FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
Of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1999
Commission File Number 33-19139-NY
NETAMERICA.COM CORPORATION
(Formerly NetAmerica International Corporation)
(Exact name of registrant as specified in its charter)
DELAWARE 11-2936371
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 EMBARCEDARO CENTER, SUITE 200
SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices)
Registrant's telephone number
including area code (415) 646-8033
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports)
Yes X No
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
11,638,078
(Number of shares of common
stock the registrant had
outstanding as of May 14, 1999)
PART 1
ITEM 1 - FINANCIAL STATEMENTS
BASIS OF PRESENTATION
General
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation
of the financial position, results of operations, cash flows, and stockholders'
deficit in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that can be expected for the year ending
December 31, 1999.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") contains certain
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, Section 21E of the Securities Act of
1934, as amended, and the Private Securities Litigation Reform Act of 1995,
including, among others (i) expected changes in the Company's revenues and
profitability (ii) prospective business opportunities and (iii) the Company's
strategy for expanding and financing it business. Forward-looking statements
are statements other than historical information or statements of current
condition. Some forward-looking statements may be identified by use of terms
such as "believes", "anticipates", "intends", or "expects". These forward-
looking statements relate to the plans, objectives and expectations of
NetAmerica.com Corporation and subsidiaries (the "Company") for future
operations. Although the Company believes that its expectations with
respect to the forward-looking statements are based upon reasonable
assumptions within the bounds of its knowledge of its business and operations,
in light of the risks and uncertainties inherent in all future projections,
the inclusion of forward-looking statements in this report should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
The Company's revenues and results of operations could differ materially from
those projected in the forward-looking statements as a result of numerous
factors, including, but not limited to, the following: (i) changes in external
competitive market factors, (ii) termination of certain Internet backbone or
interconnection agreements or inability to enter into additional Internet
backbone, access or network service agreements, (iii) inability to satisfy
anticipated working capital or other cash requirements, (iv) changes in or
developments under domestic or foreign laws, regulations, licensing
requirements or telecommunications standards, (v) changes in the technology
of or availability of transmission facilities, (vi) changes in the Company's
business strategy or an inability to execute its strategy due to unanticipated
changes in the market for the Company's products or services, (vii) various
competitive factors that may prevent the Company from competing successfully
in the marketplace, (viii) the Company's lack of liquidity and its ability to
raise additional capital, (ix) loss of services of key employees and (x) loss
of a customer which provides significant revenues to the Company. In light of
these risks and uncertainties, there can be no assurance that actual results,
performance or achievements expressed or implied by such forward- looking
statements. The foregoing review of important factors should not be
construed as exhaustive. The Company undertakes no obligations to release
publicly the results of any future revisions it may make to forward-looking
statements to reflect the events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
HISTORY AND CURRENT OPERATIONS
The Company was originally incorporated as Venture World, Ltd. on May 6,
1987 under the laws of the State of Delaware for the purpose of developing or
acquiring general business opportunities. In March, 1989 it raised $250,000
(approximately $185,000 net after expenses and commissions) through a
federally registered "blind-pool" public offering registered with the
Securities and Exchange Commission on Form S-18.
On May 22, 1998, at a special meeting of stockholders, a majority of the
shareholders of the Company voted to approve an amendment to the Company's
Articles of Incorporation to change the Company's name from Venture World,
Ltd. to a name selected by the Board of Directors and to effect a 250 to 1
reverse split. The Company did not have any material operations for the six
years prior to the May 1998 shareholder meeting.
On September 30, 1998, the Company acquired PolarCap, Inc. As a result of
this acquisition, PolarCap, Inc. became a wholly owned subsidiary of the
Company. PolarCap, Inc. is a California corporation organized in April 1997
for the purpose of investing in and developing rights to a variety of software
technologies related to multimedia, development tools, and applications
technologies. Douglas D. Cole, President and Chief Executive Officer of
PolarCap, Inc. was appointed Director and Chairman of the Company in August
1998. In October 1998, Venture World Ltd. changed its name to NetAmerica.com
Corporation. In August, September and October 1998 the Company obtained
Bridge Loans (the "Bridge Loans"), pursuant to which the Company borrowed a
total of $463,000 (four hundred sixty three thousand dollars). The bridge
lenders received a promissory note bearing interest at the rate of 10% per
annum plus an inducement premium of one share of common stock for each $1
borrowed, plus a conversion feature, one share of common stock for every $1
loaned to the Company.
