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) November 9, 2000
FUSION NETWORKS HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-23900 51-0393382
---------------------------- ----------------- ----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification Number)
8115 N.W. 29th Street, Miami, Florida 33122
---------------------------------------------------
(Address of principal executive offices)(Zip Code)
(305) 477-6701
-----------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------
(Former name and former address, if changed since last report)
This amended Form 8-K relates to the transaction on November 9, 2000 pursuant to
which Fusion Networks Holdings, Inc. ("FNHI" or the "Company") completed the
acquisition of Visualcom, Inc. ("Visualcom"). This amendment is filed to reflect
the restatement of certain financial statement of the Company included in an
amended Form 10-Q for the period ended September 30, 2000 and the resulting
revisions to the proforma financial statements previously filed in connection
with the Visualcom transaction.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Visualcom, Inc.
Independent Auditor's Report............................... F-1
Consolidated Balance Sheets - December 31, 1998 and1999
and September 30, 2000 (unaudited)....................... F-2
Consolidated Statement of Operations for the Years Ended
December 31, 1998 and 1999 and for the Nine Months
Ended September 30, 2000 (unaudited).................... F-3
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998 and 1999 and for the Nine Months
Ended September 30, 2000 (unaudited).................... F-4
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1998 and 1999 and for the
Nine Months Ended September 30, 2000 (unaudited)........ F-6
Notes to Consolidated Financial Statements................. F-7
(b) Pro Forma Financial Information
Summary Unaudited Pro Forma Consolidated Financial Data.... F-17
Pro Forma Consolidated Balance Sheet - September 30, 2000.. F-18
Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1999 and for the Nine Months Ended
September 30, 2000..................................... F-19
Notes to Pro Forma Consolidated Financial Data............. F-20
(c) Exhibits
None
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
FUSION NETWORKS HOLDINGS, INC.
Dated: January 12, 2001 By: /s/ Gary M. Goldfarb
-----------------------------
Gary M. Goldfarb
President
3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Visualcom, Inc.
Miami, Florida 33122
We have audited the accompanying consolidated balance sheets of Visualcom, Inc.
and Subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders'; equity (deficit) 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visualcom, Inc. and
Subsidiaries as of December 31, 1999 and 1998 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
December 7, 2000
F-1
VISUALCOM,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1998 1999 September 30, 2000
------- ------- --------------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 20,683 $ 63,567 $ 54,425
Accounts receivable, net - 68,321 166,580
Unbilled revenue - 11,061 23,847
Due from employees - 1,500 25
Prepaid taxes - 12,446 30,083
Prepaid expenses - 9,267
Deferred expenses - 42,625 80,620
----------- ------------ ----------
Total Current Assets 20,683 208,787 355,580
----------- ------------ ----------
Property and Equipment, Net 6,634 129,107 95,142
----------- ------------ ----------
Other Assets:
Security deposits - 28,277 2,420
Consultant loans - 6,591 -
----------- ------------ ----------
Total Other Assets - 34,868 2,420
----------- ------------ ----------
$ 27,317 $ 372,762 $ 453,142
=========== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ - $ 526,959 $ 627,355
Accrued expenses - 7,723 42,089
Accrued interest payable - 11,616 12,945
Due to officers and employees 137,014 2,789 317
Taxes payable 10,023 20,562 23,902
Deferred revenues - 16,100 215,858
Current portion of corporate loans
payable - 644,400 588,306
Other - 3,423 -
----------- ------------ ----------
Total Current Liabilities 147,037 1,233,572 1,510,772
----------- ------------ ----------
Corporate Loans Payable - Long-Term - 40,000 -
----------- ------------ ----------
Stockholders' Equity (Deficit):
Preferred stock - series A - authorized 10,000,000
shares $.01 par value, issued and outstanding - - 56,115
5,611,552 shares
Paid-in capital - preferred stock - series A - - 2,144,933
Common stock, authorized 30,000,000 shares, $.01
par value, issued and oustanding 2,500,000 at
December 31, 1998, 4,240,000 at December
31, 1999 and 3,823,952 at September 30, 2000 25,000 42,400 38,240
Paid-in capital - common stock 220,000 1,333,700 898,052
Paid-in capital - common stock options - 12,500 12,500
Retained earnings (accumulated deficit) (364,720) (2,288,730) (4,206,048)
Unrealized foreign exchange loss - (680) (1,422)
----------- ------------ -----------
Total Stockholders' Equity (Deficit) (119,720) (900,810) (1,057,630)
----------- ------------ -----------
$ 27,317 $ 372,762 $ 453,142
=========== ============ ===========
____________________
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
VISUALCOM.INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the
For the Years Ended Nine Months
December 31, Ended
1998 1999 September 30, 2000
------ ------- -------------------
(Unaudited)
Revenues from Operations $ 197,964 $ 795,848 $ 1,367,811
------------ ------------- --------------
Costs and Expenses:
General and administrative expenses 442,306 2,321,517 2,824,634
Marketing and advertising expenses 7,508 338,402 308,322
Market research and development 5,250 42,822 73,473
Depreciation expense 1,206 6,333 18,376
------------ ------------- --------------
Total Costs and Expenses 456,270 2,709,074 3,224,805
------------ ------------- --------------
Net Loss from Operations (258,306) (1,913,226) (1,856,994)
------------ ------------- --------------
