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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): NOVEMBER 15, 1999
COMMISSION FILE NUMBER 1-07149
INTERNET LAW LIBRARY, INC.
(Exact name of Company as specified in charter)
DELAWARE 82-0277987
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4301 WINDFERN ROAD, SUITE 200, HOUSTON, TEXAS 77041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (281) 600-6000
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 15, 1999, the Board of Directors of Internet Law Library,
Inc. (the "Company") approved the Company's purchase of all of the outstanding
stock of GoverNet Affairs, Inc., a Georgia corporation ("GoverNet Affairs"),
in exchange for 446,352 shares of the Company's common stock valued at
$1,300,000 and the assumption by the Company of certain liabilities
aggregating $41,000. The outstanding stock of GoverNet Affairs was purchased
directly from three individuals, specifically Ronald W. Hogan, Charles E.
Bowen, Jr., and John R. Marsh. In addition, Messrs. Hogan, Bowen and Marsh,
collectively, were granted options for the purchase of up to 320,000 shares of
the Company's common stock. These options are exercisable over a three-year
period beginning August 31, 2000, provided certain revenue and earnings before
interest, taxes, depreciation and amortization targets are achieved by
GoverNet Affairs during the 32 months ending June 30, 2002.
The consideration and terms for the acquisition were determined
through arm's length negotiations between the Company and the shareholders of
GoverNet Affairs. The consideration was determined by reference to the values
of GoverNet Affairs' database content and its future earnings potential.
GoverNet Affairs owns and operates an Internet site and connected
databases that provide subscribers with a Federal and state legislative
tracking and monitoring system. From its web site, GoverNet Affairs serves as
a "virtual" legislative assistant using customizable reporting tools that can
search for and report on pending legislation, and provide abstracts and
comparisons of pending legislation to law firms, lobbyists and other
interested parties.
The Company has accounted for this transaction using the purchase
method of accounting. The acquisition of GoverNet Affairs was deemed
significant, accordingly, separate historical and pro forma financial
statements are filed herewith.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The appropriate financial statements are filed herewith as Annex A.
(b) Pro forma Financial Information.
The appropriate pro forma financial information relating to the
acquisition is filed herewith as part of Annex A.
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
2.1* Contract for Sale of Stock, dated November 8, 1999, by and
between John R. Marsh, Ronald W. Hogan, and Charles E. Bowen,
Jr., as Sellers, and Internet Law Library, Inc., as Buyer.
2.2* Option Agreement to Purchase Stock, dated November 8, 1999, by
and between Internet Law Library, Inc., as Seller, and Ronald
W. Hogan, as Optionee.
2.3* Option Agreement to Purchase Stock, dated November 8, 1999,
by and between Internet Law Library, Inc., as Seller, and
Charles E. Bowen, Jr., as Optionee.
2.4* Option Agreement to Purchase Stock, dated November 8, 1999, by
and between Internet Law Library, Inc., as Seller, and John R.
Marsh, as Optionee.
2.5* Letter, dated November 15, 1999, from the stockholders of
GoverNet Affairs, Inc. to Hunter M.A. Carr, the President and
Chief Executive Officer of Internet Law Library, Inc.
2.6* Unanimous Written Consent of Directors of Internet Law
Library, Inc., dated November 15, 1999.
</TABLE>
* Previously filed as an exhibit to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 30,
1999, and incorporated herein by reference.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNET LAW LIBRARY, INC.
Date: January 31, 2000 By: /s/ Hunter M.A. Carr
--------------------------
Hunter M.A.Carr
President and
Chief Executive Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
2.1* Contract for Sale of Stock, dated November 8, 1999, by and
between John R. Marsh, Ronald W. Hogan, and Charles E. Bowen,
Jr., as Sellers, and Internet Law Library, Inc., as Buyer.
2.2* Option Agreement to Purchase Stock, dated November 8, 1999, by
and between Internet Law Library, Inc., as Seller, and Ronald
W. Hogan, as Optionee.
2.3* Option Agreement to Purchase Stock, dated November 8, 1999,
by and between Internet Law Library, Inc., as Seller, and
Charles E. Bowen, Jr., as Optionee.
