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): December 30, 1999
PRINTONTHENET.COM, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
000-14614 65-0896930
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(Commission File Number) (IRS Employer Identification No.)
4491 South State Road 7, Suite 214, Fort Lauderdale, Florida 33314
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (954) 581-4233
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NET LNNX, INC.
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(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On December 30, 1999, PrintOnTheNet.com, Inc. (the "Company" or "POTN")
completed its acquisition of PrintAmerica Interactive, Inc. ("PrintAmerica") in
a transaction (the "Acquisition") in which all of PrintAmerica's outstanding
common stock (1,000 shares) was acquired for one million shares of unregistered
common stock of the Company. The sellers executed a non compete agreement in
connection with the Acquisition, and also agreed to an 18 month lock up
agreement on the Company's common stock. The Acquisition will be recorded
similar to a pooling of interests for accounting purposes since 100% of the
common stock of PrintAmerica is owned by the parents of brothers Benjamin
Rogatinsky and Samuel Rogatinsky, who collectively own approximately 85% of the
common stock of the Company. Benjamin Rogatinsky is the Chief Executive Officer
and a Director of the Company, and Samuel Rogatinsky is the President and a
Director of the Company. Additionally, Ben Rogatinsky and Sam Rogatinsky had
served as President and Vice President, respectively, of PrintAmerica.
PrintAmerica will be merged into the Company shortly following the Acquisition.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
FINANCIAL STATEMENTS
(a) Financial Statements of Businesses Acquired
The following audited financial statements of PrintAmerica as of and
for the year and period ended December 31, 1998 and 1997, respectively, are
provided herein:
(1) Independent Auditor's Report for the year ended December 31,
1998
(2) Balance Sheet as of December 31, 1998
(3) Statement of Operations for the year ended December 31, 1998
(4) Statement of Shareholders' Equity for the year ended December
31, 1998
(5) Statement of Cash Flows for the year ended December 31, 1998
(6) Notes to Financial Statements for the year ended December 31,
1998
(7) Independent Auditor's Report for the period from July 30, 1997
(Inception) through December 31, 1997
(8) Balance Sheet as of December 31, 1997
(9) Statement of Operations for the period from July 30, 1997
(Inception) through December 31, 1997
(10) Statement of Shareholders' Equity for the period from July 30,
1997 (Inception) through December 31, 1997
(11) Statement of Cash Flows for the period from July 30, 1997
(Inception) through December 31, 1997
(12) Notes to Financial Statements for the period from July 30,
1997 (Inception) through December 31, 1997
2
<PAGE>
The following unaudited financial statements of PrintAmerica as of and
for the nine month interim periods ended September 30, 1999 and 1998 are
provided herein:
(1) Balance Sheets as of September 30, 1999 and 1998
(2) Statements of Operations for the nine month periods ended
September 30, 1999 and 1998
(3) Statement of Shareholders' Equity for the nine month period
ended September 30, 1999
(4) Statement of Shareholders' Equity for the nine month period
ended September 30, 1998
(5) Statements of Cash Flows for the nine month periods ended
September 30, 1999 and 1998
(6) Notes to Financial Statements (Unaudited)
(b) Unaudited Pro Forma Financial Information
(1) Pro Forma Combined Condensed Balance Sheet as of September 30,
1999 (Unaudited)
(2) Pro Forma Combined Condensed Statement of Operations for the
nine month period ended September 30, 1999 (Unaudited)
(3) Notes to Pro Forma Combined Condensed Financial Statements
(Unaudited)
(c) Exhibit No. Exhibit
23 Independent Auditors' Consent of Esteban Brown, CPA, PA
3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
PrintAmerica Interactive, Inc.
I have audited the accompanying consolidated balance sheet of PrintAmerica
Interactive, Inc. (a Florida corporation) and Subsidiary as of December 31,
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these consolidated financial statements based on my audit.
I conducted this audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PrintAmerica
Interactive, Inc. as of December 31, 1998, and the results of operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Esteban Brown CPA, PA
Miami, Florida
December 17, 1999
With respect to Notes 8, 9 and 13
June 8, 2000
4
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,1998
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<S> <C>
ASSETS
CURRENT ASSETS
Due from Factor (Note 2) $ 45,181
Accounts receivable (Note 2) 19,997
Inventory (Note 3) 124,325
Prepaid insurance 4,509
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TOTAL CURRENT ASSETS 194,012
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PROPERTY AND EQUIPMENT, NET (NOTE 4) 394,739
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OTHER ASSETS
Intangible assets, net (Note 5,10) 377,182
Deposits 5,898
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TOTAL OTHER ASSETS 383,080
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TOTAL ASSETS $ 971,831
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion (Note 6,10) $ 95,712
Bank overdraft 14,586
Accounts payable 213,942
Accrued expenses 11,487
Due to affiliate (Note 9) 46,219
Related party loans (Note 8) 72,866
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TOTAL CURRENT LIABILITIES 454,812
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LONG - TERM LIABILITIES
Deferred taxes (Note 7) 1,931
Notes payable long-term portion (Note 6,10) 384,177
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TOTAL LONG - TERM LIABILITIES 386,108
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COMMITMENTS (NOTE 11,13)
STOCKHOLDERS' EQUITY
Common stock, par value $1.00, 1,000 shares authorized,
issued and outstanding (Note 12) 1,000
Paid-in capital (Note 8) 103,745
Retained earnings 26,166
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TOTAL STOCKHOLDERS' EQUITY 130,911
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 971,831
=================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31, 1998
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<S> <C>
REVENUES $ 1,544,088
COST OF SALES 1,009,624
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GROSS PROFIT 534,464
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 476,434
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INCOME FROM OPERATIONS 58,030
INTEREST EXPENSE 28,054
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INCOME BEFORE INCOME TAXES 29,976
PROVISION FOR INCOME TAXES 4,915
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NET INCOME $ 25,061
=================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the year ended December 31, 1998
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Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
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<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,000 $1,000 $ 35,776 $ 1,105 $ 37,881
Capital contributions 0 0 56,267 0 56,267
Value of services donated
by related parties 0 0 11,702 0 11,702
Net Income 0 0 0 25,061 25,061
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Balance at December 31, 1998 1,000 $1,000 $103,745 $26,166 $130,911
=================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31, 1998
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<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,061
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 61,843
Services contributed by an affiliated entity 11,702
Deferred income taxes 1,835
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Restricted cash (45,181)
Accounts receivable 59,170
Inventory (117,325)
Prepaid insurance (4,509)
Deposits (5,898)
Accounts payable 28,436
Accrued expenses 11,248
Income taxes payable 46,219
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 72,601
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (103,698)
Net cash payments for acquisitions (40,000)
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NET CASH USED BY INVESTING ACTIVITIES (143,698)
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CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 14,586
Capital contributions 56,267
Proceeds from related party loans (net of repayments) 72,866
Principal repayments on notes payable (81,552)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 62,167
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NET DECREASE IN CASH (8,930)
CASH - BEGINNING OF YEAR 8,930
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CASH - END OF YEAR $
-
=================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
8
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the year ended December 31, 1998
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<S> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 28,054
Non cash transactions:
Notes issued to acquire property $79,750
and equipment
</TABLE>
See Notes to Consolidated Financial Statements
9
<PAGE>
PrintAmerica Interactive, Inc.