Other Income/(Expenses):
Other expenses/interest expense (5,285) (23,315) (49,751)
Loss on sale of assets - - (12,610)
Other income 488 16,066 4,985
------------ ------------- --------------
Total Other Income/(Expenses) (4,797) (7,249) (57,376)
------------ ------------- --------------
Net Loss before Income Taxes (263,103) (1,920,475) (1,914,370)
Provision for Income Taxes - 3,535 2,948
------------ ------------- --------------
Net Loss $ (263,103) $ (1,924,010) $ (1,917,318)
============ ============= ==============
____________________
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
VISUALCOM.INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended For the
December 31, Nine Months Ended
1998 1999 September 30, 2000
------ ------ -------------------
(Unaudited)
Cash Flows from Operating Activities:
Net loss $ (263,103) $ (1,924,010) $ (1,917,318)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 1,206 6,333 18,376
Loss on sale of assets - - 12,610
Decrease (Increase) In:
Accounts receivable - (68,321) (98,259)
Loans receivable - (6,591) 6,591
Unbilled revenue - (11,061) (12,786)
Due from employees - (1,500) 1,475
Prepaid taxes - (12,446) (17,637)
Security deposits - (28,277) 25,857
Prepaid expenses - (9,267) 9,267
Deferred expenses - (42,625) (37,995)
Increase (Decrease) In:
Accounts payable - 526,959 100,396
Accrued expenses - 7,723 34,366
Accrued interest payable - 11,616 1,329
Due from officers and employees 133,740 (134,225) (2,472)
Taxes payable 10,023 10,539 3,340
Deferred revenue - 16,100 199,758
Other payables - 3,423 (3,423)
----------- ------------- --------------
Net cash used in operating activities(118,134) (1,655,630) (1,676,525)
----------- ------------- --------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (7,840) (128,806) (19,780)
----------- ------------- --------------
Net cash used in investing activities (7,840) (128,806) (19,780)
----------- ------------- --------------
Cash Flows from Financing Activities:
Proceeds from loans payable - 684,400 -
Proceeds from sale of assets - - 22,759
Payment of loans payable - - (96,094)
Proceeds from sale of preferred stock - - 1,690,000
Proceeds from sale of common stock 144,090 1,143,600 71,240
----------- ------------- -------------
Net cash provided from financing
activities 144,090 1,828,000 1,687,905
----------- ------------- -------------
Effect of Exchange Rate Changes on Cash - (680) (742)
----------- ------------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents (Carried Forward) 18,116 42,884 (9,142)
F-4
VISUALCOM.INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
For the Years Ended For the
December 31, Nine Months Ended
1998 1999 September 30, 2000
--------- ----------- -------------------
(Unaudited)
Net Increase (Decrease) in Cash and
Cash Equivalents (Brought Forward) $ 18,116 $ 42,884 $ (9,142)
Cash and Cash Equivalents,
beginning of period 2,567 20,683 63,567
----------- ------------- -----------
Cash and Cash Equivalents,
end of period $ 20,683 $ 63,567 $ 54,425
=========== ============= ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 5,285 $ 23,315 $ 49,751
=========== ============= ===========
Taxes $ - $ - $ -
=========== ============= ===========
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Conversion of common stock
to preferred stock $ 511,048
===========
____________________
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
VISUALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
Common Stock Preferred Stock Series A
------------------------------- -------------------------------
$.01 Par Value $.01 Par Value Additional Total
---------------------- ----------------
Number of Paid-In Number of Paid-In Accumulated Stockholders'
Shares Amount Capital Shares Amount Capital Deficit Other Equity
Balances, January
1, 1998 2,355,900 $ 23,559 $ 77,351 - $ - $ - $ (263,103) $ - $ (162,193)
0
Issuance of Common
Stock During 1998 144,100 1,441 142,649 - - - - - 144,090
Net Loss for the
Year Ended December
31, 1998 - - - - - - (101,617) - (101,617)
--------- --------- ----------- ---------- -------- ---------- ------------ ------- ----------
0
Balances, December
31, 1998 2,500,000 25,000 220,000 - - - (364,720) - (119,720)
0
Issuance of Common
Stock During 1999 1,740,000 17,400 1,113,700 - - - - - 1,131,100
0
Foreign Currency Translation
Adjustment - - - - - - - (680) (680)
0
Paid-In Capital - Common
Stock Options - - - - - - - 12,500 12,500
0
Net Loss for the Year Ended 0
December 31, 1999 - - - - - - (1,924,010) - (1,924,010)
--------- --------- ----------- ---------- -------- ---------- ------------ -------- ----------
0
Balances December 31, 1999 4,240,000 42,400 1,333,700 - - - (2,288,730) 11,820 (900,810)
0
Issuance of Common Stock
for the Nine Months Ended
September 30, 2000 694,000 6,940 64,300 - - - - - 71,240
0
Conversion of Common
Stock to Preferred Stock
Series A (1,110,048) (11,100) (499,948) 1,366,100 13,661 497,387 - - 0
0
Issuance of Preferred
Stock Series A for the
Nine Months Ended September
30, 2000 - - - 4,245,452 42,454 1,647,546 - - 1,690,000
Foreign Currency Translation
Adjustment - - - - - - - (742) (742)
Net Loss for the Nine Months
Ended September 30, 2000 - - - - - - (1,917,318) - (1,917,318)
--------- --------- ----------- ---------- -------- ---------- ------------ --------- ----------
Balances September 30, 2000 3,823,952 $ 38,240 $ 898,052 5,611,552 $ 56,115 $2,144,933 $ (4,206,048) 11,078 $(1,057,630)
========= ========= =========== ========== ======== ========== ============ ========= ==========
____________________
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
------------
Visualcom, Inc. (the "Company";) was incorporated under the laws of the State of
Florida on October 8, 1995. The Company is an internet consulting company whose
areas of specialized consulting and implementation include strategic consulting,
I-business solutions, internet marketing and internet wireless for mainly
Latin-American companies.
