UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 15, 2002
(August 1, 2002)
Alternate Marketing Networks, Inc.
______________________________________________________________________________
(Exact name of registration as specified in its charter)
Delaware 0-26624 38-2841197
______________________________________________________________________________
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
One Ionia, S.W., Suite 520, Grand Rapids, MI 49503
______________________________________________________________________________
(Address of principal executive offices)
Registrant's telephone number, including area code 616-235-0698
Not applicable
______________________________________________________________________________
(Former name or former address, if changed since last report)
Item 5. Other Events
a. Press Release
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. Financial Statements of Business Acquired.
1. Hencie, Inc. audited financial statements for the years ended
December 31, 2001 and 2000.
b. Pro Forma Financial Information.
1. Alternate Marketing Networks, Inc. and Subsidiaries Pro Forma
Combined Condensed Balance Sheet (Unaudited) as of June 30, 2002 and Pro Forma
Combined Condensed Statement of Operations (Unaudited) for the six months
ended June 30, 2002.
2. Alternate Marketing Networks, Inc. and Subsidiaries Pro Forma
Combined Condensed Statement of Operations (Unaudited) for the year ended
December 31, 2001.
3. Alternate Marketing Networks, Inc. and Subsidiaries Notes to
Pro Forma Combined Condensed Financial Statements (Unaudited).
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.
ALTERNATE MARKETING NETWORKS, INC.
Date: October 15, 2002 By /s/ Sandra J. Smith
Sandra J. Smith
Chief Financial Officer
FOR IMMEDIATE RELEASE
CONTACT: Phillip Miller, Chairman
(616) 235-0698 ext. 12 (pmiller@altmarknet.com)
or
Jeff Lambert (jlambert@lambert-edwards.com)
Lambert, Edwards & Associates, Inc. (616) 233-0500
Alternate Marketing Networks Announces Profit for
Third Quarter, Expects Profit for Second Half of 2002
GRAND RAPIDS, Michigan, October 15, 2002 Alternate Marketing Networks, Inc.
(OTC-BB: ALTM) said it expects to be profitable and post significantly higher
sales versus last year's third quarter when it reports results for the three
months ended September 30, 2002. The Company plans to report results for this
year's third quarter on November 12, 2002.
The Grand Rapids, Mich.-based national provider of technology services and
marketing services added it anticipates posting sales between $10.5 million
and $11 million and net earnings in the range of $100,000 to $200,000 in the
second half of 2002. Alternate Marketing Networks reported a net loss of
$24,725 on net sales of $8.8 million for the second half of 2001. The 2002
results will be significantly higher because of the inclusion of five months
of operating results from Hencie, the technology services unit acquired by
Alternate Marketing Networks in August 2002. The Company said the earnings
range reflects certain one-time gains related to the acquisition of Hencie.
"We are on track to return to profitability in the third quarter, thanks to a
continuing rebound in our marketing business, as well as the contribution of
Hencie, which has continued to win contracts and increase its penetration with
existing clients," said Phillip Miller, chairman and president of Alternate
Marketing Networks. "The combined benefits of our complementary service
businesses marketing, logistics and technology represent considerable
value to our customers, employees and shareholders. We believe we are merely
scratching the surface of growth opportunities within Alternate Marketing
Networks."
In an effort to accelerate its growth, Alternate Marketing Networks also
announced a new initiative called "Fulcrum" to leverage its Hencie
subsidiary's core business capabilities into other complementary markets.
This strategy entails building deep industry expertise and a full set of
offerings for the "enterprise business applications" segments of these
markets. The Fulcrum Initiative entails potential asset-based acquisitions,
strategic alliances and key internal growth options to allow Hencie to further
develop a unique and differentiated position in the markets it serves and at
the same time generate higher margins and operating profits.
"The Fulcrum Initiative, as its name suggests, is all about leveraging the
business and technology expertise we have at Hencie into delivering business
results for our clients," said Adil Khan, CEO of Alternate Marketing Networks
and founder of Hencie. "We believe that this new initiative will enable the
company to create greater value by leveraging current capabilities and
strengths in key industries to build a collaborative network of solutions
providers centered around the Hencie business model. Additional solutions
providers may be brought into the network through acquisitions or strategic
alliances."
Alternate Marketing Networks / page 2 of 2
Hencie (www.hencie.com) is one of the nation's leading regional Oracle Corp.
enterprise solutions providers that helps companies improve the way they do
business by applying direct industry experience and proven expertise in Oracle
technology with in-depth knowledge of business processes.
Alternate Marketing Networks also announced that it appointed William Warren,
Vice President of Business Development for Hencie, as the Chief Strategy
Officer responsible for the Fulcrum Initiative. Mr. Warren has over 20 years
experience in the information technology industry and has held various sales,
marketing and management positions at IBM and Cambridge Technology Partners.
"I am very excited about the potential Fulcrum has to create world-class
business solutions for our clients in the manufacturing, distribution and
energy industries. I look forward to working with the Alternate Marketing
Networks management team to implement this strategy and to creating a unique
position for the Company in the technology services marketplace," said Warren.
About Alternate Marketing Networks:
Alternate Marketing Networks (www.altmarknet.com) is a single-source provider
of technology outsourcing and marketing services that offers a broad range of
products and services. The Company recently acquired Hencie, Inc., an Oracle
Corp. e-business solutions and applications provider. Alternate Marketing
Networks offers comprehensive services in three primary areas: advertising and
marketing, logistics, and technology services. Alternate Marketing Networks
serves the newspaper, consumer package goods, automotive, technology, discrete
manufacturing, distribution, energy, travel and hospitality industries.
