SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 28, 1999
------------------------------
Grace Development, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-25582 84-1110469
- --------------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
1690 Chantilly Drive, Atlanta, Georgia 30324
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 633-3831
----------------------------
<PAGE>
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL STATEMENTS, OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT, INCLUDING, WITHOUT
LIMITATION, THOSE REGARDING THE REGISTRANT'S FINANCIAL POSITION, BUSINESS,
MARKETING AND PRODUCT DEVELOPMENT PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE REGISTRANT BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired.
(1) Audited Financial Statements of New Millennium Multimedia,
Inc. for the Year Ended December 31, 1998 and Avana
Communications Corporation for the Fiscal Year ending December
31, 1998 and 1997. Filed with the Commission on November 16,
1999 in Amendment No. 1 to the Registrant's Current Report on
Form 8-K dated September 28, 1999 and incorporated herein by
reference.
(2) Unaudited Financial Statements for New Millennium Multimedia,
Inc. for the period January 1, 1999 through June 30, 1999 and
Unaudited Financial Statements of Avana Communications
Corporation for the period January 1, 1999 through May 5,
1999. Filed with this report.
(b) Pro Forma Financial Information. Filed with the Commission on
December 8, 1999 in Amendment No. 2 to the Registrant's Current
Report on Form 8-K dated September 28, 1999 and incorporated herein
by reference.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as August 20, 1999 (filed with the
Commission with the Registrant's Current Report on Form 8-K dated September 28,
1999 and incorporated herein by reference).
20.1 Registrant's Information Statement pursuant to Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder, filed by the Registrant on August 27,
1999, as amended on September 24, 1999 and October 7, 1999 (filed with the
Commission on August 27, 1999, September 24, 1999 and October 7, 1999, and
incorporated herein by reference).
2
<PAGE>
23 Consent of Smith & Radigan (filed with the Commission on November 16,
1999 in Amendment No. 1 to the Registrant's Current Report on Form 8-K dated
September 28, 1999 and incorporated herein by reference).
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRACE DEVELOPMENT, INC.
By: /s/ Ronald McCallum
------------------------------------
Ronald McCallum
Chief Financial Officer & Secretary
Dated as of December 28, 1999
4
<PAGE>
Item 7(a)(2)
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF NEW MILLENNIUM MULTIMEDIA, INC.
Unaudited Condensed Consolidated Balance Sheet
at June 30, 1999
Unaudited Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1999
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999
Unaudited Consolidated Statement of Stockholders' Equity
for the Six Months Ended June 30, 1999
Notes to Unaudited Pro Forma Consolidated Financial Statements
for the Six Months Ended June 30, 1999
5
<PAGE>
Unaudited Condensed Consolidated Balance Sheet of
New Millennium Multimedia, Inc.
at June 30, 1999
Assets
Unaudited
June 30,
1999
---------
Current assets
Cash $ 101,839
Accounts receivable 200
Prepaid expense 1,650
---------
Total current assets 103,689
Property and equipment, at cost
Leasehold improvements 10,381
Furniture and fixtures 10,504
Equipment and software 262,001
Less: accumulated depreciation and amortization (6,668)
---------
276,218
---------
Other assets
Other non-current assets 25,011
Escrow deposit 38,000
Goodwill, net of accumulated amortization of $16,355 516,629
---------
579,640
$ 959,547
=========
Liabilities and Stockholders' equity
Current Liabilities
Accounts payable and accrued expenses $ 172,197
Unearned revenue 177,659
Advance from stockholders 1,699
Note payable 450,000
Current portion of obligations under capital lease 16,756
---------
Total current liabilities 818,311
6
<PAGE>
Obligations under capital lease, net of current portion 132,143
Stockholders' equity
Common stock - $1 par value:1,000,000 shares
Authorized - 548,824 issued and outstanding 548,824
Additional paid-in capital --
Accumulated deficit (539,731)
---------
9,093
$ 959,547
=========
7
<PAGE>
Unaudited Condensed Consolidated Statement of Operations
of New Millennium Multimedia, Inc.
for the Six Months Ended June 30, 1999
Unaudited
For the Six
Months
Ended
June 30,
1999
---------
Revenues $ 192,917
Cost of revenues 46,948
---------
Gross profit 145,969
---------
Operating expenses
Selling and marketing 12,798
General and administrative 359,306
Depreciation and amortization expense 22,517
---------
394,621
---------
Loss from operations (248,652)
Other income (expense)
Interest income 341
Interest expense (3,751)
---------
(3,410)
---------
Net loss $(252,062)
=========
8
<PAGE>
Unaudited Condensed Consolidated Statements of Cash Flows
Of New Millennium Multimedia, Inc.
