<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
September 22, 1999
-----------------------------------------------------------
Date of Report (Date of earliest event reported)
eVentures Group, Inc.
-----------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-19435 75-2233445
(State or Other Jurisdiction of Commission File (I.R.S. Employer
Incorporation or Organization) Number Identification No.)
One Evertrust Plaza, 8th Floor,
Jersey City, New Jersey 07302
- ------------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
201-200-5515
---------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
(Former Name or former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
This amendment to our Form 8-K amends Item 7 of our Form 8-K
as filed on October 7, 1999, as amended on December 6, 1999 (the "Amended Form
8-K") . In addition to the financial information required by Item 7, for the
benefit of investors, we have included the unaudited financial statements of
eVentures Group, Inc. as of September 30, 1999 and for the three months ended
September 30, 1999 and September 30, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
On October 7, 1999, we filed a Form 8-K to report the
completion of our Agreement and Plan of Reorganization dated September 22, 1999
(the "Reorganization Plan"). We indicated that we would file the financial
information required by Item 7 of Form 8-K no later than the date required by
this item. On December 7, 1999 we filed an amendment to our Form 8-K as filed on
October 7, 1999, amending Item 7 of such Form 8-K to indicate that we would file
the financial information required by Item 7 of Form 8-K on or prior to December
9, 1999. We are now filing this Amendment No. 2 to provide this financial
information.
(a) Financial Statements.
The following documents appear as Exhibits to this current
report on Form 8-K/A:
(i) Consolidated Financial Statements of eVentures Group, Inc. as
of June 30, 1998 and 1999 and as of September 30, 1999 and for
the years ended June 30, 1997, 1998 and 1999 and for the three
months ended September 30, 1998 and 1999;
(ii) Unaudited Financial Statements of AxisTel Communications, Inc.
as of December 31, 1997 and 1998 and June 30, 1999 and for the
period from August 28, 1997 (inception) to December 31, 1997,
the year ended December 31, 1998 and for the six months ended
June 30, 1998 and 1999.
-2-
<PAGE> 3
(b) Pro Forma Financial Information.
The following documents appear as Exhibits to this current
report on Form 8-K/A:
(i) Unaudited Pro Forma Combined Consolidated Balance Sheet of
eVentures Group, Inc. as of September 30, 1999; and
(ii) Unaudited Pro Forma Condensed Combined Consolidated Statement
of Operations of eVentures Group, Inc. for the year ended June
30, 1999 and for the three months ended September 30, 1999.
-3-
<PAGE> 4
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.
eVentures Group, Inc.
December 9, 1999
By /s/ STUART CHASANOFF
---------------------------------------
Name: Stuart Chasanoff
Title: Vice President - Business Development;
General Counsel and Secretary
-4-
<PAGE> 5
eVENTURES GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of June 30, 1998 and 1999 and September 30, 1999
(Unaudited) F-3
Consolidated Statements of Operations for the years ended June 30, 1997,
1998 and 1999 and for the three months ended September 30, 1998 and 1999
(Unaudited) F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
June 30, 1997, 1998 and 1999 and for the three months ended September 30,
1998 and 1999 (Unaudited) F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1998 and
1999 and for the three months ended September 30, 1998 and 1999 (Unaudited) F-6
Notes to Consolidated Financial Statements F-10
Report of Independent Certified Public Accountants (AxisTel) F-33
AxisTel Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited) F-34
AxisTel Statements of Income and Retained Earnings for the period from August 28,
1997 (inception) to December 31, 1997 ("the 1997 Period"), the year ended
December 31, 1998 and for the six months ended June 30, 1998 and 1999
(Unaudited) F-35
AxisTel Statements of Cash Flows for the 1997 Period, the year ended December 31,
1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) F-37
AxisTel Notes to Financial Statements F-40
Unaudited Pro Forma Consolidated Financial Information P-1
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1999 P-2
Unaudited Pro Forma Consolidated Financial Information P-3
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended June
30, 1999 and for the three months ended September 30, 1999 P-4
</TABLE>
F-1
<PAGE> 6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
eVentures Group, Inc.
Jersey City, NJ
We have audited the accompanying balance sheet of eVentures Group, Inc. (the
"Company") as of June 30, 1999 and the related statements of operations and cash
flows for the year then ended ("Company Period"). We have also audited the
balance sheet as of June 30, 1998 and the statements of operations and cash
flows of Old Company (see Note 1) for each of the years in the two-year period
ended June 30, 1998 ("Old Company Periods"). These financial statements are the
responsibility of the Company's and Old Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Old Company business was
acquired in a transaction accounted for as a purchase. As a result of this
transaction, the financial information for the period after the sale is
presented on a different cost basis than that for the period before the sale
and, therefore, is not comparable.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at June 30, 1999,
and the results of its operations and its cash flows for the Company Period in
conformity with generally accepted accounting principles. Further, in our
opinion, the Old Company financial statements referred to above present fairly,
in all material respects, the financial position at June 30, 1998 and the
results of its operations and its cash flows for the Old Company Periods in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
November 30, 1999
F-2
<PAGE> 7
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
-------------- --------------------------------
AS OF
SEPTEMBER
AS OF JUNE 30, AS OF JUNE 30, 30, 1999
1998 1999 (UNAUDITED)
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,417,216 $ 39,379 $ 6,346,023
Accounts receivable 104,422 6,129 1,158,221
Other receivables 5,821 11,164 71,988
Prepaid expenses and other -- 13,250 189,933
Deposits 35,141 242,310 299,071
VAT tax receivable -- 2,757,368 2,436,268
Available-for-sale securities 250,556 -- --
------------- ------------- -------------
2,813,156 3,069,600 10,501,504
------------- ------------- -------------
LONG-TERM ASSETS
Restricted cash -- 1,107,437 1,820,752
Property and equipment, net 1,447,244 6,219,874 7,429,945
VAT receivable 44,775 -- --
Investment in affiliate -- 91,354 140,746
Investment in i2v2 -- 2,100,144 2,100,144
Goodwill, net -- 3,072,908 19,591,050
Other -- -- 79,300
------------- ------------- -------------
1,492,019 12,591,717 31,161,937
------------- ------------- -------------
$ 4,305,175 $ 15,661,317 $ 41,663,441
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,831,863 $ 4,609,806 $ 7,716,609
Accrued other 525,297 1,477,757 2,037,272
Accrued interest payable 13,412 383,163 25,512
Advances from shareholder 60,920 -- --
Customer deposits and deferred revenues 200,000 1,272,682 2,106,447
Notes payable -- -- 26,250
Debentures, current portion 590,000 -- --
Capital leases, current portion 307,496 1,916,761 2,001,531
------------- ------------- -------------
3,528,988 9,660,169 13,913,621
------------- ------------- -------------
LONG-TERM LIABILITIES
Debentures, net of current portion 5,410,000 6,828,948 --
Capital leases, net of current portion 487,665 2,031,513 1,750,160
------------- ------------- -------------
5,897,665 8,860,461 1,750,160
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 25,100 36 757
Preferred stock -- -- --
Additional paid-in capital 83,300 4,310,144 36,933,715
Accumulated deficit (5,229,878) (7,169,493) (10,481,812)
Deferred compensation -- -- (453,000)
------------- ------------- -------------
(5,121,478) (2,859,313) 25,999,660
------------- ------------- -------------
$ 4,305,175 $ 15,661,317 $ 41,663,441
============= ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 8
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
---------------------------- ---------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
YEAR ENDED YEAR ENDED YEAR ENDED 30, 1998 30, 1999
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 921,599 $ 1,713,403 $ 27,248,273 $ 4,205,662 $ 8,675,719
Direct Costs 578,944 1,944,073 23,311,584 3,495,587 8,729,520
------------ ------------ ------------ ------------ ------------
Gross Profit (Loss) 342,655 (230,670) 3,936,689 710,075 (53,801)
Selling, general, and administrative expenses 718,362 4,505,798 7,551,131 1,588,526 1,816,032
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Loss from operations, before other (income) expense (375,707) (4,736,468) (3,614,442) (878,451) (1,869,833)
------------ ------------ ------------ ------------ ------------
Other (income) expense
Interest income -- (6,084) (55,417) (12,711) (13,341)
Interest expense -- 111,183 1,759,876 372,146 532,572
Write off of unamortized debt discount -- -- -- -- 917,615
Equity in loss of unconsolidated affiliate -- -- 33,776 -- 18,730
Foreign currency (gain) loss -- -- 126,575 8,238 (6,502)
Other -- 12,604 (16,930) 7,946 (6,588)
------------ ------------ ------------ ------------ ------------
-- 117,703 1,847,880 375,619 1,442,486
------------ ------------ ------------ ------------ ------------
Net Loss $ (375,707) $ (4,854,171) $ (5,462,322) $ (1,254,070) $ (3,312,319)
============ ============ ============ ============ ============
Net loss per share (basic and diluted) $ (.34) $ (.08) $ (.17)
------------ ------------ ------------
Weighted average number of shares outstanding 16,000,000 16,000,000 19,744,397
------------ ------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 9
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------------- ----------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OLD COMPANY
Balance July 1, 1996 -- -- 1,000 $ 100 $ --
Issuance of shares for fixed assets,
at book value -- -- 200 25,000 --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 -- -- 1,200 25,100 --
Gift of stock to employees -- -- -- -- 83,300
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 -- -- 1,200 $ 25,100 $ 83,300
============ ============ ============ ============ ============
THE COMPANY
Issuance of common stock, July 1, 1998 -- $ -- 3,600 $ 36 $ --
Fair value of shares issued in connection
with debentures -- -- -- -- 2,000,000
Fair value of warrants granted in connection
with debentures -- -- -- -- 210,000
Cost investment in i2v2 -- -- -- -- 2,100,144
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 -- -- 3,600 36 4,310,144
REVERSE MERGER
Net effect of reverse merger (Unaudited)
(Note 1) 1,000 -- 37,860,010 721 32,170,571
Intrinsic value of stock options -- -- -- -- 453,000
Net loss (unaudited) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 (Unaudited) 1,000 $ -- 37,863,610 $ 757 $ 36,933,715
============ ============ ============ ============ ============
<CAPTION>
TOTAL
ACCUMULATED DEFERRED STOCKHOLDERS'
DEFICIT COMPENSATION EQUITY/(DEFICIT)
------------ ------------ ----------------
<S> <C> <C>
OLD COMPANY
Balance July 1, 1996 $ -- $ -- $ 100
Issuance of shares for fixed assets,
at book value -- -- 25,000
Net Loss (375,707) -- (375,707)
------------ ------------ ------------
Balance, June 30, 1997 (375,707) -- (350,607)
Gift of stock to employees -- -- 83,300
Net loss (4,854,171) -- (4,854,171)
------------ ------------
Balance, June 30, 1998 $ (5,229,878) -- $ (5,121,478)
============ ============ ============
THE COMPANY
Issuance of common stock, July 1, 1998 $ -- -- $ 36
Fair value of shares issued in connection
with debentures (1,707,171) -- 292,829
Fair value of warrants granted in connection
with debentures -- -- 210,000
Cost investment in i2v2 -- -- 2,100,144
Net loss (5,462,322) -- (5,462,322)
------------ ------------ ------------
Balance, June 30, 1999 (7,169,493) -- (2,859,313)
Net effect of reverse merger (Unaudited)
(Note 1) -- -- 32,171,292
Intrinsic value of stock options -- (453,000) --
Net loss (unaudited) (3,312,319) -- (3,312,319)
