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 June 30, 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
12,148,266
(Number of shares of common
stock the registrant had
outstanding as of August 11, 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 six months ended June 30, 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 the second quarter 1999, the Company sold 496,188 shares of stock for
$1.60 or $794,300 net proceeds in a private placement. Also in the second
quarter, the Company issued 13,768 shares of the Company to private investors
of A-1 Internet who had invested $32,563 before the merger agreement between
the Company and A-1 had been terminated. The Company also returned $10,534
to investors who wanted cash instead of stock.
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 recession 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 June 30, 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 developing
Internet-based products and services. 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.
Since the last quarterly financial report, the Company has created one
wholly owned subsidiary, Telenesius, Inc. and acquired another corporation,
Rate Exchange, Inc. Telenesius was incorporated on May 5, 1999, as a
Delaware corporation, and Rate Exchange, Inc. was acquired on July 6, 1999.
The financial statements reflect the creation and operation of Telensius
since inception to June 30, 1999, but the acquisition of Rate Exchange closed
after the end of the fiscal quarter and will not be reported until the
Company files its quarterly report for the quarter ending September 30, 1999.
Since the date of its inception through June 30, 1999, the Company had
loaned Telenisus approximately $ 262,662, which was used by Telenisus for
working capital and certain deposits incurred in the normal course of business.
Telenisus Corporation, a development stage company, is seeking to become a
single source provider of secure and reliable Internet-based business-to-
business services to corporate customers, carriers, ISPs and marketers of
telecommunications services. Through acquisitions and internal business
development, Telenisus seeks to develop a full suite of Internet and data
network management tools that will enable customers to increase productivity,
to reduce costs and to access a wide range of Internet, e-commerce, security and
communication applications from a one-stop network service delivery provider.
The Company believes that most mid-sized companies lack the internal
resources to effectively combine advances in applications and bandwidth. The
Company believes a large and growing market has emerged for an outsourced
network services provider focused on delivering cohesive, cost-effective
Internet services to small to mid-sized corporations and telecommunications
service providers. Telenisus is seeking to position itself to be a one-stop
data and Internet network service provider to meet increasing demand for
secure hosting, IP network management and value-added network services.
Since the date of its inception as a wholly-owned subsidiary of the
Company until the date of this report, Telenisus has focused its efforts on
(a) recruitment of experienced Internet and data communications professionals
and executive management, (b) design and development of its core software
architecture, (c) identification of potential acquisitions, and (d) research
and preparation of a detailed sales and marketing strategy. Based on the
market opportunity for Telenisus= proposed products and services in North
America, Europe and other international markets, the Company anticipates that
the Telenisus business plan will require significant capital and human
resources over the next 24 to 36 months. In the event that the capital
requirements to fully execute the Telenisus business plan are greater than
what can be contributed by the Company, the Company may seek additional
capital or other financial resources for Telenisus, which may result in
dilution of the Company's 100% ownership of Telenisus.
On July 6, 1999, the Company acquired 100% of the outstanding stock of
RateXchange, Inc., a Colorado corporation in the business of business to
business e-commerce seeking to develop new transaction services for the
telecommunications market. The Company paid 575,000 shares of common stock
and $450,000 in a note.
RateXchange is a development stage business-to-business e-commerce company
seeking to develop new transaction services for the $1 trillion international
market for telecommunications services. Founded in 1997 and based in San
Francisco, RateXchange has operated an Internet-based lead generation service
for trading in international long-distance minutes, IP telephony minutes and
IP bandwidth since January 1998. The lead generation service has registered more
than 2,000 members and facilitated more than 400 offline transactions for 500
million minutes. RateXchange historically has generated minimal revenues
from these lead-generation service and from the collection and dissemination
of telecommunications market data.
In order to better facilitate telecommunications transactions and to
generate increased revenues, the Company has developed the company will launch
the Real-Time Bandwidth Exchange (RTBX), a fully-transactional online exchange
with immediate fulfillment through strategic relationships with one or more
telecommunications carriers. The Real-Time Bandwidth eXchange will seek to
manage transaction standards and create a switched delivery mechanism with on
demand transit between switching hubs. RateXchange is thus seeking to become
one of the first Internet based electronic marketplaces to automate end-to-end
all aspects of a transaction between buyers and sellers of telecommunication
commodities.
The current environment for trading telecommunications bandwidth is
marked by high search costs, high transaction failure rates and overall
inefficiency. The company estimates that 90% of all bilateral transactions
fail, and fulfillment cycles average between 60 and 90 days. The Company
believes there is a large and growing market opportunity for its automated
bandwidth exchange, fueled by the growth of packet-switched networks, global
deregulation and technology advances.
Between the date of the acquisition of RateXchange by NetAmerica and the
date of this report, the Company has primarily concentrated its efforts on (a)
recruitment of additional software developers and telecommunications
operations specialists, sales and marketing personnel and executive
management, (b) internal and outsourced software development and exchange
platform development, and (c) continued market research and development of
sales and marketing strategies.