This press release includes certain statements that may be deemed to be
"forward-looking" statements within the meaning of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended. There are
certain important risk factors and uncertainties which could cause actual
results to differ materially from those described and anticipated by the
forward-looking statements, including, without limitation, dependence upon
software vendors, inability to obtain adequate financing, inability to expand
business, inability to manage planned expansion, lack of diversification,
changes in levels of sales, increased competition, changing customer
relationships, results of arbitration and litigation, and stock volatility and
liquidity. Readers are cautioned not to place undue reliance on the forward-
looking statements. The Company undertakes no obligation to publicly revise
the forward-looking statements to reflect events or circumstances that arise
after the date hereof or to reflect the occurrence of unanticipated events or
circumstances. Readers should carefully review the risk factors described in
other documents as filed by the Company from time to time with the Securities
and Exchange Commission. Readers are specifically directed to the sections
"Risk Factors Risks Related to the Transaction" and "Risk Factors Risks
Related to the Business of New ALTM after the Transaction" of the most recent
Proxy Statement filed by the Company.
# # #
FINANCIAL STATEMENTS OF HENCIE
HENCIE, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
Page
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets as of December 31, 2000 and 2001, and
March 31, 2002 (unaudited)
Consolidated Statements of Operations for the years ended
December 31, 2000 and 2001, and the three months ended
March 31, 2001 and 2002 (unaudited)
Consolidated Statements of Stockholders' Equity (Deficiency) for
the years ended December 31, 2000 and 2001, and the three months
ended March 31, 2002 (unaudited)
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 2001, and the three months ended
March 31, 2001 and 2002 (unaudited)
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Hencie, Inc.:
We have audited the accompanying consolidated balance sheets of Hencie, Inc.
and subsidiary (the "Company") as of December 31, 2000 and 2001, and the
related statements of operations, stockholders' equity (deficiency), and cash
flows for the years then ended. 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 of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2000
and 2001, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements for the year ended December
31, 2001, have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the financial statements, the
Company's recurring losses from operations, working capital deficiency and
stockholders' deficiency, as well as notes payable in default and other
contingencies, raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Dallas, Texas
April 22, 2002
(May 22, 2002, as to second paragraph of Note 4)
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001, AND MARCH 31, 2002 (UNAUDITED)
______________________________________________________________________________
December 31, March 31,
2000 2001 2002
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 167,926 $ 187,275 $ 13,809
Accounts receivable - Net 1,636,039 676,979 1,001,914
Accrued revenues for unbilled services 317,103 146,350 199,712
Prepaid expenses and other 29,552 12,439 8,823
---------- ---------- ----------
Total current assets 2,150,620 1,023,043 1,224,258
PROPERTY AND EQUIPMENT - NET 455,221 245,012 193,049
---------- ---------- ----------
TOTAL $2,605,841 $1,268,055 $1,417,307
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable to factor $1,129,212 $ 543,611 $ 688,226
Senior subordinated note payable 1,400,000 1,400,000 1,400,000
Current portion of long-term debt 67,627 70,830 57,848
Accounts payable 781,151 845,970 1,027,927
Accrued expenses 2,626,353 1,848,023 1,701,649
Deferred revenue 52,663 124,188 260,000
---------- ---------- ----------
Total current liabilities 6,057,006 4,832,622 5,135,650
LONG-TERM DEBT - Less current portion 121,766 90,798 89,061
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Series B junior, cumulative preferred stock,
$.01 par value; 50,000,000 shares authorized;
100,100 and 0 shares issued and outstanding,
respectively 1,000,000 1,000,000 -
Common stock, $.01 par value; 25,000,000
shares authorized; 10,511,509, 12,264,151
and 17,167,277 shares issued and outstanding,
respectively 105,115 122,641 171,673
Additional paid-in capital 2,304,491 2,533,583 3,776,373
Accumulated deficit (6,729,356) (6,973,307) (7,390,528)
Deferred compensation (253,181) (338,282) (364,922)
---------- ---------- ----------
Total stockholders' deficiency (3,572,931) (3,655,365) (3,807,404)
---------- ---------- ----------
TOTAL $2,605,841 $1,268,055 $1,417,307
========== ========== ==========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 (UNAUDITED)
______________________________________________________________________________
Three months ended
March 31,
------------------------
2000 2001 2001 2002
(unaudited)
REVENUES $10,318,840 $11,937,462 $3,686,416 $2,445,091
COST OF REVENUES 4,633,677 6,367,462 1,819,138 1,365,463
----------- ----------- ----------- ---------
GROSS PROFIT 5,685,163 5,570,000 1,867,278 1,079,628
OPERATING EXPENSES:
Compensation and benefits 7,119,721 3,674,024 1,026,813 738,133
Legal and other professional
services 366,917 198,242 32,118 202,762
General and administrative 2,228,677 973,781 341,990 157,490
Stock-based compensation and
other costs 730,455 94,939 21,121 199,828
Depreciation and amortization 178,441 237,030 104,146 51,963
----------- ----------- ----------- ----------
Total operating expenses 10,624,211 5,178,016 1,526,188 1,350,176
OPERATING INCOME (LOSS) (4,939,048) 391,984 341,090 (270,548)
OTHER INCOME (EXPENSE) -
Interest expense (293,396) (635,935) (200,084) (146,673)
----------- ----------- ----------- ----------
NET INCOME (LOSS) $(5,232,444) $ (243,951) $ 141,006 $ (417,221)
=========== =========== =========== ==========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
______________________________________________________________________________
Preferred Stock Common Stock
Shares Dollars Shares Dollars
BALANCE, JANUARY 1, 2000 - $ - 4,000,000 $ 800
Hencie Consulting Services, Inc.