In November 1998, the Company commenced a private placement to raise a
maximum of $4,500,000 by selling 2,812,500 shares at $1.60 per share. (See
discussion below on subsequent stock bonus).
Between November 2, 1998, and March 1, 1999, the Company raised
$1,745,100 from private equity offerings of a total of 1,817,813 shares of
restricted Company Common Shares to twenty-one accredited investors. The
Shares were sold at a subscription price of $1.07 per share (See discussion
below on 50% bonus stock). Net of offering expenses related to the offering,
the Company received $1,745,000 in cash, of which approximately $1,631,188 was
advanced to A-1 Internet, Inc. as working capital and for debt repayment.
In March, the Company sold additional stock from its private placement by
selling 3,224,074 shares at $1.07 for cash and notes.
In September 1998, in connection with the acquisition of PolarCap, and in
connection with the Company's strategy to acquire and consolidate ISPs, the
Company entered into an acquisition agreement pursuant to which (among other
things) the Company agreed to purchase the outstanding stock of Net America,
Inc., a Washington corporation which was subsequently agreed to be renamed
A1 Internet, Inc. ("A1 Internet") in exchange for 4,770,426 shares of the
Company's common stock and the assumption of certain liabilities. A1 Internet
is a Washington corporation organized in April 1997 for the purpose of
providing access to products and services to small and medium Internet
providers. Gregory K. Martin, President and Chief Executive Officer of A-1
Internet, Inc., was appointed Director, President, Chief Executive Officer and
Chief Financial Officer of the Company in September 1998. William Fritts,
Chairman of A-1 Internet, Inc., was appointed Director in October 1998. On
December 18, 1998, Gregory K. Martin was terminated as an officer and director
of the Company and William Fritts was appointed President and Chief Executive
Officer. In January, 1999 William Fritts resigned from the Board of Directors.
On December 18, 1998, Edward Mooney was appointed as a member of the Board of
Directors.
Management of the Company determined in March 1999 that it was not in the
interest of the Company to complete the purchase of A1 Internet's stock. On
March 16, 1999, the Company and A1 Internet entered into an agreement to
abandon the stock purchase. A1 Internet has acknowledged that certain
representations made to the Company in the acquisition agreement between them
have provided to be inaccurate and, for that reason and others, the Company
has no obligation to complete the purchase of A1 Internet's shares as
contemplated by the acquisition agreement. In pursuing the proposed purchase
between August 1998 and the end of March 1999, the Company made cash advances
to A1 Internet in an aggregate principal amount of approximately $1,631,188;
issued approximately 179,418 shares of the Company's common stock to settle
and discharge obligations owed by A1 Internet to creditors; and issued options
to purchase approximately 1,000,000 shares of the Company's common stock to
compensate individuals and entities for services performed for the benefit of
the Company and A1 Internet.
The Company was informed that A1 Internet entered into an agreement with
another prospective acquirer, to sell substantially all of its assets in
exchange for shares of common stock and assumption of certain liabilities,
including A1 Internet's obligations to the Company. In a letter agreement
between the Company and A1 Internet, the Company has confirmed that, if the
acquisition of A1 Internet's assets is completed in accordance with the letter
of intent, it is the Company's current intent, subject to a due diligence
investigation of the prospective acquirer, to accept a promissory note and
shares of the prospective acquirer common stock as payment in full for all
obligations of A1 Internet to the Company. Such promissory note would
be made by the acquiring company, would have an original principal amount of
between $700,000 and $850,000, would bear no interest and would be payable in
twelve equal monthly installments. If the original principal amount of such
note is less than $850,000, the Company would expect to receive shares of
common stock of the acquirer having a value equal to the shortfall at fixed
price of $7.50 per share (which price may be significantly higher than the
actual market value of such shares). After the A1 Internet recission
agreement was reached, the management of the Company authorized a stock
adjustment bonus of 50% to all the investors and bridge loan holders who had
purchased or loaned the Company money between August 1, 1998 and March 31,
1999. The stock bonus was awarded retroactively and made the effective
purchase price of the private placement memorandum stock holders from $1.60
to $1.07, and the bridge loan holders conversion effective combination
incentive/conversion cost from $.50 to $.34. A total of 1,068,938 shares were
issued for the stock bonus; 463,000 to the bridge loan holders and 605,938 to
the private placement purchasers.