------------ ------------ ------------
Balance, September 30, 1999 (Unaudited) $(10,481,812) $ (453,000) $ 25,999,660
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 10
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
------------------------------ -------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (375,707) $(4,854,171) $(5,462,322)
Adjustments to reconcile net income to net cash
(used in) provided by net operating activities:
Depreciation and amortization -- 105,544 2,283,505
Other expenses 148,381 171,259 932,509
Write-off accounts receivable - Touchtone -- 615,232 --
Write-off certain intangible assets -- 420,000 --
Foreign currency (gain) loss -- -- 126,575
Equity in loss of unconsolidated affiliate -- -- 33,776
Change in operating assets and liabilities:
Accounts receivable (73,587) (30,835) 98,293
Other receivables (47,200) 41,379 (5,343)
Prepaid expenses and other -- -- (13,250)
VAT receivable -- (44,775) (2,611,318)
Restricted cash -- -- (1,107,437)
Accounts payable 306,113 1,525,750 2,550,093
Accrued other 68,000 75,495 301,695
Accrued interest payable -- 13,412 369,751
<CAPTION>
THE COMPANY
-------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,254,070) $(3,312,319)
Adjustments to reconcile net income to net cash
(used in) provided by net operating activities:
Depreciation and amortization 522,064 1,708,406
Other expenses 370,689 --
Write-off accounts receivable - Touchtone -- --
Write-off certain intangible assets -- --
Foreign currency (gain) loss 8,238 (6,502)
Equity in loss of unconsolidated affiliate -- 18,730
Change in operating assets and liabilities:
Accounts receivable (989,939) (97,493)
Other receivables (37,152) (60,824)
Prepaid expenses and other (16,038) (7,263)
VAT receivable (334,936) 321,100
Restricted cash (1,067,490) (713,315)
Accounts payable 835,036 1,170,492
Accrued other (53,406) 309,516
Accrued interest payable 129,220 142,508
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 11
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
---------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Customer deposits -- 200,000 1,072,682
---------- ---------- ----------
Net cash (used in) provided by operating activities 26,000 (1,761,710) (1,430,791)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits (13,000) (22,141) (207,169)
Proceeds from sale of available-for-sale securities -- 26,000 246,580
Purchase of available-for-sale securities -- (277,057) --
Purchases of property and equipment (363) (518,944) (1,183,735)
Net cash acquired in reverse merger acquisitions -- -- --
Investment in Touchtone -- (615,232) --
Investment in UCI Teleport -- (420,000) --
Investment in ICT -- -- (125,130)
---------- ---------- ----------
Net cash (used in) provided by investing activities (13,363) (1,827,374) (1,269,454)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances - shareholders -- 60,920 (60,920)
Issuance of common stock and preferred stock 100 -- --
Proceeds from issuance of debenture -- 6,000,000 2,040,000
Payments on capital leases -- (67,357) (1,656,672)
---------- ---------- ----------
Net cash (used in) provided by financing activities 100 5,993,563 322,408
---------- ---------- ----------
<CAPTION>
THE COMPANY
-----------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
Customer deposits (200,000) 679,765
---------- ----------
Net cash (used in) provided by operating activities (2,087,784) 152,801
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 2,906 (56,761)
Proceeds from sale of available-for-sale securities 246,580 --
Purchase of available-for-sale securities -- --
Purchases of property and equipment (1,131,808) (574,379)
Net cash acquired in reverse merger acquisitions -- 1,049,688
Investment in Touchtone -- --
Investment in UCI Teleport -- --
Investment in ICT -- (68,122)
---------- ----------
Net cash (used in) provided by investing activities (882,322) 350,426
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances - shareholders 10,688 --
Issuance of common stock and preferred stock -- 6,000,000
Proceeds from issuance of debenture 850,000 --
Payments on capital leases (46,517) (196,583)
---------- ----------
Net cash (used in) provided by financing activities 814,171 5,803,417
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 12
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
----------------------------- -----------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
YEAR ENDED YEAR ENDED YEAR ENDED 30, 1998 30, 1999
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CHANGE IN CASH 12,737 2,404,479 (2,377,837) (2,155,935) $ 6,306,644
CASH AND CASH EQUIVALENTS, beginning of year -- 12,737 2,417,216 2,417,216 39,379
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 12,737 $ 2,417,216 $ 39,379 $ 261,281 $ 6,346,023
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flows information:
Cash paid for interest for:
Interest $ -- $ 98,000 $ 376,000 $ -- $ --
=========== =========== =========== =========== ===========
Taxes $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 13
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
----------------------------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and
financing activities
Issuance of common stock for property and equipment $ 25,000 $ -- $ --
================= ================= =================
Purchases of equipment under litigation $ 170,462 $ -- $ --
================= ================= =================
Purchases of equipment under capital leases $ -- $ 862,518 $ 4,809,785
================= ================= =================
Fair value of original issue discount on warrants
granted pursuant to certain of the debentures $ -- $ -- $ 210,000
================= ================= =================
Fair value of original issue discount on revaluation of
Company at July 1, 1998, arising from change in
ownership $ -- $ -- $ 2,000,000
================= ================= =================
Goodwill arising from change in ownership
and reverse merger acquisitions $ -- $ -- $ 3,414,343
================= ================= =================
Net assets of subsidiaries acquired through an issue
of stock $ -- $ -- $ --
================= ================= =================
<CAPTION>
THE COMPANY
--------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
Supplemental schedule of non-cash investing and
financing activities
Issuance of common stock for property and equipment $ -- $ --
================= =================
Purchases of equipment under litigation $ -- $ --
================= =================
Purchases of equipment under capital leases $ -- $ --
================= =================
Fair value of original issue discount on warrants
granted pursuant to certain of the debentures $ -- $ --
================= =================
Fair value of original issue discount on revaluation of
Company at July 1, 1998, arising from change in
ownership $ -- $ --
================= =================
Goodwill arising from change in ownership
and reverse merger acquisitions $ -- $ 16,639,971
================= =================
Net assets of subsidiaries acquired through an issue
of stock $ -- $ 1,241,162
================= =================
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 14
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, ORGANIZATION
BUSINESS AND
BASIS OF PRESENTATION eVentures Group, Inc., ("eVentures" or the
"Company") was incorporated in the state of
Delaware on June 24, 1987 and was a public
shell with no operations prior to the
transactions consummated on September 22,
1999, which are described below. The Company
was formerly known as Adina, Inc.
On September 22, 1999, the Company acquired
all of the outstanding shares of AxisTel
Communications, Inc., ("AxisTel"),
approximately 66.67% of the outstanding
shares of e.Volve Technology Group, Inc.,
("e.Volve"), and approximately 21% of the
outstanding shares of i2v2.com, Inc.
("i2v2.com"), (collectively the "Acquired
Entities") and $8,540,159 Notes Receivable
including accrued interest ("Notes") from
e.Volve held by one of the Major
Shareholders. All the acquisitions and the
purchase of the Notes were settled through
issuance of stock of eVentures. (the
"Transaction"). As a result of the
Transaction, approximately 77% of the Common
Stock of the Company was owned by three
shareholders that are affiliated with each
other (the "Major Shareholders"). The
interest in i2v2.com was diluted to 17% in
October 1999 and the remaining 33.33% of
e.Volve was acquired. (see Note 15)
Prior to the Transaction, the Major
Shareholders had directly and indirectly
held interests in the Acquired Entities, as
follows: 66.67% of e.Volve, 21% of i2v2.com,
and 0.7% of AxisTel. Certain of these
interests, along with the Major
Shareholders' Notes receivable from e.Volve,
were sold to eVentures in exchange for the
Company's stock as part of the Transaction.
The remainder were acquired through a merger
of one of the Major Stockholders with a
wholly owned subsidiary of the Company. Also
as part of the Transaction, one of the the
Major Stockholders exercised a warrant and
purchased a further 49.3% of AxisTel, and
sold this to eVentures in exchange for
eVentures stock. The remaining 50% of
AxisTel was then purchased from AxisTel's
founding shareholders.
BASIS OF PRESENTATION
The financial statements presented through
June 30, 1999 represent the combined
interests of the Major Shareholders in each
of the Acquired Entities prior to the
Transaction. This combination of the Major
Shareholders' interests in the Acquired
Entities is deemed to be the "Accounting
Acquirer". The financial statements as of
and for the three months ended September 30,
1999 reflect the consummation of the
Transaction, and therefore are consolidated
financial statements of eVentures and
Subsidiaries as of September 30, 1999 and
for the period
F-10
<PAGE> 15
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, from September 22, 1999 through September
BUSINESS AND 30, 1999.
BASIS OF PRESENTATION
(CONTINUED) On June 11, 1998, the Major Shareholders or
predecessors in interest acquired their
66.67% interest in e.Volve. This transaction
was accounted for by eVolve as a purchase.
The operations of eVolve between June 11,
1998 and June 30, 1998 were immaterial, and,
therefore the date used for the effective
date of the purchase was July 1, 1998. The
financial statements through June 30, 1998
are described as "Old Company", and those
subsequent to June 30, 1998 are described as
"The Company". The cost basis of The Company
was assigned to the assets acquired based on
their estimated fair values at the
acquisition date. As a result, the financial
statements for the period subsequent to the
change of control are presented on a
different cost basis than those for prior
periods and, therefore, are not comparable.
BUSINESS
The Company operates in two divisions, the
Operations Division and the Investment
Division.
Investment Division:
This division was commenced in fiscal 1999.
The objective of this Division is to acquire
stakes in companies which the Company
believes have exceptional growth prospects.
The degree of involvement of the Company in
management of the investees varies for each
investment. During the year ended June 30,
1999, the Company acquired a minority
interest in i2v2.com (doing business as
PhoneFree.com). The Company also entered
into a joint venture to form Innovative
Calling Technologies, LLC ("ICT") - see Note
3.
Operations Division:
The Operations Division provides
Internet-based communications services and
operates Internet-based communications
networks. During the three years ended June
30, 1999, the Company's operations were
primarily those of e.Volve and its wholly
owned subsidiary, Latin Gate de Mexico,
S.A. de C.V. ("Latin Gate"). e.Volve was
incorporated on June 26, 1996 as Orix Global
Communications, Inc. and Orix Leasing, Inc.
Through June 30, 1999, its services included
the provision of international voice and data
applications over its fiber optic network,
primarily to Mexico. The network is scalable,
built around digital packet switching
equipment and incorporates Asynchronous
Transfer Mode ("ATM") and Internet Protocol
("IP") technologies.
As part of the Transaction, the Company
acquired AxisTel. AxisTel is developing
international and domestic voice and data
applications similar to that of e.Volve.
AxisTel has the additional business of retail
communication services, including prepaid
telephony.
