<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 16, 2000
------------------------------------------------
Date of Report (date of earliest event reported)
uMember.com, Inc.
----------------------------------------------------
Exact name of Registrant as Specified in its Charter
Colorado 33-17229-D 84-0978689
--------------------------- --------------- ---------------------------
State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
10350 Santa Monica Boulevard, Los Angeles, California 90025
-----------------------------------------------------------
Address of Principal Executive Offices Zip Code
(310) 552-3444
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
None
-----------------------------------------------------------
Former Name or Former Address, if Changed Since Last Report
<PAGE>
This Amendment No. 1 to the Current Report on Form 8-K dated March 16, 2000 of
uMember.com, Inc. (uMember or the Company - formerly Art Cards, Inc.) relates
to uMember's acquisition of uMember.com, Inc., a California corporation
(uMember - California), pursuant to a Share Exchange Agreement between the
Company and uMember - California. The purpose of this amendment is to provide
the financial statements of uMember - California required by Item 7(a) of Form
8-K and the pro forma audited financial information required by Item 7(b) of
Form 8-K, which information was excluded from the original filing in reliance
upon Item 7(a)(4) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
DESCRIPTION PAGE
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(i) Independent Public Accountants' Report of
Arthur Andersen LLP, dated May 12, 2000 ............... F-1
(ii) uMember, Inc. (California) Balance Sheets as
of March 31, 2000 (unaudited) and December 31, 1999 ... F-2
(iii) uMember, Inc. (California) Statements of Operations
for the three months ended March 31, 2000
(unaudited) and the periods February 1, 1999
(date of inception) to March 31, 1999 (unaudited),
December 31, 1999 and March 31, 2000 (unaudited) ...... F-3
(iv) uMember, Inc. (California) Statements of
Stockholders' Equity (Deficit) for the three
months ended March 31, 2000 (unaudited) and the
periods February 1, 1999 (date of inception) to
March 31, 1999 (unaudited), December 31, 1999 and
March 31, 2000 (unaudited) ........................... F-4
(v) uMember, Inc. (California) Statements of Cash Flows
for the three months ended March 1, 2000 (unaudited)
and the periods February 1, 1999 (date of inception)
to March 31, 1999 (unaudited), December 31, 1999
and March 31, 2000 (unaudited) ....................... F-5
(vi) uMember, Inc. (California) Notes to Financial
Statements for the three months ended March 31,
2000 (unaudited) and the periods February 1, 1999
(date of inception) to March 31, 1999 (unaudited),
December 31, 1999 and March 31, 2000 (unaudited) ..... F-6
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED) ............. F-16
(i) Pro Forma Combined Statement of Operations for
the period ended December 31, 1999 ................... F-17
(ii) Pro Forma Combined Statement of Operations for the
three months ended March 31, 2000 .................... F-18
(iii) Notes to Pro Forma Combined Financial Statements ..... F-19
2
<PAGE>
(c) EXHIBITS
Exhibit
Number Description Location
2.1 Share Exchange Agreement dated as Incorporated by reference
of March 16, 2000 between uMember.com, to uMember's Current
Inc. (previously Art Cards, Inc.) Report on Form 8-I filed
and uMember.com, Inc. (California) on March 31, 2000
SIGNATURE
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.
UMEMBER.COM, INC.
Dated: May 30, 2000 By: /s/ Sharon A. Vanzant
Sharon A. Vanzant
Chief Financial Officer
and Chief Operating Officer
3
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of uMember.com Inc.:
We have audited the accompanying consolidated balance sheet of uMember.com (a
California corporation in the development stage) as of December 31, 1999 and
the related statements of operations, stockholders' equity and cash flows for
the period from inception (February 1, 1999) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit 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 uMember, Inc. as of December
31, 1999 and the results of its operations and its cash flows for the period
from inception (February 1, 1999) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is a development-stage enterprise with no
significant operating results to date. The factors discussed in Note 1 to the
financial statements raise a substantial doubt about the ability of the
Company to continue as a going concern. Management's plans in regards to those
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
May 12, 2000
F-1
<PAGE>
uMember.com, Inc. - California
(A Development Stage Enterprise)
Balance Sheet
As of March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
(Unaudited)
ASSETS:
Cash $ - $ -
Accounts Receivable 12,690 -
Due from Employees 21,933 19,533
Due from Affiliate 1,611,431 -
Inventory 135,387 -
Prepaids and Other Current Assets 121,385 41,978
---------- ----------
Total Current Assets 1,902,826 61,511
---------- ----------
Property & Equipment 1,822,374 465,546
Less: Accumulated Depreciation and
Amortization (111,431) (27,645)
---------- ----------
Net Property & Equipment 1,710,943 437,901
---------- ----------
Total Assets $3,613,769 $ 499,412
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Accounts Payable $ 383,509 $ 219,092
Current Portion - Capital Lease Obligation 384,088 -
Due to Affiliate - 1,234,880
---------- ----------
Total Current Liabilities 767,597 1,453,972
---------- ----------
Long Term Capital Lease Obligation 668,673 -
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Common Stock, no par value; 100,000,000
shares authorized, 20,002,633 and
5,000,000 issued and outstanding at
March 31, 2000 and December 31, 1999,
respectively 3,898,754 -
Deficit Accumulated During the
Development Stage (1,721,255) (954,560)
---------- ----------
Total Stockholders' Equity (Deficit) 2,177,499 (954,560)
---------- ----------
Total Liabilities and Stockholders'
Equity (Deficit) $3,613,769 $ 499,412
========== ==========
See Accompanying Notes to Financial Statements.
