SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): June 2, 2000
FIRST SCIENTIFIC, INC.
(Exact name of registrant as specified in this Charter)
Delaware 0-24378 33-0611745
--------------------------- ----------------------- -------------------
State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1877 West 2800 South, Suite 200, Ogden, Utah 84401
--------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (801) 393-5781
---------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 2, 2000, the Registrant completed the purchase
of eighty percent of the outstanding capital interests of
PureSoft Solutions, L.L.C., a New Hampshire limited liability
company ("PureSoft"). The purchase was made pursuant to a
Purchase Agreement dated March 15, 2000 between the Company
and David Wilich, Frank Wilich, Jr., Gene Dubois and PureSoft,
which was reported on Form 8-K filed by the Registrant on
March 30, 2000. The agreement further requires the remaining
7% and 13% ownership interest in PureSoft to be transferred
to the Company on April 1, 2001 and 2002, respectively, by the
Company issuing shares of common stock.
PureSoft is a supplier and marketer of hard-surface
disinfectants, bathing and skin care products, primarily to the
professional, health care and health club/spa markets. PureSoft
began marketing the Company's antimicrobial handwash under the
Company's PureCleanse(R) product label at the beginning of
2000. Financial statements of PureSoft are filed herewith as
Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
See Exhibit Index, Exhibit 99.1
(b) Pro forma financial information
See Exhibit Index, Exhibit 99.1
(c) Exhibits. The following exhibits are
incorporated herein by this reference:
Exhibit No. Description of Exhibit
----------- -------------------------
2.2* Purchase Agreement dated as
of March 15, 2000 among the
Registrant and David Wilich,
Frank Wilich, Jr., Gene
Dubois and PureSoft
Solutions, LLC, a New
Hampshire limited liability
company.
10.9* Employment Agreement with
David Wilich
10.10* Stock Option Agreement with
David Wilich, Frank Wilich
and Gene Dubois.
99.1** Financial statements.
____________________________
* Incorporated by reference to the same numbered Exhibits
to the Report on Form 8-K, as filed on March 30, 2000
** Filed herewith
SIGNATURES
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 hereunto duly authorized.
FIRST SCIENTIFIC, INC.
(Registrant)
Date: June 13, 2000 By: /S/ Randall L. Hales
--------------------------------
Randall L. Hales, President and
Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------------
2.2* Purchase Agreement dated as
of March 15, 2000 among the
Registrant and David Wilich,
Frank Wilich, Jr., Gene
Dubois and PureSoft
Solutions, LLC, a New
Hampshire limited liability
company.
10.9* Employment Agreement with
David Wilich
10.10* Stock Option Agreement with
David Wilich, Frank Wilich
and Gene Dubois.
99.1** Financial statements, Index
____________________________
* Incorporated by reference to the same numbered Exhibits
to the Report on Form 8-K, as filed on March 30, 2000
** Filed herewith
<PAGE>
FIRST SCIENTIFIC, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS F-2
Unaudited Pro Forma Condensed Consolidated
Balance Sheet - March 31, 2000 F-3
Unaudited Pro Forma Condensed Consolidated
Statements of Operations for the Three Months
Ended March 31, 2000 and for the Year Ended
December 31, 1999 F-4
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements F-5
PURESOFT SOLUTIONS, L.L.C. FINANCIAL STATEMENTS
Report of Independent Certified Public
Accountants F-6
Balance Sheets - March 31, 2000 (Unaudited)
and December 31,1999 F-7
Statements of Operations and Changes in Members'
Equity (Deficit) for the three months ended
March 31, 2000 (Unaudited), for the Period from
February 10, 1999 (Date of Inception) through
March 31, 1999 (Unaudited) and for the Period
from February 10, 1999 (Date of Inception)
through December 31,1999 F-8
Statements of Cash Flows for the three months ended
March 31, 2000(Unaudited), for the Period from
February 10, 1999 (Date of Inception) through
March 31, 1999 (Unaudited) and for the Period
from February 10, 1999 (Date of Inception)
through December 31,1999 F-9
Notes to Financial Statements F-10
------------------
F-1
<PAGE>
FIRST SCIENTIFIC, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
On March 15, 2000, First Scientific, Inc. (the "Company") entered
into an agreement ("the Agreement") to purchase all of the interest in
PureSoft Solutions, L.L.C. ("PureSoft"), a New Hampshire limited liability
company involved in selling and marketing health care products. On March 15,
2000, the Company paid the owners of PureSoft $50,000, issued options to
purchase 87,534 common shares at $0.01 per share and signed a $450,000
nonrecourse promissory note. The promissory note bears interest at 8.5% per
annum with $300,000 due June 15, 2000 and $50,000 due quarterly from
September 15, 2000 through March 15, 2001. In addition, the Company advanced
PureSoft $300,000 on March 15, 2000. The agreement further provides for the
Company to advance PureSoft $300,000 on both June 15, 2000 and August 15, 2000.