("HCS", the predecessor):
Capital contribution
Common stock exchanged for preferred stock 100 1,000,000 (1,500,000) (300)
Common stock exchanged for Hencie, Inc.
common stock (shown below) (2,500,000) (500)
Hencie, Inc.:
Common stock issued for HCS common stock
(shown above) 1,500,000 15,000
Common stock issued to CEO 7,000,000 70,000
Restricted common stock issued to CEO 2,000,000 20,000
Stock-based compensation for option grants
Amortization of deferred compensation
Stock options exercised 11,509 115
Net loss
---- ---------- ---------- --------
BALANCE, DECEMBER 31, 2000 100 1,000,000 10,511,509 105,115
Stock options exercised 1,552,642 15,526
Common stock issued to customer 200,000 2,000
Stock-based compensation for option grants
Amortization of deferred compensation
Net loss
---- ---------- ---------- --------
BALANCE, DECEMBER 31, 2001 100 1,000,000 12,264,151 122,641
Preferred stock exchanged for common stock (100) (1,000,000) 1,919,857 19,199
Stock options exercised 2,178,468 21,785
Common stock issued to employees 108,279 1,083
Common stock issued to vendor 696,522 6,965
Amortization of deferred compensation
Net loss
---- ---------- ---------- --------
BALANCE, MARCH 31, 2002 (unaudited) -- $ -- 17,167,277 $171,673
==== ========== ========== ========
Total
Additional Stockholders'
Paid-In Deferred Accumulated Equity
Capital Compensation Deficit (Deficiency)
BALANCE, JANUARY 1, 2000 $ 200 $ - $ (497,287) $ (496,287)
Hencie Consulting Services, Inc.
("HCS", the predecessor):
Capital contribution 1,425,000 1,425,000
Common stock exchanged for preferred stock (75) (999,625) --
Common stock exchanged for Hencie, Inc.
common stock (shown below) (125) (625)
Hencie, Inc.:
Common stock issued for HCS common stock
(shown above) (14,375) 625
Common stock issued to CEO 630,000 700,000
Restricted common stock issued to CEO 180,000 (200,000) --
Stock-based compensation for option grants 83,636 (83,636) --
Amortization of deferred compensation 30,455 30,455
Stock options exercised 230 345
Net loss (5,232,444) (5,232,444)
---------- ---------- ------------ -----------
BALANCE, DECEMBER 31, 2000 2,304,491 (253,181) (6,729,356) (3,572,931)
Stock options exercised 31,052 46,578
Common stock issued to customer 18,000 20,000
Stock-based compensation for option grants 180,040 (180,040) --
Amortization of deferred compensation 94,939 94,939
Net loss (243,951) (243,951)
---------- ---------- ------------ -----------
BALANCE, DECEMBER 31, 2001 2,533,583 (338,282) (6,973,307) (3,655,365)
Preferred stock exchanged for common stock 980,801 --
Stock options exercised 109,077 (65,508) 65,354
Common stock issued to employees 20,573 21,656
Common stock issued to vendor 132,339 139,304
Amortization of deferred compensation 38,868 38,868
Net loss (417,221) (417,221)
---------- ---------- ------------ -----------
BALANCE, MARCH 31, 2002 (unaudited) $3,776,373 $ (364,922) $(7,390,528) $(3,807,404)
========== ========== ============ ===========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 (UNAUDITED)
______________________________________________________________________________
Three months ended
March 31,
-------------------
2000 2001 2001 2002
(unaudited)
OPERATING ACTIVITIES:
Net income (loss) $(5,232,444) $(243,951) $ 141,006 $(417,221)
Noncash items in net income (loss):
Stock-based compensation and other
costs 730,455 94,939 21,121 199,828
Stock issued to customer (reduced
revenues) 20,000
Depreciation and amortization 178,441 237,030 104,146 51,963
Changes in operating assets and
liabilities:
Accounts receivable and accrued
revenues (1,087,938) 1,129,813 (599,776) (378,297)
Prepaid expenses and other (29,552) 17,113 (4,000) 3,616
Accounts payable 388,146 64,819 (106,722) 181,957
Accrued expenses 2,231,326 (778,330) (100,391) (146,374)
Deferred revenue (57,596) 71,525 107,886 135,812
---------- --------- ---------- ---------
Net cash provided by (used in)
operating activities (2,879,162) 612,958 (436,730) (368,716)
INVESTING ACTIVITIES - Purchases
of property and equipment (436,555) (26,821) (7,041) --
FINANCING ACTIVITIES:
Proceeds from common stock issuances
and capital contribution 1,425,345 46,578 7,772 65,354
Proceeds from notes payable 2,044,291 444,420 144,615
Payments on notes payable and
long-term debt (63,373) (613,366) (14,719)
---------- --------- ---------- ---------
Net cash provided by (used in)
financing activities 3,406,263 (566,788) 452,192 195,250
---------- --------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 90,546 19,349 8,421 (173,466)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 77,380 167,926 167,926 187,275
---------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 167,926 $ 187,275 $ 176,347 $ 13,809
========== ========= ========== =========
SUPPLEMENTAL INFORMATION -
Interest paid $ 20,579 $ 14,019 $ 73,385 $ 43,761
========== ========= ========== =========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND
THREE MONTHS ENDED MARCH 31, 2001 AND 2002 (UNAUDITED)
______________________________________________________________________________
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS - Hencie Consulting Services, Inc. was formed on
November 19, 1996, and became a wholly owned subsidiary of Hencie, Inc., a
Delaware corporation, which was formed on August 9, 2000 (collectively, "the
Company"). The Company provides e-Business solutions and applications to a
broad range of clients and industry segments.