F-11
<PAGE> 16
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND CONCENTRATIONS OF CREDIT RISKS
UNCERTAINTIES
The Company has concentrations of credit
risk related cash, customers and vendors, as
follows:
CASH CONCENTRATIONS
The Company places its cash with high credit
quality institutions. Accounts at each
institution are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to
$100,000. From time to time, the Company
maintains cash balances in excess of the
FDIC limit.
CUSTOMER CONCENTRATIONS
During the year ended June 30, 1997, e.Volve
received a significant portion of its
business from Star Communication, Inc.
("Star") and Total Communications, Inc.
("Total"). During the year ended June 30,
1997, sales to these customers totaled 87%
and 10% of e.Volve's revenues, respectively.
During Fiscal 1998, e.Volve received a
significant portion of its business from
Star and Total. During Fiscal 1998, sales to
these customers totaled 65% and 25% of
e.Volve's revenues, respectively. As of June
30, 1998, amounts due from Star and Total
totaled 96% and 0% of e.Volve's accounts
receivables, respectively.
During Fiscal 1999, e.Volve received a
significant portion of its business from
Qwest Communications, Inc. ("Qwest"), RSL
Communications, Inc. ("RSL") and Star.
During Fiscal 1999, sales to these customers
totaled 65%, 18% and 16% of e.Volve's
revenues, respectively. As of June 30, 1999,
there were no significant amounts due from
these customers. As of June 30, 1999,
deposits from Qwest totaled 100% of
e.Volve's customer deposits.
If the relationship between the Company and
these customers were altered, the future
results of operations and financial
condition could be adversely affected.
VENDOR CONCENTRATIONS
During the year ended June 30, 1997, e.Volve
purchased a significant portion of its
carrier and termination costs ("Direct
Costs") from four major vendors. During the
year ended June 30, 1997, purchases from
these four vendors totaled 45%, 22%, 12% and
10% of e.Volve's Direct Costs, respectively.
F-12
<PAGE> 17
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND During Fiscal 1998 and 1999, e.Volve
UNCERTAINTIES purchased a significant portion of its
(CONTINUED) Direct Costs from one vendor. During Fiscal
1998 and 1999, purchases from this vendor
totaled 75% and 92% of Direct Costs,
respectively. As of June 30, 1998 and 1999,
amounts due to this vendor totaled 54% and
62% of e.Volve's accounts payable,
respectively.
If the relationship between the Company and
these vendors was altered, the future
results of operations and financial
condition could be adversely affected.
GEOGRAPHIC CONCENTRATION
The Company provides data transport and
conversion services from the United States
to Mexico and India over the e.Volve
Network. Although the Company plans to
further expand data transport and conversion
services to other destination countries, the
Company's operations may remain concentrated
in the United States, Mexico and India for
the foreseeable future. The data transport
and conversion market for Mexico and India
is highly competitive and is occupied by
industry participants which are much larger
than the Company and have greater financial
resources and may have lower costs than the
Company. There can be no assurance that the
Company will be able to compete effectively
against such larger and better-capitalized
industry participants or that the Company
will be successful in pursuing other
destination countries with existing and
potential customers.
REGULATORY ENVIRONMENT
The Company provides "enhanced" or
"value-added" services to its international
customers and therefore is not subject to
regulation by the FCC or other international
telecommunication regulatory bodies within
its target markets. However, the use of the
Internet protocols to provide telephone
services are a recent market development.
Currently, the FCC is considering whether or
not to impose surcharges or additional
regulations upon certain providers of
Internet telephony. On April 10, 1998, the
FCC issued its Report to Congress concerning
its implementation of the universal service
provisions of the Telecommunications Act.
In the Report, the FCC indicated that it
would examine the question of whether
certain forms of "phone-to-phone" Internet
telephony are information services or
telecommunications services. It noted that
the FCC did not have, as of the date of the
Report, an adequate record on which to make
any definitive pronouncements, but that the
record before it suggested that certain
forms of phone-to-phone Internet telephony
appear to have the same functionality as
non-IP telecommunications services and lack
the characteristics that would render them
information services. If the FCC were to
determine that certain services are subject
to FCC regulations as telecommunications
services, the FCC noted that it may find it
reasonable
F-13
<PAGE> 18
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND to require ISPs to make universal service
UNCERTAINTIES contributions, pay access charges or to be
(CONTINUED) subject to traditional common carrier
regulation.
To the Company's knowledge, there are
currently no domestic and few foreign laws
or regulations that prohibit voice
communications over the Internet. Several
efforts have been made to enact federal
legislation that would either regulate or
exempt from regulation services provided
over the Internet. State public utility
commissions may also retain jurisdiction to
regulate the provision of intrastate
Internet telephony services, and could
initiate proceedings to do so. A number of
countries that currently prohibit
competition in the provision of voice
telephony have also prohibited Internet
telephony. Other countries permit but
regulate Internet telephony. If Congress,
the FCC, state regulatory agencies or
foreign governments begin to regulate
Internet telephony, there can be no
assurances that any such regulations will
not materially adversely affect the
Company's business, financial conditions or
results of operations.
TELECOMMUNICATIONS MARKET AND INDUSTRY
COMPETITION
Currently, the Company competes with (a) long
distance resellers and providers, including
large carriers such as AT&T, MCI/WorldCom,
Qwest, and Sprint; (b) foreign PTTs (Post
Telephone and Telegraph administrations); (c)
other providers of international long
distance services such as STAR
Telecommunications, Inc., Pacific Gateway
Exchange, Inc., RSL Communications Ltd. and
Telegroup, Inc.; (d) alliances that provide
wholesale carrier services, such as "Global
One" (Sprint, Deutsche Telekom AG, and France
Telecom S.A.) and Uniworld (AT&T,
Unisource-Telecom Netherlands, Telia AB,
Swiss Telecom PTT and Telefonica de Espana
S.A.); (e) new entrants to the domestic long
distance market such as RBOCs (Regional Bell
Operating Companies) in the U.S., who have
entered or have announced plans to enter the
U.S. interstate long distance market pursuant
to recent legislation authorizing such entry,
and utilities such as RWE Aktiengesellschaft
in Germany; and (f) small long distance
resellers.
Many of the Company's competitors are
significantly larger and have substantially
greater market presence, as well as greater
financial, technical, operational,
marketing, and other resources and
experience than the Company. The Company
competes for customers in the
telecommunications markets primarily based
on price and, to a lesser extent, the type
and quality of service offered. Increased
competition could force the Company to
reduce its prices and profit margins if its
competitors are able to procure rates or
enter into service agreements that are
comparable to or better than those the
Company obtains, or are able to offer
F-14
<PAGE> 19
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND other incentives to existing and potential
UNCERTAINTIES customers. Similarly, the Company has no
(CONTINUED) control over the prices set by its
competitors in the long distance resale
carrier-to-carrier market.
The Company could also face significant
pricing pressure if it experiences a
decrease in the volume of minutes that it
carries on its network, as the Company's
ability to obtain favorable rates and
tariffs from its carrier suppliers depends,
to a significant extent, on the Company's
total volume of international long distance
call traffic. There is no guarantee that the
Company will be able to maintain the volume
of international and domestic long distance
traffic necessary to obtain favorable rates
and tariffs. Although the Company has no
reason to believe that its competitors will
adopt aggressive pricing policies that could
adversely affect the Company, there can be
no assurance that such price competition
will not occur or that the Company will be
able to compete successfully in the future.
In addition, the Company is aware that its
ability to market its long distance resale
services depends upon the existence of
spreads between the rates offered by the
Company and those offered by the IXC's with
which it competes, as well as those from
which it obtains service. A decrease in such
spreads could have a material adverse effect
on the Company's business, financial
condition or results of operations.
FOREIGN CURRENCY
The Company currently provides data
transport and conversion services to certain
foreign countries and regions, primarily to
Mexico and India. The direct costs, profit
margins and competitive position of the
Company are consequently affected by the
strength of the currencies in countries
where it provides services relative to the
strength of the currencies in the countries
where its services are performed. The
Company's results of operations and
financial condition may be adversely
affected by fluctuations in foreign
currencies and by translations of the
financial statement of the Latin Gate from
local currencies into U. S. dollars.
Further, the Company's international
operations are generally subject to various
risks that are not present in domestic
operations, including restrictions on
dividends and repatriation of funds.
ACCOUNTS RECEIVABLE
The Company sells its data transport and
conversion services to customers throughout
the United States and in some foreign
countries. The Company performs periodic
credit evaluations of its customers and does
not obtain collateral with which to secure
its accounts receivables. The Company
maintains reserves for potential credit
losses based upon the Company's
F-15
<PAGE> 20
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND historical experience related to credit
UNCERTAINTIES losses. Although the Company expects to
(CONTINUED) collect amounts due, actual collections may
differ. As of June 30, 1998 and 1999, the
Company has not recorded a reserve for
potential credit losses, since accounts
receivable for such periods were
insignificant.
3. SUMMARY OF PRINCIPLES OF CONSOLIDATION
SIGNIFICANT
ACCOUNTING The consolidated financial statements
POLICIES include the accounts of the Company and all
wholly owned and majority-owned
subsidiaries. Investments in companies in
which (i) ownership interests range from 20
to 50 percent and (ii) the Company exercises
significant influence over operating and
financial policies are accounted for using
the equity method. Other investments,
including the investment in i2v2.com, are
accounted for using the cost method. All
significant intercompany accounts and
transactions have been eliminated.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
The consolidated financial statements as of
September 30, 1999 and for the three months
ended September 30, 1998 and 1999 are
unaudited, and have been prepared on the
same basis as the audited financial
statements included herein. In the opinion
of management, such unaudited financial
statements include all adjustments
consisting of normal recurring accruals
necessary to present fairly the information
set forth therein. Results for interim
periods are not necessarily indicative of
results to be expected for an entire year.
DEPOSITS
Deposits represent security deposits for
facility leases, advance payments to vendors
for the purchases of property and equipment
and Direct Costs.
AVAILABLE-FOR-SALE SECURITIES
The Company accounts for its
available-for-sale securities in accordance
with Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity
Securities." SFAS 115 addresses the
accounting and reporting for investments in
equity securities which have readily
determinable fair values and all investments
in debt securities.
The Company's marketable equity securities
are classified as available-for-sale under
SFAS 115 and are reported at fair value,
with changes in the unrealized holding gain
or loss included in shareholders' deficit.
As of June 30, 1998, available-for-sale
securities consisted of a 5% Treasury Bill,
which
F-16
<PAGE> 21
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF totaled $250,556. During Fiscal 1999, the
SIGNIFICANT Company sold the Treasury Bill and
ACCOUNTING recognized a loss of $3,420. During any
POLICIES period presented, there were no unrealized
(CONTINUED) gains or loss on available-for-sale
securities.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost
and are depreciated using the straight-line
method over the estimated useful lives of
the related assets, ranging from five to
seven years. Maintenance and repairs are
charged to expense as incurred. Significant
renewals and betterments are capitalized. As
of the time of retirement or other
disposition of property and equipment, the
cost and accumulated depreciation are
removed from the accounts and any resulting
gain or loss is reflected in operations.
