<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
Date of Report (Date of earliest event reported): February 24, 2000
-----------------
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: (687) 222-3030
-----------------------------
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Introductory Note
On May 10, 2000, the Registrant filed Amendment No. 1 to its Current
Report on Form 8-K dated February 24, 2000 ("Amendment No. 1"), which contained
the financial statements required by Item 7 of Form 8-K. Certain omissions and
typographical errors in Item 7(a) of Amendment No. 1 appearing in (a) the
headings to the Consolidated Statements of Changes in Stockholders' Equity and
the Consolidated Notes to Financial Statements and the text therein and (b) the
line "Issuance of notes payable - related party" as contained in the
Consolidated Statements of Cash flows for the year ended December 31, 1999 are
corrected by amending and supplementing such statements. Alignment problems
occurring during the preparation of the Unaudited Pro Forma Condensed
Consolidated Balance Sheet and Statement of Operations for transmission,
together with certain typographical errors, in Item 7(b) of Amendment No. 1 are
corrected by amending and supplementing such statements.
2
<PAGE> 3
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/ James Blanchard
-----------------------------------------
James Blanchard
President
Dated as of May 15, 2000
3
<PAGE> 4
P.V. TEL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
<PAGE> 5
P.V. TEL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report 1
Consolidated financial statements:
Consolidated balance sheets 2 - 3
Consolidated statements of operations 4
Consolidated statements of changes in stockholders' equity (deficit) 5
Consolidated statements of cash flows 6 - 7
Consolidated notes to financial statements 8 - 12
</TABLE>
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Grace Development, Inc. and
P.V. Tel, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of P.V. TEL, INC.
[a corporation] as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholder's equity (deficit), and cash
flows for the years ending December 31, 1999, 1998 and for the period May 29,
1997 [date of inception] to December 31, 1997. 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 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of P.V. TEL, INC. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years ending December 1999, 1998 and for the period May 29, 1997 [date
of inception] to December 31, 1997, in conformity with generally accepted
accounting principles.
Atlanta, Georgia
May 4, 2000
/s/ Habif, Arogeti & Wynne, LLP
<PAGE> 7
P.V. TEL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS
1999 1998
---------- ----------
<S> <C> <C>
Current assets
Cash $ 33,144 $ 42,728
Restricted cash 50,000 60,000
Accounts receivable, net of allowance of $23,256 and
$11,073 for 1999 and 1998, respectively 297,763 90,363
---------- ----------
Total current assets 380,907 193,091
---------- ----------
Property and equipment
Equipment 136,656 17,280
Furniture and fixtures 36,080 6,850
Leasehold improvements 56,904 14,243
Machinery and Equipment 709,191 452,685
---------- ----------
938,831 491,058
Allowance for depreciation (228,451) (42,446)
---------- ----------
710,380 448,612
---------- ----------
Other assets
Deposits 2,225 1,325
---------- ----------
$1,093,512 $ 643,028
========== ==========
</TABLE>
See auditors' report and accompanying notes
-2-
<PAGE> 8
P.V. TEL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
1999 1998
----------- -----------
<S> <C> <C>
Current liabilities
Accounts payable 983,202 150,383
Accrued expenses 92,751 6,610
Customer deposits 4,425 1,875
Note payable 50,809 --
Current portion of obligations
under capital lease 253,759 106,788
Deferred revenue 80,681 --
Line of credit -- 111
----------- -----------
Total current liabilities 1,465,627 265,767
----------- -----------
Non-current liabilities
Notes Payable - related parties 434,500 --
Obligations under capital lease, net of current portion 435,024 211,391
----------- -----------
869,524 211,391
----------- -----------
Stockholders' equity
Common stock, $0.001 par value, 11,000 shares
authorized; 7,500 and 8,500 shares issued and
outstanding in 1999 and 1998 respectively 9 9
Redeemable convertible preferred stock. Series A
preferred stock, $500 par value, 2,500 shares
authorized; and 2,500 and 1,000 shares issued
and outstanding in 1999 and 1998 respectively 1,250,000 750,000
Additional Paid in Capital 800,000 --
Accumulated deficit (3,291,648) (584,139)
----------- -----------
(1,241,639) 165,870
----------- -----------
$ 1,093,512 $ 643,028
=========== ===========
</TABLE>
See auditors' report and accompanying notes
-3-
<PAGE> 9
P.V. TEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
For the Period
May 29, 1997
(Date of Inception)
to December 31,
1999 1998 1997