for the Six Months Ended June 30, 1999
Unaudited
For the Six
Months
Ended
June 30,
1999
-----------
Cash flows from operating activities
Net loss $(252,062)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 22,517
Stock issued as compensation 174,375
Changes in assets and liabilities --
Advances to stockholder 820
Prepaid expense (1,650)
Other non-current assets (17,394)
Escrow deposit (38,000)
Accounts payable and accrued expenses 96,408
Deferred revenues 2,847
Advances from stockholder 1,699
--------
Total adjustments 241,622
--------
Net cash provided by operating activities (10,440)
--------
Cash flows from investing activities
Acquisition of business unit (359,314)
Acquisition of property and equipment (13,126)
--------
Net cash used by investing activities (372,440)
Cash flows form financing activities
Proceeds from issuance of common stock 31,000
Long-term debt 450,000
--------
Net cash provided by financing activities 481,000
--------
Net increase in cash 98,120
Cash balance at the beginning of period 3,719
--------
Cash balance at the end of period 101,839
========
Supplemental activities of non-cash Transactions
Acquisition of business unit
Goodwill 532,984
9
<PAGE>
Assets acquired 115,561
Liabilities assumed (245,210)
Stock issued (44,021)
--------
359,314
========
10
<PAGE>
Unaudited Consolidated Statement of Stockholders' Equity
of New Millennium Multimedia, Inc.
for the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Common Stock
--------------------
No. of Accumulated
Shares Amount Deficit Total
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 32,500 $ 32,500 $ (20,741) $ 11,759
Stock issued as compensation 387,500 387,500 (213,125) 174,375
Acquisition of Avana
Communications Corporations 97,824 97,824 (53,803) 44,021
Issuance of Common stock 31,000 31,000 -- 31,000
Net loss -- -- (252,062) (252,062)
------- --------- --------- ---------
548,824 548,824 (539,731) 9,093
======= ========= ========= =========
</TABLE>
11
<PAGE>
New Millennium Multimedia Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(Unaudited)
For the Six Months Ended June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company and Basis of Presentation:
New Millennium Multimedia, Inc. ("NMM") is an Integrated Communications
Provider offering telecommunication and Internet services (ISP) to
business and residential customers. Telecommunication services currently
offered are local and long distance, frame relay, ATM, data private lines
and calling cards.
The ISP operation focuses on serving individuals and small business. The
Company's service offerings include dial-up Internet access and business
services which are offered in various price and usage plans designed to
meet the need of our subscribers. Business services include web hosting,
which entails maintaining a customer's web site; high speed, dedicated
Internet access; web page design; domain name registration and customer
web server co-location.
Principles of consolidation and basis of financial reporting:
The consolidated financial statements include the accounts of NMM and its
wholly owned subsidiary, Avana Communications Corporations ("Avana"),
(collectively the "Company"). All significant intercompany accounts and
transactions have been eliminated.
In the opinion of the management, the accompanying financial statements
reflect all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of results of operations, financial
position, and cash flows. The results of operation of the interim periods
are not necessarily indicative of the results of operations, which might
be expected for the entire year. The condensed consolidated financial
statements should be read in conjunction with the Grace Development,
Inc.'s ("Grace") interim financial statements filed on Form 10-QSB, which
was filed on November 24, 1999.
Cash and Cash Equivalents:
Cash and cash equivalents consist of cash and other highly liquid debt
instruments with an original maturity of three months or less.
12
<PAGE>
Property and Equipment:
Property and equipment is carried at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of the assets,
generally three to ten years. For income tax purposes, depreciation is
calculated using accelerated methods.
Intangible assets:
The Company amortizes goodwill on a straight-line basis over a period of
five years.
Revenue Recognition:
The Company recognizes revenues as they are earned. Some customers pay an
annual fee for Internet services and the revenues are recognized on a
straight-line basis over the service period. Deferred revenue represents
the portion of unearned Internet service fees.
Income Taxes:
Income taxes are based on the loss for financial reporting purposes and
reflect a current liability [asset] for the estimated taxes payable
[recoverable] in the current year tax return and changes in deferred
taxes. Deferred tax liabilities and assets are recognized for the
estimated tax effects of temporary differences between financial reporting
and taxable income [loss] for the loss carryforwards based on enacted tax
laws and rates. A valuation allowance is used to reduce deferred tax
assets to the amount that is more likely than not to be realized.
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 certain assets,
liabilities, and disclosures including the allowance for doubtful
accounts, useful lives and recoverability of long-term assets. Actual
amounts could differ from those estimates. Any adjustments applied to
estimated amounts are recognized in the year in which such adjustments are
determined.