Notes to Consolidated Financial Statements
Note 1 - Nature of Operations and Significant Accounting Policies
Nature of Operations
PrintAmerica Interactive, Inc. and Subsidiary ("PrintAmerica" or "the
Company") specializes in quick printing in the South Florida area. The
Company is a Florida corporation, and was established on July 30, 1997
as Budget Printing & Graphics, Inc., (BDP). On March 19, 1998, BDP
changed its name to PrintAmerica Management Company, Inc., and again
changed its name to PrintAmerica Interactive, Inc. on September 15,
1999.
Revenue Recognition
Revenue from sales of printed business materials is recognized upon
shipment of product.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Provision for income taxes is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
Inventory
Inventory, consisting of printing supplies and work in process, is
valued at the lower of cost or market value using the first-in
first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method, half-year convention, over the
estimated useful lives of the assets.
10
<PAGE>
Valuation of Long-Lived Assets
The Company recognizes impairment losses on impaired long-lived assets
(property and equipment and intangible assets) based on the amount by
which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined by using a current market value
modeling approach or by evaluating the current market value of the
acquired business using fundamental analysis.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions may affect the
reported amounts of assets, liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Cash, accounts receivables, accounts payable, debt, accrued expenses
and other liabilities are carried at amounts which reasonably
approximate their fair value due to the short-term nature of these
amounts or due to variable rates of interest which are consistent with
current market rates.
Note 2 - Due from Factor
The Company has entered into a factoring agreement (the "Agreement")
with First Southern Bank (the "Bank") whereby the Company sells
eligible accounts receivable to the Bank. The Bank charges a service
fee of 3.25% of the face amount of each invoice, and holds back 10%
(the "holdback"), pending collection by the Bank of the invoice amount.
When the invoice is collected by the Bank, the holdback is remitted to
the Company. At the Banks discretion, accounts receivable remaining
uncollected past ninety days are subject to repurchase by the Company.
The Bank's position is secured and has filed a UCC financing statement
covering all accounts receivable, inventory, and all other intangible
and tangible assets of the Company, including the holdback, which
amounted to $45,181 at December 31, 1998. As of December 31, 1998, the
Company sold $409,798 of accounts receivable which the Company could be
obligated to repurchase if the underlying accounts receivable are not
collected by the Bank as discussed above.
11
<PAGE>
Note 3 - Inventory
As of December 31, 1998, inventory consisted of the following.
Print materials and supplies $ 112,209
Work in process 12,116
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Total $ 124,325
=========
Note 4 - Property and Equipment
As of December 31, 1998, property and equipment consisted of the
following.
<TABLE>
<CAPTION>
Estimated
Useful
Amount Lives
------ -----
<S> <C> <C>
Manufacturing equipment $327,246 10-20 years
Office equipment 19,019 3-10 years
Vehicle 10,230 5 years
Leasehold improvements 52,378 10 years
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Total 408,873
Less accumulated depreciation (14,134)
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$394,739
========
</TABLE>
Depreciation expense was $13,691 for the year ended December 31, 1998.
Note 5- Intangible assets
As of December 31, 1998, intangible assets consisted of the following.
Excess of cost over assets acquired $ 331,044
Non-compete agreements 100,000
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431,044
Less accumulated amortization (53,862)
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$ 377,182
=======
Excess of cost over assets acquired and covenants not to compete are
being amortized over ten years and periods from two to five years,
respectively. Amortization expense was $48,152 for the year ended
December 31, 1998.
12
<PAGE>
Note 6- Notes Payable
The Company is a party to several promissory notes as follows:
<TABLE>
<S> <C>
Acquisitions:
Note payable dated August 28, 1997, issued to acquire Kram Printing,
Inc. Face value of $125,000, monthly principal and interest payment of
$2,475 (interest at 7%) payable
through July 2002. $ 97,713
Note payable dated March 16, 1998, issued to acquire RJ Menu
Company. Face value of $100,000, monthly principal and
interest payment of $1,477 (interest at 6.5%) payable through
February 2005. 91,398
Note payable dated March 16, 1998, issued to acquire
Cloverleaf Printing, Inc. Face value of $151,000, monthly
principal and interest payment of $1,715 (interest
at 6.5%) based on a ten year amortization period.
Additional principal payments of $25,000 in April 2000, $25,000 in
April 2001, and final payment of $45,700
in April 2002. 142,753
Note payable dated April 13, 1998, issued to acquire Denny Printing
Corp. Face value of $70,000, monthly principal and interest payment of
$1,386 (interest at 6.5%) payable through
March 2003. 62,017
Equipment purchases:
Note payable dated October 24, 1998 for purchase of equipment. Face
value of $51,750, monthly principal and interest payment $1,312
(interest at 10%) payable through August 2002, secured
by manufacturing equipment. 49,084
Note payable dated April 24, 1998 in favor of the Bank
for purchase of equipment. Face value of $28,000, monthly
principal and interest payment of $905 (interest at 10%) payable
through March 2000, secured by manufacturing equipment. 21,746
</TABLE>
13
<PAGE>
Note 6- Notes Payable (Continued)
<TABLE>
<S> <C>
Assumption of note payable to GE Capital resulting from acquisition of
Cloverleaf Printing Inc. Face value of $ 40,960, monthly principal and
interest payment of $3,112 (interest at 10%) payable through May 1999. 15,178
------
Total 479,889
Current portion (95,712)
-------
Long-term portion $384,177
=======
</TABLE>
At December 31, 1998, aggregate maturities of notes payable were as
follows:
1999 $ 95,712
2000 112,996
2001 113,112
2002 114,861
2003 21,200
Thereafter 22,008
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$479,889
========
Note 7 - Income Taxes
As of December 31, 1998, the provision for income taxes consisted of
the following:
Current Federal income taxes $ 2,219
Current State income taxes 861
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$ 3,080
Deferred Federal income taxes $ 1,322
Deferred State income taxes 513
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$ 1,835
=========
Total income tax provision $ 4,915
14
<PAGE>
Note 8 - Related Party Loans
During 1998 PrintAmerica borrowed $72,866 (net of repayments) from
Benjamin Rogatinsky and Samuel Rogatinsky (the "Rogatinskys") including
amounts borrowed through National Holding Company Inc.'s ("National
Holding", affiliated with the Company through common ownership) account
with Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch").
