-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+rbiH8uj2izZ4zATVmtbGx2Cj1UqyVRuQ8yyfLpF4RfGtubOgc/ltemD4WnEaVe fUL9wq9rnQROmfJc/rOU6Q== 0001042910-00-000907.txt : 20000517 0001042910-00-000907.hdr.sgml : 20000517 ACCESSION NUMBER: 0001042910-00-000907 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000316 ITEM INFORMATION: FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAL HOLDINGS CORP CENTRAL INDEX KEY: 0000110027 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 640769296 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-05667 FILM NUMBER: 636684 BUSINESS ADDRESS: STREET 1: 5601 NORTH DIXIE HIGHWAY, SUITE 411 STREET 2: SUITE 314 CITY: FORT LAUDERDALE STATE: FL ZIP: 33334 BUSINESS PHONE: 9547715402 MAIL ADDRESS: STREET 1: 5601 NORTH DIXIE HIGHWAY, SUITE 411 STREET 2: SUITE 314 CITY: FORT LAUDERDALE STATE: FL ZIP: 33334 FORMER COMPANY: FORMER CONFORMED NAME: SEAL FLEET INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FORMERLY FIRST NATIONAL CORP/NV/ DATE OF NAME CHANGE: 19600201 8-K/A 1 AMENDMENT TO FORM 8-K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM 8-K/A-1 ------------------------------------ CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: March 1, 2000 (Amending Form 8-K dated March 1, 2000 filed on March 16, 2000) SEAL HOLDINGS CORPORATION (Exact name of registrant as specified in its charter) Delaware 000-05667 64-0769296 (State or other jurisdiction Commission File Number (I.R.S. Employer incorporation or organization) Identification Number) 5601 N. Dixie Highway, Suite 411 Fort Lauderdale, Florida 33334 ----------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (954) 771-1772 ----------------------------------------------------------- (Registrant's telephone number, including area code) Explanatory Note - ---------------- This Report amends the Current Report on Form 8-K dated March 1, 2000 (filed on March 16, 2000) to report the Company's investment in Healthology, Inc. ("Healthology"). The Registrant hereby provides the information required by paragraphs (a) and (b) of Item 7 of such Current Report. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial statements of business acquired The following audited financial statements of Healthology, LLC as of December 31, 1999 and 1998 and for the year ended December 31, 1999 and the period July 10, 1998 (date of inception) to December 31, 1998 are filed as Schedule A to this Report. Healthology, LLC is the predecessor to Healthology as a result of the conversion on March 1, 2000 of Healthology, LLC to a C corporation. Report of Independent Certified Public Accountants Financial Statements Balance Sheets Statements of Operations and Members' Equity Statements of Cash Flows Notes to Financial Statements The following unaudited financial statements of Healthology, Inc. (and its predecessor, Healthology, LLC) as of March 31, 2000 and for the three month periods ended March 31, 2000 and 1999 are filed as Schedule B to this Report. Balance Sheet Statements of Operations Statements of Cash Flows Notes to Financial Statements -2- (b) Pro forma financial information On March 27, 2000, Seal Holdings Corporation (the "Company") completed the purchase of an approximate 21% interest in the issued shares of Healthology, Inc. ("Healthology"), such interest having been computed on an as-converted basis. Including capitalized transaction costs, the Company acquired approximately 3.1 million shares of Healthology Series A Convertible Voting Preferred Stock ("Healthology Preferred Shares") for cash of approximately $3.5 million. The Company obtained the funds for the Healthology acquisition through the issuance of its Class A common stock to the Company's majority stockholder at a purchase price of $5.25 per share. For further information on the Healthology acquisition and related funding, including additional pro forma financial information, please refer to the Company's Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2000. The unaudited Pro-Forma Condensed Statements of Operations (the "Pro Forma Statements") presented below for the year ended December 31, 1999 and the three months ended March 31, 2000 give effect to the Company's investment in Healthology as if it had occurred on January 1, 1999. The Pro Forma Statements are based on the following: o The historical results of operations of the Company, o The pro forma effect of the Company's 21% equity in the loss of Healthology, and o The pro-forma effect of amortization of the Company's net excess investment over its equity in Healthology. The Pro Forma Statements and the accompanying notes (collectively the "Pro Forma Financial Information") should be read in conjunction with and are qualified by the historical financial statements of the Company and notes thereto. The Pro Forma Financial Information is intended for informational purposes only and is not necessarily indicative of the future results of operations of the Company after the investment in Healthology or of the results of operations of the Company that would have actually occurred had the investment in Healthology occurred as of January 1, 1999. -3- Seal Holdings Corporation and Subsidiaries Unaudited Pro Forma Condensed Statement of Operations Year Ended December 31, 1999