Under the terms of the Agreement, the March 15, 2000 payments of $50,000 and
$300,000 and the stock options would be forfeited should the Company not pay
$300,000 on the promissory note and advance $300,000 to PureSoft by June 15,
2000. On June 2, 2000, the Company made the required payments, the Agreement
was completed and an 80% ownership interest in PureSoft was transferred to the
Company.
The Agreement further requires the remaining 7% and 13% ownership interest
in PureSoft to be transferred to the Company on April 1, 2001 and 2002,
respectively, by the Company issuing shares of common stock. The number of
shares to be issued is based on earnings wherein First Scientific will
issue 4,630 shares of common stock for each increment of $119,050 in net
income before tax achieved by PureSoft during the twelve months ending
March 31, 2001, and 50,405 shares of common stock for each increment of
$969,322 in net income before tax during the twelve months ending March
31, 2002. Provided, however, a minimum of $190,000 worth of the Company's
shares, valued at $4.50 per share at March 31, 2001 and $6.00 per share at
March 31, 2002, shall be delivered to the owners of PureSoft for the remaining
ownership interests.
The acquisition was accounted for by the purchase method of accounting.
The options granted were valued by the Company at the time of issuance
at $266,595 using the Black-Scholes option pricing model based upon the
fair value of the Company's common stock at March 15, 2000 of $3.00 per
share and the following assumptions: risk-free interest rate of 6.18%,
expected dividend yield of 0%, volatility of 0%, and expected life of
one year. The value at March 15, 2000 has been increased at an annual
rate of 8.5% to the June 2, 2000 purchase date. The minimum payment for
the purchase of the remaining 20% ownership interest has been valued for
financial reporting purposes based upon the current estimated fair value
per share of $3.00 or a total of $93,349 discounted to June 2, 2000 using
an 8.5% imputed interest rate, and is included in the acquisition cost.
The resulting cost of the acquisition on June 2, 2000 was $984,684 and
resulted in recognizing $571,449 of goodwill. Goodwill will be amortized
over five years by the straight-line method. The additional common shares
issuable at April 1, 2001 and 2002 will be recorded at fair value on the
dates issued and will increase goodwill on those dates. The increase in
goodwill will be amortized over the remaining amortization period.
The Company financed the acquisition of PureSoft in part from the proceeds
of a private offering of 1,000 shares of 8% Series 2000-A convertible
preferred stock (the "Series A Preferred Shares") and warrants to purchase
up to 500,000 common shares at $3.00 per share within four years from the date
the warrants were issued in exchange for cash proceeds of $900,000, net
of $100,000 in offering costs. The Series A preferred shares are convertible
into common shares at 80% of the average three lowest closing bid prices
in the 15-day period preceding the conversion with a maximum conversion price
of $4.00 per share and a minimum conversion price of of $2.00 per share.
The number of warrants which will ultimately be issued is determined by the
aggregate stated value of the Series A Preferred shares divided by the
conversion price per share.