The Rogatinskys served as officers of PrintAmerica and their parents
were the sole shareholders of PrintAmerica. These borrowings were
interest free and had no fixed due date. PrintAmerica had co-guaranteed
the National Holding debt to Merrill Lynch. On December 30, 1999,
PrintAmerica was acquired by a related company (see Note 12). On March
14, 2000, Merrill Lynch initiated a lawsuit against several parties
including PrintAmerica and National Holding demanding repayment of the
loans. In May 2000, all amounts owed by PrintAmerica to the Rogatinskys
pursuant to such loans were contributed to the capital of the company
that acquired PrintAmerica, and the lawsuit was settled and the
guarantees released. See Note 13.
Note 9 - Related Parties
The Company entered into a five year lease agreement with US Property
Management, Inc, (a related party through common ownership), for one of
its manufacturing facilities. The lease is at a fair market rate, and
total rent expense related to the lease was $11,702 for the year ended
December 31, 1998. US Property Management, Inc. did not require the
Company to pay the amount due, and such amount was credited to paid-in
capital.
During the year ended December 31, 1998, the Company purchased $77,501
and $27,758, respectively, of printing materials and printing services
from National Lithographers & Publishers, Inc., ("National
Lithographers") and Royal Industries, Inc., (both related parties
through common ownership). In addition, the Company provided $31,282 of
printing services to National Lithographers during the year ended
December 31, 1998. At December 31, 1998, the net amount due to National
Lithographers was $46,219. See Note 13.
The Company leased its employees from National Payroll Services, Inc.
(a related party through common ownership). The amounts charged for
salaries, wages and the related employment taxes and other benefits
totaled $522,802 for the year ended December 31, 1998.
During the year ended December 31, 1998, the Company paid consulting
fees of $41,000 to a party related to the owners of the Company.
15
<PAGE>
Note 10 - Acquisitions
During the year ended December 31, 1998, the Company purchased all of
the outstanding common stock of Denny Printing, Inc. ("Denny") and
certain assets and liabilities and the operations of RJ Menu Company
("RJ Menu") and Cloverleaf Printing, Inc. ("Cloverleaf Printing").
Payment terms were as follows:
o Denny Printing was acquired on April 13, 1998. The
purchase price was $100,000, consisting of a cash
payment of $30,000 and issuance of a promissory note
for $70,000 payable over 5 years including interest
at 7% per annum.
o RJ Menu was acquired on March 16, 1998. The purchase
price was $125,000, consisting of a cash payment of
$25,000 and issuance of a promissory note for
$100,000 payable over 7 years including interest at
6.5% per annum.
o Cloverleaf Printing was acquired on March 16, 1998.
The purchase price was $151,000, consisting of a
promissory note payable based on a 10 year
amortization period including interest at 6.5% per
annum, principal reductions of $25,000 at the end of
the second and third year, and a final balloon
payment for the remaining outstanding principal
balance at the end of year four. Additionally,
certain assets and liabilities of Cloverleaf were
assumed.
The acquisitions were accounted for under the purchase method resulting
in the following aggregate allocation of purchase price:
<TABLE>
<S> <C>
Cash acquired $ 15,000
Accounts receivable acquired 63,298
Inventory acquired 6,000
Property, plant and equipment acquired 235,700
Non compete agreements 75,000
Excess of cost over assets acquired 212,044
Assumption of debt and trade payables (231,042)
-------
Total purchase price $ 376,000
========
</TABLE>
16
<PAGE>
Note 11 - Commitments
The Company is a party to several operating leases for facilities and
office equipment, as follows:
Facilities:
o Five-year lease dated September 1, 1998 with initial
annual rent of $32,970.
o Five-year lease dated August 28, 1997 with initial
annual base rent of $9,000, and scheduled four
percent (4%) increases for the next four years.
o Five-year lease dated March 1, 1998 with annual base
rent of $10,800 for the first two years, $11,556 for
the third and fourth years, and $12,360 for the last
year. Subject to a five-year renewal option.
Equipment:
o Three-year office equipment lease dated August 13,
1998 with monthly rental payments of $1,025.
Minimum annual rents, including sales taxes, on these leases are as
follows.
1999 $ 69,300
2000 70,400
2001 64,100
2002 48,100
2003 25,600
------
Total $ 277,500
=======
Total rent expense was $47,028 for such operating leases for the year
ended December 31, 1998.
Note 12 - Subsequent event
On December 30, 1999, PrintAmerica was acquired by PrintOnTheNet.com,
Inc. ("POTN"), a publicly traded company. POTN issued one million
shares of unregistered common stock in exchange for the outstanding
common stock of the Company. The Company was owned by the parents of
the Rogatinskys, the founders and majority shareholders of POTN.
PrintAmerica was merged into POTN in January 2000. See Notes 8 and 13.
Note 13 - Guarantees and Litigation Matters
PrintAmerica co-guaranteed up to $7,500,000 in obligations of National
Lithographers to the Bank. The underlying indebtedness secured by these
guarantees is in default and there are insufficient assets of National
Lithographers to satisfy the debt. The Bank has instituted proceedings
against National Lithographers to collect the amount owed.
17
<PAGE>
PrintAmerica had also co-guaranteed the obligations of National Holding
(parent of National Lithographers) to Merrill Lynch. On March 14, 2000,
National Holding's indebtedness to Merrill Lynch of approximately
$1,045,000 was in default and Merrill Lynch instituted a lawsuit
against the borrowers and all the guarantors to collect the amount
owed.
