29, 2000, as filed with the Commission on April 14,
2000, is incorporated herein by reference).
4.1 Registration Rights Agreement, dated June 28, 2000
(filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on July 26, 2000,
is incorporated herein by reference).
4.2 First Addendum to Registration Rights Agreement, dated
June 30, 2000 (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K, as filed with the Commission
on July 27, 2000, is incorporated herein by reference).
4.3 Investor's Rights Agreement, dated October 24, 2000 by
and among iExalt, Inc., certain shareholders of iExalt,
and Ted L. Parker (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K, as filed with the Commission
on November 8, 2000, is incorporated herein by
reference).
*4.4 Convertible Debenture issued to TCA Investments, Inc. on
September 20, 2000.
*4.5 Convertible Debenture issued to Travin Partners LLLP on
September 20, 2000.
*4.6 Warrants issued to TCA Investments, Inc. on September
20, 2000.
*4.7 Warrants issued to Travin Partners LLLP on September 20,
2000.
10.1 Exchange Agreement among the Company, iExalt,
Inc.-Texas, and the Shareholders of iExalt, Inc.-Texas
dated August 12, 1999 (filed as Exhibit 1.1 to the
Company's Current Report on Form 8-K, as filed with the
Commission on September 14, 1999, is incorporated herein
by reference).
10.2 Company's Directors' Stock Option Plan (filed as Exhibit
2.1 to the Company's Current Report on Form 8-K, as
filed with the Commission on September 14, 1999, is
incorporated herein by reference).
10.3 Company 1998 Stock Option Plan (filed as Exhibit 2.2 to
the Company's Current Report on 8-K, as filed with the
Commission on September 14, 1999, is incorporated herein
by reference).
10.4 Contract for Sale and Purchase of Wordcross Enterprises,
Inc. between the Company and Wordcross Enterprises, Inc.
d/b/a Christian Happenings dated October 1, 1999 (filed
as Exhibit 1.1 to the Company's Current Report on Form
8-K, as filed with the Commission on October 15, 1999,
is incorporated herein by reference).
10.5 Employment Agreement - Stan Coffee (filed as Exhibit
10.2 to the Company's Annual Report on Form 10-KSB for
the period ending August 31, 1999, as filed
Exh-1
<PAGE>
with the Commission on November 29, 1999, is
incorporated herein by reference).
10.6 Employment Agreement - Ed Novak (filed as Exhibit 10.3
to the Company's Report on Form 10-KSB for the period
ending August 31, 1999, as filed with the Commission on
November 29, 1999, is incorporated herein by reference).
10.7 Services Agreement between Consulting & Strategy
International, Inc. and the Company (filed as Exhibit
10.4 to the Company's Annual Report on Form 10-KSB for
the period ending August 31, 1999, as filed with the
Commission on November 29, 1999, is incorporated herein
by reference).
10.8 Stock Purchase Agreement between the Company and
Christian Speakers, Inc. dated December 1, 1999 (filed
as Exhibit 1.1 to the Company's Current Report on Form
8-K, as filed with the Commission on December 16, 1999,
is incorporated herein by reference).
10.9 Stock Purchase Agreement between the Company and First
Choice Marketing, Inc. dated December 31, 1999 (filed as
Exhibit 1.1 to the Company's Current Report on Form 8-K,
as filed with the Commission on January 28, 2000, is
incorporated herein by reference).
10.10 Agreement and Plan of Reorganization, dated June 28,
2000, among iExalt, Inc. and its Merger Subsidiaries and
PremierCare, LLC and its Direct and Indirect Members
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on July 26, 2000,
is incorporated herein by reference).
10.11 Agreement and Plan of Merger, dated June 28, 2000, among
iExalt, Inc., PCII Combination Corp., and PremierCare
Investors, Inc. (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, as filed with the Commission
on July 26, 2000, is incorporated herein by reference).
10.12 Agreement and Plan of Merger, dated June 28, 2000, among
iExalt, Inc., PBH Combination Corp., and Premier
Behavioral Healthcare, Inc. (filed as Exhibit 2.3 to the
Company's Current Report on Form 8-K, as filed with the
Commission on July 26, 2000, is incorporated herein by
reference).
10.13 Agreement and Plan of Reorganization, dated June 30,
2000, among iExalt, Inc., KCG Combination Corp., and
Keener Communications Group and its Shareholders (filed
as Exhibit 2.1 to the Company's Current Report on Form
8-K, as filed with the Commission on July 27, 2000, is
incorporated herein by reference).
10.14 Agreement of Merger, dated June 30, 2000, among iExalt,
Inc., KCG Combination Corp., and Keener Communications
Group (filed as Exhibit 2.2 to the Company's Current
Report on Form 8-K, as filed with the Commission on July
27, 2000, is incorporated herein by reference).
10.15 Stock Purchase Agreement, dated September 27, 2000,
between iExalt, Inc. and iExalt Financial Services, Inc.
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on October 12,
2000, is incorporated herein by reference).
10.16 Stock Exchange Agreement, dated October 24, 2000,
between iExalt, Inc. and Ted L. Parker, the sole
shareholder of Cleanweb, Inc. (filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K, as filed with
the Commission on November 8, 2000, is incorporated
herein by reference).
Exh-2
<PAGE>
*21.1 List of Subsidiaries
*23.1 Independent Auditors' Consent
*27.1 Financial Data Schedule
---------------
*Filed herewith.
Exh-3