F-2
<PAGE>
uMember.com, Inc. - California
(A Development Stage Enterprise)
Statements of Operations
Three Months Ended March 31, 2000,
and the Periods February 1, 1999 (Date of Inception)
to March 31, 1999, December 31, 1999 and March 31, 2000
<TABLE>
<CAPTION>
Three Months
Ended February 1, 1999 (Date of Inception) to
March 31, March 31, December 31, March 31,
2000 1999 1999 2000
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 14,816 $ - $ - $ 14,816
Cost of Sales 14,745 - - 14,745
---------- --------- --------- -----------
Gross Profit 71 - - 71
Operating Expenses:
Selling, General and
Administrative 661,348 19,064 895,570 1,556,918
Depreciation and
Amortization 83,785 - 27,646 111,431
---------- --------- --------- -----------
Total Operating Expenses 745,133 19,064 923,216 1,668,349
---------- --------- --------- -----------
Loss Before Interest
and Taxes (745,062) (19,064) (923,216) (1,668,278)
Interest Expense, Net 21,633 167 30,544 52,177
---------- --------- --------- -----------
Loss Before Taxes (766,695) (19,231) (953,760) (1,720,455)
Provision for Income
Taxes - - 800 800
---------- --------- --------- -----------
Net Loss $ (766,695) $ (19,231) $(954,560) $(1,721,255)
========== ========= ========= ===========
Basic Loss per Share $ (0.055) $ (0.004) $ (0.191) $ (0.129)
========== ========= ========= ===========
Average Common Shares
Outstanding 13,892,424 5,000,000 5,000,000 13,347,221
========== ========= ========= ===========
See Accompanying Notes to Financial Statements
</TABLE>
F-3
<PAGE>
uMember.com., Inc. - California
(A Development Stage Enterprise)
Statements of Stockholder's Equity (Deficit)
Three Months Ended March 31, 2000, and the Periods
February 1, 1999 (Date of Inception)
to December 31, 1999 and March 31, 2000
<TABLE>
<CAPTION>
Retained
Earnings Total Comprehensive
Common Stock (Accumulated Stockholders' Income
Shares Amount Deficit) Equity (Loss)
<S> <C> <C> <C> <C> <C>
Balance at Inception - $ - $ - $ - $ -
Issuance of Founders'
Stock 5,000,000 - - - -
Net Loss - - (954,560) (954,560) (954,560)
---------- ---------- ----------- ------------ ---------
Balance at December
31, 1999 5,000,000 - (954,560) (954,560) (954,560)
=========
Issuance of Stock for
Past Services for
$6.78 (1) 15,125 102,500 - 102,500
Issuance of Stock in
Exchange for Can-
celled Warrants for
$2.50 (2) 27,500 68,750 - 68,750
Exercise of Employee Stock
Options for $0.025 (3) 639,200 15,980 - 15,980
Recapitalization Related
to Reverse Acquisition 9,318,175 - - -
Art Cards, Inc. Shares
Outstanding Prior to
Reverse Acquisition 479,233 - - -
Repurchase and Retirement
of Art Cards, Inc.