----------- --------- ------------------
<S> <C> <C> <C>
Sales $ 2,664,634 $ 342,632 0
Operating expenses
Cost of sales 3,285,118 368,238 --
Selling and marketing costs 39,051 7,317 --
General and administrative 1,806,392 505,841 1,190
Depreciation and amortization 200,248 42,446
----------- --------- -------------
5,330,809 923,842 1,190
----------- --------- -------------
Loss from operations (2,666,175) (581,210) (1,190)
----------- --------- -------------
Other income (expenses)
Interest expense (72,690) (9,606) --
Other income 31,356 7,867 --
----------- --------- -------------
(41,334) (1,739) --
----------- --------- -------------
Loss before taxes (2,707,509) (582,949) (1,190)
----------- --------- -------------
Income tax benefit -- -- --
----------- --------- -------------
Net loss $(2,707,509) $(582,949) $ (1,190)
=========== ========= =============
</TABLE>
See auditors' report and accompanying notes
-4-
<PAGE> 10
P.V. TEL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and FOR THE PERIOD MAY 29, 1997
(DATE OF INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES ACCUMULATED OWNERS'
----------------- COMMON PREFERRED PAID IN DEFICIT MEMBERS' EQUITY
COMMON PREFERRED STOCK STOCK CAPITAL EARNINGS DEFICIT (DEFICIT)
------ --------- ----- ---------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 29, 1997 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss for 1997 -- -- -- -- -- -- (1,190) (1,190)
------ -------- ----- ---------- -------- ----------- --------- -----------
Balances, December 31, 1997 -- -- -- -- -- -- (1,190) (1,190)
Issuance of common stock 8,500 -- 9 -- -- -- -- 9
Issuance of preferred stock -- 1,500 -- 750,000 -- -- -- 750,000
Conversion from limited liability
company to corporation -- -- -- -- -- (1,190) 1,190 --
Net loss for 1998 -- -- -- -- -- (582,949) -- (582,949)
------ -------- ----- ---------- -------- ----------- --------- -----------
Balances, December 31, 1998 8,500 1,500 9 750,000 -- (584,139) -- 165,870
Recapitalization -- -- -- -- -- -- -- --
Contribution of paid in capital (1,000) -- -- -- 300,000 -- -- 300,000
Issuance of Preferred Stock -- 1,000 -- 500,000 500,000 -- -- 1,000,000
Net loss for 1999 -- $ -- -- -- $ -- (2,707,509) -- (2,707,509)
------- -------- ----- ---------- -------- ----------- --------- -----------
Balances, December 31, 1999 7,500 2,500 $ 9 $1,250,000 $800,000 $(3,291,648) $ -- $(1,241,639)
======= ======== ===== ========== ======== =========== ========= ===========
</TABLE>
See auditors' report and accompanying notes
-5-
<PAGE> 11
P.V. TEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 29, 1997
(DATE OF INCEPTION)
TO DECEMBER 31,
1999 1998 1997
----------- ----------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,707,509) $ (582,949) (1,190)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation 200,248 42,446 --
Provision for doubtful accounts
receivable 12,184 11,073 --
Changes in assets and liabilities
Accounts receivable (219,584) (101,436) --
Deposits (900) (1,325) --
Accounts payable 832,819 149,193 1,190
Accrued expenses 86,141 6,610 --
Customer deposits 2,550 1,875 --
Deferred revenue 80,681 -- --
----------- ----------- -----------
Total adjustments 994,139 108,436 1,190
----------- ----------- -----------
Net cash used by
operating activities (1,713,370) (474,513) --
----------- ----------- -----------
Cash flows from investing activities
Acquisition of property and equipment (227,189) (92,009) --
Proceeds from sales of property and equipment 202,449 -- --
----------- ----------- -----------
Net cash used by investing activities (24,740) (92,009) --
----------- ----------- -----------
Cash flows from financing activities
Withdrawals from (Deposits to) restricted Cash 10,000 (60,000) --
Payments on obligations under
capital lease (66,672) (80,870) --
Net proceeds (repayments) from
issuance of line of credit (111) 111 --
Issuance of note payable 50,809 -- --
Issuance of Notes payable - related party 434,500 --
Proceeds from the Issue of common
stock 300,000 9 --
Proceeds from the Issue of preferred
stock 1,000,000 750,000 --
----------- ----------- -----------
Net cash provided by financing
activities 1,728,526 609,250 --
----------- ----------- -----------
Net increase in cash (9,584) 42,728 --
Cash, beginning of year 42,728 -- --
----------- ----------- -----------
Cash, end of year $ 33,144 $ 42,728 $ --
=========== =========== ===========
</TABLE>
See auditors' report and accompanying notes
-6-
<PAGE> 12
P.V. TEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Period
May 29, 1997
(Date of Inception)
to December 31,
1999 1998 1997
--------------- --------------- -------------------
<S> <C> <C> <C>
Cash paid during the years for
Interest $ 72,690 $ 9,606 $ 0
</TABLE>
See auditor's report and accompanying notes
Supplement disclosures of non-cash activities:
During 1999 the Company acquired property and equipment of $234,827 through
capital lease obligations.