The Company has also agreed to issue up to 2,750,000 shares of Company
common stock to A1 Internet, subject to certain performance conditions
described in the agreements between the Company and A1 Internet relating
primarily to customer acquisition and performance agreements.
In May 1999, the Company's board of directors adopted a new corporate name:
NetAmerica.com Corporation. The Company intends to commence utilizing this
new corporate name in its marketing, corporate literature and investor
disclosures commencing during the Second Quarter of 1999. The Company
believes this new corporate name better reflects the Company's strategy to
develop Internet-based services for ISPs, business customers and marketers of
telecommunications services.
A1 Internet has also agreed to change its corporate name from "Net
America, Inc." to "A1 Internet, Inc." and to assign and transfer to the
Company all of its right, title and interest in and to the name "NetAmerica."
A search of the U.S. Patent and Trademark Office's registry reveals that
one or more other parties may have registered trademarks sufficiently similar
to "NetAmerica" that those registration could be a significant obstacle to
the Company's registration, and continued use, of the name "NetAmerica" and
related trademarks.
The Company has not had any long-term successful business operation and
is currently seeking additional funding to concentrate its efforts in
marketing and selling a wide range of hosting services and value added
applications to corporations, e-commerce companies and Internet service
providers (ISPS). The Company is in an early stage of development and is
subject to all the risk inherent in the establishment of a new business
enterprise. To address these risks, the Company must, among other things,
complete development and establish market acceptance for its products and
services, respond to competitive developments, continue to attract, retain
and motivate qualified personnel and obtain substantial additional capital to
support the expenses of developing and marketing new products. The Company
also intends to identify and recruit additional management. There is no
assurance that the Company will successfully attract sufficient capital or
management with which to execute its strategy.
MERGER AND ACQUISITIONS
The Company will seek to identify acquisition opportunities in the United
States, Europe and other international markets where it can acquire majority
interest in operating companies already offering one or more business-to-
business applications or services. As of the date of this report, the
Company has entered into acquisition discussions with companies in the U.S.
and Europe, but has not entered into a definitive agreement with any
acquisition target.
In addition to acquisitions of operating companies, the Company intends
to identify companies with which it may enter into strategic relationships
that may include a combination of exclusive and non-exclusive licensing
agreements, marketing or co-marketing agreements, strategic minority
investments. As of the date of this report, the Company has entered into
discussions regarding potential strategic relationships that may include
investments by or into NetAmerica, but has not entered into any definitive
agreement for such relationships.
RESULTS OF OPERATIONS
During the three months ended March 31, 1999, the Company incurred losses
of $(959,470), compared to losses of $(200) during the same period in 1998.
Of the $(959,470) loss for the period were 1) $267,500 in legal fees paid in
stock and $70,000 in cash and payable at the end of the period, 2) $250,000
compensation expense from stock options offered for less than fair market
value, 3) $168,000 in officer/director/consultant fees, 4) $78,000 insurance,
5) $52,000 in travel and other miscellaneous expenses. As the business
remains in the early growth stage, the Company anticipates that it will
continue to incur operating losses and cash flow deficiencies for the
foreseeable future.
Revenues
Revenues (interest income) for the three months ended March 31, 1999 were
$5,589, compared $0 for the three months ended March 31, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $960,696 from
$200 for the three months ended March 31, 1999 and 1998, respectively. The
increase was due primarily to (i) increased business development and
acquisition activity, and (ii) expansion of the Company's executive
management and the addition of certain advisors.
Liquidity and Capital Resources
The Company is an Internet services provider executing a business plan
that requires additional capital for (i) acquisitions, (ii) additional network
equipment and facilities, (iii) expansion into new domestic and international
markets, and (iv) development of additional products and services. The
Company currently has a working capital deficit and has operated at a loss
since its inception. Funding of the working capital deficit, current and
future operating losses and expansion of the Company will require additional
capital investment.