The accompanying pro forma condensed consolidated financial statements
present the consolidated financial position of the Company as of March 31,
2000 assuming the acquisition of PureSoft occurred, the proceeds from the
issuance of the Series A Preferred shares and proceeds from subsequent
issuances of common stock were received on that date and present the
results of operations of the Company for the three months ended March 31,
2000 and for the year ended December 31, 1999 assuming the acquisition
and the financing occurred on February 10, 1999. The amounts presented
for First Scientific have been derived from the Company's historical
consolidated financial statements for the three months ended March 31,
2000 and for the year ended December 31, 1999. The amounts presented
for PureSoft are the historical financial position and results of
operations of PureSoft and were derived from the financial statements
presented herein. The accompanying pro forma statements of operations
should be read in conjunction with those historical financial statements.
Had the acquisition occurred on February 10, 1999, actual results of
operations would likely have differed from the amounts presented in these
pro forma statements. In addition, the pro forma results of operations
presented in the accompanying financial statements are not necessarily
indicative of the results that may be expected for the remainder of the year
ending December 31, 2000.
F-2
<PAGE>
FIRST SCIENTIFIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
Pro
First Forma Pro
Scientific PureSoft Adjustments Forma
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C)
ASSETS
CURRENT ASSETS
Cash $ 881,528 $ 66,006 (D)$ 900,000
(A) (119,000)
(F) 272,001 $ 2,000,535
Investments in securities available
for sale 110,509 -- -- 110,509
Other current assets 67,088 43,758 -- 110,846
Goodwill -- -- (A) 571,449 571,449
----------- ---------- --------- -----------
Total Current Assets 1,059,125 109,764 1,624,450 2,793,339
----------- ---------- --------- -----------
NET EQUIPMENT 190,626 16,300 (A) 6,760 213,686
Notes Receivable - Related Party 7,248 -- -- 7,248
Deposit on PureSoft Purchase 611,779 -- (A) (611,779) --
Other assets 34,750 -- -- 34,750
----------- ---------- --------- -----------
TOTAL ASSETS $ 1,903,528 $ 126,064 $1,019,431 $ 3,049,023
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 113,503 $ 14,370 $ -- $ 127,873
Accrued liabilities 13,987 6,264 -- 20,251
Short-term note payable 13,289 -- (A) 149,301 162,590
Capital lease obligation - current
portion 9,207 -- -- 9,207
Payable to First Scientific -- 300,000 (A) (300,000) --
Related party loans payable -- 79,955 -- 79,955
----------- ---------- --------- -----------
Total Current Liabilities 149,986 400,589 (150,699) 399,876
----------- ---------- --------- -----------
LONG-TERM LIABILITIES 11,970 -- -- 11,970
----------- ---------- --------- -----------
MANDATORILY REDEEMABLE PREFERRED STOCK
Series 2000-A Convertible - par value
$0.001; 4,500 shares designated;
no shares issued (actual)
1,000 shares issued and outstanding;
(pro forma); liquidation preference
$1,000,000 (pro forma) -- -- (D) 564,108 564,108
----------- ---------- --------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - $0.001 par value;
1,000,000 shares authorized; 995,500
shares not designated; no shares
issued or outstanding -- -- -- --
Common stock - $0.001 par value;
50,000,000 shares authorized;
20,721,436 shares outstanding (actual)
20,812,103 shares outstanding
(pro forma) 20,721 -- (F) 91 20,812
Additional paid-in capital 8,961,591 -- (A) 93,349
(D) 503,838
(F) 271,910 9,830,688
Members' equity -- 10,000 (A) (10,000) --
Receivable from stockholders -- (181,000) -- (181,000)
Unrealized loss on investment in
securities (1,205) -- -- (1,205)
Unearned compensation (309,408) -- (A) (200,000) (509,408)
Accumulated deficit (6,930,127) (103,525) (A) 103,525
(A) 11,255
(D) (167,946) (7,086,818)
----------- ---------- ---------- -----------
Total Stockholders' Equity 1,741,572 (274,525) 606,022 2,073,069
----------- ---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,903,528 $ 126,064 $1,019,431 $ 3,049,023