Seal Holdings Pro Forma Pro Forma Corporation Adjustments As Adjusted -------------- ----------- -------------- Revenue Interest Income $ - $ - $ - -------------- ----------- -------------- - - - -------------- ----------- -------------- Expenses: Salaries and benefits 359,158 - 359,158 Professional fees 306,073 - 306,073 General and administrative 112,357 - 112,357 -------------- ----------- -------------- Total expenses 777,588 - 777,588 -------------- ----------- -------------- Operating loss (777,588) - (777,588) -------------- ----------- ------------- Other income (expense): Equity in loss of Healthology - (186,735)(a) (186,735) Amortization of excess investment - (574,626)(b) (574,626) -------------- ----------- -------------- - (761,361) (761,361) -------------- ----------- -------------- Loss from continuing operations $ (777,588) $ (761,361) $ (1,538,949) ============== =========== ============== Net loss from continuing operations attributable to common stockholders $ (855,241) $ (761,361) $ (1,616,602) ============== ============= ============== Basic and diluted loss per share from continuing operations $ (0.04) $ (0.07) ============== ============== Average basic and diluted shares outstanding $ 22,300,143 669,880(c) 22,970,023 ============== ============= ==============
Notes to the Unaudited Pro Forma Condensed Statement of Operations for the year ended December 31, 1999: (a) Represents approximately 21% of the Healthology net loss for the year ended December 31, 1999 of $879,169. (b) Represents amortization of the Company's net excess investment over its equity in Healthology computed as of the date the investment was consummated amortized over 5 years. (c) The purchase price of the Healthology investment of approximately $3.5 million was financed through the issuance of Class A common stock to the Company's majority stockholder at a purchase price of $5.25 per share. Accordingly, the pro forma effect of the Healthology investment reflects an increase in the number of such shares issued. -4- Seal Holdings Corporation and Subsidiaries Unaudited Pro Forma Condensed Statement of Operations Three Months Ended March 31, 2000
Seal Holdings Pro Forma Pro Forma Corporation Adjustments As Adjusted -------------- ----------- -------------- Revenue Interest Income $ 1,194 $ - $ 1,194 -------------- ----------- -------------- 1,194 - 1,194 -------------- ----------- -------------- Expenses: Salaries and benefits 349,494 - 349,494 Professional fees 264,458 - 264,458 General and administrative 100,059 - 100,059 -------------- ----------- -------------- Total expenses 714,011 - 714,011 -------------- ----------- -------------- Operating loss (712,817) - (712,817) -------------- ----------- -------------- Other income (expense): Equity in loss of Healthology - (112,444)(d) (112,444) Amortization of excess investment - (143,657)(e) (143,657) -------------- ----------- -------------- - (256,101) (256,101) -------------- ----------- -------------- Loss from continuing operations $ (712,817) $ (256,101) $ (968,918) ============== =========== ============== Net loss from continuing operations attributable to common stockholders $ (767,067) $ (256,101) $ (1,023,168) ============== ============ ============== Basic and diluted loss per share from continuing operations $ (0.02) $ (0.03) ============= ============== Average basic and diluted shares outstanding 32,066,919 669,880(f) 32,736,799 ================== ============ ==============
Notes to the Unaudited Pro Forma Condensed Statement of Operations for the three months ended March 31, 2000: (d) Represents approximately 21% of the Healthology net loss for the three months ended March 31, 2000 of $529,398. (e) Represents amortization of the Company's net excess investment over its equity in Healthology computed as of the date the investment was consummated amortized over 5 years. (f) The purchase price of the Healthology investment of approximately $3.5 million was financed through the issuance of Class A common stock to the Company's majority stockholder at a purchase price of $5.25 per share. Accordingly, the pro forma effect of the Healthology investment reflects an increase in the