On June 8, 2000, POTN, the Rogatinskys, Merrill Lynch and the Bank
negotiated a settlement and obtained a release from the guarantees and
dismissal of the Merrill Lynch action as against POTN. Pursuant to the
settlement:
(a) All shares of POTN common stock owned by the Rogatinskys,
their families and related entities were pledged to the Bank
and POTN was assigned a second priority lien on the same
(except with respect to 1,250,000 shares (as described
below)). The Bank continues to have a first priority lien on
the shares acquired or received by POTN in (b), (c) and (d)
below. Merrill Lynch held a second priority position with
respect to 1,250,000 shares of POTN's common stock owned by
the Rogatinskys which pledge was released upon the sale of
such shares to POTN for $112,500 on June 30, 2000 (see (c)
below).
(b) POTN purchased 11,111,111 shares of its common stock for
$1,000,000 ($0.09 per share) from the Rogatinskys. The
proceeds received by the Rogatinskys from the sale of these
shares were paid to Merrill Lynch and the Bank.
(c) The balance owed to Merrill Lynch was satisfied personally by
the Rogatinskys. On June 30, 2000, the Rogatinskys sold POTN
1,250,000 shares of its common stock generating $112,500 in
proceeds which was paid directly to Merrill Lynch. Further, on
or before June 30, 2001, the Rogatinskys at their option may
sell to POTN that number of shares required to generate
proceeds of up to $142,500. Such proceeds are to be paid
directly to Merrill Lynch. The price per share with respect to
each such sale will be the lower of $0.09 per share, or
one-half of the then current market price per share.
(d) POTN purchased a printing press from National Lithographers
(and obtained an assignment of lien from Merrill Lynch), which
was being used by National Lithographers, for $255,000. POTN
sold the printing press receiving $55,921 in net proceeds. In
order to make up the shortfall between $255,000 and the sale
proceeds, the Rogatinskys are obliged to (i) transfer to POTN,
such additional number of shares of POTN common stock at the
lesser of $0.09 per share, or one-half of the then current
market price per share to make up any shortfall, or (ii) under
certain circumstances, sell enough shares to generate proceeds
sufficient to pay the cash shortfall.
18
<PAGE>
(e) POTN will be required to issue additional common stock at a
currently indeterminate price to the Bank as pledgee of all of
the Rogatinskys' stock in POTN if in the future (excluding the
May 2000 private placement and certain other stock issuances),
POTN sells its securities at less than $0.30 per share, and if
its common stock is trading at less than $0.30 per share.
These shares shall also be subject to the pledge to the Bank.
(f) The shares pledged to the Bank are initially restricted from
sale. Such shares may be liquidated by the Bank pursuant to
terms of the settlement agreement. POTN has a right of first
refusal with respect to the sale of the pledged common stock,
which right is subordinate to an identical one held by the
Rogatinskys.
(g) All of the shares issued in connection with the acquisition of
PrintAmerica (Note 12) have been returned to POTN.
(h) The Rogatinskys resigned as officers and directors of POTN.
(i) All amounts due pursuant to related party loans (Note 8) were
contributed to the capital of POTN.
19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
PrintAmerica Interactive, Inc.
I have audited the accompanying balance sheet of PrintAmerica Interactive, Inc.
(a Florida corporation) as of December 31, 1997, and the related statements of
operations, shareholders' equity, and cash flows for the period from July 30,
1997 (Inception) through December 31, 1997. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted this audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of PrintAmerica Interactive, Inc. as
of December 31, 1997, and the results of operations and cash flows for the
period from July 30, 1997 (Inception) through December 31, 1997 in conformity
with generally accepted accounting principles.
Esteban Brown CPA, PA
Miami, Florida
December 17, 1999
20
<PAGE>
PrintAmerica Interactive, Inc.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,930
Accounts receivable 15,869
Inventory 1,000
----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 25,799
----------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET (NOTE 2) 17,282
----------------------------------------------------------------------------------------------------
OTHER ASSETS
Intangible assets, net (Note 3) 138,290
----------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 138,290
----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 181,371
====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, current portion (Note 4,7) $ 22,018
Accounts payable (Note 6) 20,277
Accrued expenses 3,287
Income taxes payable (Note 5) 99
----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 45,681
----------------------------------------------------------------------------------------------------
LONG - TERM LIABILITIES
Deferred taxes (Note 5) 96
Note payable long-term portion (Note 4,7) 97,713
----------------------------------------------------------------------------------------------------
TOTAL LONG - TERM LIABILITIES 97,809
----------------------------------------------------------------------------------------------------
COMMITMENT (NOTE 8)
SHAREHOLDERS' EQUITY
Common stock, par value $1.00, 1,000 shares authorized,
issued and outstanding (Note 9) 1,000
Paid-in capital (Note 6) 35,776
Retained earnings 1,105
----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 37,881
----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 181,371
====================================================================================================
</TABLE>
See Notes to Financial Statements
21
<PAGE>
PrintAmerica Interactive, Inc.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Period from July 30, 1997 (Inception) through December 31, 1997
---------------------------------------------------------------------------------------------
<S> <C>
REVENUES $ 71,860
COST OF SALES 44,472
---------------------------------------------------------------------------------------------
GROSS PROFIT 27,388
OPERATING EXPENSES
General and administrative expenses 17,784
Depreciation and amortization 6,153
---------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 23,937
---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 3,451
INTEREST EXPENSE 2,151
---------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,300
PROVISION FOR INCOME TAXES 195
---------------------------------------------------------------------------------------------
NET INCOME $ 1,105
=============================================================================================
</TABLE>
See Notes to Financial Statements
22
<PAGE>
PrintAmerica Interactive, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Period from July 30, 1997 (Inception) through December 31, 1997
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Retained Shareholders
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance July 30, 1997 - $ - $ - $ - $ -
Capital contributions 1,000 1,000 33,376 - 34,376
Value of services donated - - 2,400 - 2,400
by related parties
Net Income - - - 1,105 1,105
---------------------------------------------------------------------------------------------------
Balance December 31, 1997 1,000 $ 1,000 $ 35,776 $ 1,105 $ 37,881
===================================================================================================
</TABLE>
See Notes to Financial Statements
23
<PAGE>
PrintAmerica Interactive, Inc.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from July 30, 1997 (Inception) through December 31, 1997
-------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,105
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,153
Changes in operating assets and
liabilities, net of effect of
acquisition:
Accounts receivable (15,869)
Accounts payable 20,277
Accrued expenses 3,287
Income taxes payable 99
Deferred taxes 96
-------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 15,148
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (7,725)
Net cash payment for acquisition (30,000)
-------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (37,725)
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 34,376
Value of services donated by related parties 2,400
Non interest bearing loans from affiliates 42,057
Repayment of non interest bearing loans from affiliates (42,057)
Principal repayments on notes payable (5,269)
-------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 31,507
-------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 8,930
CASH - BEGINNING OF YEAR 0
-------------------------------------------------------------------------------------------------
CASH - END OF YEAR $ 8,930
=================================================================================================
</TABLE>
See Notes to Financial Statements
24
<PAGE>
PrintAmerica Interactive, Inc.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Period from July 30, 1997 (Inception) through December 31, 1997
-------------------------------------------------------------------------------------------------
<S> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,151
Income taxes
-
=================================================================================================
</TABLE>
See Notes to Financial Statements
25
<PAGE>
PrintAmerica Interactive, Inc.