On August 26, 1999 the company formed a Mexican subsidiary, Visualcom Mexico,
S.A. deC.V. in which they own 98% of the outstanding common stock. On October
29, 1999 the Company formed a Brazilian subsidiary, Visualcom Do Brasil Ltda.,
in which they own 99.97% of the outstanding common stock. These companies are to
conduct the Company's business within their respected markets.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements as of September 30, 2000 and
December 31, 1999 and 1998 and for the periods then ended consolidate the
accounts of the parent company and subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Use of Management's Estimates
-----------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
----------------------
Property and equipment are recorded at cost and are depreciated for financial
accounting purposes on the straight-line method over their respective estimated
useful lives. Upon retirement or other disposition of these assets, the cost and
related accumulated depreciation are removed from the accounts and the resulting
gains or losses are reflected in the results of operations. Expenditures for
maintenance and repairs are charged to operations. Renewals and betterments are
capitalized. Depreciation of leased equipment under capital leases is included
in depreciation.
Product Development
-------------------
Costs incurred in conjunction with the development of new products are charged
to expense as incurred. Material software development costs subsequent to the
establishment of technological feasibility will be capitalized. Based upon the
Company's product development process, technological feasibility is established
upon the completion of a working model. To date attainment of technological
feasibility and general release to customers have substantially coincided.
F-7
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
-------------------------------
The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS
121),;Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed of, SFAS 121 requires that if facts and circumstances
indicate that the cost of fixed assets or other assets may be impaired, an
evaluation of recoverability would be performed by comparing the estimated
future undiscounted pre-tax cash flows associated with the asset to the asset's
carrying value to determine if a write-down to market value or discounted
pre-tax cash flow value would be required.
Revenue Recognition
-------------------
The Company's revenues are derived principally from the sale of Internet
Application Servers (Software tools) which are software applications that enable
business to conduct commerce and any type of transaction online. Additional
revenues will be derived from actual implementations of these software
platforms. These revenues are recognized as earned once the related activities
have been performed and delivered. The Company also recognizes revenue from
their services in barter transactions that are recorded at the fair value of the
goods or services surrendered or received, whichever is more readily
determinable in the circumstances, but only when the Company has established a
historical practice of receiving or paying cash for similar transactions.
Unbilled revenue represents earned but unbilled revenue associated with the
Company's activities.
Deferred expenses represents costs incurred on uncompleted projects.
Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No. 130, (SFAS
130) "Reporting Comprehensive Income". This statement establishes rules for the
reporting of comprehensive income and its components which require that certain
items such as foreign currency translation adjustments, unrealized gains and
losses on certain investments in debt and equity securities, minimum pension
liability adjustments and unearned compensation expense related to stock
issuances to employees be presented as separate components of stockholders'
equity. The adoption of SFAS 130 had minimal impact on total stockholders'
equity for the periods presented in these financial statements.
Advertising Costs
-----------------
Advertising expenditures relating to the marketing of the Company's products and
services are expensed in the period the advertising costs are incurred.
Advertising costs for the nine months ended September 30, 2000 and for the years
ended December 31, 1999 and 1998 were approximately $308,322, $338,000 and
$8,000, respectively.
Concentrations of Credit Risk
-----------------------------
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents.
The Company maintains the majority of its cash and cash equivalents with one
financial institution and this creates an inherent concentration of credit risk.
F-8
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Translation of Foreign Currencies
-------------------------------------
Assets and liabilities of foreign operations, where the functional currency is
the local currency, are translated into U.S. dollars at the fiscal year end
exchange rate. The related translation adjustments are required to be recorded
as cumulative translation adjustments, a separate component of shareholders'
equity. Revenues and expenses are required to be translated using average
exchange rates prevailing during the periods. Foreign currency transactions
gains and losses, as well as translation adjustments for assets and liabilities
of foreign operations where the functional currency is the dollar, are included
in net income (loss). Foreign currency realized and unrealized gains and losses
for the periods presented were not material.