Advertising:
The Company expenses advertising as incurred. The advertising costs for
the six months ended June 30, 1999 were approximately $12,800.
13
<PAGE>
2. ACQUSITIONS:
On May 5, 1999, NMM completed its acquisition of Avana. The acquisition
was accounted for as a purchase pursuant to Accounting Principles Board
Statement No. 16, "Business Combinations" ("APB 16") and the result of
Avana's operations were included in the Company's 1999 consolidated
statements of operation from the date of acquisition. Total consideration
included the issuance of 97,824 shares of NMM stock, and cash of $364,000.
As a result of the acquisition, the Company recorded goodwill of
approximately $533,000, which is being amortized, on a straight-line basis
over five years.
Additionally NMM agreed to pay contingent consideration of up to $100,000
based upon the company maintaining a certain percentage of the acquired
customer base. The Company will record a liability when the contingency is
resolved and consideration is issued or becomes issuable.
Pro forma Financial Statements:
For the Six Months Ended June 30, 1999
----------------------------------------
As Reported Adjustments Pro Forma
----------- ----------- ---------
Revenues 192,917 313,908 506,825
Net loss (252,062) (77,781) (329,843)
3. COMMITMENTS AND CONTINGENCIES:
Concentrations of Credit Risk:
The Companies do not have a secured interest in their accounts receivable;
however, they do have legal recourse for defaulted amounts.
Operating Leases:
The Company leases office space and equipment under several operating
lease agreements. Rent expense for the office space and equipment totaled
approximately $22,536 for the six months ended June 30, 1999.
At June 30 1999, future minimum lease payments under non-cancelable leases
having remaining terms in excess of one year are as follows:
14
<PAGE>
December 31, Amount
------------ -------
1999 $67,604
2000 $26,946
-------
$94,550
=======
Obligations Under Capital Lease:
The Company leases equipment under capital lease obligations. The
equipment is included in the property and equipment section of the balance
sheet. Amortization was $0 six months ended June 30, 1999. The capitalized
cost and accumulated amortization at June 30, 1999 were as follows:
Total Equipment $ 148,898
Accumulated amortization $ -0-
---------
Book Value $ 148,898
=========
The future minimum lease payments under the capital leases at June 30,
1999:
6/30/2000 $ 59,741
6/30/2001 $ 66,604
6/30/2002 $ 65,540
6/30/2003 $ 7,132
--------
$199,017
Less amount representing interest $(50,118)
$148,899
Less current portion $(16,756)
--------
$132,143
========
Note Payable:
On April 26, 1999, the company signed a $600,000 promissory note with
Lucent Technologies, Inc. ("Lucent"). Lucent advanced the Company $450,000
and made available an additional $150,000 based on the Company's customer
list. The balance of the note on June 30, 1999 was $450,000. The note bore
interest at a rate of 10% per annum, payable monthly. The note was secured
by fixed assets of the Company. The Company repaid the note in total on
September 29, 1999.
4. INCOME TAXES:
The sources of temporary differences and their effect on the net deferred
taxes are as follows:
Deferred tax asset resulting from
Net operating loss carryforwards $ 156,000
Cash basis of accounting $ 62,000
Less valuation allowances $(218,000)
---------
$ -0-
=========
15
<PAGE>
The valuation allowance fully reserves the net deferred tax asset that
arose from the tax loss carryforwards generated.
At June 30, 1999, the Company had available for carryforward a net
operating loss of approximately $625,000 that will be offset against
future taxable income. The losses are limited to a fifteen-year
carryforward, with losses from 1998 beginning to expire in the year 2013.
5. STOCK COMPENSATION:
On April 30, 1999 NMM issued 387,500 shares of NMM common stock in
consideration for services rendered. The shares were valued at $174,375
based on an independent appraisal and a non-cash expense was recorded to
the statement of operations.
6. STOCK WARRANTS:
On April 26, 1999, NMM entered into several capital lease agreements
[note 3] and a secured note payable agreement [note 3] with Lucent
Technologies, Inc. As part of these financing agreements, NMM issued a
detachable warrant to purchase a maximum of 200,000 shares of NMM stock at
a price of $3 per share. In September 1999, Lucent exercised the warrant
and purchased 49,000 shares of NMM stock for $147,000. The warrants were
valued at $0 based on the following assumptions:
Risk free interest rate 5.5%
Life 7 years
FMV of stock on date of grant $.45 per share
Volatility Not applicable
On September 27, 1999, the company paid Lucent $395,620 to cancel all
outstanding warrants.