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Hencie, Inc. and
Hencie Consulting Services, Inc. from the dates of their formation and have
been prepared in conformity with accounting principles generally accepted in
the United States of America. Significant intercompany balances and
transactions are eliminated in consolidation.
FINANCIAL STATEMENT PREPARATION requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the amounts of revenues and expenses
reported during the periods. Actual results could differ from these
estimates.
GOING CONCERN These financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred significant, recurring losses and has a significant working capital
deficiency and stockholders' deficiency at December 31, 2001. Notes payable
of $1,400,000 are past due and in default, and accrued payroll taxes of
$978,158 are due to the IRS (Notes 4 and 5) at December 31, 2001. Also,
disputes have arisen on a capital contribution of $1,425,000 in 2000, which
could require repayment by the Company if not resolved (Note 7). These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to obtain additional financing, and
ultimately to attain successful operations. The Company plans to continue to
raise additional capital as required. As indicated in Note 10, the Company
has entered into an agreement of reorganization with another company which is
subject to approval by the public stockholders of that company. However, the
Company cannot provide any assurances that these plans will be achieved and
sufficient funding will result.
REVENUES from implementation contracts are recognized on a time-and-materials
basis as services are performed. Revenues are accrued for services provided
that have not been billed at the reporting date. The percentage-of-completion
method is used to account for custom consulting contracts and fixed price
contracts, with revenues recognized as services are performed over the life of
the contract, based on the costs it incurs in relation to the total estimated
costs. Revenues from separately priced maintenance contracts are initially
deferred and recognized ratably over the term of the contract, which is
typically 12 months. Out-of-pocket expenses reimbursed by clients are
included in revenues, and the expenses incurred by the Company are included in
cost of revenues.
SOFTWARE DEVELOPMENT COSTS are expensed as incurred and totaled $140,000 and
$0 in 2000 and 2001, respectively, and $0 for the three months ended March 31,
2001 and 2002 (unaudited).
CASH AND CASH EQUIVALENTS consist of liquid investments with maturities of
three months or less at date of purchase.
ACCOUNTS RECEIVABLE are stated net of an allowance for doubtful accounts of
$316,532 and $197,844 at December 31, 2000 and 2001, respectively, and
$215,155 at March 31, 2002 (unaudited). The Company performs credit
evaluations of its customers and establishes credit limits, periodically
reviews accounts receivable for collectibility, and provides an allowance for
doubtful accounts as deemed necessary. Accounts receivable that are factored
to a lender with full recourse to the Company are $1,411,515 and $679,514 at
December 31, 2000 and 2001, respectively, and $860,283 at March 31, 2002
(unaudited). These transfers of receivables to the lender are accounted for
as secured borrowings.
PROPERTY AND EQUIPMENT are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
basis over the estimated useful lives of the assets of primarily three years
or the related lease term, if shorter.
STOCK-BASED COMPENSATION arising from stock option grants is accounted for by
the intrinsic value method under APB Opinion No. 25. Statement of Financial
Accounting Standards ("SFAS") No. 123 encourages (but does not require) the
cost of stock-based compensation arrangements with employees to be measured
based on the fair value of the equity instrument awarded. As permitted by
SFAS No. 123, the Company applies APB Opinion No. 25 to its stock-based
compensation awards to employees and discloses in Note 8 the required pro
forma effect on operations.
UNAUDITED INTERIM FINANCIAL INFORMATION at March 31, 2002, and for the three
months ended March 31, 2001 and 2002, have been prepared on the same basis as
the audited financial statements presented. In the opinion of management,
such unaudited information include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of this interim
information. The results of these interim periods are not necessarily
indicative of future results.
2. ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
Accounts receivable and revenues from significant customers represent the
following percentages of the Company's net accounts receivable and total
revenues:
Accounts Receivable at Revenues
December 31, March 31, Year Ended Quarter Ended
December 31, March 31,
2000 2001 2002 2000 2001 2001 2002
(unaudited) (unaudited)
Customer A 19% -% -% 26% 35% 38% 20%
Customer B 15 2 1 8 4 6 -
Customer C - 19 16 - 2 - 26
Customer D - 12 - - 8 1 -
Customer E 2 10 9 1 13 5 -
Customer F - 16 12 - 5 - 19
Customer G - - 29 - - - 13
Customer H 4 - - 1 5 10 -
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31, March 31,
2000 2001 2002
(unaudited)
Leasehold improvements $ 41,993 $ 41,993 $ 41,993
Furniture and fixtures 47,031 72,526 72,526
Computers and office equipment 609,774 610,612 610,612
-------- -------- --------
Total 698,798 725,131 725,131
Less accumulated depreciation
and amortization 243,577 480,119 532,082
-------- -------- --------
Property and equipment - net $455,221 $245,012 $193,049
======== ======== ========
4. NOTES PAYABLE AND DEBT
The Company has a factoring arrangement under which it can sell its accounts
receivable to a lender with full recourse to the Company in the event of
collection losses. Notes payable of $1,129,212 and $543,611 at December 31,
2000 and 2001, respectively, and $688,226 at March 31, 2002 (unaudited),
represents the outstanding borrowings under this arrangement. A major
stockholder of the Company guarantees 100% of the accounts receivable factored
by the Company.