number of such shares issued. -5- 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. SEAL HOLDINGS CORPORATION By: /s/ Cecilio M. Rodriguez ---------------------------------------- Cecilio M. Rodriguez, Chief Financial Officer Treasurer and Secretary Dated: May 15, 2000 -6- SCHEDULE A Healthology L.L.C. FINANCIAL STATEMENTS December 31, 1999 and 1998 C O N T E N T S Page ---- Report of Independent Certified Public Accountants 8 Financial Statements Balance Sheets 9 Statements of Operations and Members' Equity 10 Statements of Cash Flows 11 Notes to Financial Statements 12- 19 -7- Accountants and Grant Thornton Management Consultants Grant Thornton LLP The US Member Firm of Grant Thornton International REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Members of Healthology L.L.C. We have audited the accompanying balance sheets of Healthology L.L.C. as of December 31, 1999 and 1998 and the related statements of operations and members' equity and cash flows for the year ended December 31, 1999 and the period July 10, 1998 (date of inception) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Healthology L.L.C. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the year ended December 31, 1999 and the period July 10, 1998 (date of inception) to December 31, 1998, in conformity with accounting principles generally accepted in the United States. /s/ Grant Thornton, LLP New York, New York March 8, 2000 THE CHRYSLER CENTER 666 Third Avenue New York, NY 10017 Tel: 212 599-0100 Fax: 212 370-4520 -8- Healthology L.L.C. BALANCE SHEETS December 31,
1999 1998 --------- -------- ASSETS CURRENT ASSETS Cash $ 155,596 $ 3,566 Accounts receivable 53,718 Due from related parties 77,273 Due from officer 4,216 Prepaid expenses and other current assets 18,055 885 --------- ------- Total current assets 308,858 4,451 EQUIPMENT (net of accumulated depreciation and amortization) 425,417 29,300 --------- ------- $ 734,275 $33,751 ========= ======= LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 311,888 $ 1,895 Due to related parties 51,245 Deferred revenue 25,625 Current portion of capital lease obligations 4,460 Loan payable 18,940 --------- ------- Total current liabilities 412,158 1,895 CAPITAL LEASE OBLIGATIONS 10,325 --------- ------- Total liabilities 422,483 1,895 COMMITMENTS MEMBERS' EQUITY 612,683 31,856 EQUITY-BASED COMPENSATION (300,891) --------- ------- 311,792 31,856 --------- ------- $ 734,275 $33,751 ========= =======
The accompanying notes are an integral part of these statements. -9- Healthology L.L.C. STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
Period from inception (July 10, 1998) Year ended through December 31, December 31, 1999 1998 ----------- ---------- Revenues $ 962,148 $ 2,000 Cost of revenues 834,083 80,006 ---------- ---------- Gross profit 128,065 (78,006) ---------- ---------- Expenses General and administrative 542,089 56,947 Sales and marketing 447,880 12,672 Depreciation and amortization 16,283 ---------- ---------- 1,006,252 69,619 ---------- ---------- Loss from operations (878,187) (147,625) Other income 738 110 ---------- ---------- Loss before state and local income taxes (877,449) (147,515) State and local income taxes 1,720 ---------- ---------- NET LOSS (879,169) (147,515) Members' equity - beginning of period 31,856 Net equity contributions 642,629 164,371 ---------- ---------- (204,684) 16,856 Equity-based compensation 817,367 15,000 ---------- ---------- Members' equity - end of period $ 612,683 $ 31,856 ========== ==========
The accompanying notes are an integral part of these statements. -10- Healthology L.L.C. STATEMENTS OF CASH FLOWS
Period from inception (July 10, 1998) Year ended through December 31, December 31, 1999 1998 ------------ ------------ Cash flows from operating activities Net loss $(879,169) $(147,515) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 85,886 Equity-based expense 516,476 55,371 Changes in assets and liabilities Accounts receivable (53,718) Due from related parties (77,273) Due from officer (4,216) Prepaid expenses and other assets (17,170) (885) Accounts payable and accrued expenses 309,993 1,895 Due to related parties 51,245 Deferred revenue 25,625 --------- --------- Net cash used in operating activities (42,321) (91,134) --------- --------- Cash flows from investing activities Purchases of equipment (464,999) (29,300) -------- --------- Net cash used in investing activities (464,999) (29,300) -------- --------- Cash flows from financing activities Contributions from members 662,629 124,000 Distribution to member (1,060) Payments on capital lease obligation (2,219) ---------- --------- Net cash provided by financing activities 659,350 124,000 -------- -------- NET INCREASE IN CASH 152,030 3,566 Cash at beginning of period 3,566 ---------- ----------- Cash at end of period $ 155,596 $ 3,566 ======== ========== Supplemental disclosures of cash flow information: Cash paid during the period for Income taxes $ 1,720 Noncash financing activities in 1999: Capital lease obligations of $17,004 were incurred when the Company entered into leases for new equipment, and members' equity of $20,000 was converted into a loan of $18,940.