The Company assesses the recoverability of
property and equipment by determining
whether the depreciation and amortization of
property and equipment over its remaining
life can be recovered through projected
undiscounted future cash flows. The amount
of property and equipment impairment, if
any, is measured based on fair value and is
charged to operations in the period in which
property and equipment impairment is
determined by management. During the years
ended June 30, 1997 and 1998, the Company
recorded impairment losses on certain
property and equipment totaling $25,000 and
$278,324, respectively. The amount of the
impairment was the book value of assets which
were taken out of use during the related
periods. The impairment is recorded as a
component of selling, general and
administrative expenses.
INVESTMENT IN AFFILIATE
On April 19, 1999, the Company entered into
a joint venture with Dataten Technologies to
form Innovative Calling Technologies, LLC
("ICT") with each party owning 50% of ICT.
The Company does not exercise majority
control of the joint venture and thus
accounts for its investments pursuant to the
equity method. Under the equity method, the
Company initially records its investment at
cost and adjusts the carrying amount of the
investment to recognize its share of the
income or losses of the joint venture after
the date of acquisition. Joint venture
income and losses are allocated in
accordance with each party's respective
ownership interest. During Fiscal 1999, the
Company recorded an initial investment of
$125,130, reduced by equity in loss of
unconsolidated subsidiary of $33,776.
GOODWILL
Goodwill arising from a change in ownership
on July 1, 1998 and the Transaction (see
Note 1) is amortized on a straight-line
basis over a ten-year life.
F-17
<PAGE> 22
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF The Company assesses the recoverability of
SIGNIFICANT goodwill by determining whether the
ACCOUNTING amortization over its remaining life can be
POLICIES recovered through projected undiscounted
(CONTINUED) future cash flows. The amount of impairment,
if any, is measured based on fair value and
is charged to operations in the period in
which impairment is determined by
management. As of June 30, 1999, the
Company's management has not identified any
material impairment of goodwill.
REVENUE RECOGNITION AND CUSTOMER DEPOSITS
Revenues are recognized upon rendering of
services to customers. Nonrefundable
deposits received from customers are
deferred as customer deposits and are
recognized when the related services are
rendered.
FOREIGN CURRENCY GAIN OR LOSS
The financial statements of the Latin Gate
are remeasured into the U.S. dollar
functional currency for consolidation and
reporting purposes. Current rates of
exchange are used to remeasure monetary
assets and liabilities and historical rate
of exchange are used for nonmonetary assets
and related elements of expense. Revenue and
other expense elements are remeasured at
rates which approximate the rates in effect
on the transaction dates. Gains and losses
resulting from this remeasurement process
are recognized currently in the consolidated
statement of operations. During fiscal 1998
and 1999, there were no significant gains or
losses with respect to this remeasurement
process.
Mexican-based vendors invoice e.Volve in
Mexican pesos. Certain of these transactions
are remeasured at the time in which the
services are rendered to the Company and are
settled in US dollars at the time of payment
for such services, which results in foreign
currency gain or loss. During fiscal 1998
and 1999, foreign currency gains and losses
totaled $0 and $126,575, respectively.
INCOME TAXES
The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No.109 ("SFAS 109"),
"Accounting for Income Taxes." Under the
asset and liability method of SFAS 109,
deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between the
financial statements carrying amounts of
existing assets and liabilities and their
respective tax bases. Deferred tax assets
and liabilities are measured using enacted
tax rates expected to apply to taxable
income in the years in which those temporary
differences are
F-18
<PAGE> 23
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF expected to be recovered or settled. Under
SIGNIFICANT SFAS 109, the effect on the deferred tax
ACCOUNTING assets and liabilities of a change in tax
POLICIES rates is recognized in income in the period
(CONTINUED) that includes the enactment date. A
valuation allowance is provided for
significant deferred tax assets when it is
more likely than not that such assets will
not be recovered.
STOCK BASED COMPENSATION
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards No. 123 ("SFAS#123"), "Accounting
for Stock Based Compensation," which defines
a fair value based method of accounting for
stock-based compensation. However, SFAS#123
allows an entity to continue to measure
compensation cost related to stock and stock
options issued to employees using the
intrinsic method of accounting prescribed by
Accounting Principles Board Opinion No. 25
("APB#25"), "Accounting for Stock Issued to
Employees". Entities electing to remain with
the accounting method of APB#25 must take
pro forma disclosures of net income and
earnings per share, as if the fair value
method of accounting defined in SFAS#123 had
been applied. The Company has elected to
account for its stock-based compensation to
employees under APB#25.
EARNINGS PER SHARE
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards ("SFAS#128"), Earnings Per Share
("EPS"). SFAS#128 requires dual presentation
of basic EPS and diluted EPS on the face of
all income statements issued after December
15, 1997 for all entities with complex
capital structures. Basic EPS is computed as
net income divided by the weighted average
number of common shares outstanding for the
period. Diluted EPS reflects the potential
dilution that could occur from common shares
issuable through stock options, warrants and
convertible debentures. Diluted EPS has not
been presented for the effects of stock
options, warrants and convertible debentures
as the effect would be antidilutive.
Accordingly, basic and diluted EPS did not
differ for any period presented. EPS is not
presented for the Old Company. For purposes
of computation of EPS, the shares issued for
the acquisition of e.Volve (16,000,000
shares) are deemed to have been in existence
for the entire period.
COMPREHENSIVE INCOME(LOSS)
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards ("SFAS#130"), "Reporting
Comprehensive Income." This statement
establishes standards for reporting the
components of comprehensive income and
requires that all items that are required to
be recognized under accounting standards as
components of comprehensive income(loss) be
included in a financial statement that is
displayed with the same prominence as other
financial statements. Comprehensive income
F-19
<PAGE> 24
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF includes net income(loss) as well as certain
SIGNIFICANT items that are reported directly within a
ACCOUNTING separate component of stockholders' deficit
POLICIES and bypass net loss. The Company adopted the
(CONTINUED) provisions of this statement in Fiscal 1998.
These disclosure requirements had no impact
on the Company's financial statements.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public
Accountants has issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs
of Start-Up Activities.". This SOP defines
start-up activities as those one-time
activities related to opening a new
facility, introducing a new product or
service, conducting business in a new
territory, conducting business with a new
class of customers, initiating a new process
in an existing facility, or commencing some
new operation. SOP 98-5 requires that these
start-up costs be expensed as incurred. This
SOP is effective for financial statements
for fiscal years beginning after December
15, 1998, and therefore was adopted on July
1, 1999 for the Company. The adoption of
SOP 98-5 has not materially impacted the
results of operations, financial position,
and financial statement disclosures, and is
not expected to have a significant impact on
future financial statements.
In June 1998, the Financial Accounting
Standards Board, issued Statement of
Financial Accounting Standards No. 133
("SFAS#133"); "Accounting for Derivative
Instruments and Hedging Activities,"
SFAS#133 requires companies to recognize all
derivatives as either assets or liabilities
in the statement of financial position and
measure those instruments at fair value.
SFAS#133 is effective for fiscal years
beginning after June 15, 2000. The Company
does not presently enter into any
transactions involving derivative financial
instruments and, accordingly, does not
anticipate the new standard will have any
effect on its financial statements for the
foreseeable future.
ACCOUNTING ESTIMATES
The preparation of financial statements in
conformity with generally accepted
accounting principles requires management to
make estimates and assumptions that affect
the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements, and the reported
amounts of revenues and expenses during the
reported periods. Actual results could
materially differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments
approximated fair value as of June 30, 1998
and 1999 due to either short maturity or
terms similar to those available to similar
companies in the open market.
SEGMENT INFORMATION
The Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information" for fiscal 1999. The
statement requires disclosure of certain
financial information related to operating
segments. The Company has determined that it
operates in two reportable segments,
Investing and Operations (see Note 1).
There are no transactions between the two
segments. The Investment segment had no
results from operations other than the
equity in loss of affiliate of $33,776 (see
Note 3) which is separately identified on
the Statement of Operations. The assets of
the investing segment are separately
identified on the accompanying Balance Sheet
as Investment in i2v2 and Investment in
Affiliate.
F-20
<PAGE> 25
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
4. RESTRICTED CASH Restricted cash consists of two certificates
of deposits (including accrued interest)
that serve as collateral on a certain letter
of credit totaling $1,061,000. As of June
30, 1999 and September 30, 1999, no amounts
were drawn down on such letter of credit. The
full amount of the letter of credit was
drawn down on October 5, 1999.
5. PROPERTY AND EQUIPMENT Property and equipment consist of the
following as of:
June 30,
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
Leasehold Improvements $ 182,308 $ 257,217
Network equipment under capital leases 862,518 5,985,121
Other equipment 497,375 751,512
Furniture and fixtures 10,086 10,552
------------ -----------
1,552,287 7,004,402
Accumulated depreciation and (105,043) (784,528)
amortization
------------ ------------
$ 1,447,244 $ 6,219,874
============ ============
</TABLE>
During the years ended June 30, 1997, 1998
and 1999, depreciation and amortization
expense totaled $0, $105,043 and $957,966,
respectively.
Property and equipment included assets under
capital leases at June 30, 1999 and 1998
with a cost of $5,985,121 and $862,518,
respectively, and accumulated amortization
of $757,900 and $35,642, respectively.
6. VAT RECEIVABLE VAT is a tax similar in nature to a sale
and/or use tax. VAT is assessed by vendors
operating in foreign countries, specifically
Mexico. The tax is paid by e.Volve directly
to the assessing vendor who remits the tax
to the Mexican taxing authority ("MTA").
Based on an injunction received from the
MTA, e.Volve is exempt from incurring this
tax. As of June 30, 1998 and 1999, VAT
receivable consists of amounts due and
payable to e.Volve by either the assessing
vendor or MTA (as applicable). Subsequent to
year-end, all such amounts due at year-end
have been refunded to e.Volve.
7. DEBENTURES During Fiscal 1998 and 1999, the Company
issued debentures aggregating $8,040,000 to
the Major Stockholders or predecessors in
interest. The debentures bear interest at 8%
per annum, and generally mature within a two
year period. The debenture agreement was
amended with each additional issue, in some
instances resulting in extended maturity
dates. The issues (as amended) were as
follows:
F-21
<PAGE> 26
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
7. DEBENTURES
(CONTINUED)
<TABLE>
<CAPTION>
ISSUANCE DATE MATURITY DATE AMOUNT
---------------------- ---------------------- ------------------
<S> <C> <C>
June 11, 1998 June 30, 2000 $ 6,000,000
August 19, 1998 June 30, 2000 850,000
April 15, 1999 June 30, 2000 200,000
--------------
April 15, 1999 June 30, 2000 7,050,000
February 9, 1999 June 30, 1999 390,000
April 29, 1999 August 27, 1999 500,000
April 30, 1999 August 28, 1999 100,000
--------------
$ 8,040,000
==============
</TABLE>
In connection with the June 11, 1998
debenture, the Company issued a total of 2400
common shares to one of the Major
Stockholders or predecessors in interest,
which gave such Major Stockholder a 66.7%
interest in the common shares of the Company.