2.4* Option Agreement to Purchase Stock, dated November 8, 1999, by
and between Internet Law Library, Inc., as Seller, and John R.
Marsh, as Optionee.
2.5* Letter, dated November 15, 1999, from the stockholders of
GoverNet Affairs, Inc. to Hunter M.A. Carr, the President and
Chief Executive Officer of Internet Law Library, Inc.
2.6* Unanimous Written Consent of Directors of Internet Law
Library, Inc., dated November 15, 1999.
</TABLE>
* Previously filed as an exhibit to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 30,
1999, and incorporated herein by reference.
<PAGE>
ANNEX A
C 0 N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report................................................A-2
Balance Sheets..............................................................A-3
Statements of Operations....................................................A-4
Statements of Changes in Shareholders' Equity (Deficit).....................A-5
Statements of Cash Flows....................................................A-6
Notes to Financial Statements.......................................A-7 to A-11
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
GoverNet Affairs, Inc.
We have audited the accompanying balance sheets of GoverNet Affairs, Inc. as
of June 30, 1999 and 1998 and the related statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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 financial statements referred to above present fairly, in
all material respects, the financial position of GoverNet Affairs, Inc. as of
June 30, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Harper & Pearson Company
Houston, Texas
January 28, 2000
A-2
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<TABLE>
<CAPTION>
GOVERNET AFFAIRS, INC.
BALANCE SHEETS
JUNE 30, 1999 AND 1998
ASSETS 1999 1998
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,316 $ 14,139
Accounts receivable, trade 9,400 -
--------- ---------
TOTAL CURRENT ASSETS 12,716 14,139
--------- ---------
EQUIPMENT
Computer equipment 45,040 35,825
Less accumulated depreciation (34,105) (26,017)
--------- ---------
10,935 9,808
--------- ---------
OTHER ASSETS, NET
Organization costs - 318
Content costs 4,389 6,144
Software development costs 61,557 59,695
--------- ---------
65,946 66,157
--------- ---------
$ 89,597 $ 90,104
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 25,078 $ 17,863
Due to shareholders 90,205 125,913
Deferred revenue 20,517 4,816
--------- ---------
TOTAL CURRENT LIABILITIES 135,800 148,592
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $1 par value, 10,000 shares authorized,
1,363 and 1,000 shares outstanding at June 30, 1999
and 1998, respectively 1,363 1,000
Additional paid-in capital 199,637 -
Retained earnings (deficit) (247,203) (59,488)
--------- ---------
(46,203) (58,488)
--------- ---------
$ 89,597 $ 90,104
========= =========
See accompanying notes.
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
GOVERNET AFFAIRS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
----------------- ----------------
<S> <C> <C>
REVENUES $ 33,999 $ 69,482
---------- ---------
EXPENSES
Sales and Marketing 22,866 10,134
Production and Computer Services 84,564 15,883
General and Administrative 115,231 29,805
Depreciation and Amortization 19,429 16,001
---------- ---------
242,090 71,823
---------- ---------
(208,091) (2,341)
INTEREST EXPENSE 5,050 1,176
---------- ---------
NET LOSS $ (213,141) $ (3,517)
========== =========
BASIC LOSS PER SHARE $ (173.23) $ (0.35)
========== =========
See accompanying notes.
</TABLE>
A-4
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<TABLE>
<CAPTION>
GOVERNET AFFAIRS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1997 $ 1,000 $ - $ (25,304) $ (24,304)
DISTRIBUTIONS - - (30,667) (30,667)
NET LOSS - - (3,517) (3,517)
--------------- --------------- --------------- ---------------
BALANCE, June 30, 1998 1,000 - (59,488) (58,488)
SALE OF COMMON STOCK 363 199,637 - 200,000
DISTRIBUTIONS - - 25,426 25,426
NET LOSS - - (213,141) (213,141)
--------------- --------------- --------------- ---------------
BALANCE, June 30, 1999 $ 1,363 $199,637 $(247,203) $ (46,203)
================ =============== =============== ===============
See accompanying notes.
