FORMATION OF COMPANY
On August 30, 1996, the Company effected a merger between a wholly owned
subsidiary formed for the purpose of the merger, and Televar, Inc. (the
"Merger"). The shareholders of Televar received 11,593,325 shares of common
stock of the Company in the Merger, resulting in shareholders of Televar owning
an aggregate of about 83% of the 13,968,625 shares of common stock outstanding
on the effective date of the Merger. As a result of the Merger, Televar became
a wholly owned subsidiary of the Company. The Televar capital stock that was
converted into the Company's common stock was converted based on a five-for-one
conversion ratio. In connection with the Merger, the Company also issued an
aggregate of 1,125,000 shares of common stock to certain consultants as
compensation for services rendered to the Company prior to the Merger. The
Company and Televar accounted for the merger as a reverse acquisition, or
merger, with the surviving entity being the Company.
Prior to the Merger, the Company was inactive and had only nominal assets and
liabilities.
On April 12, 1997, the Company executed a one-for-four reverse stock split of
its outstanding common shares. Before the split, the Company had 14,640,745
shares outstanding, while after effecting the reverse stock split, the Company
had 3,660,186 shares outstanding.
In anticipation of a proposed acquisition of the Company by Pacific Aerospace
and Electronics, Inc. ("PA&E"), the Company and PA&E entered into an Operations
Consulting and Expense Reimbursement Agreement (the "Interim Agreement") in June
1997. Under the agreement, PA&E agreed to provide certain consulting,
management and financial assistance and support to the Company until PA&E's
proposed acquisition of the Company, and several other entities could be
completed. PA&E subsequently determined that it would not proceed with the
proposed acquisitions.
During the term of the Interim Agreement, PA&E loaned a total of approximately
$4,219,418 to the Company. In addition, on behalf of the Company, PA&E
guaranteed a bank loan for approximately $1,215,765 and a three-year equipment
lease of $373,421.
On April 27, 1998, the Company consummated an agreement with PA&E to convert the
$4,219,418 owed into shares of the Company's common stock at $2.00 per share
(the "Restructuring Agreement"). In the Restructuring Agreement, the Company
agreed to grant PA&E demand registration rights for those shares and, in the
event of an underwritten public offering, piggy back registration rights, which
will be effective the earlier of : (a) the closing of the Company 's third round
of financing following the closing of the Restructuring Agreement, or (b) the
first anniversary of the closing of the Restructuring Agreement. In addition,
PA&E agreed to continue guaranteeing the Company's 's $1,215,765 bank loan for
eighteen months from the date of the Restructuring Agreement and to guarantee
the equipment lease for the life of the lease.
As an inducement to obtain PA&E's agreement to convert the Company's debt to
equity, the Company also agreed to purchase a promissory note and all related
interests of PA&E in a company, Brigadoon.com, Inc. ("Brigadoon"). This
included PA&E's interest in a lawsuit filed by PA&E against Brigadoon to recover
amounts Brigadoon owed PA&E, totaling approximately $1,600,000. The Company
also joined in filing involuntary bankruptcy proceedings against Brigadoon in
March 1998. Included in the rights acquired by the Company is a common stock
purchase warrant that entitles the Company to purchase 12.5% of Brigadoon's
fully diluted common stock. The purchase price of these rights and interests
was $950,000 payable over five years under a promissory note, with interest at
the rate of 8% per annum (the "PA&E Note"). Under the PA&E Note, the Company
will pay only interest for the first year commencing March 1, 1998 and will make
fully amortizing monthly payments of principal plus interest for the final four
years of the note term.
Under the terms of the disposal of the Company's Internet Services Group
(discussed in Note 5), the Company sold all of its rights and claims to
Brigadoon assets. The Company retained the $950,000 note payable to PA&E and
the $1,215,765 PA&E guaranteed note payable to a bank. As of March, 1998 the
amount of the guaranteed note payable to a bank increased to $1,300,000 and the
Company is not current with its interest payments to PA&E.
In February 1998, the Company acquired all of the assets and certain liabilities
of MONITRx, Inc.("Monitrx"). The aggregate purchase price of $1,129,000
consisted of 1,200,000 shares of the Company's restricted common stock valued at
approximately $1,104,000 and certain expenses totaling $25,000. In addition,
the Company assumed about $3,044,286 in liabilities. Costs in excess of net
book value of $3,700,000 were recorded as a result of this transaction. Monitrx
develops and markets advanced proprietary and patented network-based software
applications for the home health care industry.
In connection with the Monitrx acquisition, the purchase agreement requires the
Company to make cash payments to the former shareholders and / or employees of
Monitrx on a declining scale over a five-year period commencing July 1, 1998, if
annual net operating profits, as defined in the purchase agreement, exceed at
least $1,200,000.
Also in February 1998, the Company acquired all of the assets and certain
liabilities of Digital Network Associates, Inc. ("DNA") for an aggregate
purchase price of $107,000, which consisted of 111,000 shares of the Company's
restricted common stock valued at $102,120 and certain expenses totaling $5,000.
In addition, the Company assumed about $162,736 in liabilities. Costs in excess
of the net book value of $240,000 were recorded as a result of this transaction.
The unamortized portion of costs in excess of book value was written-off in
fiscal 1999. DNA has developed a proprietary computer networking technology
that empowers authorized field-based health care personnel without computer
skills to access and update data on network databases by means of a regular
touch-tone telephone pad.
In June 1998, the Company acquired the stock of Boss . The aggregate purchase
price of $731,000 consisted of 777,776 shares of the Company's restricted common
stock, warrants to purchase 300,000 shares of the Company's common stock
exercisable over the next 18 months, and certain expenses totaling $15,000.
Costs in excess of the net book value of $484,000 were recorded as a result of
this transaction. The Boss acquisition was subsequently rescinded in September
1998. (See Note 5 "Discontinued Operations.")
The business acquisitions described above have been accounted for using the
purchase method, and accordingly, the operating results of the acquired entities
have been included in the Company's consolidated financial statements from the
date of acquisition. The assets acquired and liabilities assumed have been
recorded at an estimate of their fair values, with the difference being
reflected as cost in excess of book value, or goodwill. The related goodwill is
being amortized into operations over five years.
ACQUISITIONS
In January 1999, the Company acquired two computer software programs from
Millennium Software Inc., a Washington corporation ("Millennium"). In
consideration for the purchase, the Company agreed to pay $150,000 cash in
various installments. The Company also agreed to pay the 35,000 shares of the
Company's common stock to Millennium contingent upon the completion of a
milestone event by April 1, 1999.
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