(See Note 1). The value of the shares issued
was recorded at estimated fair value, and a
debt discount of $2,000,000 was recorded,
with an offsetting credit to Additional Paid
In Capital. The debt discount is amortized
over the contractual period of the related
debentures as a component of interest
expense.
The June 11, 1998, August 19, 1998 and April
15, 1999 debentures are repayable monthly
with accrued interest at various amounts,
with all unpaid principal and interest due
upon maturity. At June 30, 1999 the Company
was in default of its payment obligations in
connection with these debentures. The Major
Stockholders or predecessors in interest that
owned such debenture waived its right to
demand immediate repayment of these
debentures and subsequently sold its Notes
Receivable (see below).
The February 9, 1999 debenture is payable in
full (including interest) on the maturity
date. In the event the amount is not paid in
full by that date, the balance is
convertible into common stock of e.Volve at
the option of the lender, at a conversion
price of $2,778 per share, which was the
deemed fair value of shares at the issue
date.
The April 29 and 30, 1999 debentures are
repayable on the maturity date.
On September 22, 1999, as part of the
Transaction (see Note 1), the Major
Stockholders or predecessors in interest that
owned such debentures sold their related
notes receivable from e.Volve to eVentures
and, as a result, debentures are reflected as
long term liabilities on the June 30, 1998
and 1999 balance sheets. At the time of the
Transaction, the unamortized debt discount of
$917,615 on June 11, 1998 debenture was
written off. In addition, as part of this
transaction, the debentures were restructured
into a single debenture with a maturity date
of December 31, 1999. At September 30, 1999,
the amount of the
F-22
<PAGE> 27
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
7. DEBENTURES e.Volve's debentures and eVentures' notes
(CONTINUED) receivable eliminate on consolidation.
8. OBLIGATIONS UNDER The Company is a lessee under certain
CAPITAL LEASES noncancelable capital leases, which are
secured by certain property and equipment
(see Note 5). Terms of the leases call for
monthly payments ranging from $1,061 to
$32,711, including implicit rates ranging
from 10.0% to 13.6% per annum. Future
minimum lease payments under these capital
leases are as follows:
<TABLE>
<CAPTION>
For the year ended June 30, 1999
-----------------
<S> <C>
2000 $ 2,140,641
2001 1,313,304
2002 937,570
-----------------
4,391,515
Amount representing interest (443,241)
-----------------
Present value 3,948,274
Current portion (1,916,761)
-----------------
$ 2,031,513
=================
</TABLE>
9. STOCKHOLDERS' EQUITY COMMON STOCK
(DEFICIT)
Common stock consisted of the following:
September 30, 1999
Common Stock ($.00002 par value,
75,000,000 shares authorized, 37,863,610
issued and outstanding)
June 30, 1999
Common Stock ($.01 par value, 3,600 shares
authorized, issued and outstanding)
June 30, 1998
Common Stock ($.1 par value, 3,600 shares
authorized, issued and outstanding)
PREFERRED STOCK
Series A Convertible Preferred Stock
consisted of the following:
September 30, 1999 Series A Convertible
Preferred Stock ($.00002 par value,
5,000 shares authorized, 1,000 shares
issued and outstanding)
F-23
<PAGE> 28
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY STOCK OPTIONS
(DEFICIT)
(CONTINUED) e.Volve had a non-formalized stock option
plan (the "Plan"), whereby incentive stock
options may be granted to certain employees,
directors, officers and others to purchase
shares of e.Volve's common stock. Options
granted pursuant to the Plan vest at various
percentages within two years of the date of
grant and expire within five years from the
date of grant or upon termination of
employment (as defined).
During Fiscal 1999, the Company granted 90
stock options to an officer of the Company
with an exercise price of $2,778, of which
45 options vested immediately and the
remaining 45 options will become fully
vested on December 31, 1999. During Fiscal
1999, pursuant to an employment agreement
(see Note 12), the Company granted 90 stock
options to an Officer of the Company with an
exercise price of $7,077 (the deemed fair
value of the stock), of which 45 options
vested on March 8, 1999 and the remaining 45
options became fully vested on March 23,
1999. During Fiscal 1999, the Company
granted 600 stock options to certain
officers and employees of the Company with
an exercise prices of $2,778, of which 301
options vested on April 30, 1999 and the
remaining 299 options becoming fully vested
on April 1, 2000. With respect to the grant
of all such options, the Company did not
record non-cash compensation expense
pursuant to APB#25. As of June 30, 1999, 436
of such options were exercisable.
Pro forma information regarding net income
(loss) is required by SFAS 123, and has been
determined as if the Company had accounted
for its 780 stock options granted during
Fiscal 1999 under the fair value method
pursuant to SFAS 123, rather than the method
pursuant to APB#25 discussed herein. The
fair value for these options was estimated
at the date of grant using a Black-Scholes
option pricing model with the following
assumptions: stock price of $2,778 per
share; risk-free interest rates ranging from
5.1% to 5.4%(depending on the expected term
of the option and the date of grant);
dividend yield of 0.0%; volatility factor of
the expected market price of the Company's
common stock of 0.0% (due to no significant
market for trading of the Company's common
stock, volatility has been assessed at 0.0%;
the result of excluding volatility in
estimating an option's value is an amount
commonly termed minimum value); and expected
terms of 5 years.
The Black-Scholes valuation model was
developed for use in estimating the fair
value of traded options which have no
vesting restrictions and are fully
transferable. In addition, option valuation
models require the input of highly
subjective assumptions including the
expected stock price volatility. Because
the Company's employee stock options have
F-24
<PAGE> 29
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY characteristics significantly different from
(DEFICIT) those of traded options, and because changes
(CONTINUED) in the subjective input assumptions can
materially affect the fair value estimate,
in management's opinion, the existing models
do not necessarily provide a reliable single
measure of the fair value of its employee
stock options.
For purposes of pro forma disclosure, the
estimated fair value of the options is
amortized to expense over the options'
vesting period. The Company's pro forma
information relative to e.Volve's option
plan is as follows:
F-25
<PAGE> 30
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY
(DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
Fiscal
1999
--------------
<S> <C> <C>
PRO FORMA NET LOSS:
Net loss as reported $ (5,803,756)
Additional compensation
compensation expense under
SFAS#123 (453,000)
--------------
$ (6,256,756)
==============
</TABLE>
During the years ended June 30, 1997 and
1998, no options were granted and therefore
proforma information has only been presented
for fiscal 1999.
On September 22, 1999, the Company terminated
the share option plans of e.Volve and AxisTel
and adopted a new share option plan (the
"Plan") for its employees, officers,
directors and consultants (whether or not
employees) as part of the Agreement and Plan
of Reorganization entered into in connection
with the Transaction (see Note 1). The Plan
provides for the grant of non-qualified share
options, of which, the exercise price shall
not be less than 100% of the fair market
value of the common shares on the date the
option is granted. The Plan provides that
options granted vest in two or three
installments: the first vest in equal annual
installments over a three-year period
commencing September 22, 1999, the second
vest in equal annual installments over a
two-year period commencing September 22,
1999.
The number of shares authorized for grants
under the Share Option Plan is 4,000,000 and
the number of options granted at September
30, 1999 is 2,450,000. As of September 30,
1999, no options were exercised.
The following options were granted during
the three months ended September 30, 1999:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price Date of issue Vesting Period
--------- -------- ------------------ --------------
<S> <C> <C> <C> <C>
241,666 $ 2.50 September 22, 1999 Three-years
166,667 $ 5.00 September 22, 1999 Three-years
166,667 $ 7.50 September 22, 1999 Three-years
1,275,000 $ 10.00 September 22, 1999 Three-years
600,000 $ 10.00 September 22, 1999 Two-years
---------
2,450,000
---------
</TABLE>
As a result of the above, the Company
recorded deferred compensation of $453,000 on
September 22, 1999 with a related credit to
additional paid in capital. The amount of the
deferred compensation was based upon the
intrinsic value of options granted to
employees which had an exercise price lower
than the market price of the underlying stock
on the day of the grant. The deferred
compensation will be amortized over the three
year vesting period and recorded as
compensation expense in the statement of
operations.
WARRANTS
In connection with the issuance of the
Amended and Restated Debenture Agreement
dated April 15, 1999 (see Note 7), the
Company issued common stock purchase
warrants (the "Warrants") to the Debenture
Holder granting the right to acquire 340
shares of Common Stock. The Warrants have an
exercise price of $2,778 per share and
expire within five years of the date of
grant (as defined). As of June 30, 1999,
none of the Warrants have been exercised.
The Company has accounted for its 340 common
stock debenture warrants granted during
Fiscal 1999 at fair value. The Company has
estimated the fair value of the Warrants,
original issue discount ("OID"), at
$210,000. The OID has been reflected as an
increase in additional paid-in capital and
as a reduction of the February Debenture and
is being amortized to interest expense
utilizing the effective interest method over
the term of the Note. During Fiscal 1999,
amortization of OID on the February
Debentures totaled $40,281. The fair value
for these warrants was estimated at the date
of grant using a Black-Scholes option
pricing model with the following
assumptions: stock price of $2,778 per
share; risk-free interest rate of 5.0%
(based on the expected term of the option
and the date of grant); dividend yield of
0.0%; volatility factor of the expected
market price of the Company's common stock
of 0.0% (due to no significant market for
trading of the Company's common stock,
volatility has been assessed at 0.0%; the
result of excluding volatility in estimating
an option's value is an amount commonly
termed minimum value); and expected terms of
5 years.
F-26
<PAGE> 31
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
10. INCOME TAXES There is no provision for income tax expense
since the Company incurred net losses for
all periods presented.
Deferred tax assets of approximately
$1,015,000 and $2,226,000 as at June 30,
1998 and 1999 result primarily from Net
Operating Losses ("NOL's") and have been
fully offset by valuation allowances due to
the lack of certainty as to the ultimate
realization of any benefits resulting from
such NOLs.
As at June 30, 1999, e.Volve had NOLs of
approximately $6,547,000. Due to
restrictions on use of NOLs following a
change in ownership, these NOLs may not be
used by the Company prior to their
expiration, which is in various years
through 2018.
11. RELATED PARTY ADMINISTRATIVE EXPENSES
TRANSACTIONS
During the years ended June 30, 1997, 1998
and 1999, the Company shared office space,
payroll and certain other administrative
expenses with a related party ("Orix
Systems"). The Company paid Orix Systems
$408,734, $676,227 and $156,597, for the
years ended June 30, 1997, 1998, and 1999
respectively, with respect to such expenses
ADVANCES FROM SHAREHOLDER
Advances due from shareholder relate to
advances made by the majority shareholder of
the Old Company. The advances are
non-interest bearing and are due on demand.
As of June 30, 1998 and 1999, advances due
from shareholder totaled $60,920 and $0,
respectively.
F-27
<PAGE> 32
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
12. COMMITMENTS AND OPERATING LEASES
CONTINGENCIES
The Company is a lessee under certain
noncancelable operating leases. Terms of the
leases call for monthly payments ranging
from $400 to $10,000. Future minimum lease
payments under these noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
For the year ended June 30, 1999
----------------
<S> <C>
2000 $ 249,920
2001 165,358
2002 147,168
2003 114,137
2004 66,101
Thereafter 38,556
----------------
$ 781,240
================
</TABLE>
During the years ended June 30, 1997, 1998
and 1999, the Company incurred rent expense
of $0, $55,100 and $308,900 respectively.