-7-
<PAGE> 13
P.V. TEL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND FOR THE PERIOD
MAY 29, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General:
P.V. Tel LLC, was formed on May 29, 1997 in Tennessee. The Company is engaged in
providing telecommunication services in the Southeastern United States. P.V.
Tel, Inc. was formed on September 23, 1998 under the laws of South Carolina. All
assets and liabilities of P.V. Tel, LLC were contributed on the date of
formation to P.V.Tel, Inc. The financial statements for the year ended December
31, 1998 reflect the business as one entity and reflect all transactions from
January 1, 1998 through December 31, 1998 of both the LLC and the Corporation.
The following are the wholly owned subsidiaries which are operational:
P.V.Tel of Tennessee LLC and Myrtle Beach Telephone Company, LLC.
The following are wholly owned subsidiaries which are currently inactive:
P.V.Tel of Illinois LLC, P.V.Tel of Ohio LLC, P.V.Tel of Virginia LLC,
P.V.Tel of Kentucky LLC, P.V.Tel of Louisiana LLC, P.V.Tel of Florida
LLC, P.V.Tel of North Carolina LLC, P.V.Tel of Alabama, P.V.Tel of
Georgia LLC, and P.V.Tel of Mississippi LLC.
Principles of Consolidation:
The consolidated financial statements include the accounts of P.V.Tel Inc., and
its subsidiaries (together, "The Company"). All material intercompany accounts
and transactions have been eliminated in consolidation.
Property and Equipment:
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is included in
operations.
Depreciation is computed using the straight-line or accelerated methods over
the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Equipment 3 - 5 years
Furniture and fixtures 7 years
Leasehold improvements Life of lease
Machinery and equipment 3 - 5 years
</TABLE>
Included in property and equipment at December 31, 1999 was idle equipment with
a net book value of $153,661. The carrying value of the idle equipment exceeded
the fair market value of the equipment at December 31, 1999.
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the reporting of reserve for doubtful
accounts, and depreciation. The deferred tax asset represents the future tax
consequences of those differences, which will be deductible when the assets are
recovered or settled.
-8-
<PAGE> 14
P.V. TEL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND FOR THE PERIOD
MAY 29, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
Advertising:
The Company expenses all advertising costs incurred. For the years ended
December 31, 1999, 1998, and 1997 advertising expense totaled $39,051, $7,317
and $0, respectively.
Revenue Recognition:
Revenues for voice, data and other services to end users are recognized in the
month in which the services are provided. Revenues for carrier interconnection
and access are recognized in the month in which the service is provided
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
revenues and expenses during the period covered. Actual results could differ
from those estimates. Estimates are used when accounting for certain items such
as allowance for doubtful accounts and depreciation.
NOTE B
CONCENTRATION OF CREDIT RISK
The Company from time to time maintains cash deposits in excess of federally
insured limits. At December 31, 1999 and 1998, the Company had approximately $0
and $200,000, respectively, at risk.
NOTE C
ACCOUNTS RECEIVABLE
The trade accounts receivable balance at December 31, 1999 and 1998 is $297,763
and $90,363, respectively, which is net of a $23,256 and $11,073 provision for
doubtful accounts for 1999 and 1998, respectively.