=========== ========== ========== ===========
</TABLE>
F-3
<PAGE>
FIRST SCIENTIFIC, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Pro
First Forma Forma
Scientific PureSoft Adjustments Results
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 65,175 $ 39,438 $ -- $ 104,613
Cost of sales 29,798 12,899 -- 42,697
----------- ----------- --------- -----------
Gross profit 35,377 26,539 -- 61,916
----------- ----------- --------- -----------
Operating expenses 741,720 67,398 -- 809,118
Amortization of goodwill -- -- (B) 28,572 28,572
----------- ----------- --------- -----------
Total Expenses 741,720 67,398 28,572 837,690
----------- ----------- --------- -----------
Loss from Operations (706,343) (40,859) (28,572) (775,774)
Interest expense (1,753) (1,391) -- (3,144)
Interest income 9,030 -- -- 9,030
----------- ----------- --------- -----------
Net Loss (699,066) (42,250) (28,572) (769,888)
Preferred dividends -- -- (E) (20,000) (20,000)
----------- ----------- --------- -----------
Loss Applicable to Common Shares $ (699,066) $ (42,250) $ (48,572) $ (789,888)
=========== =========== ========= ===========
Basic and diluted loss per common share $ (0.03) $ (0.04)
=========== ===========
Weighted average number of common shares
used in per share calculation 20,481,015 20,481,015
=========== ===========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Pro
First Forma Forma
Scientific PureSoft Adjustments Results
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 553,631 $ 94,591 $ -- $ 648,222
Cost of sales 148,223 38,896 -- 187,119
----------- ----------- --------- -----------
Gross profit 405,408 55,695 -- 461,103
----------- ----------- --------- -----------
Operating expenses 1,761,537 107,360 1,868,897
Amortization of goodwill -- -- (B) 101,452 101,452
----------- ----------- --------- -----------
Total Expenses 1,761,537 107,360 101,452 1,970,349
----------- ----------- --------- -----------
Loss from Operations (1,356,129) (51,665) (101,452) (1,509,246)
Interest expense (4,485) (4,873) -- (9,358)
Interest income 32,643 -- -- 32,643
Realized loss on investment in securities (140,346) -- -- (140,346)
----------- ----------- --------- -----------
Net Loss (1,468,317) (56,538) (101,452) (1,626,307)
Preferred dividends -- -- (D)(503,838)
(E) (70,000) (573,838)
----------- ----------- --------- -----------
Loss applicable to common shares $(1,468,317) $ (56,538) $(675,290) $(2,200,145)
=========== =========== ========= ===========
Basic and diluted loss per common share $ (0.07) $ (0.11)
=========== ===========
Weighted average number of common shares
used in per calculation 20,182,373 20,182,373
=========== ===========
</TABLE>
F-4
<PAGE>
FIRST SCIENTIFIC, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Allocation of the purchase price and the elimination of inter-
company amounts. Assets and securities were transferred or are to be
transferred on dates other than the acquisition date which required
adjusting the cost of the acquisition and income otherwise reported
to compensate for recognizing income before or after the consideration
is transferred. The acquisition cost has been adjusted by imputed
interest at 8.5% on assets given, liabilities incurred and warrants
issued on dates other than the acquisition date. The purchase price
of $984,684 is comprised of the following:
<TABLE>
<CAPTION>
Amount Imputed Acquisition
Date Paid/Payable Description of Consideration Paid/Payable Interest Cost
---------------- ---------------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
03/15/2000 Cash payment $ 350,000 $ 6,439 $ 356,439
03/15/2000 87,534 warrants 261,779 4,816 266,595
09/15/2000-2001 8-1/2% promissory note 156,381 (7,080) 149,301
06/02/2000 Cash payment 119,000 - 119,000
04/01/2001-2002 Minimum future stock issuance 106,083 (12,734) 93,349
---------- --------- ---------
Total Purchase Price $ 993,243 $ (8,559) $ 984,684
========== ========= =========
</TABLE>
The purchase price was allocated to the PureSoft net assets;
the excess of the purchase price over the fair value of the net
assets was recorded as goodwill.
(B) Goodwill in the amount of $571,449 is being amortized over five years.