The accompanying notes are an integral part of these statements. -11- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE A - NATURE OF OPERATIONS Healthology L.L.C. (the "Company"), a Limited Liability Company, was formed in the State of Delaware on July 10, 1998. The Company is an online health media company. The Company produces and distributes original content that is generated by health professionals. In addition, the Company has developed a network of content partners from the healthcare industry. The Company is also a producer of health-related streaming media. A Web site at www.healthology.com is maintained by the Company as a vehicle for its services. The Company has distribution arrangements with other Web sites. The Company transmits content to and receives hypertext links from these sources. The Company's primary revenue sources are the sponsorship and licensing of health-related content and streaming media, and fees charged for the development of Web sites, health-related content and streaming media. For the period from inception (July 10, 1998) to December 31, 1998, the Company was considered to be in the development stage. During the year ended December 31, 1999, the Company emerged from the development stage, and has raised significant funding through private placements of its securities in order to build its business. Should this funding not be sufficient, the Company will be required to raise additional funds in order to continue its current growth and spending rates. Should sources of capital not be available, the Company will scale back planned growth (see Note J). NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. 2. Equipment Equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Amortization of assets under capital leases is computed using the straight-line method over the lease term or the estimated useful lives of the assets, ranging from three to five years. -12- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE B (continued) 3. Web Site Development Costs Web site development costs are accounted for in accordance with SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement requires capitalization of various costs related to the development of software that will be used to operate the Company's Web site and related back-end server technology. Capitalized software development costs are amortized over the estimated useful life of the software, generally three years. Software development costs incurred in the pre-production and post-implementation phases of software development projects are expensed as incurred. The cost of developing content and streaming media that is published on the Web site is expensed as incurred. 4. Revenue Recognition Revenue from fees charged for Web site development projects is recognized in the period in which the service has been performed. Revenue from sponsored content and streaming media is recognized in the period in which the content or streaming media premiers. Revenue from licensing of content is recognized monthly based on the number of impressions delivered. 5. Cost of Revenues Cost of revenues consists primarily of content fees to third parties, payroll and other related expenses for the Company's editorial, programming and design staff who are responsible for creating content on its Web site. Also included are payments to certain content providers and to technology suppliers (such as hosting companies) and amortized Web site development costs. Amortized Web site development costs amounted to $69,603 and $0 for the periods ended December 31, 1999 and 1998, respectively. 6. Sales and Marketing Expenses Selling and marketing expenses consist primarily of advertising and promotion costs and payroll expenses for the Company's staff who are responsible for marketing activities. -13- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE B (continued) 7. General and Administrative Expenses General and administrative expenses consist of salary and related costs for executive, finance and accounting, technical and administrative functions, as well as professional service fees. General and administrative expenses also include rent, office supplies and telephone charges. 