Income Taxes
----------------
The Company follows Statement of Financial Accounting Standards No. 109, (SFAS
109),;Accounting for Income Taxes. SFAS 109 requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
Start-Up Activities
-----------------------
The American Institute of Certified Public Accountants recently issued Statement
of Position ("SOP") 98-5, "Reporting the Costs of Start-Up Activities". SOP 98-5
requires start-up costs, as defined, to be expensed as incurred and is effective
for financial statements for fiscal years beginning after December 15, 1998. The
Company expenses all start-up costs as incurred in accordance with this
statement and therefore the issuance of SOP 98-5 had no material impact on the
Company's financial statements.
Accounting for Stock-Based Compensation
-------------------------------------------
Effective for the year ended December 31, 1999, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation". As permitted under SFAS 123, the
Company will apply accounting prescribed by Accounting Principle Board Opinion
No. 25 (APB 25). Under APB 25, compensation expense is determined on the
measurement date, that is, the first date on which both the number of shares the
employee is entitled to receive and the exercise price, if any, are known.
Compensation expense, if any, is the excess of the market price of the stock
over the exercise price on the measurement date.
In accounting for options granted to persons other than employees (as defined
under SFAS 123), the provisions under SFAS 123 were applied. According to SFAS
123, the fair value of these options was estimated at the grant date using the
Black-Scholes option pricing model.
F-9
VISUALCOM, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
2. MANAGEMENT'S PLANS, FINANCIAL RESULTS AND LIQUIDITY
The Company has suffered recurring losses from operations and at December 31,
1999, the Company had a working capital deficit of approximately $1 million and
a cash balance of approximately $20 thousand.
The Company requires substantial working capital to support their ongoing
operations.
Operations have been historically funded through a combination of operating cash
flows and term notes through the sale of equity securities and securities
convertible into equity securities. The Company believes that their working
capital, combined with the expected receipt of funds, is sufficient to meet
their anticipated needs for at least the year 2000, including the performance of
all existing contracts of the Company. However, as there is no assurance as to
the timing or amount of the receipt of funds the Company may be required to seek
new bank lines of credit or other financing in order to facilitate the
performance of activities. While the Company is conducting ongoing discussions
with various potential lenders with a view to establishing credit facilities,
the Company presently has no commitments from any bank or other lender to
provide financing if such financing becomes necessary to support operations.
Other than funds provided by operations and the potential receipt of funds from
the sale of equity or debt securities, and the loan proceeds to be provided as
part of the business combination transaction described below in Note 8, the
Company presently has no sources of financing or commitments to provide
financing. However, management believes that the Company will be able to finance
its anticipated needs for 2000.
In light of the company's continued losses sustained during the first half of
2000 and the continued uncertainty effecting operations at the end of the second
quarter of 2000, management has evaluated various options outside its
traditional business to bring the Company to profitability and to increase
shareholder value. Pursuant to those efforts, the Company entered into a letter
of intent to be acquired by Fusion Networks Holdings, Inc. ("Fusion") (See Note
8). Fusion, a newly formed company, is a leading provider of one-to-one internet
marketing software, portal technology, applications and content designed to
enable corporate customers to develop effective Spanish, English and
Portuguese-related internet strategies. The proposed merger is subject to a
number of conditions and the negotiation and execution of definitive
documentation. There can be no assurance that the merger will be successfully
implemented or that there will not be modifications to the merger terms.
The Company's management believes its marketing experience, contacts and brand
recognition within the Latin American market will prove an excellent complement
to Fusion and its pool of software programmers. Fusion hopes to position itself
to become the leading integrated e-services company, providing complete
front-end architecture and back-end infrastructure solutions for companies in
Latin America.
F-10
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
3. FOREIGN OPERATIONS
The Company will be relying heavily on foreign Internet markets, primarily in
Latin America, for its operations. The market for Internet services in Latin
America is an unproven medium for advertising and other commercial services. In
addition, there are several factors involved in increasing the use of the
Internet in Latin America for commercial purposes which include security,
reliability, cost, ease of development, administration and quality of service.