(see Note 11)
LITIGATION
The Company is a defendant in two lawsuits
arising out of the ordinary course of
business. In each case the plaintiff is
seeking damages against the Company primarily
for breach of contract. As of June 30, 1998
and 1999, the Company has expensed and
accrued a total of $381,802 and $665,299,
respectively, pursuant to these claims, which
is expected to be the Company's total
exposure. The related costs are included as a
component of selling, general and
administrative expenses.
The Company is involved in other litigation
arising out of the ordinary course of
business. Management believes, based in part
on the advice of outside counsel, that these
matters will not have a material adverse
effect on the accompanying consolidated
financial statements.
CONSULTING AGREEMENT
On April 15, 1999, the Company entered into a
consulting agreement with an individual,
calling for monthly payments of approximately
$20,000 per month, terminating April 15,
2000.
F-28
<PAGE> 33
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
12. COMMITMENTS AND EMPLOYMENT AGREEMENTS
CONTINGENCIES
(CONTINUED) The Company has entered into multi-year
employment agreements or management contracts
with six of its senior executives. These
agreements mature at various times beginning
in June 2000 and ending in September 2002.
These agreements provide for annual salaries
ranging between $100,000 and $200,000. In
addition, certain of these employees were
granted options to purchase common stock
under the Company's Share Option Plan. These
options, if exercised, would represent the
right to purchase 1,850,000 shares of common
stock at various exercise prices ranging from
$2.50 to $10.00 per option (See
Note 9).
MARKETING AGREEMENTS
On January 1, 1999, the Company entered into
an agreement with Corpovision S.A. de C.V.
("Corpovision") to provide marketing
services to locate and develop clients for
telecommunications services. As long as e.
Volve conducts business with the clients
listed in the agreement, the Company must
pay a minimum compensation amount of
$100,000 per month in any month sales are
made, within thirty days after the end of
each period. The payment must be in the form
of cash or a subordinated, non-recourse
promissory note to be paid with any available
cash flow. The term of the agreement is for
thirty years. As of June 30, 1999, the
Company had paid compensation amounting to
$200,000 and had a note outstanding for the
remaining months of $300,000. During Fiscal
1999, the Company incurred compensation
expense related to such agreement totaling
$500,000. On November 30, this agreement was
terminated (See Note 15).
AGREEMENTS WITH VENDORS
On October 9, 1996, the Company entered into
an agreement with a vendor to provide sundry
telecom services which expired on October 9,
1999.
F-29
<PAGE> 34
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
12. COMMITMENTS AND On April 29, 1998, the Company entered
CONTINGENCIES into an agreement with Qwest for
(CONTINUED) telecommunication services. The agreement
can be terminated at any time by either
party upon a thirty-day notice and can be
automatically renewed for successive
one-year periods. Rates for services
disclosed in the agreement are subject to
change at any time.
F-30
<PAGE> 35
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
13. PRO FORMA FINANCIAL DATA On September 22, 1999, the Company acquired
(UNAUDITED) all of the outstanding shares of AxisTel,
approximately 66.67% of the outstanding
shares of e.Volve, and approximately 21% of
the outstanding shares of i2v2.com. All of
the acquisitions were settled through the
issuance of stock of eVentures.
Set forth below is the Company's unaudited
pro forma condensed statement of operations
for the year ended June 30, 1999 and the
three months ended September 30, 1999 as
though the reverse merger and acquisition of
AxisTel had occurred on July 1, 1998 and July
1, 1999, respectively, after adjustments
related to goodwill, amortization of
intangible assets and debt discount and
interest expense relating to the e.Volve
debentures. The unaudited pro forma results
are not necessarily indicative of either
actual results of operations that would have
occurred had the reverse merger and
acquisition been made on July 1, 1998 and
July 1, 1999, respectively, or of future
results.
<TABLE>
<CAPTION>
Year ended Three months ended
June 30, 1999 September 30, 1999
<S> <C> <C>
Total revenues $ 35,215,916 $ 14,695,002
Net loss $(10,501,114) $ (5,826,413)
Net loss per share $ .28 $ .15
</TABLE>
14. GOODWILL Goodwill of $3,414,319 arose upon the change
of control on July 1, 1998 (see Note 1).
Goodwill of $16,639,971 arose upon the
acquisition of AxisTel on September 22, 1999
as part of the Transaction (see Note 1).
Accumulated amortization as of June 30, 1999
and September 30, 1999 was $341,434 and
$463,240 respectively.
15. SUBSEQUENT EVENTS On October 14, 1999, eVentures exchanged
accounts payable to a vendor of $4,307,437
for $1,107,967 cash plus 221,000 shares of
eVentures' Common Stock.
To consummate the September 22, 1999
Transaction (see Note 1), eVentures acquired
the remaining 33.3% of e.Volve on October 19,
1999, through an extension of eVentures
original offer. This purchase was settled
through an issuance of 5,831,253 shares of
F-31
<PAGE> 36
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS eVentures' Common Stock.
(CONTINUED)
On November 18, 1999, eVentures issued 2,500
shares of Series B Convertible Preferred
Stock and on November 24, 1999 eVentures
issued 3,725 shares of Series B Convertible
Preferred Stock, both at a price of $1,000
per share. The par value of both classes of
shares is $0.00002. The shares are
convertible to Common Stock at a price of
$13.80 per share, subject to normal
anti-dilution adjustments. The conversion
price was determined using the average of the
closing bid price per share of eVentures
common stock for the 10 trading days ended
October 29, 1999. These shares convert to
eVentures common stock on the second
anniversary of date of issue.
On November 30, 1999 the Company terminated
its marketing agreement with Corpovision
(see Note 12). The Company settled its
liability to Corpovision and terminated the
agreement through an issue of 137,500 shares
of eVentures. As a result, the Company will
record a charge in the statement of
operations of approximately $1,000,000 in
November, 1999 for the difference between
the value of the shares issued and the book
value of the note payable to Corpovision.
F-32
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
To the Stockholders
AxisTel Communications, Inc.
Jersey City, New Jersey
We have audited the accompanying balance sheets of AxisTel Communications, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from August 28,
1997 (inception) to December 31, 1997 and the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AxisTel Communications, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from August 28, 1997 (inception) to December 31, 1997 and the
year ended December 31, 1998, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
New York, New York
October 29, 1999
F-33
<PAGE> 38
AXISTEL COMMUNICATIONS, INC.
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT:
Cash $ 31,712 $ 1,418,070 $ 630,571
Accounts receivable - net of allowances for doubtful
accounts of $-0-, $25,000 and $75,000,
respectively 38,250 302,100 1,054,563
Prepaid expenses and other current assets 2,443 35,898 217,300
------------- ------------- -------------
TOTAL CURRENT ASSETS 72,405 1,756,068 1,902,434
RESTRICTED CASH -- -- 750,000
PROPERTY, EQUIPMENT, AND CERTAIN INTANGIBLES AT COST, NET
OF ACCUMULATED DEPRECIATION -- 1,693,055 394,583
LOAN ORIGINATION COSTS - NET OF ACCUMULATED AMORTIZATION
OF $5,000 AND $55,000, RESPECTIVELY -- 55,000 --
OTHER ASSETS -- 46,800 46,800
------------- ------------- -------------
$ 72,405 $ 3,550,923 $ 3,093,817
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable - Eraatel Corp. $ -- $ 427,600 $ --
Notes payable - stockholders 10,000 25,000 25,625
Accounts payable and accrued expenses 47,204 369,604 1,203,760
Deferred revenue -- 110,000 176,230
------------- ------------- -------------
TOTAL CURRENT LIABILITIES 57,204 932,204 1,405,615
NOTES PAYABLE:
Eraatel Corp. -- 1,072,400 --
Stockholder -- 1,748,925 3,317,425
------------- ------------- -------------
TOTAL LIABILITIES 57,204 3,753,529 4,723,040
------------- ------------- -------------
COMMITMENTS AND CONTINGENCY
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 15 15 15
Additional paid-in capital 985 312,395 312,395
Retained earnings (deficit) 14,201 (515,016) (1,941,633)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 15,201 (202,606) (1,629,223)
------------- ------------- -------------
$ 72,405 $ 3,550,923 $ 3,093,817
============= ============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-34
<PAGE> 39
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Period from
August 28, 1997
(inception) to Year ended
December 31, December 31, Six months ended June 30,
--------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 69,250 $ 2,304,887 $ 529,241 $ 6,191,997
CARRIER CHARGES 49,042 1,853,873 659,709 5,187,071
------------- ------------- ------------- -------------
20,208 451,014 (130,468) 1,004,926
------------- ------------- ------------- -------------
OTHER OPERATING EXPENSES:
Selling, general and administrative 5,707 648,943 56,431 1,615,783
Line charges -- 199,977 44,149 460,070
Cellular phones -- 47,463 -- --
Printing -- 38,780 -- --
------------- ------------- ------------- -------------
TOTAL OTHER OPERATING EXPENSES 5,707 935,163 100,580 2,075,853
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) 14,501 (484,149) (231,048) (1,070,927)
OTHER EXPENSES:
Interest expense, net -- 44,768 -- 255,690
Other expense -- -- -- 100,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE TAXES ON INCOME 14,501 (528,917) (231,048) (1,426,617)
TAXES ON INCOME 300 300 -- --
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 14,201 $ (529,217) $ (231,048) $ (1,426,617)
_ ============= ============= ============= =============
</TABLE>
F-35
See accompanying summary of accounting policies and
notes to financial statements.