</TABLE>
A-5
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<TABLE>
<CAPTION>
GOVERNET AFFAIRS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(213,141) $ (3,517)
--------- ---------
Adjustments to reconcile net loss to net cash
(used) provided by operating activities:
Depreciation and amortization 19,429 16,001
Changes in operating assets:
Accounts receivable, trade (9,400) -
Accounts payable 7,215 13,792
Deferred revenue 15,701 4,816
--------- ---------
Total adjustments 32,945 34,609
--------- ---------
Net Cash (Used) Provided by Operating Activities (180,196) 31,092
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment, net (9,215) (6,249)
Purchase of software development costs (11,130) (51,164)
--------- ---------
Net Cash Used by Investing Activities (20,345) (57,413)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional borrowings from shareholders 47,242 93,847
Repayments due to shareholders (82,950) (31,250)
Proceeds from sale of stock 200,000 -
Distributions, net 25,426 (30,667)
--------- ---------
Net Cash Provided by Financing Activities 189,718 31,930
--------- ---------
(DECREASE) INCREASE IN CASH (10,823) 5,609
CASH AT BEGINNING OF YEAR 14,139 8,530
--------- ---------
CASH AT END OF YEAR $ 3,316 $ 14,139
========= =========
See accompanying notes.
</TABLE>
A-6
<PAGE>
GOVERNET AFFAIRS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
GoverNet Affairs, Inc. (the Company) was incorporated on May
31, 1996 for the purpose of developing and marketing a suite
of legislative and related government information products and
services via the Internet.
NATURE OF OPERATIONS - The Company has commenced commercial
operations and has devoted substantial efforts to financial
planning, raising capital and identifying business and
marketing opportunities. As a Company with limited operating
and working capital, it is subject to the risks associated
with early stage companies that lack working capital,
operating resources and contracts, cash and ready access to
the credit and equity markets. If the Company is not able to
raise adequate levels of debt and equity capital to further
its commercial operations or to implement its plan to develop
and market its services, there is concern that the Company
will not develop the resources necessary to continue as a
going concern. (See Note E)
ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Estimates that
materially impact the Company's financial statements include
the valuation and amortization of the Company's investment in
content and development costs. Actual results could differ
from those estimates and the results could have a material
impact on the operations of the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS - In management's opinion,
financial instruments carrying values approximate fair values.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit
risk consist principally of trade receivables and cash. The
Company places its cash with high credit quality financial
institutions. To reduce credit risk, a customer's credit
history is reviewed before extending credit. Management is of
the opinion that all accounts receivables at June 30, 1999 are
collectible; therefore, no allowance for doubtful accounts has
been recorded.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
unrestricted demand deposit accounts.
A-7
<PAGE>
GOVERNET AFFAIRS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
EQUIPMENT - Equipment is stated at cost. Depreciation of
equipment is provided for using accelerated methods over
estimated useful lives of three to five years. Expenditures
for additions, major renewals, and betterments are capitalized
and expenditures for maintenance and repairs are charged to
earnings as incurred.
When properties are retired or otherwise disposed of, the cost
thereof and the applicable accumulated depreciation is removed
from the respective accounts and the resulting gain or loss is
reflected in earnings.
CONTENT AND SOFTWARE DEVELOPMENT COSTS - Capitalized content
and software development costs are amortized over the
estimated lives of five and eight years, respectively, on the
straight-line basis. Accumulated amortization as of June 30,
1999 and 1998 is $23,385 and $12,362, respectively. Due to the
speed with which changes are developing in the computer
industry, it is possible that the remaining net value of these
assets and estimated economic lives could change in the near
term.
BASIC LOSS PER SHARE - Basis loss per share of common stock is
based on the weighted average number of shares outstanding
during the year.
FEDERAL INCOME TAXES - The Company has elected to be taxed as
an S Corporation under the Internal Revenue Code. In lieu of
corporate income taxes, the shareholders of the Company are
taxed on their proportionate share of the Company's taxable
income.
STATEMENTS OF CASH FLOWS - Interest paid was approximately
$5,000 and $1,000 for the years ended June 30, 1999 and 1998,
respectively.