Shares in Reverse
Acquisition for $13.24 (13,600) (180,000) - (180,000)
Stock Sold in Private
Placement for $2.50 per
Share, Net of Expenses,
Except Finders Fee 2,000,000 3,891,524 - 3,891,524
Issuance of Stock as
Finders Fee for Reverse
Acquisition, Net of
Expense Impact 2,537,000 - - -
Net Loss - - (766,695) (766,695) (766,695)
---------- ---------- ----------- ------------ ---------
Balance at March 31,
2000 (unaudited) 20,002,633 $3,898,754 $(1,721,255) $ 2,177,499 $(766,695)
========== ========== =========== ============ =========
(1) Share price determined based on cost of services provided
(2) Share price determined based on estimated fair value of stock at issuance date
(3) Option price determined based on estimated fair value of stock at option grant date
See Accompanying Notes to Financial Statements
</TABLE>
F-4
<PAGE>
uMember.com, Inc. - California
(A Development Stage Enterprise)
Statements of Cash Flow
Three Months Ended March 31, 2000, and the Periods
February 1, 1999 (Date of Inception)
to March 31, 1999, December 31, 1999 and March 31, 2000
<TABLE>
<CAPTION>
Three Months
Ended February 1, 1999 (Date of Inception) to
March 31, March 31, December 31, March 31,
2000 1999 1999 2000
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Activities:
Net Loss $ (766,695) $(19,231) $ (954,560) $(1,721,255)
Adjustments to reconcile net
loss to net cash used in
operating activities
Depreciation and amortization 83,785 - 27,646 111,431
Consulting fees exchanged for C/S - - - 102,500
Change in operating assets and
liabilities:
Accounts receivable (12,690) - - (12,690)
Due from employees (2,400) - (19,533) (21,933)
Inventory (135,387) - - (135,387)
Prepaids and other assets (79,407) (7,368) (41,979) (121,385)
Accounts payable 266,916 - 219,092 383,508
----------- -------- ----------- -----------
Net Cash Used in Operating
Activities (645,878) (26,599) (769,334) (1,415,211)
----------- -------- ----------- -----------
Investing Activities:
Purchase of property and
equipment (204,562) - (465,546) (670,108)
----------- -------- ----------- -----------
Net Cash Used in Investing
Activities (204,562) - (465,546) (670,108)
----------- -------- ----------- -----------
Financing Activities:
Net proceeds from issuance of
common stock 3,796,254 - - 3,796,254
Due to/from affiliate (2,846,310) 50,167 1,234,880 (1,611,431)
Capital lease payments (99,504) - - (99,504)
----------- -------- ----------- -----------
Net Cash Provided by Financing
Activities 850,440 50,167 1,234,880 2,085,319
----------- -------- ----------- -----------
Net Increase in Cash - 23,568 - -
Cash Beginning of Period - - - -
----------- -------- ----------- -----------
Cash End of Period $ - $ 23,568 $ - $ -
=========== ======== =========== ===========
Supplemental Disclosure of Cash
Flows Information:
Cash paid during the period for
Income Taxes $ - $ - $ 800 $ 800
Interest $ 21,633 $ 167 $ 30,544 $ 52,177
Non-Cash Financing Activities:
Purchase of Computer Equipment
Under Capital Lease $ 1,152,266 $ - $ - $ 1,152,266
Issuance of Common Stock for
Past Services $ 102,500 $ - $ - $ 102,500
Issuance of Common Stock in
Exchange for Cancellation of
Warrants $ 68,750 $ - $ - $ 68,750
See Accompanying Notes to Financial Statements
</TABLE>
F-5
<PAGE>
uMember.com, Inc. - California
(A Development Stage Enterprise)
Notes to Financial Statements
Three Months Ended March 31, 2000,
and the Periods February 1, 1999 (Date of Inception) to
March, 31, 1999, December 31, 1999 and March 31, 2000
NOTE 1 - ORGANIZATION
uMember.com, Inc. (uMember - California, or the Company) was incorporated
in California in January 1999. uMember - California is a membership based
internet company providing discounted on-line shopping and an internet
community with auctions, news, entertainment, and personal interest
activities.
Prior to the reverse acquisition with Art Cards, Inc. in March 2000 (See
Note 4 - Reverse Acquisition and Private Placement), uMember - California was
the business-to-customer subsidiary of Wareforce.com, Inc., (Wareforce) a
technology solution provider that focuses on the business-to-business market.
Subsequent to the reverse acquisition, Wareforce remains the largest single
shareholder in uMember.com, Inc.
The Company is considered a development stage enterprise devoting
substantially all of its efforts to establishing customers and vendor
relationships, establishing complete product lines, and building its
operational infrastructure. The Company is subject to the risks and
challenges associated with other companies at a similar stage of development
including dependence on key individuals, successful development and marketing
of its products and services, the continued acceptance of the Internet as a
medium for electronic commerce, and competition from substitute products and
services and larger companies with greater financial, technical management and
marketing resources.
During 1999, and the first quarter of 2000, the Company concentrated on
building its Website, and developing its administrative and sales
infrastructure. As a result, the Company had a working capital deficit of
$1,392,460 at December 31, 1999 and net losses of $954,560 and $766,695
(unaudited) for the periods ended December 31, 1999 and March 31, 2000,
respectively. To continue to progress on its business plan, the Company plans
to raise additional working capital through private offerings of equity.
Management believes that funds on hand (including net proceeds of the recent
private placement due from Wareforce - see Note 4 - Reverse Acquisition and
Private Placement), available from vendors under standard trade credit terms
and to be raised in private placements subsequent to March 31, 2000, will be
sufficient to fund its needs through at least March 31, 2001. There can be no
assurance that the Company will obtain sufficient funds to execute its
business plan or generate positive operating results. Accordingly, there is
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Cash:
Cash includes cash and money market accounts in which funds may be
deposited or withdrawn at any time without prior notice or penalty.