Operations used $1,664,625 during the three months ended March 31, 1999
due primarily to the (i) operating losses, (ii) increased business
development and acquisition activity, and (iii) expansion of the Company's
executive management team. Investing activities used $0 during the three
months ended March 31, 1999.
Financing activities provided $1,395,450 during the three months ended
March 31, 1999. Financing activities during the three months ended March 31,
1999 consisted primarily of proceeds from sales of common stock.
Starting in October 1998 and ending March 31, 1999, the Company sold a
private placement offering of common stock ("Private Placement"). The
proceeds of the Private Placement was and will be used for acquisitions,
business development, accounts payable, equipment purchases, and for general
working capital.
In May 1999, the Company commenced a second private placement to raise
an additional maximum of $4,500,000 by selling 2,812,500 shares at $1.60 per
share.
The Company had working capital of $932,297 at March 31, 1999 compared to
$461,954 on December 31, 1998. The Company is currently seeking additional
financing, but there is no guarantee that such financing will be available.
Should the Company not be able to arrange such financing in the next 12
months, operations would have to be curtailed. Should the Company ultimately
be unable to arrange any financing they would be forced to curtail operations.
SUBSEQUENT EVENTS
APPOINTMENT OF DIRECTOR
In April 1999, Mr. Douglas Glen was appointed to the Company's board of
directors. Mr. Glen is Senior Vice President and Chief Strategy Officer for
Mattel, Inc. For Mattel, he is responsible for managing the company's
strategic planning process, building new businesses and product lines, and
developing strategic alliances. Mr. Glen joined Mattel in 1994 to found Mattel
Media, the company's multimedia business unit. Under his leadership as
President of the new company, Mattel Media developed a line of Barbie-branded
software. Mr. Glen was also responsible for the Mattel/Intel joint venture,
which led to the launch of the IntelPlay line at the 1999 New York Toy Fair.
Previously, Mr. Glen was Group Vice President, Business Development and
Strategic Planning for Sega of America, where he headed up the Sega Channel
project and the launch of Sega's multimedia video game line. Before Sega, he
was general manager of Lucasfilm Games, the consumer software division of
George Lucas' entertainment company. Prior to entering the entertainment
software business, Glem spent 15 years in advertising.
APPOINTMENT OF CEO AND DIRECTOR
In May 1999, Mr. Gordon Reichard, Jr. was appointed as the Company's
Chief Executive Officer and President, and was appointed to the board of
directors of the Company. Prior to joining the Company, Mr. Reichard was
President of Ameritech Advanced Date Systems (AADS), a wholly-owned
subsidiary of Ameritech Corporation. Mr. Reichard was responsible for executive
leadership in data network services, network management and network
integration of customer enterprise networking. Prior to serving as President
of Ameritech Advanced Data Systems, Mr. Reichard was responsible for the
building and operation of Ameritech's Integrated Service Center (ISC), which
provided customer service for voice, video and data communications supporting
Ameritech's commercial customers. Services included support for customer
premise equipment, managed services and network services. Previously, Mr.
Reichard was Product Family Manager for data services of Ameritech, where he
was responsible for the development of data and video products insluding
Internet access, Frame Relay, ATM, ISDN and video services. Prior to joining
Ameritech, Mr. Reichard served as Regional Manager for 3Com Corporation, where
he successfully managed systems engineering for the company's North Central
district. Before that, Mr. Reichard was a Brand Manager for U.S. Robotics.
He holds an MBA from Lake Forest Graduate School of Management and a Bachelor
of Science degree from Southern Illinois University. Mr. Reichard will be
paid a base salary of $200,000 per year, with additional bonuses and stock
options to be earned based on certain performance and vesting criteria
established by the board of directors.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named in a lawsuit over a lease agreement signed for
office space in Seattle, Washington related to the business of A-1 Internet.
Management is contesting the lawsuit and does not expect an adverse affect
from the litigation.
On May 14, 1999 the Company was informed of a lawsuit filed against the
Company and against A-1 Internet by Gregory Martin, an individual who had
served as the Company's Chief Executive Officer between September 1998 and
December 1998, as part of the Company's now-rescinded acquisition of A-1
Internet (formerly NetAmerica, Inc.). Mr. Martin claims, among other things,
that the Company has failed to perform under provisions of the Company's
now-rescinded merger agreement with A-1 and certain provisions of the
Company's employment and severance agreements with Mr. Martin. The
Company intends to defend itself vigorously against these claims.