8. Stock-based Compensation The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," and elected to continue the accounting set forth in Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." This opinion requires that for options granted at less than fair market value, a compensation charge be recognized for the difference between the exercise price and fair market value over the vesting period. 9. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE C - EQUIPMENT Equipment consists of the following: 1999 1998 -------- ------- Computer equipment $ 36,130 $29,300 Computer software 432,967 Office equipment 42,206 -------- ------- 511,303 29,300 Less accumulated depreciation and amortization (85,886) -------- ------- $425,417 $29,300 ======== ======= -14- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE C (continued) Assets under capital lease at December 31, 1999 and 1998 were $17,004 and $0, respectively, and related accumulated amortization was $0. Included in computer software at December 31, 1999 is $127,313 of capitalized Web site development costs that were charged to a related party in terms of an agreement to develop Web sites (See Note I). Healthology owns the Web site, related content and streaming media, and is able to generate additional sponsorship and licensing revenues from the Web site. NOTE D - INCOME TAXES The Company is a Limited Liability Company. Accordingly, no provision has been made in the accompanying financial statements for Federal income taxes, since the income of the Company would be included in the income tax returns of the members. The Company is, however, responsible for local taxes and filing fees. NOTE E - MEMBERS' EQUITY Through the period ended December 31, 1998, members of the Company contributed equity totaling $124,000. Officers of the Company received equity totaling $40,371 in return for paying various expenses on behalf of the Company. The Company also issued equity totaling $15,000 in return for professional services provided to the Company. During 1999, the Company issued 900,000 units at $.50 per unit, and 320,003 units at $.60 per unit. In addition, officers of the Company contributed additional equity totaling $20,627 during 1999. In June 1999, the Company entered into consulting agreements with two individuals for the performance of specified services. Under this agreement, the individuals were granted 1,000,000 units in the Company. Of these units, 169,495 units vested immediately, 330,505 units vested equally over the first eight months of the agreement, and 500,000 units vest once certain funding thresholds are achieved by the Company. At December 31, 1999, 917,374 units had vested. During the year ended December 31, 1999, the Company recorded deferred compensation for the above units of $400,000, of which $383,475 was amortized to expense during 1999. -15- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE E (continued) In 1999, the Company also issued 500,000 warrants, exercisable at $.50 to certain members in connection with their services in securing revenues for the Company. The warrants expire on December 31, 2009. During 1999, 435,333 warrants were earned and were fully exercisable as at December 31, 1999. During the year ended December 31, 1999, the Company recorded compensation expense for the warrants totaling $116,807. NOTE F - STOCK OPTION PLAN During 1999, the Board of Directors approved the Healthology L.L.C. Non-Qualified Option Plan (the "Plan"). Under the Plan approved by the Board of Directors, the total number of stock options that may be granted is 2,600,000. The stock options granted permit the employees and nonemployees the right and option to purchase Company Units ("units"). Except for a change in control, as defined, no option may be exercisable after ten years from the date of grant. Stock options granted to employees vest over a four-year period, with one-quarter of the options becoming exercisable one year from the date of grant, or are contingently exercisable once certain predetermined conditions have been met. Stock options granted to nonemployees vest over a two-year period. During 1999, pursuant to the Plan, the Board of Directors granted 802,160 stock options to employees and non-employees, all exercisable at below fair value. In addition, of the stock options granted in 1999, 204,000 are contingently exercisable upon the attainment of certain performance measures. A summary of the Company's stock option activity and related information for the period ended December 31, 1999 follows: Exercise price Options per unit ------- -------------- Balance, January 1, 1999 Granted 802,160 $.10 Exercised ------- Balance, December 31, 1999 802,160 $.10 ======= As of December 31, 1999, approximately 18,200 of the Company's stock options were exercisable. -16- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE F (continued) For these options, the Company recorded deferred compensation totaling $300,560, of which $16,194 was amortized to expense during 1999. Pro forma information regarding net loss required by SFAS No. 123, as if the Company had accounted for its stock options under the fair value method, is not material. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 1999: risk-free interest rates of 6.5 percent; expected lives of 10 years. NOTE G - EQUITY-BASED COMPENSATION The amount of deferred compensation expense that has been recorded relating to the units and options issued and described in Notes E and F, is as follows: 1999 1998 ----------- -------- Employee stock options $ 286,055 $ Nonemployee stock options 14,505 Nonemployee units 400,000 15,000 Nonemployee warrants 116,807 -------- 817,367 15,000 Current period amortization (516,476) (15,000) -------- -------- $ 300,891 $ ========= ========= The amount of equity-based expense to be recognized is as follows: Year ended December 31, 2000 $100,593 2001 79,235 2002 73,884 2003 47,179 -------- $300,891 -17- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE H - COMMITMENTS Capital Lease Obligations The annual maturities of capital lease obligations for equipment at December 31, 1999 are as follows: Year ending December 31, 2000 $ 5,995 2001 5,995 2002 5,628 ------- 17,618 Less amount representing interest (2,833) ------- Present value of net minimum lease payments including current portion of $4,460 $14,785 ======= NOTE I - RELATED PARTY TRANSACTIONS During 1999, the Company together with OmegaMed, Inc. (a company which is owned by two members of the Company), jointly secured sponsorships for the development of two Web sites, www.alphacancer.com and www.alphaoncology.com. These Web sites publish health-related content and streaming media. The Company earned revenues from the related party totaling approximately $683,200 for the technical and editorial resources content that it contributed in the development of these Web sites. In addition, the Company billed related parties $96,800 for technical and editorial resources contributed in the development of content and streaming media in connection with additional sponsorships that were jointly secured which were unrelated to the above two Web sites. Amounts due from related parties at December 31, 1999 were approximately $77,300. During 1999, the Company recorded equity-based compensation expense of $116,807 in respect of warrants issued to members of the Company in connection with services provided by the members in securing revenue for the Company (see Notes E and G). The Company incurred consulting, other professional and administrative expenses from related parties amounting to approximately $142,500 and $45,400 for the year ended December 31, 1999 and the period ended December 31, 1998, respectively. Amounts due to related parties were approximately $51,200 and $0 at December 31, 1999 and December 31, 1998, respectively. -18- Healthology L.L.C. NOTES TO FINANCIAL STATEMENTS (continued) Period from inception (July 10, 1998) to December 31, 1998 and the year ended December 31, 1999 NOTE J - SUBSEQUENT EVENTS (UNAUDITED) 1. Conversion to C Corporation Status As a result of a private placement that the Company finalized on March 1, 2000, the Company converted to a C Corporation and will be subject to Federal and all applicable state income taxes. The Company is in the process of determining the amount of any deferred tax liability that may need to be recognized. Each membership interest in the Company was converted into one share of common stock in the new company. The new company has 30,000,000 shares of common stock authorized, of which 11,150,505 are issued and outstanding. The new company has reserved 2,600,000 shares of common stock, which will be issued in accordance with the Healthology Non-Qualified Stock Option Plan. All outstanding stock options and warrants for units will convert at a rate of 1 to 1 into stock options and warrants of common stock. The new company also has 15,000,000 shares of preferred stock, of which, 3,500,000 will be designated as noncumulative Series A Preferred Stock. The Series A Preferred Stock can be converted at the option of the holder at any time into fully paid shares of common stock at a predetermined conversion rate. The Series A Preferred Stock will be automatically converted into fully paid shares of common stock if the Company undertakes an Initial Public Offering in which the Company receives gross proceeds of at least $20,000,000 and has a post-Initial Public Offering valuation of at least $60,000,000. The conversion rate will initially be one share of Series A Preferred Stock converted into one share of common stock. 