F-6
<PAGE>
Accounts Receivable:
Accounts receivable represent amounts due from business-to-business
transactions, and from credit card transactions that have not yet been
credited to the Company's merchant account. Accounts receivable from one
customer accounted for 100% (unaudited) of the balance at March 31, 2000 (See
Note 10 - Related Parties).
Inventory:
Inventory consists primarily of special purchases made of products not
available from distributors on a drop-ship basis, or for which the purchase
price is substantially better if the company takes delivery of the products.
Inventory is maintained in third party fulfillment centers, and is stated at
the lower of cost or market; cost is determined using the first-in, first-out
method of accounting.
Property and Equipment:
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the specific asset
(generally five years). Leasehold improvements are amortized over the lease
term or the estimated useful life, whichever is shorter. Expenditures for
repairs and maintenance are charged to expense as incurred, while improvements
and betterments that prolong the useful life of the asset are capitalized and
depreciated over their estimated useful lives.
Capitalized Software:
The costs associated with internally developed software used in the
Company's operations, including its Website, are capitalized as soon as the
related project is determined to be viable. The costs of purchased software
and licenses are capitalized at the date of purchase. Costs of graphic art
and changes to the Website are capitalized or expensed, depending upon their
nature. Capitalized software is amortized over its estimated useful life
(generally 3 years) commencing when it is placed in service.
Equity:
In October 1999, the Company had a 5 for 1 stock split. All share
amounts and per share data have been retroactively restated to reflect the
stock split. In connection with the reverse acquisition (see Note 4 - Reverse
Acquisition and Private Placement), the 5,681,825 shares of uMember.com -
California common stock outstanding at March 16, 2000 was exchanged at a rate
of one share of uMember.com - California for 2.640 shares of uMember.com, Inc.
(previously Art Cards, Inc.). The financial statements and earnings per share
data have been retroactively restated to reflect the post acquisition share
amounts.
Income Taxes:
The Company accounts for income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes". Under SFAS 109, deferred income tax assets or
liabilities are computed based on the temporary difference between the
financial statement and income tax basis of assets and liabilities using the
enacted marginal income tax rate in effect for the year in which the
differences are expected to reverse. Deferred income tax expenses and credits
are based on the changes in the deferred income tax assets and liabilities
from period to period.
F-7
<PAGE>
Use of Estimates:
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required 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. Actual results could differ from those estimates.
Revenue Recognition:
The Company records revenues upon shipment of merchandise or, if drop
shipped, upon notification from supplier that shipment has occurred. The
Company reserves for bad debt, warranties and product returns at the time of
sale, and such amounts are based upon historical experience and available
industry statistics. There were no reserves for bad debt, warranties and
product returns recorded as of December 31, 1999 or March 31, 2000.
Loss per Share:
Basic loss per share in the accompanying financial statements is
calculated based on weighted average shares outstanding for the period.
Common share equivalents consist of options to purchase the Company's common
stock, and were not considered as they would be anti-dilutive and had no
impact on the loss per share for the periods presented.
NOTE 3 - ACQUISITION BY WAREFORCE
In April 1999, Wareforce acquired a 70% interest in the Company from the
Company's founders. As part of the acquisition agreement, Wareforce agreed to
fund $1,000,000 of uMember's operations. This amount was to be repaid at the
earlier of February 20, 2001 or the date of the Company's successful Initial
Public Offering or Private Placement. The total amount due under this loan
agreement of $2,672,515 (unaudited) was repaid with a portion of the proceeds
from the private placement at March 16, 2000. (See Note 4 - Reverse
Acquisition and Private Placement). Interest accrued under this loan
agreement at the bank prime rate.
NOTE 4 - REVERSE ACQUISITION AND PRIVATE PLACEMENT
In March 2000 uMember - California entered into a reverse acquisition
transaction with Art Cards, Inc., (Art Cards) a Colorado corporation
incorporated in January 1984. At the time of the transaction Art Cards was
inactive. Art Cards' assets and liabilities were nominal at the date of the
reverse acquisition. The transaction is accounted for as a reverse merger
acquisition, which results in a recapitalization of uMember - California in as
much as it is deemed to be the acquiring entity for accounting purposes. In
contemplation of the merger Art Cards changed its name to uMember.com, Inc. in
March 2000. Also in contemplation of the merger, Art Cards a) completed a 1
for 2,050 reverse split of its stock, reducing the outstanding shares to
approximately 479,000 from 978,402,000 (after round-up for partial shares); b)
reduced the authorized Common Stock from 3,000,000,000 shares to 100,000,000
shares; and c) changed the par value of the Common Stock to no par from
$0.0001. In connection with the reverse acquisition, certain persons were
issued 2,537,000 shares of the uMember.com, Inc.'s common stock as payment of
finder's fees for the transaction.