Item 2. Changes in Securities and Use of Proceeds
During the quarter, the Company sold 711,563 shares of common stock for
$683,100 (net) cash under a private placement memorandum, and 3,224,074
shares to officers, directors, and promoters for $2,794,657 in cash and
notes. The Company also issued 209,418 shares for debt conversion ($224,641),
and 250,000 shares for services ($267,500).
Item 3. Defaults upon Senior Securities
None
Item 4.Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Financial Statements as of March 31, 1999.
Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NETAMERICA.COM CORPORATION
(Registrant)
May 14, 1999 /s/ Douglas D. Cole
Douglas D. Cole
Chairman
(Principle Executive Officer)
NETAMERICA.COM CORPORATION
( A Development Stage Company)
Balance Sheets
ASSETS
March 31, December 31,
1999 1998
CURRENT ASSETS (unaudited)
Cash $ 259,341 $ 528,516
Interest Receivable 6,446 1,638
Advances to Affiliate 746,188 -
Total Current Assets 1,011,975 530,154
PROPERTY, PLANT & EQUIPMENT 6,250 6,875
OTHER ASSETS
Goodwill 37,379 41,117
TOTAL ASSETS $1,055,604 578,146
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 79,678 68,200
Total Current Liabilities 79,678 68,200
STOCKHOLDERS' EQUITY
Common Stock 11,638 7,243
Capital in excess of par value 6,356,711 2,140,999
Retained (Deficit) Accumulated During (2,297,766)(1,338,296)
Development Stage
Less: Subscriptions Receivable (3,094,657) (300,000)
Total Stockholders' Equity 975,926 509,946
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,055,604 578,146
NETAMERICA.COM CORPORATION
(A Development Stage Company)
Statements of Operations
(unaudited)
From Inception
For the Three For the Three on December 26,
Months Ended Months Ended 1985 through
March 31, March 31, March 31,
1999 1998 1999
REVENUE
Interest Income $ 5,589 $ - $ 50,195
EXPENSES
Selling, General &
Administrative 960,696 200 1,393,177
Bad Debt (Note 8) - - 885,000
Depreciation and
amortization 4,363 - 14,156
Interest - - 10,773
Loss from write down of
Goodwill (Note 7) - - 44,855
Total Expenses 965,059 200 2,347,961
Income (Loss) Before Taxes (959,470) (200) (2,297,766)
Taxes (Note 3) - - -
INCOME (LOSS) $ (959,470) $ (200) $ (2,297,766)
Loss Per Common
Share (Note 2) $ (0.10) $ -
Weighted Average
Number of Shares
(Note 2) 9,243,695 200,000
NETAMERICA.COM CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
For the Period
For the Three For the Three From Inception on
Months Ended Months Ended December 26,1985
March 31, March 31, to March 31,
1999 1998 1999
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net(Loss) $(959,470) $ (200) $(2,297,766)
Adjustments to
reconcile net income to
net cash provided by
operating activities:
Depreciation and
amortization 4,363 - 13,921
Bad Debt (Note 8) - - 885,000
Write off of Goodwill
(Note 7) - - 44,855
Stock for Services - - 88,926
Stock for Interest - - 10,773
(Increase) Decrease in
interest receivable
and other advances (750,996) - (1,672,134)
Increase (Decrease) in
accounts payable
and accrued expenses 41,478 (1,100) 45,678
Total (1,664,625) (1,300) (2,880,747)
CASH FLOWS FROM INVESTING
ACTIVITIES
Payment for purchase
of equipment - - (4,495)
Payment for purchase
of organizational cost - - (700)
Cash purchased by stock
acquisition of subsidiary - - 3,690
Total - - (1,505)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Loans and other debt - - 463,000
Repayment of Loans (30,000) (30,000)
Paid-in capital
contributions - 1,300 7,650
Proceeds from stock sales 1,504,950 - 2,962,845
Less: private
offering costs (79,500) - (261,902)
Total 1,395,450 1,300 3,141,593
INCREASE (DECREASE) IN CASH (269,175) - 259,341
CASH - beginning of period 528,516 - -
CASH -end of period $ 259,341 $ - $ 259,341
Supplementary Cash Flow Information
Cash Paid for:
Interest $ - $ - $ -
Taxes $ - $ - $ -
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - BACKGROUND AND HISTORY
NetAmerica.com Corporation is a consolidated group of companies including the
parent corporation, NetAmerica.com Corporation (NetAmerica.com), and its
subsidiary, PolarCap, Inc. (PolarCap).