Based on the market opportunity for RateXchange=s proposed electronic
exchange for telecommunications products and services in North America, Europe
and other international markets, the Company anticipates that the RateXchange
business plan may require significant capital and human resources over the
next 24 to 36 months. In the event that the capital requirements to fully
execute the RateXchange business plan are greater than what can be
contributed by the Company, the Company may seek additional capital or other
financial resources for RateXchange, which may result in dilution of the
Company's 100% ownership of RateXchange.
In addition to acquisitions of operating companies and the startup of new
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.
RESULTS OF OPERATIONS
During the three months ended June 30, 1999, the Company incurred losses of
$(1,278,487), compared to losses of $(0) during the same period in 1998. Of the
$(1,278,487) loss for the period were 1) $65,130 in legal and professional
fees, 2) $746,188 in bad debt expense, (A-1 Internet, Inc.) 3) $191,431 in
officer/director/consultant fees, 4) $65,446 development costs, 5) $79,731
in travel and other miscellaneous expenses, and 6) $44,696 in A-1 Internet
litigation settlement 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 June 30, 1999 were
$45,219, compared $0 for the three months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $571,888 from
$0 for the three months ended June 30, 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, through its operating subsidiaries, is developing various
Internet based services and is executing an overall business plan that
requires additional capital for among other uses (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 $2,524,034 during the six months ended June 30, 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 six months ended June 30, 1998.
Financing activities provided $2,659,750 during the six months ended June
30, 1999. Financing activities during the six months ended June 30, 1999
consisted primarily of proceeds from sales of common stock.
Starting in October 1998 and ending June 30, 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. During the second quarter, the Company sold 496,188 shares for $794,300.
The Company had working capital of $767,542 at June 30, 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.
YEAR 2000 COMPLIANCE
The Company is currently seeking business ventures and or business
opportunities to create or purchase. It has no operating entity or activity
and does not rely on any computer for any of its operating or accounting
function. As such operations come on line the company will review its
computer needs and develop a plan for Y2K operational testing and compliance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1999, the Company negotiated a settlement with Greg Martin, a
former officer and director of the Company, A-1 Internet, Inc., which calls
for severance payments, payments of out of pocket expenses incurred by Mr.
Martin, past due promissory notes due to his wife, Pat Whitney, and 50,000
shares of Company stock (already issued in the first quarter 1999). Total
amounts paid and to be paid in this settlement are approximately $115,000,
with other contingent liability payments over $100,000 that would be covered
by the Company issuing stock options to a former director/officer of A-1
Internet, Inc., for a bargain purchase price, plus other stock options issuable
to Mr. Martin based on conditions and performances of A-1 Internet sales and
the successful ongoing contract negotiations with customer vendors.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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. During the second quarter, the Company sold 496,188 shares for $794,300.
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 June 30, 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)
August 22, 1999 /s/ Douglas D. Cole
Douglas D. Cole
Chairman
(Principle Executive Officer)
NETAMERICA.COM CORPORATION
( A Development Stage Company)
Balance Sheets
ASSETS
June 30, December 31,
1999 1998
CURRENT ASSETS (unaudited)
Cash $ 655,233 $ 528,516
Interest Receivable 51,665 1,638
Advances to Affiliate (Note 6) 100,000 -
Advances to Officers 23,334 -
Total Current Assets 830,232 530,154
PROPERTY, PLANT & EQUIPMENT 13,358 6,875
OTHER ASSETS
Goodwill (Note 7) 33,641 41,117
Deposits 139,228
TOTAL ASSETS $1,016,459 $ 578,146
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 62,690 $ 68,200
Total Current Liabilities 62,690 68,200
STOCKHOLDERS' EQUITY
Common Stock , $.001 par value, 300,000,000
authorized, 12,148,266 and 7,243,023 shares
outstanding, respectively 12,148 7,243
Capital in excess of par value 7,167,530 2,140,999
Retained (Deficit) Accumulated During
Development Stage (3,576,252) (1,338,296)
Less: Subscriptions Receivable (Note 9) (2,649,657) (300,000)
Total Stockholders' Equity 953,769 509,946
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,016,459 $ 578,146
NETAMERICA.COM CORPORATION
(A Development Stage Company)
Statements of Operations
(unaudited)
From Inception
For the Three For the Three For the Six For the Six on December 26,
Months Ended Months Ended Months Ended Months Ended 1985 through
June 30, June 30, June 30, June 30, June 30,
1999 1998 1999 1998 1999
REVENUE
Interest
Income $ 45,219 $ - $ 50,808 $ - $ 95,414
EXPENSES
Selling,
General &
Administrative 571,888 - 1,532,584 - 1,965,065
Bad Debt
(Note 8) 746,188 - 746,188 - 1,631,188
Depreciation and
Amortization 5,630 - 9,993 - 19,786
Interest - - - - 10,773
Loss from write
down of Goodwill
(Note 7) - - - - 44,855
Total Expenses 1,323,706 - 2,288,765 - 3,671,667
Income (Loss)
Before Taxes (1,278,487) - (2,237,957) - (3,576,253)
Taxes (Note 3) - - - - -
INCOME
(LOSS) $ (1,278,487) $ - $ (2,237,957) $ - $ (3,576,253)
Loss Per
Common Share
(Note 2) $ (0.11) $ - $ (0.21) $ -
Weighted Average
Number of
Shares