F-8
<PAGE>
Concurrent with the reverse acquisition, the Company entered into
Subscription Agreements with a number of investors to sell 2,000,000 shares of
the Company's stock for $5,000,000. Certain agents were granted an aggregate
of $750,000 as commission on the sale of stock under the Subscription
Agreements. Additionally, 42,625 common shares valued at $171,250 were issued
in connection with the private placement related to services performed, of
which $102,500 represented the payment for amounts included in Accounts
Payable at December 31, 1999 and $68,750 represented stock issued in
connection with the cancellation of warrants issued to stockholder of the
Company in February 1999. The cancellation was required as part of the
Private placement, and therefore is included in the cost of the private
placement.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of:
March December
2000 1999
(unaudited)
---------- ------------
Computer equipment $ 1,377,034 $ 161,238
Capitalized software 399,908 268,778
Furniture and fixtures 45,432 35,530
----------- ----------
1,822,374 465,546
Less: accumulated depreciation
and amortization (111,431) (27,645)
----------- ----------
Net property and equipment $ 1,710,943 $ 437,901
=========== ==========
NOTE 6 - CAPITAL LEASE (Unaudited)
In November 1999 the Company entered into a lease of equipment that
contains a bargain purchase option. Accordingly, the Company has accounted
for this lease as a capital lease in the first quarter of 2000, when the
related equipment was installed and placed in service. The principal amount
of the lease, $1,152,266 has been included in Property and Equipment and is
being amortized over the estimated 5 year life of the equipment.
Minimum lease payments under this lease are as follows as of March 31, 2000:
2000 $ 323,226
2001 430,968
2002 430,968
------------
Total minimum lease payments 1,185,162
Less amount representing interest (132,401)
------------
Present value of net minimum lease
payments 1,052,761
Less current maturities (384,088)
------------
Long-term obligation $ 668,673
============
F-9
<PAGE>
NOTE 7 - COMMON STOCK
In January 1999, the Company issued 5,000,000 shares of no par value
common stock to its founders (adjusted for the 5 to 1 split which occurred in
October 1999). As a result of the 5 to 1 split, the authorized common stock
of the Company was increased from 10 million to 50 million in October 1999.
In February 1999, a warrant to purchase 100,000 shares (adjusted for 5 to 1
split) of the Company's common stock was issued to an individual for services
rendered to the Company. In connection with the reverse acquisition (see Note
4 - Reverse Acquisition and Private Placement) this warrant was cancelled and
replaced with 27,500 shares of uMember - California common stock. The shares
issued in connection with the cancellation of the warrants previously
outstanding to a stockholder of the Company were valued at $68,750. The
Company also issued 15,125 shares of its common stock to a vendor as payment
of $102,500 in past services included in Accounts Payable at December 31,
1999.
During 1999 and the first quarter of 2000 the Company issued immediately
vested options to purchase 639,200 shares of common stock to officers and
employees of the Company, and officers and employees of Wareforce, at
approximately $0.025 per share (fair value as determined by the Company's
Board of Directors) for services performed. During March 2000, these options
were exercised, and along with the 5,042,625 shares outstanding, exchanged for
15,000,000 shares of uMember.com, Inc. in the reverse acquisition.
In March 2000, prior to the reverse acquisition, approximately 479,000
shares of Art Cards, Inc. common stock were outstanding. Of these shares,
13,600 shares held by the President of Art Cards were purchased by
uMember-California for $180,000, and subsequently retired. The remaining
approximately 465,400 were exchanged for the same number of new uMember.com,
Inc. shares. The purchase price of the shares retired is recorded in
stockholders' equity in the accompanying financial statements.
As a result of the reverse acquisition of Art Cards, outstanding common
stock was increased to 20,002,633 and authorized common stock to 100,000,000
in March 2000. The shares have no par value, and as a result, Paid-in-Capital
previously recorded has been reclassified to Common Stock in the accompanying
financial statements.
NOTE 8 - STOCK OPTION PLAN
During 1999 the Board approved the uMember - California 1999 Stock
Option/Stock Issuance Plan (the Plan). The Plan has three separate equity
programs: the discretionary option grant program, the stock issuance program
and the automatic option grant program. As part of the Plan, the 1,000,000
shares of common stock available for issuance at the inception of the plan is
subject to increases each year equal to one percent of the common stock
outstanding on December 31 of the preceding year. Incentive stock options will
be granted at a price that is not less than 100 percent of fair value of the
stock at the date of grant, and non-qualified stock options will be granted at
a price that is not less than 85 percent of fair value of the stock at the
date of grant. Options vest as determined by the plan administrator and are
generally exercisable over a period not to exceed ten years. Options granted
that did not call for immediate vesting, vest over four years from the date of
grant.