NOTE D
OFF BALANCE SHEET RISK
Credit applications are obtained from all new customers. Credit checks are then
made on the accounts. After references are verified and the credit verification
is satisfactory, the Company then extends trade credit based on the size of the
company and past payment history. Companies with accounts over 60 days old are
notified concerning their delinquency. The Company does not have a secured
interest in its accounts receivable; however, it does have legal recourse for
defaulted amounts. The amount of the accounting loss the Company would incur if
the parties to the accounts receivable failed to perform according to the terms
of the agreement would be the balance of the accounts receivable.
NOTE E
SALE-LEASEBACK TRANSACTIONS
In 1999 the Company entered into several sale-leaseback arrangements. Under the
arrangements, the Company sold equipment and leased it back for periods ranging
from 36 - 60 months. The leasebacks have been accounted for as capital leases.
No gains or losses were realized in the transactions.
-9-
<PAGE> 15
P.V. TEL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND FOR THE PERIOD
MAY 29, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
NOTE F
COMMITMENTS AND CONTINGENCIES
Lease Commitments:
The Company leases office and suite space, and equipment. Monthly rental
payments for the office and equipment are $8,031. The contracts expire between
August 15, 2001 and June 30, 2006. The amount of rent expense on office and
suite space, and equipment for the years ended December 31, 1999, 1998, and 1997
totaled $70,032, $17,380, and $0 respectively.
At December 31, 1999, minimum future lease payments under non-cancelable leases
having remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
December 31, Amount
------------ ------
<S> <C>
2000 $ 96,382
2001 95,468
2002 90,040
2003 85,000
2004 85,000
Thereafter 127,500
--------
$579,390
========
</TABLE>
NOTE G
OBLIGATION UNDER CAPITAL LEASE
The Company entered into lease agreements for various equipment in 1999 and
1998. Amortization on the equipment was $204,160 and $35,350 for the years
ended December 31, 1999 and 1998, respectively. The amortization is included in
accumulated depreciation on the balance sheet. The cost and accumulated
amortization on the equipment are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cost $ 836,324 $ 399,049
Less: Accumulated amortization (239,510) (35,350)
--------- ---------
$ 596,814 $ 363,699
========= =========
</TABLE>
-10-
<PAGE> 16
P.V. TEL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND FOR THE PERIOD
MAY 29, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
Future minimum lease payments under capital leases as of December 31, 1999 for
each of the next five years and in aggregate are:
<TABLE>
<S> <C>
2000 $ 367,511
2001 297,925
2002 151,612
2003 77,174
2004 35,516
---------
Total minimum lease payments 929,738
Less amount representing interest (240,955)
---------
Present value of minimum lease payments 688,783
Current maturities of capital lease (253,759)
---------
Long-term capital lease less current maturity $ 435,024
=========
</TABLE>
NOTE H
LINE OF CREDIT
The Company entered into a $1,000,000 revolving line-of-credit during 1998
through Merrill Lynch, bearing interest at the 30-day commercial paper rate
plus 3.15%. The line-of-credit which matured in February of 1999, was
collateralized by substantially all of the Company's assets and is guaranteed
by certain stockholders' of the Company. The outstanding balance at December 31,
1999 and 1998, was $-0- and $111, respectfully.
LETTER OF CREDIT
Merrill Lynch has issued a letter-of-credit in the amount of $50,000 to
guarantee certain payments. The letter of credit has the same interest rate and
guarantees as the line-of-credit above.
NOTE I
INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred income tax benefit
Federal $ 920,000 $ 150,000
State 162,000 25,000
--------- --------
1,082,000 175,000
Allowance $(1,082,000) $(175,000)
========= ========
Net deferred
income taxes $ -0- $ -0-
========= ========
</TABLE>
-11-
<PAGE> 17
P.V. TEL, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND FOR THE PERIOD
MAY 29, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset and deferred tax liability as of December 31 are
presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current
Deferred tax asset:
Allowance for doubtful accounts $ 9,200 $ 4,400
Valuation Allowance $ (9,200) $ (4,400)
=========== =========
-0- -0-
=========== =========
Non-Current
Net Operating loss carryover: $ 1,126,000 $ 175,000
Valuation Allowance $(1,126,000) $(175,000)
=========== =========
-0- -0-
=========== =========
</TABLE>
NOTE J
NOTES PAYABLE - RELATED PARTY
The Company entered into notes payable with Grace Development, Inc., ("Grace")
with a balance at December 31, 1999 of $434,500, see note N. The notes bear an
interest rate of 9% per annum. Subsequent to the merger of a subsidiary of Grace
and the Company, shareholders of P.V. Tel, Inc. delivered to Grace, promissory
notes totaling $450,000 in substitution therefore together with accrued
interest.