Senior subordinated convertible note payable of $1,400,000, bears interest at
8%, and was due at the original maturity date of November 21, 2001. On May
22, 2002, the Company entered into a settlement agreement with Edge Technology
Group, Inc., a Delaware corporation ("Edge"), to resolve litigation that had
arisen with respect to the note. Pursuant to that agreement, the Company
initially paid to Edge $55,000 upon the execution of the settlement agreement
and, after August 15, 2002, or the closing of the agreement of reorganization
(the "Transaction Agreement") the Company has entered into with another
company (Note 10), is obligated to pay $60,000 in equal monthly installments
until it pays to Edge a total of $1,650,000 plus interest accruing at a fixed
rate per annum equal to 8% percent. The Company's aggregate payments to Edge
under the settlement agreement may be reduced by $450,000 (plus any interest
accrued thereon) if (a) either (x) the Transaction Agreement is closed and the
Company or the company mentioned in Note 10 has made at least three timely
monthly installments of principal and interest to Edge or (y) the Company
makes twelve timely monthly installments of principal and interest to Edge;
(b) shares of the Company mentioned in Note 10 with a value equal to 150% of
the then outstanding debt have been pledged to Edge; and (c) no event of
default pursuant to the settlement agreement has occurred.
The convertible feature of the note, which allowed the holder to convert the
note into 885,543 shares of Series A convertible preferred stock, expired in
November 2000.
Long-term debt consists of the following:
December 31, March 31,
2000 2001 2002
(unaudited)
Small Business Administration guaranteed
loan, interest payable monthly at 9.75%,
principal due in monthly installments of
$2,604 through March 2006 $ 132,698 $ 111,911 $ 110,174
Note payable, interest payable quarterly
at 8.89%, principal due in quarterly
installments of $14,161 through April 2002 56,695 49,717 36,735
--------- --------- ---------
Total 189,393 161,628 146,909
Less current portion 67,627 70,830 57,848
--------- --------- ---------
Long-term portion $ 121,766 $ 90,798 $ 89,061
========= ========= =========
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, March 31,
2000 2001 2002
(unaudited)
Payroll taxes payable to the IRS $1,955,758 $ 978,158 $ 788,891
Salaries and other incentive compensation 370,551 406,831 446,900
Vacation 151,358 199,658 230,777
Interest 28,000 140,000 168,000
Insurance 120,686 123,376 67,081
--------- ---------- ----------
Total $2,626,353 $1,848,023 $1,701,649
========== ========== ==========
Payroll taxes are payable under a payment plan with the IRS where the Company
pays $92,692 monthly, including interest at a floating rate (6% at December
31, 2001), beginning January 2001 and continuing until paid in full in
December 2002.
6. EMPLOYEE BENEFITS
The Company maintains a qualified cash or deferred compensation plan under
Section 401(k) of the Internal Revenue Code. Under the plan, domestic
employees may elect to defer up to 15% of their salary, subject to the
Internal Revenue Service limits. The Company, on an elective basis,
contributes a matching 50% of the first 6% of employee contributions. In 2000
and 2001, the Company's contributions were $143,325 and $150,444,
respectively, and were $39,140 and $0 for the three months ended March 31,
2001 and 2002, respectively (unaudited).
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases certain corporate office space in Dallas
and Houston, Texas under noncancelable operating lease agreements. Rent
expense under these leases was $465,106 and $347,826 in 2000 and 2001,
respectively, and $104,159 and $54,313 for the three months ended March 31,
2001 and 2002, respectively (unaudited). Future minimum rental commitments
under such leases at December 31, 2001, are as follows: $296,648 in 2002,
$323,616 in 2003, $323,616 in 2004, and $53,936 in 2005. The Dallas office
lease includes a renewal option of three years at similar terms and
conditions.
LEGAL PROCEEDINGS - The Company faces potential litigation related to a
capital contribution of $1,425,000 in 2000. On January 9, 2001, the Company
received a demand letter from Hencie.Com, an affiliate of Paul A. Tanner (see
Note 8, Formation), claiming that (i) Hencie.Com was entitled to 1,500,000
shares of the Company's common stock (the "Collateral") in connection with an
alleged stock purchase agreement by and between the Company and Hencie.Com and
(ii) the Company owed Hencie.Com $1,900,000 in connection with $1,400,000 that
was advanced to the Company by Hencie.Com (collectively, the "Claims"). The
Company has investigated the Claims and concluded that the Company's CEO, and
not the Company, is obligated to pay and deliver 1,176,000 shares of the
Company's common stock, issued in the name of the CEO, to Hencie.Com, upon
execution by Paul A. Tanner of certain releases, in connection with a
transaction consummated as of September 15, 2000, by and between the Company,
its CEO, and certain other parties (the "Equity Transaction"). The CEO has
agreed, pursuant to that Indemnification Agreement, dated September 15, 2000,
to indemnify the Company from and against any losses or liabilities arising
out of or relating to the Claims.
The Company believes that the indemnification agreement will be sufficient to
eliminate the risks to the Company. However, if the dispute is not resolved
and the Collateral is not sufficient, the resulting outcome could require the
Company to repay all or a portion of the capital contribution. In the event
litigation in connection with the Claims is pursued and the CEO is, for any
reason, unable to fulfill his indemnification obligations to the Company in
connection with such Claims, the Company intends to vigorously contend the
Claims and pursue any potential counterclaims that may be available. However,
the business, financial condition, and operations of the Company could be
materially and adversely affected by an outcome that is adverse to the Company
with respect to any of the Claims, legal fees and expenses associated with
investigating, contesting, and defending against any of the Claims, whether or
not the Claims are successfully pursued by Mr. Tanner, and the diversion of
management's time and resources in connection with any such investigation,
contest, or defense. Therefore, the dispute and legal fees and expenses
incurred in connection with such dispute could have a material and adverse
effect on the Company.