In connection with the reverse acquisition (see Note 4 - Reverse
Acquisition and Private Placement), the options outstanding under the Plan
were assumed by the Art Cards 2000 Stock Option/Stock Issuance Plan (the "Art
Cards Plan"). The Art Cards Plan has substantially the same terms and
conditions as the Plan, except that it authorizes 2,000,000 shares of common
stock for issuance.
F-10
<PAGE>
The number of options and weighted-average exercise prices of options for
each of the following groups of options, for the periods indicated, are as
follows (adjusted for the effect of the 5 for 1 split in October 1999):
Number of Weighted Average
Options Exercise Prices
----------- ----------------
Options outstanding at February 1, 1999 - -
Granted 851,200 $0.025
Exercised - -
Cancelled 95,000 0.025
Options outstanding at December 31, 1999 756,200 0.025
Exercisable at December 31, 1999 556,200 0.025
Granted (unaudited) 181,000 0.1481
Exercised (unaudited) 639,200 0.025
Cancelled (unaudited) 57,500 0.025
Options outstanding at March 31, 2000
(unaudited) 240,500 0.1176
Exercisable at March 31, 2000 (unaudited) - -
As of December 31, 1999, 756,200 shares were outstanding, with a weighted
average exercise price of $0.025, and a weighted average remaining contractual
life of 8.37 years.
The following table summarizes information about stock options
outstanding at March 31, 2000 (unaudited):
Weighted Average Remaining
Weighted-Average Number of Option Contractual Number of Shares
Exercise Price Outstanding Life Exercisable
---------------- ---------------- ----------- ----------------
$0.025 241,500 9.54 years --
$2.500 9,000 9.92 years --
The Company accounts for the Plan under APB No. 25 and, accordingly, no
compensation costs have been recognized for grants to employees in the
accompanying consolidated statements of operations. If compensation costs for
the Plan had been determined under SFAS No. 123, pro forma net loss would have
been as follows:
March 31, December 31,
2000 1999
(unaudited)
----------- ------------
Net loss as reported $ (766,695) $ (954,560)
Net loss pro forma (775,679) (970,742)
Basic and diluted loss per
share as reported (0.055) (0.191)
Basic and diluted loss per
share pro forma (0.055) (0.194)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
F-11
<PAGE>
Weighted-Average
Assumptions for Option Grant
March 31, December 31,
2000 1999
(unaudited)
--------------------------------------
Dividend Yield None None
Expected Volatility None None
Weighted Average Risk-Free
Interest Rate 5.12 percent 6.21 percent
Expected Lives 5 years 5 years
Weighted-Average Fair Value
of Options Granted $0.049 $0.049
During 1999 theCompany granted 50,000 options to non-employees. The Company
accounts for stock options granted to non-employees in accordance with SFAS
No. 123 which requires non-cash compensation expense be recognized over the
expected period of benefit. During fiscal 1999 the amount of non-cash
compensation was immaterial.
NOTE 9 - INCOME TAXES
The (benefit) provision for income taxes is as follows as of:
December 31,
1999
------------
Current:
Federal $ -
State 800
Deferred:
Federal -
State -
---------
$ 800
=========
Net deferred income taxes consist of the tax effect of temporary
differences related to the following components as of:
December 31,
1999
------------
Deferred taxes:
Start-up Costs $ 242,046
Net operating loss carryforward 161,243
Depreciation (23,713)
Valuation allowance (379,576)
------------
Total deferred taxes $ -
============
As of December 31, 1999, the Company had Federal net operating loss
carryforwards of approximately $359,004, which will expire in fiscal years
ending 2019. A reconciliation of the provision for income taxes to the amount
computed at the Federal statutory rate is as follows:
F-12
<PAGE>
December 31,
1999
------------
Federal income tax benefit
(provision) at the statutory rate 34 %
State taxes, net of federal
income tax effect 6 %
Valuation allowance (40)%
---
-
===
The Company establishes valuation allowances in accordance with SFAS 109.
The Company continually reviews the adequacy of the valuation allowances and
is recognizing these benefits only as reassessment indicates it is more likely
than not that the benefits will be realized.
NOTE 10 - RELATED PARTIES
The Company was majority owned or controlled by Wareforce as of December
31, 1999 and March 31, 2000. The Company purchases computers and peripherals
for its own use from Wareforce. Additionally, many of the products sold by
the Company are purchased either directly from Wareforce, or from other
vendors through Wareforce or Wareforce guaranteed agreements under the terms
substantially the same as those provided to other customers. Goods purchased
directly through Wareforce for the Company's own used totaled $51,707 and
$5,645 (unaudited) for periods ended December 31, 1999 and March 31, 2000,
respectively. Products purchased from Wareforce for resale totaled $12,412
(unaudited) for the three months ended March 31, 2000. No products were
purchased under the Wareforce guarantees during either period.