NOTE K
NOTES PAYABLE
The Company entered into a loan agreement with the lessor of the Company's
office space. The loan was originally for $57,500, with monthly payments of
$2,653 including 10% interest per annum. Subsequent to the December 31, 1999
year end the Company, in connection with the early termination of its office
lease obligation, the loan obligations were satisfied. The balance of the loan
was $50,809 at December 31, 1999.
NOTE L
MAJOR SUPPLIERS - TELEPHONE CONTRACTS
During the year ended December 31, 1999, the Company had four major vendors,
purchases from which exceeded 5% of the Company's total cost of sales.
Purchases from these vendors totaled $2,647,154 and accounted for approximately
87% of cost of services for the year ended December 31, 1999.
During the year ended December 31, 1998, the Company had two major vendors,
purchases from which exceeded 5% of the Company's total cost of sales.
Purchases from these vendors totaled $194,243 and accounted for approximately
55% of cost of services.
NOTE M
STOCKHOLDERS' EQUITY
Common Stock
During 1998 the corporation issued 8,500 shares of $.001 par stock for $9. In
connection with a recapitalization, the common shares were reduced to 7,500 in
1999, and the common shareholders contributed an additional $300,000 in
additional paid in capital.
Series A - Convertible Preferred Stock
During 1998 the corporation issued 1,500 shares of $500 par stock for $750,000.
During 1999 the corporation issued 1,000 shares of $500 par stock for
$1,000,000.
Preferred Stock Rights:
The shares of the Series A Preferred Stock rank senior to the Common Stock with
respect to dividends and with respect to any liquidation, dissolution or
winding up of the Corporation. Shares of Series A Preferred Stock are
automatically convertible, subject to certain anti-dilution adjustments.
NOTE N
SUBSEQUENT EVENT - MERGER
On February 24, 2000, the stockholders of the Company effected a merger
agreement with Grace Development, Inc. (GRACE) (OTCBB:GCDV), whereby the
Company was merged into a subsidiary of Grace in a transaction accounted for as
a purchase by Grace. All issued and outstanding shares of the Company were
surrendered by the stockholder in consideration for 2,150,000 shares of common
stock of Grace.
Additionally, the merger agreement included a two year employment agreement
between Grace and a stockholder of the Company which provides for an annual base
salary of $92,000 and incentive compensation as determined by the Board of
Directors of Grace.
It is the opinion of management and legal counsel that this transaction
qualifies as a tax-free reorganization within the meaning of section 368(a) of
the Internal Revenue Code of 1986.
-12-
<PAGE> 18
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements give effect to the P.V. Tel, Inc. (PV Tel) Merger, The P.V. Tel
Merger was accounted for under the purchase method of accounting in accordance
with APB Opinion No. 16. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and liabilities assumed based on
their estimated fair values. Estimates of the fair values of the assets and
liabilities of PV Tel have been combined with the recorded values of the
assets and liabilities of Grace in the unaudited P.V. Tel Pro Forma combined
condensed consolidated financial statements.
The unaudited pro forma combined condensed consolidated balance sheet has been
prepared to reflect the P.V. Tel Merger as if it occurred on January 1, 1999.
The unaudited pro forma combined condensed consolidated statements of
operations reflect the results of operation of Grace and P.V. Tel for the year
ended December 31, 1999.
The unaudited pro forma condensed consolidated financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined condensed consolidated financial position or results of operations
in future periods or the results that actually would have been realized had
Grace and P.V. Tel been a combined company during the specified periods. The
unaudited pro forma combined condensed consolidated financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements of Grace, included in its annual report on Form 10-K for the year
ended December 31, 1999.