<PAGE> 40
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
Period from August 28, 1997 (inception) to December 31, 1997, year ended
December 31, 1998 and six months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock, Class A Common stock, Class B
---------------- ----------------- ------------- -----------------
Shares Par value Shares Par value
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 28, 1997 -- $ -- -- $ --
Issuance of common stock 1,500 15 -- --
Net income -- -- -- --
---------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1997 1,500 15 -- --
Issuance of common stock -- -- 1 --
Officer's salary-imputed -- -- -- --
Options granted -- -- -- --
Warrants granted -- -- -- --
Net loss -- -- -- --
---------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1998 1,500 15 1 --
Net loss (Unaudited) -- -- -- --
---------- ----------- --------- -----------
BALANCE, JUNE 30, 1999 (UNAUDITED) 1,500 $ 15 1 $ --
========== =========== ========= ===========
<CAPTION>
Additional Retained Stockholders'
paid-in earnings equity
capital (deficit) (deficit)
----------- ----------- ----------------
<S> <C> <C> <C>
BALANCE, AUGUST 28, 1997 $ -- $ -- $ --
Issuance of common stock 985 -- 1,000
Net income -- 14,201 14,201
----------- ----------- ----------------
BALANCE, DECEMBER 31, 1997 985 14,201 15,201
Issuance of common stock -- -- --
Officer's salary-imputed 12,000 -- 12,000
Options granted 25,510 -- 25,510
Warrants granted 273,900 -- 273,900
Net loss -- (529,217) (529,217)
----------- ----------- ----------------
BALANCE, DECEMBER 31, 1998 312,395 (515,016) (202,606)
Net loss (Unaudited) -- (1,426,617) (1,426,617)
----------- ----------- ----------------
BALANCE, JUNE 30, 1999 (UNAUDITED) $ 312,395 $(1,941,633) $(1,629,223)
=========== =========== ================
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-36
<PAGE> 41
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(NOTE 9)
================================================================================
<TABLE>
<CAPTION>
Period from
August 28,
1997
(inception)
to Year ended Six months ended June 30,
December 31, December 31, -------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,201 $ (529,217) $ (231,048) $ (1,426,617)
------------- ------------- ------------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization -- 15,564 -- 20,627
Amortization of loan origination costs -- 27,825 -- 123,500
Other expense -- -- -- 100,000
Stock options issued in lieu of payment
for services -- 25,510 -- --
Officer's salary - imputed -- 12,000 -- --
Decrease (increase) in:
Accounts receivable (38,250) (278,100) 30,992 (752,463)
Prepaid expenses and other assets (2,443) (72,697) (4,492) (181,402)
Restricted cash -- -- -- (750,000)
Increase in:
Accounts payable and accrued expenses 47,204 329,092 174,419 834,156
Deferred revenue -- 110,000 25,000 66,230
------------- ------------- ------------- -------------
Total adjustments 6,511 169,194 225,919 (539,352)
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 20,712 (360,023) (5,129) (1,965,969)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures -- (208,619) -- (322,155)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 1,000 -- -- --
Notes payable, net of loan origination costs -- 1,940,000 -- 1,500,000
Loans from stockholders 10,000 15,000 25,000 625
------------- ------------- ------------- -------------
Net cash provided by financing
activities 11,000 1,955,000 25,000 1,500,625
------------- ------------- ------------- -------------
Net increase (decrease) in cash 31,712 1,386,358 19,871 (787,499)
Cash, beginning of period -- 31,712 31,712 1,418,070
------------- ------------- ------------- -------------
Cash, end of period $ 31,712 $ 1,418,070 $ 51,583 $ 630,571
============= ============= ============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-37
<PAGE> 42
AXISTEL COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
DESCRIPTION OF BUSINESS AxisTel Communications, Inc. (the
"Company") was incorporated in the State
of Delaware on August 28, 1997. Its
services include the provision of
international and domestic voice and
data applications over Company leased
and third party fiber optic networks and
retail communication services, including
prepaid telephony.
UNAUDITED INTERIM FINANCIAL STATEMENTS The financial statements as of June 30,
1999 and for the six months ended June
30, 1998 and 1999 are unaudited, and
have been prepared on the same basis as
the audited financial statements
included herein. In the opinion of
management, such unaudited financial
statements include all adjustments
consisting of normal recurring accruals
necessary to present fairly the
information set forth therein. Results
for interim periods are not necessarily
indicative of results to be expected for
an entire year.
PROPERTY, EQUIPMENT AND CERTAIN Property and equipment is stated at
INTANGIBLES cost. Depreciation is computed using the
straight-line method over the estimated
useful lives.
LOAN ORIGINATION COSTS Loan origination costs are amortized
based on the interest method over the
contractual period of the loan (see Note
5).
INCOME TAXES Income taxes are calculated using the
liability method specified by Statement
of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires a company
to recognize deferred tax liabilities
and assets for the expected future tax
consequences of events that have been
recognized in a company's financial
statements or tax returns. Under this
method, deferred tax liabilities and
assets are determined based on the
difference between the financial
statement carrying amounts and tax basis
of assets and liabilities using enacted
tax rates in effect in the years in
which the differences are expected to
reverse. Deferred tax assets are reduced
by a valuation allowance to the extent
realization is uncertain.
F-38
<PAGE> 43
AXISTEL COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
REVENUE RECOGNITION Prepaid phone card revenues are earned
when the prepaid phone cards are used.
Deferred revenues of $-0- and $110,000
at December 31, 1997 and 1998,
respectively, represent unused prepaid
phone cards.
USE OF ESTIMATES The preparation of financial statements
in conformity with generally accepted
accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
LONG-LIVED ASSETS Long-lived assets, such as property and
equipment, are evaluated for impairment
when events or changes in circumstances
indicate that the carrying amount of the
assets may not be recoverable through
the estimated undiscounted future cash
flows from the use and sale of these
assets. When any such impairment exists,
the related assets will be written down
to fair value. No impairment losses have
been recognized through June 30, 1999.
F-39
<PAGE> 44
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
1. TRANSACTIONS WITH Included in revenues for the year ended
RELATED PARTIES December 31, 1998 were revenues from
Debit Card Technologies Inc. totaling
approximately $264,000. Debit Card
Technologies Inc. is wholly owned by an
employee's spouse. All revenues for the
period August 28, 1997 (inception) to
December 31,1997 were received from
Debit Card Technologies, Inc.
2. PROPERTY AND EQUIPMENT AND Major classes of property and equipment
CERTAIN INTANGIBLES and certain intangibles are as follows:
<TABLE>
<CAPTION>
Estimated
December 31, 1997 1998 useful lives
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Indefeasible Right of Use
of phone line $ -- $ 1,600,000 25 years
Equipment -- 108,619 3-4 years
----------- ------------- ------------
-- 1,708,619
Less: Accumulated
depreciation -- (15,564)
----------- ------------- ------------
$ -- $ 1,693,055
=========== ============= ============
</TABLE>
3. NOTES PAYABLE - On December 3, 1998, the Company entered
ERAATEL CORP. into an Indefeasible Right of Use
("IRU") agreement with Eraatel
Corporation which provides for the use
of the phone line for 25 years. The
Company leased the phone line between
New York City, New York and Miami,
Florida for a one-time IRU fee of
$1,600,000. The Company paid $100,000
upon the execution of the agreement. The
balance due of $1,500,000 is payable in
equal monthly installments over a term
of 36 months with interest accruing at
15%. As of December 31, 1998, $427,600
was classified as current and $1,072,400
was classified as long-term debt.
In April 1999, the Company was notified
that Eraatel Corporation had misled the
Company and, in fact, only had rights to
the IRU for four months. As a result,
the above agreement was terminated and
the related asset and notes payable were
written off. The $100,000 payment has
been recorded as other expense.
F-40
<PAGE> 45
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
4. MAJOR CUSTOMERS Two customers accounted for
approximately 40% of accounts receivable
at December 31, 1998. Revenues from
these customers accounted for
approximately 6% of revenues for the
year ended December 31, 1998.
5. NOTES PAYABLE - On October 28, 1998, the Company issued
STOCKHOLDERS notes to Infinity Emerging Opportunities
Limited ("IEOL") in an aggregate amount
of $2,000,000. As of December 31, 1998,
the aggregate principal balance due was
$2,000,000. The note agreement provides
for a further $1,500,000, of which
$500,000 was received on March 10, 1999
and $1,000,000 was received on April 19,
1999, and is subject to certain
conditions as set forth in the
agreement. Interest is calculated at 8%
per annum and is payable monthly. The
outstanding principal balance and any
unpaid interest shall be due and payable
on October 28, 2000. The notes are
secured by all assets and equity
interests of the Company.
As of December 31, 1998, the Company had
not met, but was subsequently granted
waivers with respect to, certain
reporting requirements under the above
notes.
In connection with the notes, the
Company issued warrants to purchase
1,499 shares of Class B common stock,
par value $.01 per share, of the Company
at an exercise price of $2,333.33 per
share. The warrants were valued at
approximately $274,000 using the
Black-Scholes model and the Company
recorded the amount as a debt discount,
with a related credit to additional
paid-in capital. The debt discount is
being amortized over the life of the
loan. As of December 31, 1998, the
balance of the debt discount, net of
amortization, was $251,075.
As additional consideration for the
notes payable, the Company issued one
share of Class B common stock of the
Company to IEOL at a purchase price of
$1 (approximate fair value), with voting
rights as set forth in the Certificate
of Incorporation of the Company
entitling the purchasers to vote 50% of
all issued and outstanding shares of the
common stock of the Company.
F-41
<PAGE> 46
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
The Company had notes payable to one of
its stockholders aggregating $10,000 at
December 31, 1997. The Company had notes
payable to two of its stockholders
aggregating $25,000 at December 31,
1998. Interest is calculated at 5% per
annum. The outstanding principal balance
and any unpaid interest was due and
payable on October 28, 1999 and the
notes were therefore classified as short
term.
6. COMMON STOCK Common stock is comprised of the
following:
<TABLE>
<CAPTION>
December 31, 1997 1998
------------ ---- ----
<S> <C> <C>
Class A shares; par value $.01, 45,000
shares authorized, 1,500 shares issued
and outstanding $15 $15
Class B shares; par value $.01, 45,000
shares authorized, 1 share issued and
outstanding -- --
Class C shares; nonvoting par value $.01,
10,000 shares authorized, none issued and
outstanding -- --
---- ----
$15 $15
==== ====
</TABLE>
7. STOCK OPTIONS On November 18, 1998, IEOL retained a
consultant to perform services for the
Company. The consultant was granted
stock options to purchase 30 shares of
Class C, nonvoting common stock, par
value $.01, of the Company at an
exercise price of $2,333.33 per share.
The stock options vest on May 18, 1999.
The options were valued at $25,510 using
the Black-Scholes model and the Company
recorded the amount as compensation
expense with a related credit to
additional paid-in capital.
F-42
<PAGE> 47
8. COMMITMENTS Leases
Minimum annual commitments under all
noncancellable operating leases with
terms in excess of one year approximate:
<TABLE>
Year ended December 31,
----------------------- -------------
<S> <C>
1999 $ 210,600
2000 280,800
2001 280,800
2002 280,800
2003 280,800
Thereafter 1,582,200
-------------
Total minimum lease payments $ 2,916,000
-------------
</TABLE>
Rent expense for the period from August
28, 1997 (inception) to December 31,
1997 and the year ended December 31,
1998 was approximately $1,000 and
$12,000, respectively.
9. STATEMENTS OF CASH
FLOW
<TABLE>
<CAPTION>
Period from
August 28,
1997
(inception) to Year ended Six months ended June 30,
December 31, December 31, -------------------------
1997 1998 1998 1999
-------------- ---------------- -------- ------------
<S> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for:
Interest $ -- $ 13,333 $ -- $ 90,000
Taxes -- -- -- 1,100
Noncash investing and
financing activities:
Capital leases
entered into
during the period -- 1,500,000 -- --
Warrants and
options issued
during the period -- 299,410 -- --
----- -------------- ---- ----------
</TABLE>
F-43
<PAGE> 48
10. INCOME TAXES
The Company has a deferred tax asset
amounting to approximately $197,000 at
December 31, 1998, principally relating
to net operating loss carryforwards and
a basis difference in the carrying
amount of trade accounts receivable for
financial reporting purposes and the
amount used for income tax purposes. The
Company recorded a valuation allowance
amounting to the entire deferred tax
asset balance due to the Company's
financial condition and its lack of a
history of consistent earnings, giving
rise to uncertainty as to whether the
deferred tax asset is realizable. No
amount of deferred Federal or state
income tax is therefore presented.