The Company utilized the services of Wareforce to maintain its books and
records in the periods ended December 31, 1999 and March 31, 2000. The
Company will be terminating these services in the second quarter of 2000.
Wareforce does not charge the Company for these administrative services.
In August 1999, the Company entered into an agreement with Wareforce,
whereby Wareforce agreed to continue funding the Company's activities up to
$1.0 million, and the Company agreed to repay any amounts advanced under this
agreement no later than the earlier of February 20, 2001, or the date of an
Initial Public Offering or Private Placement. Interest accrued on this loan
agreement at the bank prime rate. As of March 16, 2000 Wareforce had funded
approximately $1.6 million (unaudited) in excess of the $1.0 million
commitment. This loan was repaid with the proceeds of the private placement
(see Note 4 - Reverse Acquisition and Private Placement). Interest under this
loan agreement was approximately $30,000 for the period ended December 31,
1999 and $10,000 (unaudited) for the quarter ended March 31, 2000.
In connection with the private placement, and to facilitate the
completion of the transaction, the net proceeds were deposited in the money
market account of Wareforce. The net amount due to uMember from Wareforce
will be transferred to uMember on or about June 1, 2000, when the appropriate
bank accounts and accounting controls have been established. Funds maintained
in the Wareforce money market accounts accrue interest at the investment rate
achieved through Wareforce's investment activities.
Approximately $1,235,000 was due to Wareforce by the Company at December
31, 1999. At March 31, 2000, approximately $1,611,000 (unaudited) was due to
the Company from Wareforce.
F-13
<PAGE>
87% (unaudited) of the sales of the Company in the first quarter of 2000
were made to a customer that is owned by three of the Company's founders, who
remain investors in the Company. The terms of the sale made to this customer
were substantially better than the terms of sale would have been to an
unrelated third party.
27,500 shares were issued in connection with the cancellation of the
warrants previously outstanding to a stockholder of the Company. These shares
were valued at $68,750.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases facilities under noncancelable operating leases
expiring in March 2002. The lease agreements provide for periodic cost of
living adjustments based upon changes in the Consumer Price Index. Rent
expense recorded by the Company totaled approximately $57,000 and $32,000
(unaudited) during 1999, and the first quarter of 2000, respectively.
Minimum lease payments for the years ending December 31, are as follows:
2000 $ 129,768
2001 129,768
2002 32,442
---------
$ 291,978
=========
A claim is pending against the Company. As this claim has been recently
asserted, the Company has not had time to evaluate its merits, and no reserve
has been established by the Company for this matter. Litigation is subject
to many uncertainties, and the outcome of individual litigated matters is not
predictable with assurance. The Company does not reasonably expect, based on
its analysis to date, that any adverse outcome from this matter would have a
material impact on the financial position or results of operations of the
Company.
NOTE 12 - SEGMENT INFORMATION
The Company does not currently report on any business segments. While
the Company has shipped products to military bases located in foreign
countries, the Company has not tracked these sales by geographic area, and is
not able to provide information related to these sales.
NOTE 13 - SUBSEQUENT EVENTS
In March 2000, the Company sold in aggregate 2,000,000 shares of common
stock in a private placement at an issue price of $2.50 per share for net
proceeds of $3,891,524. (See Note 4 - Reverse Acquisition and Private
Placement).
NOTE 14 -INFORMATION RELATED TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. These unaudited
financial statements reflect, in the opinion of management, all adjustments
F-14
<PAGE>
(which include only normal recurring adjustments) necessary to fairly present
the results of operations, changes in cash flows and financial position as of
and for the periods presented. These unaudited financial statements should be
read in conjunction with the audited financial statements and related notes
thereto, appearing elsewhere herein. The results for the interim periods
presented are not necessarily indicative of results to be expected for a full
year.
F-15
<PAGE>
Part B - Pro Forma Financial Information
In March 2000 uMember - California entered into a reverse acquisition
transaction with Art Cards, Inc., (Art Cards) a Colorado corporation
incorporated in January 1984. At the time of the transaction Art Cards was
inactive. Art Cards' assets and liabilities were nominal at the date of the
reverse acquisition. The transaction is accounted for as a reverse merger
acquisition, which results in a recapitalization of uMember - California in as
much as it is deemed to be the acquiring entity for accounting purposes. In
contemplation of the merger Art Cards changed its name to uMember.com, Inc. in
March 2000. Also in contemplation of the merger, Art Cards a) completed a 1
for 2,050 reverse split of its stock, reducing the outstanding shares to
approximately 479,000 from 978,402,000 (after round-up for partial shares); b)
reduced the authorized Common Stock from 3,000,000,000 shares to 100,000,000
shares; and c) changed the par value of the Common Stock to no par from
$0.0001. In connection with the reverse acquisition, certain persons were
issued 2,537,000 shares of the uMember.com, Inc.'s common stock as payment of
finder's fees for the transaction.