2. Private Placement During January and February 2000, the Company issued 100,000 units at $.60 per unit as part of a private placement. On March 1, 2000, subject to certain closing conditions, the Company agreed to sell 3,211,453 shares of the Series A Preferred Stock to Seal Holdings Corp., f/k/a Seal Fleet Inc. ("Seal"), pursuant to a Series A Preferred Stock Purchase Agreement dated March 1, 2000 between the Company and Seal. The total purchase price for the Preferred Stock was $3,211,453, of which $1,000,000 (for 1,000,000 Preferred Shares) was paid at the initial closing on March 1, 2000 and $2,211,453 (for 2,211,453 Preferred Shares) will be paid at a second closing on March 27, 2000. In addition, the transaction provided for Seal to have up to two representatives on the Company's Board of Directors. -19- SCHEDULE B Healthology, Inc. UNAUDITED INTERIM CONDENDSED FINANCIAL STATEMENTS March 31, 2000 C O N T E N T S Page ---- Condendsed Balance Sheet 21 Condendsed Statements of Operations 22 Condendsed Statements of Cash Flows 23 Notes to Unaudited Condensed Financial Statements 24 - 25 -20- Healthology, Inc. UNAUDITED CONDENDSED BALANCE SHEET March 31, 2000
ASSETS CURRENT ASSETS Cash $ 2,757,874 Accounts receivable 262,476 Due from related parties 37,254 Prepaid expenses and other current assets 54,715 ----------- Total current assets 3,112,319 EQUIPMENT (net of accumulated depreciation and amortization) 446,226 ----------- $ 3,558,545 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 252,618 Due to related parties 137,500 Deferred revenue 114,042 Current portion of capital lease obligations 7,946 ----------- Total current liabilities 512,106 CAPITAL LEASE OBLIGATIONS 15,653 ----------- Total liabilities 527,759 ----------- COMMITMENTS SHAREHOLDERS' EQUITY: Preferred stock, $0.01 par value per share. Authorized 15,000,000 shares. Issued and outstanding 3,211,453 shares. Common stock, $0.01 par value per share. Authorized 30,000,000 shares. Issued and outstanding 11,180,505 Additional paid-in capital 1,617,562 Accumulated deficit (1,556,082) Equity-based compensation (261,997) ----------- Total shareholders' equity 3,030,786 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,558,545 ===========
The accompanying notes are an integral part of these statements. -21- Healthology, Inc. UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, --------------------------------- 2000 1999 ----------- ------------ Revenues $ 194,346 $ 49,781 Cost of revenues 310,048 49,333 ----------- ------------ Gross (loss) profit (115,702) 448 ----------- ------------ Expenses General and administrative 263,970 84,950 Sales and marketing 153,776 45,803 Depreciation and amortization 5,990 2,442 ----------- ------------ 423,736 133,195 ----------- ------------ Loss from operations (539,438) (132,747) Other income 10,040 - ----------- ------------ Loss before state and local income taxes (529,398) (132,747) State and local income taxes - - ----------- ------------ NET LOSS $ (529,398) $ (132,747) =========== ============
The accompanying notes are an integral part of these statements. -22- Healthology, Inc. UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ------------------------------ 2000 1999 ----------- --------- Cash flows from operating activities Net loss $ (529,398) $(132,747) Adjustments to reconcile net loss to net cash used in Operating activities Depreciation and amortization 5,990 2,442 Gain or disposal of equipment (2,500) - Equity-based expense 38,894 4,000 Changes in assets and liabilities Accounts receivable (208,758) (77,629) Due from related parties 44,235 - Due from officer - - Prepaid expenses and other assets (36,660) - Accounts payable and accrued expenses 44,051 - Due to related parties (17,066) - Deferred revenue 88,417 100,000 ----------- ----------- Net cash used in operating activities (572,795) (103,934) ----------- ----------- Cash flows from investing activities Purchases of equipment (16,344) - Proceeds from disposal of equipment 2,500 - ----------- ----------- Net cash used in investing activities (13,844) - ----------- ----------- Cash flows from financing activities Proceeds from sale of common and prefered stock 3,209,498 185,000 Payment on note payable (18,940) - Payments on capital lease obligations (1,641) - ----------- ----------- Net cash provided by financing activities 3,188,917 185,000 ----------- ----------- NET INCREASE IN CASH 2,602,278 81,066 Cash at beginning of period 155,596 3,566 ----------- ----------- Cash at end of period $ 2,757,874 $ 84,632 =========== ===========