(Note 2) 11,962,203 200,000 10,602,949 200,000
NETAMERICA.COM CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
For the Period
For the Six For the Six From Inception on
Months Ended Months Ended December 26,1985
June 30, June 30, to June 30,
1999 1998 1999
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net(Loss) $(2,237,957) $ - $(3,576,253)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 9,993 - 19,551
Bad Debt (Note 7) 746,188 - 1,631,188
Write off of Goodwill (Note 7) - - 44,855
Stock for Services/Expenses 22,029 - 111,155
Stock for Interest - - 10,773
(Increase) Decrease in interest
receivable and other advances (1,058,777) - (1,979,915)
Increase (Decrease) in accounts payable
and accrued expenses (5,510) - (1,310)
Total (2,524,034) - (3,740,156)
CASH FLOWS FROM INVESTING
ACTIVITIES
Payment for purchase of equipment (9,000) - (13,495)
Payment for purchase of organizational
cost - - (700)
Cash purchased by stock acquisition
of subsidiary - - 3,690
Total (9,000) - (10,505)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Loans and other debt - - 463,000
Paid-in capital contributions - - 7,650
Proceeds from stock sales 2,744,250 - 4,202,145
Less: private offering costs (84,500) - (266,902)
Total 2,659,750 - 4,405,893
INCREASE (DECREASE) IN CASH 126,717 - 655,233
CASH - beginning of period 528,516 - -
CASH -end of period $ 655,233 $ - $ 655,233
Supplementary Cash Flow Information
Cash Paid for:
Interest $ - $ - $ -
Taxes $ - $ - $ -
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 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
subsidiaries, PolarCap, Inc. (PolarCap) and Telenisus, Inc.
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.
Telenisus, Inc. is a Delaware corporation created on May 5, 1999, by
NetAmerica.com for the purpose of seeking to become a single source provider
of secure and reliable Internet-based business to business services to
corporate customers, carriers, ISPs, and marketers of telecommunications
services.
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, all 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 subsidiaries, PolarCap and Telenisus. 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 an original 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
June 30, 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 and current 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 December 31, 1998 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 December 31, 1998. 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
December 31, 1998 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:
June 30, 1999
Computer Equipment & Software $ 16,500
Less: Accumulated depreciation (3,142)
$ 13,358
Computer equipment and software are being depreciated on a straight line
method over the estimated useful life of 3 years. Depreciation expense for
the six months is $3,784 .
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 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/CREATION OF SUBSIDIARIES /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 six months is $7,476 .
In May, 1999, the Company created a wholly owned subsidiary, Telenisus,
Inc. for the purpose of seeking to become a single source provider of secure
and reliable Internet-based business to business services to corporate
customers, carriers, ISPs and marketers of telecommunications services.
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 the entire loan
advance in anticipation of any or all-possible losses from the agreement.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 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) $445,000 has been paid as of June 30, 1999.
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)
496, 188 shares of stock issued for $1.60 per share or $794,300.
(May and June).
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 June 30, 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 $534,394.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 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.
In May 1999, the Company negotiated a settlement with 11shareholders/
subscribers to A-1 Internet stock. While A-1 was an affiliate, the management
of A-1 sold shares of A-1 Internet in a private transaction. When the A-1
Internet agreement merger failed to materialize, the Company negotiated a
settlement of any possible litigation by exchanging their investment in A-1
Internet ($32,563) for 13,768 shares of the Company and $10,534.
The Company has entered into a 12 month, renewable lease for office space
in San Francisco for $1,000 per month.
In May 1999, the Company negotiated a settlement with Greg Martin, a former
officer and director of the Company, which calls for severance payments,
payments of out of pocket expenses incurred by Mr. Martin, past due promissory
notes due to his wife, Pat Whitney, and 50,000 shares of Company stock (already
issued in the first quarter 1999). Total amounts paid and to be paid in this
settlement are approximately $115,000, with other contingent liability
payments over $100,000 that would be covered by the Company issuing stock
options for a bargain purchase price, plus other stock options issuable to Mr.
Martin based on conditions and performances of A-1 Internet sales and the
successful ongoing contract negotiations with customer vendors.
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.
NOTE 12 OPTIONS FOR PURCHASE OF COMMON STOCK
During the first quarter ended June 30, 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.
NETAMERICA.COM CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1999
NOTE 13 SUBSEQUENT EVENTS
On July 6, 1999, the Company acquired Rate Exchange, Inc., a Colorado
corporation in the business of business to business e-commerce seeking to
develop new transaction services for the telecommunications market. The
Company paid 575,000 shares of common stock and $450,000 in a note.
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