The following unaudited pro forma condensed combined statements of
operations are presented to illustrate the effect of the acquisition on the
historical operating results of uMember.com California and Art Cards and
give effect to the acquisition as if it occurred as of January 1, 1999. The
pro forma adjustments included in the unaudited condensed combined statements
of operations represent the Company's preliminary determination of these
adjustments based on currently available information and on certain
assumptions that the Company's management believes are reasonable. There can
be no assurance that the actual adjustments would not have differed
substantially from the pro forma adjustments. The unaudited condensed
statements of operations are not necessarily indicative of either future
operating results or of the operating results that might have been achieved if
the forgoing transaction had been effective as of the dates indicated.
The unaudited pro forma condensed statements of operations should be read
in conjunction with the Company's and Art Cards' historical financial
statements, including the notes thereto.
F-16
<PAGE>
uMember.com, Inc.
Pro Forma Combined Statement of Operations
February 1, 1999 (Date of Inception) to December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
December 31, Adjustments and Pro Forma
1999 Reclassifications March 31,
uMember Art Cards Combined DR CR 2000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ - $ -
Cost of Sales - - - - - -
--------- ------- --------- --------- --------- ---------
Gross Profit - - - - - -
--------- ------- --------- --------- --------- ---------
Operating Expenses:
Selling, General and
Administrative 895,570 7,645 903,215 - 7,645(1) 895,570
Depreciation and
Amortization 27,646 - 27,646 - - 27,646
--------- ------- --------- --------- --------- ---------
Total Operating Expenses 923,216 7,645 930,861 - 7,645 923,216
--------- ------- --------- --------- --------- ---------
Income (Loss) Before
Interest and Taxes (923,216) (7,645) (930,861) - (7,645) (923,216)
Interest Expense, Net 30,544 - 30,544 - - 30,544
--------- ------- --------- --------- --------- ---------
Income (Loss) Before
Taxes (953,760) (7,645) (961,405) - (7,645) (953,760)
Provision for Income
Taxes 800 - 800 - - 800
--------- ------- --------- --------- --------- ---------
Net Loss $(954,560) $(7,645) $(962,205) $ - $ (7,645) $(954,560)
========= ======= ========= ========= ========= =========
</TABLE>
See accompanying notes to pro forma financial statements.
F-17
<PAGE>
uMember.com, Inc.
Pro Forma Combined Statement of Operations
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31, Adjustments and Pro Forma
2000 2000 Reclassifications March 31,
uMember Art Cards Combined DR CR 2000
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 14,816 $ - $ 14,816 $ - $ - $ 14,816
Cost of Sales 14,745 - 14,745 - - 14,745
--------- ------- --------- --------- ---------- ---------
Gross Profit 71 - 71 - - 71
--------- ------- --------- --------- ---------- ---------
Operating Expenses:
Selling, General and
Administrative 661,348 - 661,348 - - 661,348
Depreciation and
Amortization 83,785 - 83,785 - - 83,785
--------- ------- --------- --------- ---------- ---------
Total Operating Expenses 745,133 - 745,133 - - 745,133
--------- ------- --------- --------- ---------- ---------
Income (Loss) Before
Interest and Taxes (745,062) - (745,062) - - (745,062)
Interest Expense, Net 21,633 - 21,633 - - 21,633
--------- ------- --------- --------- ---------- ---------
Income (Loss) Before
Taxes (766,695) - (766,695) - - (766,695)
Provision for Income
Taxes - - - - - -
--------- ------- --------- --------- ---------- ---------
Net Income (Loss) $(766,695) $ - $(766,695) $ - $ - $(766,695)
========= ======= ========= ========= ========== =========
</TABLE>
See accompanying notes to pro forma financial statements.
F-18
<PAGE>
uMember.com, Inc.
Notes to Pro Forma Combined Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited pro forma combined statements of operations for the period
of inception (February 1, 1999) to December 31, 1999 and for the three months
ended March 31, 2000 gives effect to the transaction as if it had occurred
January 1, 1999.
The pro forma combined financial statements are presented for
illustrative purposes only and should not be construed to be indicative of the
actual combined results of operations as may exist in the future. The pro
forma adjustments are based on the common stock consideration exchanged by
uMember.com for the fair value of the assets acquired and liabilities assumed.
NOTE 2 - PRO FORMA ADJUSTMENTS
(1) To eliminate the operating expenses of Art Cards. Had the merger
occurred as of January 1, 1999, these transactions would not have occurred.
F-19