The accompanying notes are an integral part of these statements. -23- Healthology , Inc. NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS March 31, 2000 NOTE A - NATURE OF OPERATIONS Healthology, Inc. is a Delaware Corporation formed on March 1, 2000 as a result of the conversion of its predecessor, Healthology, LLC, from a Delaware Limited Liability Company to a C Corporation (See Note C). References to the "Company" relate to Healthology, Inc. and its aforementioned predecessor. The Company is an online health media company. The Company produces and distributes original content that is generated by health professionals. In addition, the Company has developed a network of content partners from the healthcare industry. The Company is also a producer of health-related streaming media. A Web site at www.healthology.com is maintained by the Company as a vehicle for its services. The Company has distribution arrangements with other Web sites. The Company transmits content to and receives hypertext links from these sources. The Company's primary revenue sources are the sponsorship and licensing of health-related content and streaming media, and fees charged for the development of Web sites, health-related content and streaming media. For the period from inception (July 10, 1998) to December 31, 1998, the Company was considered to be in the development stage. During the year ended December 31, 1999 and the first quarter of 2000, the Company emerged from the development stage, and has raised significant funding through private placements of its securities in order to build its business. Should this funding not be sufficient, the Company will be required to raise additional funds in order to continue its current growth and spending rates. Should sources of capital not be available, the Company intends to scale back planned growth. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial statements for the periods ended March 31, 2000 and 1999 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the financial statements and footnotes thereto included elsewhere herein for the year ended December 31, 1999. -24- Healthology, Inc. NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (continued) March 31, 2000 NOTE C - CONVERSION TO C CORPORATION STATUS As a result of a private placement that the Company finalized on March 1, 2000, the Company converted to a C Corporation and will be subject to Federal and all applicable state income taxes. The Company is in the process of determining the amount of any deferred tax liability that may need to be recognized. Each membership interest in Healthology, LLC was converted into one share of common stock in Healthology, Inc. The Company has reserved 2,600,000 shares of common stock, to be issued in accordance with the Healthology Non-Qualified Stock Option Plan. All outstanding stock options and warrants for units of Healthology, LLC converted at a rate of 1 to 1 into stock options and warrants of common stock of Healthology, Inc. At March 31, 2000, the Company had granted options to purchase approximately 1.1 million shares of common stock at an average exercise price of $0.32 per share. In addition, at March 31, 2000, there were 500,000 warrants outstanding to purchase common stock at $0.50 per share. Of the Company's 15,000,000 authorized shares of preferred stock, 3,500,000 have been designated as noncumulative Series A Preferred Stock. The Series A Preferred Stock can be converted at the option of the holder at any time into fully paid shares of common stock at a predetermined conversion rate. The Series A Preferred Stock will be automatically converted into fully paid shares of common stock if the Company undertakes an Initial Public Offering in which the Company receives gross proceeds of at least $20,000,000 and has a post-Initial Public Offering valuation of at least $60,000,000. The conversion rate will initially be one share of Series A Preferred Stock into one share of common stock. NOTE D - PRIVATE PLACEMENT During January and February 2000, the Healthology, LLC issued 100,000 units at $.60 per unit as part of a private placement. On March 1, 2000, the Company agreed to sell 3,211,453 shares of the Series A Preferred Stock to Seal Holdings Corp., ("Seal"), pursuant to a Series A Preferred Stock Purchase Agreement dated March 1, 2000 between the Company and Seal. The total purchase price for the Preferred Stock was $3,211,453, of which $1,000,000 (for 1,000,000 Preferred Shares) was paid at the initial closing on March 1, 2000 and $2,211,453 (for 2,211,453 Preferred Shares) was paid at a second closing on March 27, 2000. In addition, the transaction provided for Seal to have up to two representatives on the Company's Board of Directors. -25- -----END PRIVACY-ENHANCED MESSAGE-----