7. EARNINGS PER SHARE
The weighted average common shares outstanding are assuming the conversion of
the NMM shares of common stock to Grace common stock as a result of the
subsequent merger [see note 8]. The NMM shares of common stock were exchanged
for Grace common stock at a rate of 66.3013:1.
8. SUBSEQUENT EVENTS:
16
<PAGE>
Merger and Reorganization:
On September 28, 1999 the Company merged with Grace. The shareholders of
NMM exchanged 100% of the outstanding stock of NMM in exchange for shares
of Grace Stock. Each share of NMM stock was exchanged for 66.3013 shares
of Grace stock and a total of 66,246,933 shares of Grace stock were issued
to NMM stockholders. The merger is intended to qualify as a tax-deferred
reorganization under Section 368(a) of the Internal Revenue Code.
The acquisition set out in the preceding paragraph was accounted for as
the reverse acquisition of Grace by an "accounting entity" consisting of
NMM and Avana, because following the transaction, the former shareholders
of NMM are in control of the Company. Accordingly, the financial
statements of the Company are the financial statements of the "accounting
entity" adjusted for the assumed acquisition of the net assets of Grace in
exchange for the issuance of Grace common stock outstanding before the
transaction. The net assets of the Company are accounted for at their
historical cost.
In accordance with purchase accounting principles under APB 16, the
Company accounted for the net assets of Grace, acquired at the fair value
of such net assets as of September 28, 1999. No goodwill was recorded as a
result of this transaction.
Grace is a Public company and is listed on the OTC BB under the symbol
GCDV.
Additional debt:
Subsequent to June 30, 1999, the Company signed a line of credit with the
Bank of Tennessee to provide working capital of up to $650,000. The
interest rate is 7.25% per annum payable monthly. The line of credit is
secured by a CD that was acquired subsequent to June 30, 1999. The note
matures on August 4, 2000.
Subsequent to June 30, 1999, the Company signed a line of credit with
Regions Bank to provide working capital of up to $2,000,000. The interest
rate is 5.998% per annum payable monthly. A CD that was acquired
subsequent to June 30, 1999 secures the line of credit. The note matures
on September 24, 2000.
Subsequent to June 30, 1999, the Company leased additional equipment of
approximately $7,000,000 from Lucent Technologies, Inc. The leases were
recorded as capital leases.
Private Placements:
Subsequent to June 30, 1999, the Company effected a private placement of
shares of common stock. The shares were sold at $3.20 per share. For every
three shares of NMM stock sold, warrants were issued to the purchaser,
which gives the purchaser the right to purchase two shares of Grace common
stock at $4.50 per share. In aggregate, 251,000 shares of NMM common stock
and 167,292 warrants for Grace common stock were issued for net
17
<PAGE>
proceeds of $777,600. All warrants expire July 29, 2001. The shares of NMM
common stock a were converted to Grace stock and warrants at a ratio of
66.3013:1.
Subsequent to June 30 1999, the Company effected a private placement of
shares of common stock. The shares were sold at $23.34 per share. In
aggregate, 150,356 shares of NMM common stock were issued for net proceeds
of $3,459,318. The shares were converted to Grace stock at a ratio of
66.3013:1.
18
<PAGE>
Item 7(a)(2)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
OF AVANA COMMUNICATIONS CORPORATION
Unaudited Condensed Balance Sheet
at May 5, 1999
Unaudited Condensed Statement of Operations and Accumulated Deficit
for the Period of January 1, 1999-May 5, 1999
Unaudited Condensed Statements of Cash Flows
for the Period of January 1, 1999-May 5, 1999
Notes to Unaudited Financial Statements
for the Period ended May 5, 1999
19
<PAGE>
Unaudited Condensed Balance Sheet
of Avana Communications Corporation
at May 5, 1999
ASSETS
Unaudited
May 5,
1999
---------
Current assets
Cash $ 10,706
Accounts receivable 200
Advance to stockholder --
---------
Total current assets 10,906
Property and equipment, at cost
Net of accumulated depreciation
of $75,833
105,181
Other assets
Deposits 6,945
Other assets 672
---------
7,617
---------
$ 123,704
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 71,023
Unearned revenue 177,659
---------
Total current liabilities 248,682
Stockholders' Deficit
Common stock - no par value:
Authorized - 100,000 shares
Issued and outstanding -
20
<PAGE>
68,173 shares 171,260
Accumulated Deficit (296,238)
---------
(124,978)
---------
$ 123,704
=========
21
<PAGE>
Unaudited Condensed Statement of Operations and Accumulated Deficit
of Avana Communications Corporation
for the Period of January 1, 1999-May 5, 1999
Unaudited
For the
period of
January 1,
1999 -
May 5, 1999
-----------
Revenues $ 313,908
Cost of Revenues 282,892
---------
Gross Profit 31,016
Operating expenses
Sales and marketing 3,216
General and administrative 90,314
Depreciation and amortization expense 15,379