In addition, the telecommunications structure in Latin America is not as well
developed as in the United States or Europe. Access to the Internet requires a
relatively advanced telecommunications infrastructure and continued development
of the telecommunications infrastructure will have a substantial impact on the
Company's ability to deliver services and on the market acceptance of the
Internet in Latin America in general. Social, political and economic conditions
in Latin America could also have an effect on the Company's operations. The
volatility of these conditions could make it difficult for the Company to
sustain their expected growth in revenues and earnings, which could have an
adverse effect on their stock price. Currency exchange rates have also been
somewhat volatile throughout Latin America and the economies of these areas have
experienced significant economic downturns. Poor economic conditions in Latin
American countries may cause the Company's customers to reduce their advertising
spending, which could have an adverse effect on the Company.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
1998 1999 September 30, 2000
------ ------ -------------------
Equipment $ 1,500 $128,103 $110,201
Furniture and fixtures 14,670 16,846 18,593
Leasehold Improvements 6,340 6,340 6,340
-------- -------- --------
22,510 151,289 135,134
Accumulated depreciation (15,876) (22,182) (39,992)
-------- -------- --------
$ 6,634 $129,107 $ 95,142
======== ======== ========
F-11
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
5. CORPORATE LOANS PAYABLE
December 31,
1998 1999 September 30, 2000
------ ---- -------------------
Loan payable to an individual, payable on
demand, noninterest bearing $ - $ 24,130 $ 17,785
Loan payable to an individual, due November
12, 2000, bearing interest at 8% per annum - 100,000 100,000
Loan payable to an individual, noninterest
bearing, payable on demand - 3,000 3,000
Loan payable to an individual, due July 29,
2000 at 10% per annum, currently being
renegotiated - 20,000 20,000
Loans payable to an individual, dated February
8, 2000, at 8% per annum, payable on demand - 33,270 55,074
Loans payable to 3 individuals, noninterest
bearing, payable on demand. During July 2000
$40,000 was converted to 20,000 shares of
common stock - 75,000 35,000
Loan from a credit card company, in the original
amount of $201,910, payable in monthly payments
of $17,839.76 from February 1, 2000 - - 59,192
Loan from payroll company, in the original amount
of $46,594, payable in weekly installments of
$1,000 from January 1, 2000 - - 28,594
Loan payable in the amount of $325,000, due
March 16, 2000, with interest at 8% per annum - 325,000 -
Loan payable to an individual, payable on March
17, 2000, with interest at 15% per annum - 100,000 -
F-12
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued
5. CORPORATE LOANS PAYABLE (Continued)
December 31,
1998 1999 September 30, 2000
------ ---- -------------------
Loan payable to an individual, noninterest
bearing, paid on March 31, 2000 $ - $ 4,000 $ -
-------- ----------- --------------
- 684,400 318,645
-------- ----------- --------------
Less: Current portion - 644,400 318,645
-------- ----------- --------------
Long-term portion $ - $ 40,000 $ -
======== =========== ==============
6. COMMITMENTS AND CONTINGENCIES
Litigation
----------
The Company is subject from time to time to litigation arising from the normal
course of business. In management's opinion, any such contingencies would be
covered under its existing insurance policies or would not materially affect the
Company's financial position as contingency reserves have been established.
Lease
------
The Company entered into leases for its office facilities during May of 1999.
The leases expire in July 2001 and require monthly aggregate base rent payments
of $7,111 plus utilities and applicable sales tax. As of September 30, 2000, the
future minimum lease obligations under the lease agreements are:
For the Twelve Months Ending Amount
---------------------------- ------
September 30, 2001 $69,332
$69,332
=======
Rent expense for the office lease for the nine months ended September 30, 2000
was $183,856, and for the years ended December 31, 1999 and 1998 was $102,657
and $26,837, respectively. Additional rent expense was incurred during these
periods for providing housing for visiting customers and technicians.
The Company has also entered into leasesfor certain equipment under operating
lease agreements with terms ranging between two and three years.
F-13
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
6. COMMITMENTS AND CONTINGENCIES (Continued)
As of September 30, 2000 a schedule of future minimum payments under operating
leases is as follows:
For the Twelve Months
Ending September 30
----------------------
2001 $99,642
2002 74,387
2003 12,382
---------
$186,411
=========
Employee Stock Option Plan
--------------------------
During October 1999, the Company's Board of Directors approved a stock option
for the Company. The plan was modified and amended during May 2000 with the
approval of the Board of Directors and Shareholders. The plan grants accelerated
vesting in change of control situation to employees employed by the Company at
the time of the change in control. The plan includes a cashless exercise option
based on a price as determined by a good faith estimate by the Board of
Directors. Terminated employees have 3 months to exercise their options unless
terminated for cause.
As referred to in Note 1, the Company has elected to following Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting provided for
under FASB Statement No. 123 (FASB 123), "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market value of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information in accordance with FASB 123 is required to present net
loss and loss per share as if the Company had accounted for the employee stock
options under the fair value method of that statement. FASB 123 also provides
that is it is not possible to reasonably estimate the fair value of an option at
the grant or measurement date, then the compensation cost shall be based on the
current intrinsic value of the award which was determined to be immaterial.
Warrants
------------
The Company has 790,000 warrants authorized and issued. The warrants are 10 year
warrants. 690,000 of them have an exercise price of $1.00. The remaining 100,000
have an exercise price of $0.18. The fair value of these warrants were estimated
according to FASB 123 at the grant dates using the Black-Scholes option pricing
model and were determined to be immaterial.
F-14
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
7. STOCKHOLDERS' EQUITY
On June 13, 2000, the Company amended and restated their Articles of
Incorporation to increase the amount of authorized stock and create two new
classes of preferred stock.