NetAmerica.com (formerly Venture World, Ltd.) is a Delaware Corporation
organized on May 6, 1987 for the purpose of seeking out and developing any
general business opportunity.
PolarCap is a California Corporation organized on April 7, 1997 for the
purpose of investing in and developing rights to a variety of software
technologies related to multimedia, development tools, and applications
technologies. PolarCap was 100% acquired by NetAmerica.com on September 30,
1998. Together, both companies are combined into NetAmerica.com Corporation,
a consolidated group of corporations known in this report as the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of NetAmerica.com
and its subsidiary, PolarCap. Collectively, these entities are referred to as
the Company. All significant intercompany transactions and accounts have
been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be
equivalents.
NONMONETARY TRANSACTIONS
Nonmonetary transactions are transactions for which no cash was exchanged and
for which shares of common stock were exchanged for goods or services. These
transactions are recorded at fair market value as determined by the board of
directors.
EARNINGS PER SHARE AND AVERAGE SHARES OUTSTANDING
Earnings (loss) per share are computed based on the weighted average method.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 3 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" in the fiscal year ended December 31, 1997 and
has applied the provisions of the statement on a retroactive basis to all the
previous years which resulted in no significant adjustment.
Statement of Financial Accounting Standards No. 109 " Accounting for Income
Taxes" requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognizes (a) the amount
of taxes payable or refundable for the current year and (b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition of
accounting transactions for tax and financial reporting purposes. There were
no temporary differences at March 31, 1999 and earlier years; accordingly, no
deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carryforwards of approximately
$1,860,000 at March 31, 1999. No effect has been shown in the financial
statements for the net operating loss carryforwards as the likelihood of
future tax benefit from such net operating loss carryforwards is not
presently determinable. Accordingly, the potential tax benefits of the net
operating loss carryforwards, estimated based upon current tax rates at March
31, 1999 have been offset by valuation reserves in the same amount. The net
operating losses begin to expire in 2007.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
March 31, 1999
Computer Equipment & Software $7,500
Less: Accumulated depreciation (1,350)
$ 6,250
=========
Computer equipment and software are being depreciated on a straight line
method over the estimated useful life of 3 years. Depreciation expense for
the period is $625.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 5 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. In these financial
statements, assets, liabilities and earnings involve extensive reliance on
management's estimates. Actual results could differ from those estimates.
NOTE 6 - ACQUISITION OF SUBSIDIARY / GOODWILL
On September 30, 1998, the Company purchased all of the outstanding stock of
PolarCap, Inc. for 2,400,000 shares of stock. The equity of PolarCap at
September 30, 1998 was $(87,310). The value of the stock was issued at
$.001, par value, for a total purchase price of $2,400. All of the assets
of PolarCap were established at estimated fair market value leaving a value of
$89,710 for goodwill that was to be written off over three years. By the end
of the year, the Company determined that $44,855 of the value of goodwill
would be expensed in the current period based on the estimated continued value
and use of PolarCap and its corporate image, operations, and personnel talent.
Amortization expense for the period is $3,738.
NOTE 7 - ADVANCES TO AFFILIATE / BAD DEBT
At the same time that the Company negotiated a purchase of 100% of the
ownership of PolarCap, Inc. (See Note 7), the Company negotiated, and later
rescinded by mutual agreement, a purchase of 100% of the ownership of A-1
Internet, Inc., an Internet services provider company based in Seattle,
Washington. Between the time the Company agreed to purchase and the time the
recession agreement was reached (April, 1999), the Company advanced
$1,631,188. Once the recession agreement was reached, the advances became a
receivable and, at the same time, A-1 began to negotiate for the sale of all
of its assets and liabilities, which resulted in an agreement with a third
party for the sale with the proceeds of up to $850,000 that would be returned
to the Company. Management has established a reserve of $885,000 in
anticipation of any or all-possible losses from the agreement.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 8 - COMMON STOCK TRANSACTIONS
All stock transactions conducted during the period for which no cash was
exchanged and for which shares of stock were exchanged for assets or goods and
services were recorded at fair market value of the stock as best determined
by the board of directors.