(C) On March 15, 2000, First Scientific signed a 8.5% non-recourse note
payable due to the members of PureSoft in the amount of $450,000;
a principal payment in the amount of $300,000 was due June 15, 2000
and was paid on June 2, 2000.The remaining $150,000 plus accrued
interest is due in three quarterly payments from September 15, 2000
through March 15, 2001.
(D) In order to obtain funding for the acquisition of PureSoft, on May
16, 2000, First Scientific issued 1,000 Series A Preferred shares
and warrants to purchase up to 500,000 common shares at $3.00 per share
within four years from the date the warrants were issued in exchange
for cash proceeds of $900,000, net of $100,000 in offering costs.
The Series A Preferred shares are convertible into common shares
at 80% of the average three lowest closing bid prices in the 15 day
period preceding the conversion, limited however to a maximum
conversion price of $4.00 per share and a minimum conversion price
of $2.00 per share. The Series A Preferred shares have voting
rights equal to the shares of common stock into which the
Series A Preferred shares are convertible. Dividends are cumulative
and are payable quarterly within 5 days after the last business
day of each quarter. The Company has the right to redeem the
Series A Preferred shares after May 16, 2001 at a price equal
to $1,250 for each of the Series A Preferred shares, plus accrued
and unpaid dividends. The Company is obligated to redeem the
Series A Preferred shares if the 22-day average of the closing
bid price for the Company's common stock falls below $2.01
per share. In the event First Scientific fails to timely pay the
required quarterly preferred dividends, make any required redemption
payments, or otherwise keep other material provisions of the
securities purchase agreement or the designation of preferred stock,
First Scientific will be in noncompliance, at which time the
cumulative dividend rate increases to 21% per annum and the Series
A Preferred shares become immediately redeemable. In addition,
the designation of the Series A Preferred shares includes certain
penalties including reduction of both the conversion price of
the Series A Preferred shares and the effective exercise price
of the warrants if First Scientific issues common stock in the
future at prices below the quoted market price.
The net proceeds received were allocated between the Series A preferred
shares and the warrants to purchase up to 500,000 shares of common
stock based on the relative fair value of those instruments with
$253,838 being allocated to the warrants resulting in a discount
to the preferred stock of that same amount. The relative fair value
of the warrants of $353,556 was based on the Black-Scholes option
pricing model with the following assumptions: risk-free interest
rate of 6.7%; expected dividend yield of 0%; estimated volatility
of 0%; and expected life of four years. In addition, the Series
A preferred shares are convertible into common stock at a 20%
discount from market. The beneficial conversion feature of the
Series A preferred shares of $250,000 has been recognized as additional
paid-in capital and resulted in a discount to the Series A preferred
shares. The combined discount on the Series A preferred shares will
be amortized over the period in which the Series A preferred shares
are convertible, which is from the date issued through July 15, 2000.
The amortization of the discount will be recognized as additional
preferred dividends. A preferred dividend from amortization of
$167,946 of the discount was recognized on the date the Series A
preferred shares were issued.
(E) The annual dividend requirement applicable to the 8% Series A preferred
shares is $80,000.
(F) Subsequent to March 31, 2000, the Company issued 90,667 shares of
common stock for cash proceeds in the amount of $272,001, or $3.00
per share.
F-5
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
First Scientific, Inc.
We have audited the accompanying balance sheet of PureSoft Solutions,
L.L.C., as of December 31, 1999, and the related statement of operations and
changes in members' equity, and cash flows for the period from February 10,
1999 (date of inception) through December 31, 1999. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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 PureSoft Solutions,
L.L.C. as of December 31, 1999, and the results of its operations and
its cash flows for the period from February 10, 1999 (date of inception)
through December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
June 2, 2000
F-6
<PAGE>
PURESOFT SOLUTIONS, L.L.C.
BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
--------- -----------
(Unaudited)
Current Assets
Cash $ 66,006 $ 7,097
Trade accounts receivable 18,922 10,895
Inventory 24,835 --
-------- ---------
Total Current Assets 109,763 17,992
-------- ---------
Equipment
Computer equipment 17,000 17,000
Furniture and office equipment 8,000 8,000
Less: Accumulated depreciation (8,700) (6,617)
--------- -----------
Equipment, net 16,300 18,383
--------- -----------
Total Assets $ 126,063 $ 36,375
========= ===========
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities
Accounts payable $ 14,370 $ 25,777
Accrued liabilities 6,263 4,873
Related party loans payable 79,955 57,000
Payable to First Scientific 300,000 --
-------- ---------
Total Current Liabilities 400,588 87,650
Members' Deficit
Contributed capital 10,000 10,000
Receivable from members (181,000) --
Accumulated deficit (103,525) (61,275)
-------- ----------
Total Members' Deficit (274,525) (51,275)
-------- ----------
Total Liabilities and Members'
Deficit $ 126,063 $ 36,375
========= ===========
F-7
<PAGE>
PURESOFT SOLUTIONS, L.L.C.
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' DEFICIT
FOR THE PERIOD FROM FEBRUARY 10, 1999 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
For the Period From For the Period From
February 10, 1999 February 10, 1999
For the Three (Date of Inception) (Date of Inception)
Months Ended Through Through
March 31, 2000 March 31, 1999 December 31, 1999
-------------- -------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Sales $ 39,438 $ 11,126 $ 90,219
Cost of Sales 12,899 1,128 38,896
-------- -------- ------------
Gross Profit 26,539 9,998 51,323
General and Administrative (67,398) (691) (107,725)
Interest Expense (1,391) -- (4,873)
-------- -------- ------------
Net Income (Loss) (42,250) 9,307 (61,275)
Members' Deficit - Beginning
of Period (51,275) -- --
Capital contributions -- 10,000 10,000
Receivable from members (181,000) -- --
-------- -------- ------------
Members' Equity (Deficit)
- End of period $(274,525) $ 19,307 $ (51,275)
======== ======== ============
</TABLE>
F-8
<PAGE>
PURESOFT SOLUTIONS, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period From For the Period From
February 10, 1999 February 10, 1999
For the Three (Date of Inception) (Date of Inception)
Months Ended Through Through
March 31, 2000 March 31, 1999 December 31, 1999
-------------- -------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(42,250) $ 9,307 $ (61,275)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation expense 2,083 -- 6,617
Operating expenses paid by
issuance of loans and members'
equity -- -- 42,000
Changes in current assets
and liabilities:
Accounts receivable (8,027) (7,621) (10,895)
Inventory (24,835) -- --
Accounts payable (11,407) -- 25,777
Accrued liabilities 1,390 -- 4,873
-------- --------- ---------
Net Cash Provided by
(Used In) Operating Activities (83,046) 1,686 7,097
-------- --------- ---------
Cash Flows From Financing Activities
Proceeds from related party debt 29,955 -- --
Principal payments on related party
debt (7,000) -- --
Advance from First Scientific 300,000 -- --
Advance to members (181,000) -- --
-------- --------- --------
Net Cash Provided by Financing
Activities 141,955 -- --
-------- --------- ---------
Net Increase in Cash 58,909 1,686 7,097
-------- --------- ---------
Cash - Beginning of Period 7,097 -- --
-------- --------- ----------
Cash - End of Period $ 66,006 $ 1,686 $ 7,097
======== ========= ==========
</TABLE>
Supplemental Cash Flow Information - There was no cash used in payment of
interest during any period.
Non-Cash Investing and Financing Activities - During 1999, PureSoft issued
notes to related parties totaling $57,000 in exchange for $25,000 of computer
equipment purchased by the members and $32,000 of operating costs paid by
the members on behalf of PureSoft.
During 1999, members contributed capital by payment of $10,000 of expenses
on behalf of PureSoft.
F-9
<PAGE>
PURESOFT SOLUTIONS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(Information with Respect to March 31, 2000 and to the
Three Months Ended March 31, 2000 and 1999 is Unaudited)
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - On February 10, 1999, PureSoft Solutions, L.L.C.