---------
expense 108,909
---------
Loss from operations (77,893)
Other income
Interest income --
Net loss (77,893)
Accumulated deficit, beginning of period (218,345)
---------
Accumulated deficit, end of period (296,238)
=========
22
<PAGE>
Unaudited Condensed Statements of Cash Flows
of Avana Communciations Corporation
for the Period of January 1, 1999-May 5, 1999
Unaudited
For the
period of
January 1,
1999 -
May 5, 1999
-----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (77,893)
-------
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 15,379
Changes in assets and liabilities
Accounts Receivable 2,800
Other assets 192
Accounts payable and accrued expenses 33,081
Unearned revenue 24,533
-------
Total adjustments 75,985
-------
Net cash used by operating activities (1,908)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (2,295)
-------
CASH FLOW FROM FINANCING ACTIVITIES:
Advance from stockholder 483
Dividends paid --
-------
Net cash provided (used) by financing activities 483
Net decrease in cash (3,720)
Cash beginning of period 14,426
-------
Cash end of period 10,706
=======
23
<PAGE>
Avana Communications Corporation
Notes to the Financial Statements
(Unaudited)
For the period ended May 5, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company and Basis of Presentation:
Avana Communications Corporation ("The Company") was incorporated in 1995,
in the state of Georgia. The Company provides Internet access, training,
web site development and support to individuals and business.
Basis of financial reporting:
In the opinion of the management, the accompanying financial statements
reflect all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of results of operations, financial
position, and cash flows. The results of operation of the interim periods
are not necessarily indicative of the results of operations, which might
be expected for the entire year. The condensed financial statements
should be read in conjunction with the Grace Development, Inc.'s ("Grace")
interim financial statements filed on Form 10-QSB, which was filed on
November 30, 1999.
Property and Equipment:
Property and equipment is carried at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of the assets,
generally three to ten years. For income tax purposes, depreciation is
calculated using accelerated methods.
24
<PAGE>
Revenue Recognition:
The Company recognizes revenues as they are earned. Some customers pay an
annual fee for Internet services and the revenues are recognized on a
straight-line basis over the service period. Deferred revenue represents
the portion of unearned Internet service fees.
Income Taxes:
Income taxes are based on the loss for financial reporting purposes and
reflect a current liability [asset] for the estimated taxes payable
[recoverable] in the current year tax return and changes in deferred
taxes. Deferred tax liabilities and assets are recognized for the
estimated tax effects of temporary differences between financial reporting
and taxable income [loss] for the loss carryforwards based on enacted tax
laws and rates. A valuation allowance is used to reduce deferred tax
assets to the amount that is more likely than not to be realized.
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 certain assets,
liabilities, and disclosures including the allowance for doubtful
accounts, useful lives and recoverability of long-term assets. Actual
amounts could differ from those estimates. Any adjustments applied to
estimated amounts are recognized in the year in which such adjustments are
determined.
Advertising:
The Company expenses advertising as incurred. The advertising costs for
the period from January 1, 1999 to May 5, 1999 were approximately $8,000.
2. COMMITMENTS AND CONTINGENCIES:
Concentrations of Credit Risk:
The Companies do not have a secured interest in their accounts receivable;
however, they do have legal recourse for defaulted amounts.
Operating Leases:
The Company leases office space and equipment under several operating
lease agreements.
25
<PAGE>
Rent expense for the office space and equipment totaled approximately $
62,000 for the period from January 1, 1999 to May 5, 1999.
3. INCOME TAXES:
The sources of temporary differences and their effect on the net deferred
taxes are as follows:
Deferred tax asset resulting from
Net operating loss carryforwards $ 60,000
Cash basis of accounting $ 66,000
Less valuation allowances $(126,000)
---------
$ -0-
=========
The valuation allowance fully reserves the net deferred tax asset that
arose from the tax loss carryforwards generated.
At June 30, 1999, the Company had available for carryforward a net
operating loss of approximately $160,000 that will be offset against
future taxable income. The losses are limited to a fifteen-year
carryforward, with losses from 1995 beginning to expire in the year 2010.
4. SUBSEQUENT EVENTS:
On May 5, 1999 the stockholders of the Company sold all of the issued and
outstanding shares of stock in the Company to an independent third party.
26