Deferred income taxes are not material
for the period ended December 31, 1997.
As of December 31, 1998, the Company had
net operating loss income tax
carryforwards of approximately $529,000,
which expire in the years 1999 through
2018.
F-44
<PAGE> 49
11. SUBSEQUENT EVENTS On September 22, 1999, the following
significant transactions occurred: IEOL
exercised its warrants to purchase 1,499
Class A shares of the Company, which
gave it 50% of the total outstanding
shares of the Company. IEOL exchanged
its shares in the Company for shares of
eVentures Group, Inc. ("eVentures").
eVentures acquired the other 50% of the
Company's Class A shares from the
founding shareholders of the Company,
settled through an issue of shares of
eVentures. These transactions
consummated the acquisition of all of
the outstanding shares of the Company by
eVentures.
F-45
<PAGE> 50
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") has been derived from
the application of pro forma adjustments to eVentures' consolidated historical
balance sheet as of September 30, 1999 included elsewhere herein.
The Unaudited Pro Forma Consolidated Financial Information gives effect to
the purchase of the remaining 33.3% of eVolve and certain financing transactions
(all of which occurred in October and November, 1999) as if each had occurred on
September 30, 1999. The pro forma adjustments are described in the accompanying
notes. There are no adjustments pertaining to the reverse merger and acquisition
of AxisTel, since these events were already included in the historical balance
sheet as at September 30, 1999.
The Unaudited Pro Forma Consolidated Financial Information is presented for
informational purposes only and does not purport to represent what eVentures'
financial position would actually have been if the aforementioned events had
occurred on the date specified or to project eVentures' financial position at
any future date. The Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with eVentures' consolidated historical financial
statements, and the notes thereto, included elsewhere herein.
P-1
<PAGE> 51
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FINANCING
Assets HISTORICAL ADJUSTMENTS PRO FORMA
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Cash $ 6,346,023 $ (1,107,957)(1) $ 11,463,066
6,225,000 (2)
Accounts Receivable 1,158,221 -- 1,158,221
Other receivables - Employee Advances 71,988 -- 71,988
Prepaid and Other Current Assets 189,933 -- 189,933
Deposits 299,071 -- 299,071
Available-for-sale securities -- -- --
--------------- --------------- ---------------
Total Current Assets 8,065,236 5,117,043 13,182,279
--------------- --------------- ---------------
Long term:
Restricted Cash 1,820,752 -- 1,820,752
Property and equipment, net 7,429,945 -- 7,429,945
VAT taxes receivable 2,436,268 -- 2,436,268
Investment in affiliate 140,746 -- 140,746
Investments in i2v2 2,100,144 -- 2,100,144
Goodwill, net 19,591,050 11,662,506 (3) 31,253,556
Other 79,300 -- 79,300
--------------- --------------- ---------------
Total Long term Assets 33,598,205 11,662,506 45,260,711
--------------- --------------- ---------------
Total Assets $ 41,663,441 $ 16,779,549 $ 58,442,990
=============== =============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Current Portion of Long-Term Notes
& Capital leases $ 2,027,781 $ -- $ 2,027,781
Accounts Payable 7,716,609 (4,307,437)(1) 3,409,172
Accrued Liabilities 2,062,784 -- 2,062,784
Customer Deposits 1,952,447 -- 1,952,447
Deferred Revenue 154,000 -- 154,000
--------------- --------------- ---------------
Total Current Liabilities 13,913,621 (4,307,437) 9,606,184
--------------- --------------- ---------------
Long-Term Liabilities
Capital Leases, Net of Current Portion 1,750,160 -- 1,750,160
--------------- --------------- ---------------
Total Long-Term Liabilities 1,750,160 -- 1,750,160
--------------- --------------- ---------------
Stockholders' Equity
Common Stock 757 -- 757
Preferred Stock -- -- --
Additional Paid in Capital 36,480,715 11,662,506 (3) 57,567,701
3,199,480 (1)
6,225,000 (2)
Accumulated Deficit (10,481,812) -- (10,481,812)
--------------- --------------- ---------------
Total Stockholders' Equity 25,999,660 21,086,986 47,086,646
--------------- --------------- ---------------
Total Liabilities & Stockholders' Equity $ 41,663,441 $ 16,779,549 $ 58,442,990
=============== =============== ===============
</TABLE>
(1) Represents the exchange of accounts payable of $4,307,437 for cash of
$1,107,957 and Common stock of eVentures.
(2) Represents the issuance of a total of 6,225 shares of Preferred stock at a
price of $1,000 per share on November 24, 1999 and November 18, 1999.
(3) Represents the purchase of 1/3 of eVolve for 5,831,253 shares of the
Company at market price of $15.375 on October 19, 1999.
P-2
<PAGE> 52
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") has been derived from
the application of pro forma adjustments to eVentures' consolidated historical
audited statement of operations for the year ended June 30, 1999 and the three
months ended September 30, 1999 included elsewhere herein.
The Unaudited Pro Forma Consolidated Financial Information gives effect to
the reverse merger, the acquisition of AxisTel and the acquisition of the
remaining 33.3% of e.Volve as if each had occurred on July 1, 1998. There is no
adjustment to minority interest since 100% of the losses were already recorded
in the historical financial statements. The pro forma adjustments are described
in the accompanying notes.
The Unaudited Pro Forma Consolidated Financial Information is presented for
informational purposes only and does not purport to represent what eVentures'
results of operations would actually have been if the aforementioned events had
occurred on the date specified or to project eVentures' results of operations
for any future periods. The Unaudited Pro Forma Consolidated Financial
Information should be read in conjunction with eVentures' consolidated
historical financial statements, and the notes thereto, included elsewhere
herein.
P-3
<PAGE> 53
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SEPTEMBER 22, 1999 EVENTS
---------------------------- SUBSEQUENT
(1) PRO FORMA EVENTS
HISTORICAL AXISTEL ADJUSTMENTS SUB TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues 27,248,273 $ 7,967,643 $ -- $ 35,215,916 $ -- $ 35,215,916
Direct Costs 23,311,584 6,381,235 -- 29,692,819 -- 29,692,819
------------ ------------ ------------ ------------ ------------ ------------
3,936,689 1,586,408 -- 5,523,097 -- 5,523,097
Selling, General & Administrative 7,551,131 2,118,557 1,663,997(2) 11,333,685 1,166,251(6) 12,499,936
Line Charges -- 615,898 -- 615,898 -- 615,898
Other -- 190,981 -- 190,981 -- 190,981
------------ ------------ ------------ ------------ ------------ ------------
Total Operating Expenses 7,551,131 2,925,436 1,663,997 12,140,564 1,166,251 13,306,815
------------ ------------ ------------ ------------ ------------ ------------
Operating Income (3,614,442) (1,339,028) (1,663,997) (6,617,467) (1,166,251) (7,783,718)
Other (Income) Expense:
Interest Expense, Net 1,704,459 285,457 (557,574)(5) 473,675 -- 473,675
(958,667)(4)
Equity in Sub Income (Minority
Interest) 33,776 -- -- 33,776 -- 33,776
Foreign currency gain (loss) 126,575 -- -- 126,575 -- 126,575
Debt discount -- -- 2,000,000(3) 2,000,000 -- 2,000,000
Other (16,930) 100,000 -- 83,070 -- 83,070
------------ ------------ ------------ ------------ ------------ ------------
Total Other (Income) Expense: 1,847,880 385,457 483,759 2,717,096 -- 2,717,096
------------ ------------ ------------ ------------ ------------ ------------
Pre-Tax Income (5,462,322) (1,724,485) (2,147,756) (9,334,563) (1,166,251) (10,500,814)
Income Taxes -- 300 -- 300 -- 300
------------ ------------ ------------ ------------ ------------ ------------
Net Income $ (5,462,322) $ (1,724,785) $ (2,147,756) $ (9,334,863) $ (1,166,251) $(10,501,114)
============ ============ ============ ============ ============ ============
</TABLE>
- -------------------------
(1) Reflects the consolidation of the results of operations of AxisTel for the
period July 1, 1998 to June 30, 1999.
(2) Reflects the amortization of goodwill.
(3) Reflects the write off of the Original Issue Discount on the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(4) Reflects the reversal of amortization relating to the Original Issue
Discount on the e.Volve debentures for which the related Notes Receivable
were exchanged for stock of eVentures by one of the Major Shareholders on
September 22, 1999.
(5) Reflects the reversal of the interest expense relating to the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(6) Reflects the amortization of the goodwill arising from the purchase of 1/3
of e.Volve on October 19, 1999 over a period of 10 years.
P-4
<PAGE> 54
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SEPTEMBER 22, 1999 EVENTS
---------------------------- SUBSEQUENT
(1) PRO FORMA EVENTS
HISTORICAL AXISTEL ADJUSTMENTS SUB TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $ 8,675,719 $ 6,019,283 $ -- $ 14,695,002 $ -- $ 14,695,002
Direct Costs 8,729,520 5,550,300 -- 14,279,820 -- 14,279,820
------------ ------------ ------------ ------------ ------------ ------------
(53,801) 468,983 -- 415,182 -- 415,182
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses: --
Selling, General & Administrative 1,816,032 1,145,944 415,999(2) 3,377,975 291,563(6) 3,669,538
Line Charges -- 525,460 -- 525,460 -- 525,460
------------ ------------ ------------ ------------ ------------ ------------
Total Operating Expenses 1,816,032 1,671,404 415,999 3,903,435 291,563 4,194,998
------------ ------------ ------------ ------------ ------------ ------------
Operating Income (1,869,833) (1,202,421) (415,999) (3,488,253) (291,563) (3,779,816)
Other (Income) Expense:
Interest Expense, Net 519,231 (30,625) (160,800)(5) 34,369 -- 34,369
(293,437)(4)
Equity in Sub Income (Minority
Interest) 18,730 -- -- 18,730 -- 18,730
Foreign currency gain (loss) (6,502) -- -- (6,502) -- (6,502)
Debt discount and other 911,027 -- (911,027)(4) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total Other (Income) Expense: 1,442,486 (30,625) (1,365,264) 46,597 -- 46,597
------------ ------------ ------------ ------------ ------------ ------------
Pre-Tax Income (3,312,319) (1,171,796) (949,265) (3,534,850) (291,563) (3,826,413)
Income Taxes -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net Income $ (3,312,319) $ (1,171,796) $ (949,265) $ (3,534,850) $ (291,563) $ (3,826,413)
============ ============ ============ ============ ============ ============
</TABLE>
- -----------------------
(1) Reflects the consolidation of the results of operations of AxisTel for the
period July 1, 1999 to September 22, 1999.
(2) Reflects the amortization of goodwill.
(3) Reflects the write off of the Original Issue Discount on the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(4) Reflects the reversal of amortization relating to the Original Issue
Discount on the e.Volve debentures for which the related Notes Receivable
were exchanged for stock of eVentures by one of the Major Shareholders on
September 22, 1999.
(5) Reflects the reversal of the interest expense relating to the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(6) Reflects the amortization of the goodwill arising from the purchase of 1/3
of e.Volve on October 19, 1999 over a period of 10 years.
P-5