(PureSoft) was formed under the laws of the State of New Hampshire. PureSoft
is in the business of selling and marketing health care products. During the
period ended December 31, 1999, a majority of the Company's sales were of
health care products to health care product distributors.
INTERIM FINANCIAL STATEMENTS - The accompanying financial statements
for the periods ended March 31, 2000 and 1999 are unaudited. In the
opinion of management, all necessary adjustments (which include only
normal recurring adjustments) have been made to present fairly the
financial position, results of operations and cash flows for the periods
presented. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the operating results to be expected for
the full year.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
in these financial statements and accompanying notes. Actual results could
differ from those estimates.
FINANCIAL INSTRUMENTS - The amounts reported as cash, accounts receivable,
accounts payable and accrued liabilities are considered to be reasonable
approximations of their fair values due to their short-term nature. The amount
reported as related party loans payable approximate their fair value based
upon estimated future cash flows discounted at market interest rates.
INVENTORY - Inventories are stated at the lower of cost or market. Cost is
determined by the first-in first-out method.
EQUIPMENT - Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the property and
equipment, which are three to seven years. Depreciation expense was $6,617
for the period ended December 31, 1999 and $2,083 for the three months
ended March 31, 2000.
SALES RECOGNITION - Sales are recognized upon shipment of products and their
acceptance by the customers.
NOTE 2 - BUSINESS CONDITION
PureSoft incurred negative cash flows from operating activities and incurred
a loss from operations of $61,275 for the period ended December 31, 1999.
In addition, financing has primarily been through member loans. The Company's
ability to continue as a going concern is dependent upon its ability to
generate sufficient cash flows from operations to meet its obligations on a
timely basis, to obtain additional financing, and ultimately to attain
profitable operations. On March 15, 2000, PureSoft entered into an agreement
providing for the eventual acquisition of the membership interest of the
Company and significant capital contributions to the Company by First
Scientific, Inc.
NOTE 3 - INCOME TAXES
PureSoft is organized as a limited liability company. As such, there are no
tax consequences at the company level. The elements of income and expense
are passed through to the members who then report them in their personal
tax returns.
NOTE 4 - RELATED PARTY LOANS PAYABLE
Since inception, the Company has partially relied on funds advanced by
members to fund its operating activities. Outstanding funds advanced from
members at December 31, 1999 were $57,000 and $79,955 at March 31, 2000.
The loans are due on demand, are unsecured, and accrue interest at initial
rates from 9.5% to 9.75% per annum. The rates are variable and follow the
New York Prime Rate as published in the Wall Street Journal, plus 2 percent
(10.5% on December 31, 1999). Interest in the amount of $4,873 and $6,264
was accrued on the loans payable as of December 31, 1999 and March 31, 2000,
respectively.
NOTE 5 - ACQUISITION AGREEMENT
On March 15, 2000 PureSoft and its members entered into an agreement
with First Scientific, Inc. to sell their interest in PureSoft for a
total purchase price valued at $984,684. Under the terms
of the agreement, First Scientific made a cash advance of $300,000 to the
Company of which $181,000 was distributed to the Company's members as an
advance on the purchase price. The $300,000 advance was recorded as payable
to First Scientific. The $181,000 was recorded as a receivable from
members. In conjunction with the acquisition agreement, First Scientific,
Inc. advanced $300,000 cash on June 2, 2000. First Scientific is committed
to fund an additional $300,000 for working capital by September 15, 2000.
First Scientific will account for the acquisition as a business purchase.
The agreement provides the remaining member's ownership can be purchased
by First Scientific over the succeeding two years.
NOTE 6 - COMMITMENTS
OFFICE LEASE - During the three months ended March 31, 2000, PureSoft entered
into a one-year lease agreement to rent office space. The lease provides for
monthly lease payments of $1,250 per month for the first year with an option
to yearly renew the lease for an additional two years, at which time the monthly
lease payment is subject to a 6% escalation. Future minimum lease payments are
$10,000 and $5,000 for the years ending December 31, 2000 and 2001,
respectively.
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