Common stock transactions during the period are as follows:
711,563 shares of stock were issued for $758,288 cash. ($1.07) (February).
2,557,500 shares of stock issued for $2,728,000 in notes to related parties
and other investors. ($1.07) (March)
666,574 shares of stock issued for $66,657 in notes to related parties.
($0.10) (January). The board has placed restrictions on this stock so that
the stock cannot be sold, traded, assigned, transferred or pledged until the
Company reaches $10,000,000 in gross revenues in a one year time period.
30,000 shares of stock issued in lieu of a $30,000 outstanding notes payable.
($1.00) (March)
179,418 shares of stock issued for $179,418 of debt to creditors of A-1
internet. ($1.00) (March)
250,000 shares of stock issued for $250,000 of legal fees. ($1.00) (March)
NOTE 9 - NOTE RECEIVABLE - RELATED PARTY
In January 1999, the Company sold 666,574 shares for $66,574 at a price of
$.10 per share. (See Note 8 for restrictions placed on stock).
In March, 1999, the Company sold 2,557,500 shares to a related party and other
investors in exchange for $2,728,000 in notes payable at a price of $1.07 a
share.
NOTE 10 - CONCENTRATION OF RISK
On March 31, 1999, the Company had funds deposited in one account that
exceeded the FDIC insured limits on bank accounts. Such funds that exceeded
the limitation in the account was $259,341.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 11 - COMMITMENTS AND CONTINGENCIES
As part of the purchase of A-1 Internet, Inc. (see note 8), the Company agreed
to assist with the negotiations for settlement of debt for A-1. After the
first of the year, the Company assisted in the negotiation for conversion of
A-1 notes payable of $156,545 for 156,113 shares of common stock and
accounts payable of $209,744 for 23,305 shares of common stock and 10
payments of $10,487.20 for total cash payments of $104,871.50. The Company
also negotiated $30,000 of PolarCap debt for 30,000 shares.
The Company has entered into a 12 month, renewable lease for office space in
San Francisco for $1,000 per month.
The Company has been named in a lawsuit over a lease agreement signed for
office space in Seattle, Washington, related to the business of A1 Internet.
Management is contesting the lawsuit and does not expect any adverse affect
from the litigation.
On May 14, 1999 the Company was informed of a lawsuit filed against the
Company and against A-1 Internet by Gregory Martin, an individual who had
served as the Company's Chief Executive Officer between September 1998 and
December 1998, as part of the Company's now-rescinded acquisition of A-1
Internet (formerly NetAmerica, Inc.). Mr. Martin claims, among other things,
that the Company has failed to perform under provisions of the Company's
now-rescinded merger agreement with A-1 and certain provisions of the
Company's employment and severance agreements with Mr. Martin. The Company
intends to defend itself vigorously against these claims.
NOTE 12 - OPTIONS FOR PURCHASE OF COMMON STOCK
During the first quarter ended March 31, 1999, the Company awarded options for
the purchase of 250,000 shares of stock with an exercise price of $0.05
per share, and 650,000 shares of stock with an exercise price of $1.60.
Compensation expense of $250,000 was realized on the stock options issued
for $.05 per share, the difference of fair market value of $1.06 and the
option price of $.05. The options have no restrictions and can be exercised
at any time.
To date, no options have been exercised.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 259,341
<SECURITIES> 0
<RECEIVABLES> 6,446
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,011,975
<PP&E> 7,500
<DEPRECIATION> 1,350
<TOTAL-ASSETS> 1,550,604
<CURRENT-LIABILITIES> 79,678
<BONDS> 0
0
0
<COMMON> 3,569,000
<OTHER-SE> (2,970,766)
<TOTAL-LIABILITY-AND-EQUITY> 1,555,604
<SALES> 0
<TOTAL-REVENUES> 5,589
<CGS> 0
<TOTAL-COSTS> 965,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (959,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (959,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (959,470)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