NOTES TO FINANCIAL STATMENTS
For the Period from July 30, 1997 (Inception) through December 31, 1997
-------------------------------------------------------------------------------
Note 1 - Nature of Operations and Significant Accounting Policies
Nature of Operations
PrintAmerica Interactive, Inc., (the "Company") specializes in quick
printing in the South Florida area. The Company is a Florida
corporation, and was established on July 30, 1997 as Budget Printing &
Graphics, Inc., (BDP). On March 19, 1998, BDP changed its name to
PrintAmerica Management Company, Inc., and again changed its name to
PrintAmerica Interactive, Inc. on September 15, 1999.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and certain highly
liquid investments with a maturity of three months or less when
purchased. The carrying amount of cash equivalents approximates fair
value due to their short-term nature.
Revenue Recognition
Revenue from sales of printed business materials is recognized upon
shipment of product.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Provision for income taxes is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
Inventory
Inventory consists of printing supplies and is valued at the lower of
cost or market value using the first-in first-out method.
26
<PAGE>
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method,
half-year convention, over the estimated useful lives of the assets.
Valuation of Long-Lived Assets
The Company recognizes impairment losses on impaired long-lived assets
(property and equipment and intangible assets) based on the amount by
which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined by using a current market value
modeling approach or by evaluating the current market value of the
acquired business using fundamental analysis.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions may affect the
reported amounts of assets, liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Cash, accounts receivables, accounts payable, debt, accrued expenses
and other liabilities are carried at amounts which reasonably
approximate their fair value due to the short-term nature of these
amounts or due to variable rates of interest which are consistent with
current market rates.
Note 2 - Property and Equipment
At December 31, 1997, property and equipment consisted of the
following.
Estimated
Useful
Amount Lives
------ -----
Manufacturing equipment $ 10,000 10-20 years
Leasehold improvements 7,725 10 years
-------
17,725
Less accumulated depreciation (443)
---------
$ 17,282
=========
Depreciation expense was $443 for the period ended December 31, 1997.
27
<PAGE>
Note 3 - Intangible Assets
At December 31, 1997, intangible assets consisted of the following.
Excess of cost over assets acquired $ 119,000
Non-compete agreement 25,000
---------
144,000
Less accumulated amortization (5,710)
---------
Total $ 138,290
=========
Excess of cost over assets acquired and non-compete agreement are being
amortized over ten and five years, respectively. Amortization expense
was $5,710 for the period ended December 31, 1997.
Note 4 - Note Payable
Note dated August 28, 1997 issued for purchase of Kram Printing, Inc.
Face value of $125,000, with monthly principal and interest payment of
$2,475 (interest at 7%) payable through July 2002.
$ 119,731
Less current portion ( 22,018)
----------
Long-term portion $ 97,713
==========
At December 31, 1997, aggregate maturity of the note payable is as
follows:
1998 $ 22,018
1999 23,610
2000 25,317
2001 27,146
2002 21,640
--------
$119,731
========
28
<PAGE>
Note 5 - Income Taxes
The provision for income taxes consists of the following:
Current taxes $ 99
Deferred taxes 96
-------
$ 195
=======
Note 6 - Related Parties
During the period ended December 31, 1997, the Company purchased
printing materials and printing services from National Lithographers &
Publishers, Inc. ("National Lithographers") and received certain
management services from National Holding Company ("National Holding").
Both National Lithographers and National Holding are related parties to
the Company through common ownership. National Holding did not require
the Company to pay the $2,400 balance due, and such amount was credited
to paid in capital. The remaining $5,263 was included in accounts
payable as of December 31, 1997.
The Company leased its employees from National Payroll Services, Inc.,
(a related party through common ownership). The amounts charged for
salaries, wages, employment taxes and other benefits were at cost, and
totaled $1,629 for the period ended December 31, 1997.
During the period ended December 31, 1997, certain affiliates of the
Company loaned cash (interest free) aggregating $42,057 to the Company
and the Company repaid these loans to such affiliates.
Note 7 - Acquisition
On August 29, 1997, the Company purchased certain assets and the
operations of Kram Printing, Inc. The purchase price was $155,000,
consisting of a cash payment of $30,000 and issuance of a promissory
note for $125,000 payable over 5 years including interest at 7% per
annum.
The acquisition was accounted for under the purchase method resulting
in the following allocation of purchase price:
Inventory acquired $ 1,000
Property and equipment acquired 10,000
Non compete agreement 25,000
Excess of cost over assets acquired 119,000
-----------
Total purchase price $ 155,000
===========
29
<PAGE>
Note 8 - Commitment
The Company is a party to a five-year lease dated August 28, 1997 with
initial annual base rent of $9,000, and scheduled four percent (4%)
increases for the next four years.
Minimum annual rent, including sales taxes, on this lease are as
follows.
1998 $ 9,250
1999 9,620
2000 10,005
2001 10,400
2002 12,816
---------
Total $ 52,091
=========
Note 9 - Subsequent event
On December 30, 1999, the Company was acquired by PrintOnTheNet.com,
("POTN"), a publicly traded company. POTN issued one million shares of
unregistered common stock for the outstanding common stock of the
Company. The Company was owned by the parents of Ben Rogatinsky and Sam
Rogatinsky, the founders and majority shareholders of POTN. Ben
Rogatinsky and Sam Rogatinsky had served as president and vice
president, respectively, of the Company.