Common Stock
------------
The Company's authorized common stock consists of 30,000,000 shares with $.01
par value. The holders of common stock have no preemptive rights and the common
stock has no redemption, sinking fund or conversion provisions. Each share of
common stock is entitled to one vote on any matter submitted to the holders and
to equal rights in the assets of the Company upon liquidation. All of the
outstanding shares of common stock are fully paid and nonassessable.
During December 1998 the Board of Directors authorized the amendment of the par
value of common stock from $1.00 to $.01 therefore increasing the number of
shares outstanding from 25,000 to 2,500,000. All references to shares
outstanding have been restated and shown retroactively within these financial
statements to give effect to the change in par value.
During 1999 the Company issued 1,740,000 shares of its common stock through the
sale of its securities and received $1,131,100 in net proceeds.
During the nine months ended September 30, 2000 the Company issued an additional
694,000 shares of common stock for proceeds of $71,240.
During the nine months ended September 30, 2000, the Board of Directors
authorized the conversion of $250,000 and $261,048 of common stock capital to
Series A Preferred Stock. This resulted in a decrease of 500,000 and
610,048Common Stock Shares respectively and an increase of 628,026 and 738,074,
respectively, Series A Preferred Stock.
Preferred Stock
---------------
The Company has authority to issue 5,000,000 shares of preferred stock $.01 par
value. To date no preferred shares have been issued or outstanding.
Series A Preferred Stock
----------------------------
The Company has authority to issue 10,000,000 shares $.01 par value of Series A
- Preferred Stock. The Series A Preferred Stockholders are entitled to dividends
and conversion rights of converting the Series A Preferred Stock to common stock
at a predetermined conversion price. The Series A Preferred Stock has voting
rights, in which each share of Preferred Stock issued and outstanding as of the
record date for such meeting shall have the number of votes equal to the number
of votes such holder would have been entitled to cast had it converted its
shares to common stock immediately prior to the record date. The preferred
stockholders have the right to elect two directors to the Company's Board of
Directors.
In addition to the June 15, 2000 conversion of 500,000 shares of Common Stock
into 628,026 shares of Series A Preferred Stock, the Company also, during the
first six months of 2000, issued 2,851,235 shares of Series A Preferred Stock
for proceeds of $1,135,000.
F-15
VISUALCOM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO INFORMATION FOR SEPTEMBER 30, 2000)
(Continued)
8. SUBSEQUENT EVENTS
On August 18, 2000 the Company entered into a letter of intent to complete a
business combination transaction with Fusion Networks Holdings, Inc. and
Subsidiaries.
The proposed transaction includes the issuance to the Company's shareholders two
million shares of Fusion common stock and 2.5 million warrants in exchange for
all of the outstanding shares of Visualcom. Of these shares, one million shares
of stock and one million warrants will be held in escrow and subject to release,
in whole or in part, upon Visualcom's satisfaction of the earnout provision
requiring Visualcom to generate up to $2.4 million of previously contracted
revenue by July 31, 2001. Additional terms of the agreement include the
purchase, by current Visualcom shareholders, of $500,000 or more of Fusion
common stock, the proceeds of which will be lent to Visualcom to finance their
operations until the completion of the business combination transactions.
Completion of the transaction is subject to negotiation of definitive documents,
approval of the transaction by the Board and shareholders of Visualcom and the
board of Fusion Networks, and satisfaction of certain other conditions.
During October 2000 the Board of Directors authorized the conversion of $5,000
of common stock capital to Series A Preferred Stock, resulting in a decrease of
500,000 Common Stock Shares and an increase of 500,000 Series A Preferred Stock.
Also, during October 2000 the Company issued 25,000 Common Stock Shares upon the
exercise of Stock Options.
F-16
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data for Fusion
Networks Holdings, Inc. is based on the historical financial statements of
Fusion Networks Holdings, Inc. ("Fusion") and Visualcom, Inc. (collectively with
its subsidiaries referred to herein as " VISUALCOM") which appear elsewhere in
this Form 8K and has been prepared on a pro forma basis to give effect to the
Plan of Share Exchange under the purchase method of accounting, as if the
transaction had occurred at January 1, 1999 for each operating period presented.
The pro forma information was prepared based upon certain assumptions described
below and may not be indicative of results that actually would have occurred had
the Plan of Share Exchange occurred at the beginning of the last full fiscal
year presented or of results which may occur in the future. The unaudited pro
forma consolidated financial data and accompanying notes should be read in
conjunction with the annual and interim financial statements and notes thereto
of Fusion and Visualcom, appearing elsewhere herein and incorporated by
reference into this Form 8K filing.
The unaudited pro forma consolidated balance sheet as of September 30, 2000
presents the financial position of Fusion as if the Plan of Share Exchange had
occurred on that date and was prepared utilizing the unaudited Fusion balance
sheet as of September 30, 2000 and the unaudited Visualcom balance sheet as of
September 30, 2000. The pro forma consolidated statements of operations data
presented assumes the Plan of Share Exchange occurred at the beginning of the
periods presented. It should not be assumed that Visualcom and Fusion would have
achieved the unaudited pro forma consolidated results if they had actually been
combined during the periods shown.