8. STOCKHOLDERS' EQUITY
FORMATION - Upon formation of Hencie, Inc. ("Hencie") in August 2000, Hencie
Consulting Services, Inc. ("HCS") had 4,000,000 shares of common stock
outstanding. A stockholder of HCS exchanged 1,500,000 shares of HCS common
stock for 100 shares of Series A junior preferred stock, which was later
exchanged for 100 shares of Hencie Series B junior preferred stock discussed
below. Other stockholders of HCS exchanged a total of 2,500,000 shares of HCS
common stock for 1,500,000 shares of Hencie common stock.
HCS also received a capital contribution of $1,425,000 from an individual as
part of his fund raising efforts for HCS. However, no shares were issued, and
there are disputes with this individual as discussed in Note 7, Legal
Proceedings.
COMMON STOCK - Upon formation, Hencie also issued 9,000,000 common shares to
the CEO, of which 7,000,000 were vested for past services and 2,000,000 were
restricted for future services and vest over four years. All of these shares
were recorded at $0.10 per share based on estimated fair value. Stock-based
compensation and costs of $700,000 was recorded in 2000 for the 7,000,000
shares and is included in operating expenses. Deferred compensation of
$200,000 was recorded in 2000 for the 2,000,000 shares, and amortization of
deferred compensation of $16,668 and $50,000 was recorded in 2000 and 2001,
respectively, and $12,500 for each of the three months ended March 31, 2001
and 2002 (unaudited), and is included in stock-based compensation and other
costs in operating expenses. The CEO has pledged 3,000,000 of the vested
shares as collateral under an indemnification agreement related to the
disputes discussed in Note 7, Legal Proceedings.
In 2001, the Company issued 200,000 common shares to a customer. These shares
were valued at $0.10 per share based on estimated fair value, and the total of
$20,000 was recorded as a reduction of revenues.
SERIES B JUNIOR PREFERRED STOCK - The Company has authorized 50 million shares
of $.01 par value junior, cumulative, nonvoting preferred stock. The
preferred stock has a liquidation value of $10,000 per share and accumulates
dividends at 8% per annum, when and if declared. At December 31, 2000 and
2001, there are 100 shares of preferred stock issued and outstanding. At
December 31, 2001, the shares have cumulative dividends in arrears of $80,000.
UNAUDITED INTERIM PERIOD IN 2002 - In March 2002, the Company redeemed the
100 outstanding shares of Senior B Junior Preferred Stock by issuing 1,919,857
shares of the Company's common stock. The Company also issued 696,522 shares
to a vendor and 108,279 shares to employees for services performed. These
shares were valued at $0.20 per share based on estimated fair value, and the
total of $160,960 was recorded as stock-based compensation and other costs in
operating expenses.
STOCK OPTION PLANS - The 1999 Stock Option Plan (the "1999 Plan"), as amended,
provides for the granting of incentive stock options and nonqualified options
for up to 2,250,000 common shares at an exercise price at least equal to the
fair value on the grant date. Options may be exercised in whole or in
installments and expire no later than ten years after the grant date. Options
generally vest over a period of four years.
On August 30, 2000, the Company adopted the 2000 Stock Option Plan (the "2000
Plan"). The 2000 Plan provides for the granting of incentive stock,
restricted stock, and nonqualified options for up to 3,698,712 shares of
common stock at an exercise price at least equal to the fair value on the
grant date. Options are exercisable beginning with the grant date and may be
exercised in whole or in installments and expire no later than ten years after
the grant date. The options or the related common stock issued from the
options exercised generally vest over a period of ten quarters.
Stock option activity in 2000 and 2001 and for the three months ended March
31, 2002 (unaudited), is as follows:
Number Exercise
of Shares Price
Outstanding options, January 1, 2000 1,082,584 $ 0.03
Granted 3,127,202 0.03
Canceled (373,149) 0.03
Exercised ( 11,509) 0.03
--------- ------
Outstanding options, December 31, 2000
(1,739,609 exercisable) 3,825,128 0.03
Granted 1,427,500 0.03
Canceled (1,422,703) 0.03
Exercised (1,552,642) 0.03
--------- ------
Outstanding options, December 31, 2001
(2,016,023 exercisable) 2,277,283 0.03
Exercised (2,178,468) 0.03
--------- ------
Outstanding options, March 31, 2002
(98,815 exercisable)-unaudited 98,815 $ 0.03
========= ======
The following table summarizes additional information about stock options
outstanding and exercisable at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------ ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number of Contractual Exercise Number of Exercise
Price Shares Life Price Shares Price
$ 0.03 2,277,283 8.70 years $ 0.03 2,016,023 $ 0.03
The Company applies APB No. 25 and related interpretations in accounting for
the plans. Deferred compensation of $83,636 and $180,040 was recorded in 2000
and 2001, respectively, for 1,194,800 and 1,427,500 options granted,
respectively, based on the excess of the estimated fair value of the common
stock on the grant dates over the exercise price of $0.03 per share.
Amortization of deferred compensation of $13,787 and $44,939 was recorded in
2000 and 2001, respectively, and $8,621 and $26,368 for the three months ended
March 31, 2001 and 2002, respectively (unaudited), and is included in stock-
based compensation and other costs in operating expenses. SFAS No. 123
prescribes a method to record compensation cost at the estimated fair value of
the options at the grant date. Had compensation cost been determined with the
method prescribed by SFAS No. 123, the Company's pro forma net loss would have
been as follows:
December 31,
2000 2001
Net Income (Loss) $ (5,232,444) $ (243,951)
Pro Forma Net Income (Loss) $ (5,236,766) $ (249,364)
In the pro forma calculations, the weighted average fair value of options
granted to employees in 2000 and 2001 was estimated at $.04 and $.13 per
share, respectively. The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 2000 and 2001, respectively:
risk-free interest rate of 6.40% and 3.51%, no dividend yield, expected lives
of three years and no expected volatility (because the Company's stock is not
publicly traded).