30
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Balance Sheets (Unaudited)
As of September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets
Current Assets
Cash $ -- $ 296
Due from factor (Note 2) 16,760 --
Accounts receivable, net (Note 2) 52,253 26,219
Inventory 159,686 109,658
----------- -----------
Total Current Assets 228,699 136,173
----------- -----------
Property and equipment, net 570,060 398,162
Intangible assets, net (Note 3) 641,868 373,579
Other assets 21,898 5,898
----------- -----------
Total Assets $ 1,462,525 $ 913,812
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of notes payable ( Note 3) $ 132,486 $ 99,763
Current portion of capital lease obligations 2,756 --
Accounts payable and accrued expenses 354,060 188,911
Bank overdraft 62,013 --
Related party loans 453,787 80,851
Due to affiliate 128,259 19,229
----------- -----------
Total current liabilities 1,133,361 388,754
----------- -----------
Notes payable (Note 3) 535,069 419,053
Capital lease obligations 5,206 --
Deferred taxes 13,079 --
----------- -----------
Total Liabilities 1,686,715 807,807
----------- -----------
Commitment (Note 2)
Stockholders' Equity
Common stock (Note 5) 1,000 1,000
Paid in capital 178,745 103,745
Retained earnings (403,935) 1,260
----------- -----------
Total Stockholders' Equity (224,190) 106,005
----------- -----------
Total Liabilities & Stockholders' Equity $ 1,462,525 $ 913,812
=========== ===========
</TABLE>
See Notes to Financial Statements (Unaudited)
31
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Statements of Operations (Unaudited)
For the Nine Month Periods Ended September 30, 1999 and 1998
1999 1998
Net sales $ 1,704,004 $ 926,374
Cost of sales 1,162,898 555,824
----------- -----------
Gross profit 541,106 370,550
Selling, general and administrative 859,294 351,586
----------- -----------
Income (loss) from operations (318,188) 18,964
Interest expense 111,913 18,758
----------- -----------
Income (loss) before taxes (430,101) 206
Provision for income taxes -- 51
----------- -----------
Net income (loss) $ (430,101) $ 155
=========== ===========
See Notes to Financial Statements (Unaudited)
32
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Statement of Shareholders Equity (Unaudited)
For the Nine Month Period Ended September 30, 1999
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Retained Total Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 1,000 $ 1,000 $103,745 $26,166 $130,911
Capital Contributions - - 75,000 - 75,000
Net loss - - - (430,101) (430,101)
----------------------------------------------------------------------------------------------------------------------
Balance September 30, 1999 1,000 $ 1,000 $178,745 $(403,935) $(224,190)
======================================================================================================================
</TABLE>
See Notes to Financial Statements (Unaudited)
33
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Statement of Shareholders Equity (Unaudited)
For the Nine Month Period Ended September 30, 1998
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,000 $ 1,000 $ 35,776 $1,105 $ 37,881
Capital Contributions 0 0 56,267 0 56,267
Value of services donated
by related parties 0 0 11,702 0 11,702
Net Income 0 0 0 155 155
----------------------------------------------------------------------------------------------------------------------
Balance September 30, 1998 1,000 $ 1,000 $103,745 $1,260 $106,005
======================================================================================================================
</TABLE>
See Notes to Financial Statements (Unaudited)
34
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Statement of Cash Flows (Unaudited)
For the Nine Month Periods Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Cash flow from operating activities
Net income $ (430,101) $ 155
Adjustments to reconcile net income to net
cash provided by operations
Depreciation and amortization 93,879 46,382
Deferred income taxes 11,148 -
Services contributed by an affiliated entity - 11,702
Changes in operating assets and liabilities, net of acquisitions:
Due from factor 28,421 (26,219)
Accounts receivable, net (32,257) 15,869
Inventory (35,361) (108,658)
Other assets (11,491) (5,898)
Accounts payable and accrued expenses 128,632 165,150
Due to affiliate 82,040 19,229
----------- -----------
Net cash provided by (used in) operating activities (165,090) 117,712
Cash flow from investing activities
Purchases of equipment (193,886) (155,448)
Net cash payments for acquisitions (75,000) (40,000)
----------- -----------
Net cash used by investing activities (268,886) (195,448)
Cash flow from financing activities
Bank overdraft 47,427 -
Capital contributions 75,000 56,267
Proceeds from related party loans (net of repayments) 380,921 80,851
Principal repayments on notes payable and capital leases (69,372) (68,016)
----------- -----------
Net cash provided by financing activities 433,976 69,102
----------- -----------
Net decrease in cash 0 (8,634)
Cash - beginning of period 0 8,930
----------- -----------
Cash - end of period $ 0 $ 296
=========== ===========
</TABLE>
See Notes to Financial Statements (Unaudited)
35
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Supplemental Disclosure of Cash Flow Information (Unaudited)
For the Nine Month Periods Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 111,913 $ 18,758
Non cash transactions:
Capital lease obligations $ 11,500 -
</TABLE>
See Notes to Financial Statements (Unaudited)
36
<PAGE>
PrintAmerica Interactive, Inc. and Subsidiary
Notes to Financial Statements
For the Nine Month Periods Ended September 30, 1999 and 1998
(Unaudited)
Note 1 - Significant Accounting Policies
Nature of Operations
PrintAmerica Interactive, Inc. (the "Company") specializes in quick
printing in the South Florida area. The Company is a Florida
corporation, and was established on July 30, 1997 as Budget Printing &
Graphics, Inc., (BDP). On March 19, 1998, BDP changed its name to
PrintAmerica Management Company, Inc., and again changed its name to
PrintAmerica Interactive, Inc. on September 15, 1999.
Revenue Recognition
Revenue from sales of printed business materials is recognized upon
shipment of product.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Provision for income taxes is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
Inventory
Inventory, consisting of printing supplies and work in process, is
valued at the lower of cost or market value using the first-in
first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method, half-year convention, over the
estimated useful lives of the assets.
37
<PAGE>
Valuation of Long-Lived Assets
The Company recognizes impairment losses on impaired long-lived assets
(property and equipment and intangible assets) based on the amount by
which the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined by using a current market value
modeling approach or by evaluating the current market value of the
acquired business using fundamental analysis.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions may affect the
reported amounts of assets, liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Cash, accounts receivables, accounts payable, debt, accrued expenses
and other liabilities are carried at amounts which reasonably
approximate their fair value due to the short-term nature of these
amounts or due to variable rates of interest which are consistent with
current market rates.