-13-
<PAGE> 19
GRACE DEVELOPMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
Grace Development Adjustments/ Consolidated
Inc. and subsidiaries P.V. Tel, Inc. Eliminations Statements
--------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets 4,004,728 380,907 -- 4,385,635
Property and equipment, net 2,493,427 710,380 -- 3,203,807
Other assets 559,829 2,225 (434,500) (b)
450,000 (a) 577,554
Goodwill and other purchased
Intangibles, net 1,574,212 -- 1,759,139 (a) 3,333,351
------------ ----------- ---------- ----------
Total Assets 8,632,196 1,093,512 1,774,639 11,500,347
============ =========== ========== ==========
Current Liabilities 5,491,683 1,465,627 (434,500) (b) 6,522,810
Long-Term Debt 1,281,129 869,524 2,150,653
Total liabilities 6,772,812 2,335,151 (434,500) (b) 8,673,463
STOCKHOLDERS' EQUITY
Common Stock, no par value 4,975,217 9 967,500 (a)
(9) (a) 5,942,717
Preferred Stock 1,250,000 (1,250,000) (a)
Additional paid in Capital 800,000 (800,000) (a) --
Accumulated deficit (3,115,833) (3,291,648) 3,291,648 (a) (3,115,833)
------------ ----------- ----------- ----------
Total Stockholders Equity (Deficit) 1,859,384 (1,241,639) 2,209,139 2,826,884
------------ ----------- ----------- -----------
Total liabilities and stockholders' equity $ 8,632,196 $ 1,093,512 $ 1,774,639 $ 11,500,547
============ =========== =========== ===========
Common Stock issued and outstanding 75,634,449 2,150,000 77,784,449
============ =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
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<PAGE> 20
GRACE DEVELOPMENT, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Grace Development P.V. Tel, Inc. Adjustments Consolidated
Inc. and subsidiaries Statements
--------------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues 754,880 2,664,634 3,419,514
Operating expenses
Cost of Revenue 706,013 3,285,118 3,991,131
Sales and Marketing expenses 470,741 39,051 509,792
Research and development 186,715 186,715
General and administrative expenses 2,770,181 1,806,392 112,000 (a) 4,688,573
Depreciation and amortization 528,797 200,248 355,200 (c) 1,084,245
----------- --------- --------- ----------
4,662,487 5,330,809 467,200 10,460,456
Loss from operations (3,907,567) (2,666,175) (467,200) (7,040,942)
Other income (expense)
Interest income 42,189 -- 42,189
Interest expense (251,925) (72,690) (324,615)
Other -- 31,356 31,356
----------- --------- --------- ----------
(209,736) (41,334) -- (251,070)
----------- --------- --------- ----------
Net loss (4,117,303) (2,707,509) (467,200) (7,292,012)
=========== ========= ========= ==========
Net loss per share (.09) (.15)
=========== ==========
Weighted average shares outstanding 46,129,804 48,279,804
=========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
-15-
<PAGE> 21
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) BASIS OF PRESENTATION
The pro forma combined condensed consolidated financial statements reflect the
issuance of 2,150,000 shares of Grace common stock, no par value. The P.V. Tel,
Inc. Merger was accounted for under the purchase method of accounting in
accordance with APB Opinion No. 16. Under the purchase method of accounting, the
purchase price is allocated to the assets acquired and liabilities assumed based
on their estimated fair values. Estimates of the fair values of the assets and
liabilities of P.V. Tel have been combined with the recorded values of the
assets and liabilities of Grace in the unaudited pro forma combined condensed
consolidated financial statements.
The operations and balance sheet of Grace Development and Subsidiaries, Inc.
include the pro forma effect of the acquisition of Web Wizard, Inc. which
occurred in January of 2000.
PRO FORMA ADJUSTMENTS
(a) To reflect issuance of 2,150,000 shares of Grace common stock in exchange
for 100% of the outstanding common stock of P.V. Tel.
Management estimates the value of the 2,150,000 shares to be $.45 per
share. Management has allocated the purchase price to the assets and
liabilities acquired based upon their relative fair values. The transaction
generated goodwill and other intangibles of $1,759,139, which will be
amortized on a straight-line basis over a five-year life.
Management continues to study the allocation of the purchase price; upon
completion of such study, the allocation may change.
(b) To eliminate intercompany balances.
(c) To reflect one year of amortization of goodwill and other intangibles.
(d) To reflect incremental compensation related to employment agreements.
-16-