UNAUDITED INTERIM PERIOD IN 2002 - In March 2002, options to purchase
2,195,468 common shares were exercised. These shares issued are restricted,
and the vesting schedule from the related options continues, except for
452,069 shares for which the vesting was accelerated due to the planned sale
of the Company (Note 10). This acceleration of vesting created a new
measurement date, and deferred compensation of $65,508 was recorded based on
the excess of the estimated fair value of the common stock on the date of the
acceleration of vesting over the exercise price of $0.03 per share, less the
deferred compensation recognized at the original measurement date. The
452,069 shares are also restricted for a period of six months following the
sale of the Company, and the deferred compensation will be amortized by the
Company and included in stock-based compensation and other costs in operating
expenses over this period of six months.
9. INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
income tax assets (liabilities) at December 31 are as follows:
2000 2001
Net operating loss ("NOL") carryforwards - expiring
in 2012 to 2021 $ 526,133 $1,331,946
Timing differences 1,220,184 528,227
Valuation allowance (1,746,317) (1,860,173)
----------- ----------
$ -- $ --
=========== ==========
10. SUBSEQUENT SALE OF THE COMPANY
On April 9, 2002, the Company and certain of the Company's stockholders
entered into an agreement and plan of reorganization with Alternate Marketing
Networks, Inc. ("ALTM"), a public company, under section 368 of the Internal
Revenue Service ("IRS") Code. Subject to the approval of the ALTM
stockholders, the effect of this plan is to move ALTM into a new Delaware
Corporation ("New ALTM") and for New ALTM to acquire the Company. The plan is
for a first closing of accredited stockholders who own over 80% of the Company
and a second closing and registration for the remaining unaccredited
stockholders. At closing, certain liabilities of the Company will be paid
including all amounts owed to the IRS. New ALTM, post merger, is expected to
have positive working capital and active credit lines available.
******
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
information gives effect to the acquisition of Hencie, Inc. (the Transaction)
using the purchase method of accounting.
The unaudited pro forma combined condensed balance sheet as of June 30,
2002 is based on the individual historical balance sheets of Alternate
Marketing Networks, Inc. (Alternate Marketing) and Hencie, Inc. (Hencie) and
has been prepared to reflect the Transaction as if the Transaction had
occurred as of June 30, 2002.
December 31 is the fiscal year end of both Alternate Marketing and
Hencie. The unaudited pro forma combined condensed statement of operations
for the year ended December 31, 2001 is based on the individual historical
statements of operations of Alternate Marketing and Hencie and combines the
results of operations of Alternate Marketing for the year ended December 31,
2001 with the results of operations for Hencie for the year ended December 31,
2001 as if the Transaction had occurred as of January 1, 2001. The unaudited
pro forma combined condensed statement of operations for the six months ended
June 30, 2002 is based on the individual historical statements of operations
of Alternate Marketing and Hencie and combines the results of operations for
Alternate Marketing and Hencie for the six months ended June 30, 2002, as if
the Transaction had occurred as of the beginning of the period.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or operating results that would have been achieved if
the Transaction had been completed as of the beginning of the periods
presented, nor are they necessarily indicative of the future financial
position or operating results of Alternate Marketing. The unaudited pro forma
combined condensed financial information does not give effect to any cost
savings or restructuring and integration costs that may result from the
integration of Alternate Marketing's and Hencie's operations. The costs
related to restructuring and integration have not yet been determined.
The unaudited pro forma combined condensed financial information should
be read in conjunction with Alternate Marketing's annual report on Form 10-KSB
for the fiscal year ended December 31, 2001 (incorporated herein by reference)
and its quarterly report on Form 10-QSB for the six months ended June 30, 2002
and with the audited financial statements of Hencie included herein.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
as of June 30, 2002
Alternate Pro Forma Pro Forma
Marketing Hencie Adjustments Notes Combined
Assets
Cash and cash equivalents $ 1,257,834 $ (136,014) -- $ 1,121,820
Accounts receivable, net of allowance $ 3,136,959 $1,171,674 -- $ 4,308,633
Prepaid expenses $ 303,583 $ 5,206 $ (220,000) (1) $ 88,789
Refundable federal income tax $ 180,000 $ - -- $ 180,000
Total current assets $ 4,878,376 $1,040,866 $ (220,000) $ 5,699,242
Property and equipment, net of
accumulated depreciation $ 60,662 $ 148,382 -- $ 209,044
Computer software, net $ 45,485 $ -- -- $ 45,485
Goodwill, net $ 800,889 $ -- $ 7,671,158 (1) $ 8,472,047
Total assets $ 5,785,412 $1,189,248 $ 7,451,158 $14,425,818
Liabilities
Debt to factor $ - $ 680,983 -- $ 680,983
Current portion of long-term debt and
notes payable $ - $1,402,848 $ - $ 1,402,848
Accounts payable $ 1,528,097 $1,406,900 -- $ 2,934,997