Note 2 - Accounts Receivable and Due From Factor
The Company is a party to an agreement (the "Agreement") with First
Southern Bank (the "Bank"), whereby the Company sells eligible accounts
receivable to the Bank. The bank charges a service fee of 3.25% of the
face amount of each invoice, and holds back 10% (the "holdback"),
pending collection by the Bank of the invoice amount. When the invoice
is collected by the Bank, the holdback is remitted to the Company. At
the Banks discretion, accounts receivable remaining uncollected past
ninety days are subject to repurchase by the Company. The Bank's
position is secured and it has filed a UCC financing statement covering
all accounts receivable, inventory, and all other intangible and
tangible assets of the Company, including the holdback, which amounted
to $16,760 at September 30, 1999. Such holdback has been classified as
due from factor in the accompanying balance sheet. As of September 30,
1999, the Company sold $337,145 of accounts receivable (net of the
holdback and the service fees) which the Company could be obligated to
repurchase if the underlying accounts receivable are not collected by
the Bank as described above.
38
<PAGE>
Note 3 - Acquisitions
During the nine month period September 30, 1998, the Company purchased
certain assets and liabilities and the operations of three South
Florida quick print shops. Payment terms were as follows:
o RJ Menu Company was acquired on March 16, 1998. The
purchase price was $125,000, consisting of a cash
payment of $25,000 and issuance of a promissory note
for $100,000 payable over 7 years including interest
at 6.5% per annum.
o Denny Printing, Inc. was acquired on April 13, 1998.
The purchase price was $100,000, consisting of a cash
payment of $30,000 and issuance of a promissory note
for $70,000 payable over 5 years including interest
at 7% per annum.
o Cloverleaf Printing, Inc. ("Cloverleaf") was acquired
on March 16, 1998. The purchase price was $151,000,
consisting of a promissory note payable based on a 10
year amortization period including interest at 6.5%
per annum, principal reductions of $25,000 at the end
of the second and third year, and a final balloon
payment for the remaining outstanding principal
balance at the end of year four. Additionally,
certain assets and obligations of Cloverleaf were
assumed.
The acquisitions were accounted for under the purchase method resulting
in the following aggregate allocation of purchase price:
<TABLE>
<S> <C>
Cash acquired $ 15,000
Accounts receivable acquired 63,298
Inventory acquired 6,000
Property, plant and equipment acquired 235,700
Non compete agreements 75,000
Excess of cost over assets acquired 212,044
Assumption of debt and trade payables (231,042)
---------
Total purchase price $ 376,000
=========
</TABLE>
During the nine month period ended September 30, 1999, the Company
purchased certain assets and the operations of Sun Graphics, Inc. This
acquisition was consummated on May 5, 1999. The purchase price was
$340,000, consisting of a cash payment of $75,000 and issuance of a
promissory note for $265,000 (plus interest at 7%) payable monthly
based on a ten year amortization period, with a final balloon payment
for the remaining principal balance at the end of year seven.
39
<PAGE>
The acquisition was accounted for under the purchase method resulting
in the following allocation of purchase price:
Property and equipment $ 25,000
Non compete covenant 25,000
Excess of cost over assets acquired 290,000
-----------
Total purchase price $ 340,000
===========
Note 4 - Related Parties
During 1998 and 1999, Benjamin Rogatinsky and Samuel Rogatinsky (the
"Rogatinskys") funded the Company's operations in part with personal
loans including amounts borrowed through National Holding Company,
Inc.'s ("National Holding", which was affiliated with the Company
through common ownership) account with Merrill Lynch Business Financial
Services, Inc. ("Merrill Lynch"). Benjamin Rogatinsky and Samuel
Rogatinsky had served as the President and Vice President of
PrintAmerica, respectively. These loans were interest free and had no
fixed due date. PrintAmerica had co-guaranteed the National Holding
debt to Merrill Lynch. Such loans from the Rogatinskys are classified
as related party loans in the accompanying balance sheet. In March
2000, Merrill Lynch commenced an action against National Holding and
the guarantors seeking repayment of the loans; in June 2000 the lawsuit
was settled and the guaranties released. As part of the settlement
agreement and guaranty release, in June 2000 the shareholder loans
(which had increased to $1,263,000 by then) were contributed to
capital. Terms of the settlement were disclosed in the Company's Form
10-QSB for the quarterly period ended June 30, 2000 that was filed
prior to filing of this amended Form 8-K.
During 1998 and 1999, the Company purchased printing services from
National Lithographers & Publishers, Inc. ("National Lithographers"), a
wholly owned subsidiary of National Holding, and provided printing
services to National Lithographers during the same periods. The net
cumulative effect of all such transactions was a payable to National
Lithographers of $128,259 and $19,229 as of September 30, 1999 and
1998, respectively, which was classified as due to affiliate in the
accompanying balance sheet. Pursuant to the settlement described above,
due to affiliate was contributed to capital in June 2000.
The Company has five year lease agreements with US Property Management,
Inc, (a related party through common ownership) for two of its
facilities. The leases are at fair market rates, and total rent expense
related to these leases was $45,016 and $11,702 during the nine month
periods ended September 30, 1999 and 1998, respectively. US Property
Management, Inc. did not require the Company to pay the 1998 amount,
which was credited to paid-in capital.
40
<PAGE>
The Company leased its employees from National Payroll Services, Inc.,
(a related party through common ownership). The amounts charged for
salaries, wages and the related employment taxes and other benefits
totaled $607,055 and $320,140 for the nine periods ended September 30,
1999 and 1998, respectively.
The Company paid consulting fees of $30,750 to a party related to the
owners of the Company during the nine month periods ended September 30,
1999 and 1998, respectively.
Note 5 - Subsequent event
On December 30, 1999, the Company was acquired by PrintOnTheNet.com,
Inc. ("POTN"), a publicly traded company. POTN issued one million
shares of unregistered common stock for the outstanding common stock of
the Company. The Company was owned by the parents of Ben Rogatinsky and
Sam Rogatinsky, the founders and majority shareholders of POTN. Ben
Rogatinsky and Sam Rogatinsky had served as president and vice
president, respectively, of the Company.
41
<PAGE>
PRINTONTHENET.COM, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
OVERVIEW
On December 30, 1999, PrintOnTheNet.com, Inc. (the "Company" or "POTN")
completed its acquisition of PrintAmerica Interactive, Inc. ("PrintAmerica") in
a transaction (the "Acquisition") in which all of PrintAmerica's outstanding
common stock (1,000 shares) was acquired for one million shares of unregistered
common stock of the Company. The Acquisition will be recorded similar to a
pooling of interests for accounting purposes since 100% of the common stock of
PrintAmerica is owned by the parents of brothers Benjamin Rogatinsky and Samuel
Rogatinsky, who collectively own approximately 85% of the common stock of the
Company. Benjamin Rogatinsky is the Chief Executive Officer and a Director of
the Company, and Samuel Rogatinsky is the President and a Director of the
Company. Additionally, Ben Rogatinsky and Sam Rogatinsky had served as President
and Vice President, respectively, of PrintAmerica. PrintAmerica will be merged
into the Company shortly following the Acquisition.