The Plan of Share Exchange is expected to be accounted for as a purchase. The
stockholders of Visualcom will receive up to 2,000,000 shares of common stock
along with up to 2,500,000 warrants of Fusion in exchange for all of the
outstanding shares of Visualcom. The plan of Share Exchange was approved by both
Fusion and Visualcom during August 2000 and the exchange was completed on
November 9, 2000.
The unaudited pro forma consolidated results are based on estimates and
assumptions, which are preliminary and have been made solely for the purposes of
developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The unaudited pro forma combined results should be read in conjunction with the
historical consolidated financial statements and notes thereto set forth herein
for Visualcom and set forth for Fusion on Form 10K for December 31, 1999 and
Form 10Q for the quarterly period ended September 30, 2000.
F-17
FUSION NETWORKS HOLDINGS' INC. AND SUBSIDIARIES
PROFORMA BALANCE SHEET
Fusion
Networks Visualcom, Inc.
Holdings, Inc. and Subsidiaries Proforma Pro Forma
September 30, 2000 September 30, 2000 Adjustments Results
------------------ ------------------ ------------- --------------
ASSETS
Cash $ 942,695 $ 54,425 $ - $ 997,120
Accounts Receivable 99,109 166,580 265,689
Notes Receivable 58,881 58,881
Unbilled revenue 23,847 23,847
Prepaid taxes 30,083 30,083
Deferred taxes 80,620 80,620
Employee and other loans 64,847 25 64,872
Prepaid expenses and other
current assets 454,508 (1) (269,661) 184,847
------------------ ------------------ ----------- -------------------
1,620,040 355,580 (269,661) 1,705,959
Investment in equity 4,500,000 - 4,500,000
Goodwill, net of amortization (2) 2,197,630 1,648,223
(3) (549,407)
Property, Plant and equipment, net 1,690,674 95,142 1,785,816
Website costs 352,503 - 352,503
Other Assets:
Security deposits 2,420 2,420
------------------ ------------------ ----------- -------------------
Total Assets $ 8,163,217 $ 453,142 $1,378,562 $ 9,994,921
================== ================== =========== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
Current Liabilities:
Current portion of debt $ - $ 588,306 (1)$ (269,661) $ 318,645
Accounts payable and accured expenses 646,672 682,705 1,329,377
Deferred revenues 215,858 215,858
Taxes payable 23,903 23,903
------------------ ------------------ ----------- -------------------
Total Current Liabilites 646,672 1,510,772 (269,661) 1,887,783
Long-Term Debt 4,000,000 - 4,000,000
------------------ ------------------ ----------- -------------------
4,646,672 1,510,772 (269,661) 5,887,783
------------------ ------------------ -------------------
Stockholders' Equity:
Preferred Stock, Series A 56,116 (6) (61,116) -
(5) 5,000
Paid in Capital-Preferred Stock, Series A 2,144,932 (6) (2,144,932) -
Common Stock 374 38,240 (6) (33,490) 384
(5) (5,000)
(2) 10
(4) 250
Paid-in-Capital-Common Stock 65,063,482 898,052 (6) (898,052) 65,654,065
(2) 2,197,620
(6) (1,069,880)
(4) 12,250
(3) (549,407)
Paid in Capital-Common Stock Options 12,500 (4) (12,500) -
Foreign currency translation (4,482) (1,422) (6) 1,422 (4,482)
Retained deficit (40,542,829) (4,206,048) (6) 4,206,048 (40,542,829)
------------------ ------------------ ----------- -------------------
Accumulated other comprehensive income (loss):
Foreign currency transaction (4,482) (1,422) (6) 1,422 (4,482)
Unrealized gain (loss) on equity
securities (21,000,000) (21,000,000)
------------------ -------------------
3,516,545 (1,057,630) 1,648,223 4,107,138
------------------ ------------------ ----------- -------------------
$ 8,163,217 $ 453,142 $1,378,562 $ 9,994,921
================== ================== =========== ===================
See Notes to Pro Forma Consolidated Financial Data
F-18
FUSION NETWORKS HOLDINGS INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1999 For the nine months ended September 30,2000
---------------------------------------------- ---------------------------------------------
Fusion Fusion
Networks Pro Forma Pro Forma Networks Proforma Pro Forma
Holdings, Inc. Visualcom, Inc. Adjustments Results Holdings, Inc Visualcom, Inc. Adjustments Results
------------- --------------- ------------ --------- -------------- --------------- ----------- ---------
Revenues from
licensing agreements - - 106,243 106,243
Revenues from
operations 795,848 795,848 1,367,811 1,367,811
-
---------- ------------ ------------ ------------ ------------ --------- ---------------
Total revenues - 795,848 795,848 106,243 1,367,811 - 1,474,054
Cost and Expenses:
General and
administrative expense 386,742 2,321,517 2,708,259 4,735,456 2,824,634 7,560,090
Product development
and enginee 1,038,671 42,822 1,081,493 3,036,000 73,473 3,109,473
Sales and maketing 164,249 338,402 502,651 1,305,032 308,322 1,613,354
Consulting expenses 19,575,000 19,575,000