Accrued liabilities $ 191,636 $1,886,421 $ - $ 2,078,057
Deferred revenue $ 9,375 $ 41,691 -- $ 51,066
Notes payable-bank $ 165,000 - $ -- 165,000
Total current liabilities $ 1,894,108 $5,418,843 $ - $ 7,312,951
Long-term debt and notes payable, less
current portion $ - $ 85,575 -- $ 85,575
Shareholders' equity
Preferred stock $ - $ -- $ -- $ --
Common stock $10,417,243 $ 172,360 $ 3,135,988 (1) $13,553,231
$ (172,360) (1)
Additional paid-in capital $ - $ 3,777,748 $(3,777,748) (1) $ --
Deferred compensation $ - $ (326,051) $ 326,051 (1) $ --
Accumulated losses $(6,525,939) $(7,939,227) $ 7,939,227 (1) $(6,525,939)
Total shareholders' equity $ 3,891,304 $(4,315,170) $ 7,451,158 $ 7,027,292
Total liabilities and shareholders'
equity $ 5,785,412 $ 1,189,248 $ 7,451,158 $14,425,818
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
for the year ended December 31, 2001
Alternate Pro Forma Notes Pro Forma
Marketing Hencie Adjustments Combined
Net sales $16,626,151 $11,937,462 -- $28,563,613
Cost of sales $12,837,911 $ 6,367,462 -- $19,205,373
Gross profit $ 3,788,240 $ 5,570,000 $ - $ 9,358,240
Selling, general and
administrative expenses $ 4,536,618 $ 5,178,016 $(150,000) (2) $ 9,564,634
Income (loss) from
operations $ (748,378) $ 391,984 $ 150,000 $ (206,394)
Other income (expense),
net $ 125,847 $ (635,935) -- $ (510,088)
Loss before income taxes $ (622,531) $ (243,951) $ 150,000 $ (716,482)
Income tax expense
(benefit) $ (217,660) $ - -- $ (217,660)
Net loss $ (404,871) $ (243,951) $ 150,000 $ (498,822)
EPS (Basic and Diluted) $ (0.09) $ - -- $ (0.05)
Weighted average shares 4,612,805 4,854,470 9,467,275
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
for the six months ended June 30, 2002
Alternate Pro Forma Notes Pro Forma
Marketing Hencie Adjustments Combined
Net sales $ 8,318,485 $ 4,681,855 -- $13,000,340
Cost of sales $ 6,497,332 $ 2,788,653 -- $ 9,285,985
Gross profit $ 1,821,153 $ 1,893,202 $ - $ 3,714,355
Selling, general and
administrative expenses $ 1,984,931 $ 2,615,902 $ -- $ 4,600,833
Loss from operations $ (163,778) $ (722,700) $ -- $ (886,478)
Other income (expense),
net $ 12,856 $ (243,221) -- $ (230,365)
Loss before accounting
change $ (150,922) $ (965,921) $ -- $(1,116,843)
Cumulative effect of
accounting change $(1,204,058) $ -- $ -- $(1,204,058)
Net loss $(1,354,980) $ (965,921) $ - $(2,320,901)
EPS (Basic and diluted) $ (0.29) -- $ -- $ (0.25)
Weighted average shares 4,586,005 4,854,470 9,440,475
Supplemental Pro Forma Information:
Net loss shown above $(1,354,980) $ (965,921) $ - $(2,320,901)
Non recurring charges - 454,000 $ - $ 454,000
Adjusted net loss $(1,354,980) $ (511,921) $ - $(1,866,901)
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Summary of the Transaction
Pursuant to the Transaction Agreement, New ALTM will issue 4,854,470 shares of
its common stock with a fair value of $3,135,988 to the shareholders of Hencie
in exchange for 100% ownership of Hencie. Fair value of the shares is
determined using an average of Alternate Marketing stock price as traded on
Nasdaq just prior to and just after the announcement of the Transaction and
applying a valuation discount pertaining to marketability. Alternate
Marketing acquired more than 80% of Hencie's stock from the Majority Hencie
Shareholders. Within one year subsequent to the acquisition from the Majority
Hencie Shareholders, Alternate Marketing will acquire the remaining
outstanding shares from the Minority Hencie Shareholders. Upon completion of
the acquisition of 100% of Hencie in exchange for New ALTM common stock, the
Hencie shareholders will own 49% of New ALTM on a fully diluted basis. The
acquisition has been accounted for using the purchase method of accounting
with the excess value of the sum of the fair value of stock and transaction
costs of approximately $220,000 over the fair value of the assets and being
recorded as goodwill. As prescribed by SFAS 142, resulting goodwill will not
be subject to amortization.
(1) This pro forma adjustment eliminates the equity of Hencie. It also
records the issuance of 4,854,470 shares of common stock with a fair value of
$3,135,988 and the resulting goodwill of $7,275,158 including the transaction
costs of approximately $220,000. The Company is in the process of evaluating
the allocation between goodwill and other amortizable intangibles.
(2) This pro forma adjustment is to reflect Alternate Marketing's adoption of
SFAS 142 on January 1, 2002, which requires that goodwill not be amortized,
but will be subject to periodic testing for impairment.
The following table illustrates the calculations of basic income per share and
diluted income per share. Diluted income (loss) per share has no shares
included for potential options and warrants as they are anti-dilutive.
December 31, 2001
Alternate Pro forma
Marketing Combined
Income (Numerator):
Net loss $ (404,871) $ (498,822)
Shares (Denominator):
Weighted shares outstanding 4,612,805 9,467,275
Basic and Diluted Loss per share:
Net loss per share $ (0.09) $ (0.05)
June 30, 2002
Alternate Pro forma
Marketing Combined
Income (Numerator):
Net loss $(1,354,980) $(2,320,901)
Shares (Denominator):
Weighted shares outstanding 4,586,005 9,440,475
Basic and Diluted Loss per share:
Net loss per share $ (0.29) $ (0.25)
The Company has recorded no pro forma income tax benefits due to the inability
to currently utilize its deferred tax assets relating to net operating losses.