The following unaudited pro forma combined condensed financial
statements have been prepared to give effect to the Acquisition, using the
pooling of interests method of accounting. The unaudited pro forma combined
condensed balance sheet as of September 30, 1999 gives effect to the Acquisition
as if it had occurred on September 30, 1999, and combines the historical balance
sheets of the Company and PrintAmerica as of September 30, 1999. The unaudited
pro forma combined condensed statement of operations combine the historical
statement of operations of the Company for the period from January 27, 1999
(Inception) through September 30, 1999, and the historical statement of
operations of PrintAmerica for the nine month period ended September 30, 1999.
The unaudited pro forma combined condensed financial statements have been
prepared based upon the historical financial statements of the Company and
PrintAmerica for the periods stated above. Such pro forma statements may not be
indicative of the results that would have occurred if the Acquisition had been
consummated on the indicated dates, or of the operating results that may be
achieved by the combined companies in the future.
42
<PAGE>
PRINTONTHENET.COM, INC.
Pro Forma Combined Condensed Balance Sheet (Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
POTN PrintAmerica Combined Adjustments Combined
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 15,703 $ -- $ 15,703 $ (15,703)(1) $ --
Cash restricted -- 16,760 16,760 -- 16,760
Accounts receivable, net 25,412 52,253 77,665 (3,206)(2) 74,459
Inventory 2,000 159,686 161,686 -- 161,686
----------- ----------- ----------- ----------- -----------
Total Current Assets 43,115 228,699 271,814 (18,809) 252,905
Property and equipment, net 83,461 570,060 653,251 -- 653,521
Other assets 3,355 21,898 25,253 -- 25,253
Intangible assets, net 325,234 641,868 967,102 -- 967,102
----------- ----------- ----------- ----------- -----------
Total Assets $ 455,165 $ 1,462,525 $ 1,917,690 $ (18,909) 1,898,781
=========== =========== =========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable, current portion $ 76,593 $ 132,486 $ 209,079 $ -- $ 209,079
Capital lease obligations, current portion 9,542 2,756 12,298 -- 12,298
Accounts payable and accrued
expenses 66,992 354,060 421,052 (3,206)(2) 427,846
10,000 (3)
Shareholder loans 358,150 -- 358,150 453,787 (4) 811,937
Related party loans -- 453,787 453,787 (453,787)(4) --
Due to affiliate -- 128,259 128,259 -- 128,259
Bank overdraft -- 62,013 62,013 (15,703)(1) 46,310
----------- ----------- ----------- ----------- -----------
Total current liabilities 511,277 1,133,361 1,644,638 (8,909) 1,635,729
Notes payable 15,576 535,069 550,645 -- 550,645
Capital lease obligations 9,542 5,206 14,748 -- 14,748
Deferred taxes -- 13,079 13,079 -- 13,079
----------- ----------- ----------- ----------- -----------
Total Liabilities 536,395 1,686,715 2,223,110 (8,909) 2,214,201
----------- ----------- ----------- ----------- -----------
Stockholders' Equity
Preferred stock -- -- -- -- --
Common stock 26,554 1,000 27,554 (1,000)(5) 27,554
1,000 (5)
Paid in capital 263,311 178,745 442,056 -- 442,056
Retained earnings (accumulated deficit) (371,095) (403,935) (775,030) (10,000)(3) (785,030)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity (81,230) (224,190) (305,420) (10,000) (315,420)
----------- ----------- ----------- ----------- -----------
Total Liabilities & Stockholders' Equity $ 455,165 $ 1,462,525 $ 1,917,690 $ (18,909) $ 1,898,781
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited)
43
<PAGE>
PRINTONTHENET.COM, INC.
Pro Forma Combined Condensed Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
POTN
----
For the period PrintAmerica
from January ------------
27, 1999 For the Nine
(Inception) Months Ended
through September 30, Pro Forma Pro Forma
September 30, 1999 Combined Adjustments Combined
1999
--------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 75,433 $1,704,004 $ 1,779,437 $ (3,206) (2) $1,776,231
Cost of sales 31,046 1,162,898 1,193,944 (3,206) (2) 1,190,738
--------------- ----------- ----------- ---------- ----------
Gross profit 44,387 541,106 585,493 - 585,493
Selling, General and Administrative
Expenses 254,212 859,294 1,113,506 10,000 (3) 1,123,506
Product development expenses 158,762 - 158,762 158,762
--------------- ------------ ----------- ---------- ----------
Loss from operations (368,587) (318,188) (686,775) (10,000) (696,775)
Interest expense 2,508 111,913 114,421 - 114,421
--------------- ------------ ----------- ---------- ----------
Net loss $ (371,095) (430,101) $ (801,196) $ (10,000) (811,196)
=============== ========== =========== ========== ==========
Basic and Diluted Earnings per Common
Share (0.01) (0.01)
=============== ========== ========== ========== ==========
Average common shares outstanding 26,424,774 1,000,000 27,424,774
=============== ========== ========== ========== ==========
</TABLE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(1) Represents a reclassificiation of POTN's cash to bank overdraft to
reflect the net bank overdraft of the combined entities.
(2) Represents the elimination of intercompany billings from PrintAmerica
to POTN as well as elimination of the related unpaid balances due by
POTN to Print America.
(3) Represents the estimated one time Acquisition related costs.
(4) To reclassify related party loans as shareholder loans since the
Rogatinskys were shareholders of POTN.
(5) Represents the elimination of the common stock of PrintAmerica pursuant
to the subsequent merger, offset by recording one million shares of
unregistered $.001 par value common stock issued by POTN to the sellers
of Print America.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PRINTONTHENET.COM, INC.
By: /S/ Neal Polan
------------------------------------
Neal Polan, Chief Executive Officer
and Director
By: /S/ Robert Norris
------------------------------------
Robert Norris, Chief Financial Officer
Dated: November 8, 2000
45
<PAGE>
EXHIBITS
Exhibit No. Exhibit
----------- -------
23 Independent Auditors' Consent of Esteban Brown, CPA, PA
46