NOTE B DUE TO SHAREHOLDERS
Due to shareholders represents operational funds advanced to
the Company by the shareholders. Subsequent to June 30, 1999,
the Company was acquired by another entity and this debt was
forgiven. (See Note E.)
A-8
<PAGE>
GOVERNET AFFAIRS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE C RELATED PARTY TRANSACTIONS
During fiscal 1998, the Company transferred title to an
automobile to the majority stockholder in exchange for
assumption of the related note payable and a reduction of
the amount due shareholders.
NOTE D COMMITMENTS
The Company leases office space from the majority shareholder
under an informal lease agreement. Total rent expense at June
30, 1999 and 1998 amounted to $3,850 each year. Subsequent to
June 30, 1999, the Company entered into a sublease agreement
with an unrelated third party for office space and furniture
for $3,535 per month through December 2001.
During fiscal 1999, the Company granted stock options to two
employees for the purchase of a total of 87 shares at an
option price of $100 per share. The options vested ratably
over two years. At June 30, 1999, none of the options were
exercisable. Coincident with the subsequent change in
ownership of the Company described in Note E, the options
became immediately exercisable and 29 shares were issued for a
total of $2,900. The remaining options expired when the
employee left the Company.
NOTE E EVENTS SUBSEQUENT TO JUNE 30, 1999
The Company borrowed $145,000 from its shareholders.
The shareholders of the Company entered into an agreement to
sell all of the outstanding stock of the Company to Internet
Law Library, Inc. ("Internet Law") in exchange for stock in
the acquiring company. Coincident with this transaction,
$22,000 of the above borrowings were repaid in cash, 145
shares of stock were issued in lieu of repayment of $123,000
and all remaining amounts due to shareholders were forgiven.
On November 15, 1999, the Company's shareholders agreed to
exchange all of their stock for 446,352 shares of common stock
of Internet Law plus the assumption by Internet Law of certain
of the Company's liabilities totaling $41,000. Two promissory
notes totaling $22,000 were included in this amount.
A-9
<PAGE>
GOVERNET AFFAIRS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
The unaudited pro forma combined balance sheet of the Company
and Internet Law at June 30, 1999, and the unaudited pro forma
combined results of operations of the Company and Internet Law
for the year ended June 30, 1999, and for the period from
Internet Law's inception on November 30, 1998 to June 30, 1999
(assuming the Company had been acquired on July 1, 1998),
respectively, are shown below.
<TABLE>
<CAPTION>
Internet Law Pro Forma GoverNet
Library, Inc. Adjustments Affairs, Inc. Combined
------------- ----------- ------------- --------
(As reported) (Unaudited)
<S> <C> <C> <C> <C>
BALANCE SHEET AT JUNE 30, 1999
Current assets $ 67,246 $ 12,716 $ 79,962
Intellectual property and equipment, net 2,622,754 76,881 2,699,635
Goodwill, net - NOTE 1 - $1,086,790 - 1,086,790
---------- ---------- --------- -----------
Total assets $2,690,000 $1,086,790 $ 89,597 $ 3,866,387
========== ========== ========= ===========
Current liabilities $ 549,194 $ 135,800 $ 684,994
Shareholders' equity 2,140,806 $1,086,790 (46,203) 3,181,393
---------- ---------- --------- -----------
Total liabilities and shareholders' equity $2,690,000 $1,086,790 $ 89,597 $ 3,866,387
========== ========== ========= ===========
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1999 - NOTE 2
Revenues $ 53,520 - $ 33,999 $ 87,519
---------- ---------- --------- -----------
Net loss $ (612,214) $ (271,697) $(213,141) $(1,097,052)
========== ========== ========= ===========
</TABLE>
NOTE 1 To record goodwill based on the purchase of the Company by
Internet Law for common stock valued at $1,300,000. Additional
purchase consideration in the form of the assumption of
certain liabilities of the Company as of the transaction date
(approximately $41,000 at November 15, 1999) has not been
included in this pro forma analysis.
A-10
<PAGE>
GOVERNET AFFAIRS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 2 In Management's opinion, the unaudited pro forma combined
results of operations is not indicative of the actual results
that would have occurred had the acquisition been completed at
July 1, 1998, or of the future results of operations of the
combined companies.
A-11