Merger expenses 238,350 238,350
Depreciation and
amortization 6,333 (3) 313,947 320,280 153,079 18,376 (3)235,460 406,915
---------- ------------ --------- ------------ ------------ ------------ --------- ---------------
21,403,012 2,709,074 313,947 24,426,033 9,229,567 3,224,805 235,460 12,689,832
---------- ------------ --------- ------------ ------------ ------------ --------- ---------------
Loss from Operations (21,403,012) (1,913,226) (313,947) (23,630,185) (9,123,324) (1,856,994) (235,460) (11,215,778)
Other Income (Expenses):
Loss on sale of
subsidiary (1,320,847) - (1,320,847)
Foreign currency
(loss) (5,528) (5,528) -
Miscellaneous
income, net (1,000) 16,066 15,066 10,707 4,985 15,692
Loss on sale of asset (12,610) (12,610)
Interest income
(expense), net 35,568 (23,315) 12,253 24,422 (49,751) (25,329)
---------- ------------ --------- ------------ ------------ ------------ --------- ---------------
29,040 (7,249) - 21,791 (1,285,718) (57,376) - (1,343,094)
---------- ------------ --------- ------------ ------------ ------------ --------- ---------------
Loss before income
taxes (21,373,972) (1,920,475) (313,947) (23,608,394) (10,409,042) (1,914,370) (235,460) (12,558,872)
Provision for income
taxes - 3,535 3,535 - 2,948 2,948
---------- ------------ --------- ------------ ------------ ------------ --------- ---------------
Loss from continued
operations (21,373,972) (1,924,010) (313,947) (23,611,929) (10,409,042) (1,917,318) (235,460) (12,561,820)
Loss from discontinued
operations - - (8,759,818) - (8,759,818)
---------- ------------ --------- ------------ ------------ ------------ ---------
-
Net loss on common
stock $(21,373,972) (1,924,010) $(313,947)$(23,611,929) $(19,168,860)$ (1,917,318) $(235,460) $ (21,321,638)
========== ============ ========= ============ ============ ============ ========= ===============
Loss per share:
Basic loss per share:
From continued
operations $ (0.65) $ (0.69) $ (0.29) $ (0.34)
From discontinued
operations - - (0.25) (0.24)
---------- ------------ ------------ ---------------
$ (0.65) $ (0.69) $ (0.54) $ (0.58)
========== ============ ============ ===============
Basic and diluted common
shares 33,113,333 34,113,333 35,745,753 36,745,753
outstanding ========== ============ ============ ===============
F-19
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
SEPTEMBER 30, 2000
1) To eliminate inter-company receivables and payables.
(2) To record the purchase of Visualcom, Inc. and the issuance of 1,000,000
shares of common stock of Fusion Networks Holdings, Inc. in exchange for
all of the outstanding shares of Visualcom, Inc. The transaction, accounted
for as a purchase, resulted in goodwill of $2,197,630 being recorded. The
purchase price and goodwill was determined as follows:
Fusion Networks Holdings Stock Issued 1,000,000(a)
Estimated fair value of shares issued $1.14(b)
---------
Purchase price 1,140,000
Visualcom, Inc. net book value (1,057,630)
---------
Goodwill $ 2,197,630
=========
(a) Pursuant to a Plan of Share Exchange, the Company acquired all of the
shares of Visualcom in exchange for the issuance of 2 million shares of Fusion's
common stock and 2.5 million of their warrants. One million of the shares of
common stock and one million warrants issued pursuant to the acquisition of
Visualcom were issued in escrow. Release of the escrowed shares and warrants is
subject to satisfaction of certain "earn-out" criteria under which Visualcom
must generate new contracts with a value of not less than $ 2.4 million over a
nine month period. As a result of the acquisition, Visualcom has become a
wholly-owned subsidiary of the Company. In accordance with APB 16 "Contingent
consideration shall usually be recorded when the contingency is resolved and
consideration is issued or becomes issuable. In general, the issue of additional
securities or distribution of other consideration at resolution of contingencies
based on earnings shall result in an additional element of cost of an acquired
enterprise. Consideration that is issued or issuable at the expiration of the
contingency period or that is held in escrow pending the outcome of the
contingency shall be disclosed but not recorded as a liability or shown as
outstanding securities."
(b) The estimated fair value of shares issued was determined using the
average closing market price of Fusion's common stock for the 3 days prior and 3
days subsequent to the public announcement of the letter of intent
(3) To record amortization of goodwill over a seven year period.
(4) To record the issuance of common stock upon the exercise of stock options.
(5) To record the conversion of 500,000 shares of common stock to 500,000
shares of preferred stock.
(6) To eliminate Visualcom's stockholders' equity to common stock and
additional paid in capital.
F-20