-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G4hRShtFYBTX6IojtyyE756N8zJ2UBTiP8FS8m8JrCamR6AjaT+Mpq7x6128dsAd rXajDINrf/liR7MtCkpopg== 0000912057-01-523902.txt : 20010717 0000912057-01-523902.hdr.sgml : 20010717 ACCESSION NUMBER: 0000912057-01-523902 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEXALT INC CENTRAL INDEX KEY: 0000313625 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 751667097 STATE OF INCORPORATION: NV FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-09322 FILM NUMBER: 1681656 BUSINESS ADDRESS: STREET 1: 12000 AEROSPACE AVE STREET 2: SUITE 375 CITY: HOUSTON STATE: TX ZIP: 77034 BUSINESS PHONE: 2814648400 MAIL ADDRESS: STREET 1: 12000 AEROSPACE AVE STREET 2: SUITE 375 CITY: HOUSTON STATE: TX ZIP: 77034 FORMER COMPANY: FORMER CONFORMED NAME: SUNBELT EXPLORATION INC DATE OF NAME CHANGE: 19980821 10QSB 1 a2054257z10qsb.txt 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________ COMMISSION FILE NUMBER: 000-09322 IEXALT, INC. NEVADA 75-1667097 - -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 AEROSPACE AVENUE, SUITE 375 HOUSTON, TEXAS 77034 - 5576 (Address of principal executive offices) 281-464-8400 (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [XX] NO[ ] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: June 30, 2001: 47,572,431 Shares Transitional Small Business Disclosure Format (check one): YES[ ] NO [XX] iEXALT, INC. TABLE OF CONTENTS
Page ----- Part I Financial Information Item 1 Condensed Consolidated Financial Statements 3 Item 2 Management's Discussion and Analysis of Financial Condition 23 and Results of Operations Part II Other Information Item 2 Changes in Securities 31 Item 6 Exhibits and Reports on Form 8-K 32 Signatures 35
2 Part I - Item 1. Condensed Consolidated Financial Statements. iEXALT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS May 31, August 31, 2001 2000 -------------- -------------- CURRENT ASSETS Cash and cash equivalents $ 83,849 $ 278,164 Accounts receivable, trade, net of allowance for doubtful accounts 912,901 661,680 Accounts receivable, other and notes receivable, current 336,561 3,500 Accounts receivable, affiliate 68,983 86,384 Inventory, prepaid expenses and other current assets 584,436 265,758 -------------- -------------- TOTAL CURRENT ASSETS 1,986,730 1,295,486 -------------- -------------- PROPERTY AND EQUIPMENT, net 753,443 717,025 -------------- -------------- OTHER ASSETS Goodwill and other intangible assets, net 5,451,576 2,462,244 Other assets 1,324,713 272,853 -------------- -------------- $ 9,516,462 $ 4,747,608 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 1,456,128 $ 241,678 Notes payable to shareholders 545,000 557,000 Current maturities of long-term debt 587,302 613,037 Current maturities of obligations under capital lease 92,401 8,235 Accounts payable, trade 1,425,910 622,007 Accounts payable, affiliate 18,521 20,633 Deferred revenue 543,459 323,035 Other accrued liabilities 474,594 509,326 -------------- -------------- TOTAL CURRENT LIABILITIES 5,143,315 2,894,951 -------------- -------------- LONG-TERM DEBT 83,785 90,050 OBLIGATIONS UNDER CAPITAL LEASE 10,686 8,024 SHAREHOLDERS' EQUITY Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares issued and outstanding - - Common stock, $.001 par value, 100,000,000 shares authorized, 42,425,931 and 28,646,876 shares, issued and outstanding, respectively 42,426 28,647 Paid-in capital 17,216,239 9,810,457 Receivable from shareholder (9,239) (9,239) Retained deficit (12,970,750) (8,075,282) -------------- -------------- TOTAL SHAREHOLDERS' EQUITY 4,278,676 1,754,583 -------------- -------------- $ 9,516,462 $ 4,747,608 ============== ==============
See accompanying notes. 3 iEXALT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Nine Months Ended -------------- -- ------------- ------------- -- -------------- May 31, 2001 May 31, 2000 May 31, 2001 May 31, 2000 -------------- ------------- ------------- -------------- REVENUES $ 2,839,073 $ 1,222,483 $ 7,742,216 $ 2,517,926 COST OF SALES AND SERVICES 2,039,491 891,952 5,336,292 1,868,936 -------------- ------------- ------------- -------------- GROSS PROFIT 799,582 330,531 2,405,924 648,990 SELLING, GENERAL, AND ADMINISTRATIVE 1,026,163 573,710 4,270,260 1,389,711 PAYROLL COSTS 903,451 594,190 2,191,536 1,296,216 DEPRECIATION AND AMORTIZATION 124,981 56,291 349,970 111,607 LOSS/(GAIN) ON DISPOSAL OF ASSETS (25,445) - 127,817 - -------------- ------------- ------------- -------------- LOSS FROM OPERATIONS (1,229,568) (893,660) (4,533,659) (2,148,544) OTHER INCOME (EXPENSES) Interest Income, Other (9,317) 22,073 (5,405) 27,325 Interest Expense (131,726) (5,651) (356,404) (10,015) -------------- ------------- ------------- -------------- LOSS BEFORE INCOME TAXES (1,370,611) (877,238) (4,895,468) (2,131,234) INCOME TAXES - - - - -------------- ------------- ------------- -------------- NET LOSS $(1,370,611) $ (877,238) $(4,895,468) $(2,131,234) ============== ============= ============= ============== NET LOSS PER SHARE $ (0.03) $ (0.03) $ (0.14) $ (0.09) ============== ============= ============= ============== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 40,904,146 26,776,709 35,352,647 24,126,377 ============== ============= ============= ==============
See accompanying notes. 4 iEXALT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Common Stock Receivable Total ------------------------------ Paid-In from Retained Shareholders Shares Amount Capital Shareholder Deficit Equity ------------- ------------- -------------- ------------ -------------- ------------ BALANCE August 31, 2000 28,646,876 $ 28,647 $ 9,810,457 $ (9,239) $ (8,075,282) $ 1,754,583 Issuance of stock for acquisitions 5,390,105 5,391 4,166,519 - - 4,171,910 Issuance of stock for dispositions 275,000 275 188,912 - - 189,187 Issuance of stock for cash 879,906 880 559,120 - - 560,000 Issuance of stock for services 1,384,047 1,383 721,979 - - 723,362 Issuance of stock for loans and settlement 5,249,997 5,250 610,934 - - 616,184 Exercise of options 600,000 600 11,400 - - 12,000 Issue stock options/warrants - - 1,146,918 - - 1,146,918 Net loss - - - - (4,895,468) (4,895,468) ------------- ------------- -------------- ------------ -------------- ------------- 42,425,931 $ 42,426 $ 17,216,239 $ (9,239) $ (12,970,750) $ 4,278,676 BALANCE May 31, 2001 ============= ============= ============== ============ ============== =============
See accompanying notes. 5 iEXALT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended ------------------------------------ May 31, 2001 May 31, 2000 ------------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,895,468) (2,131,234) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 349,970 111,607 Loss (Gain) on disposition of assets 127,817 - Non-cash expense of issuing stock options/warrants 998,118 - Compensation and other expense for common shares issued for 723,362 148,850 services Common stock issued to settle interest 16,184 - Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (42,043) (98,821) Inventory, prepaid expenses and other current assets (309,342) (46,835) Other assets (212,252) (287,410) Accounts payable 540,336 149,044 Deferred revenue 169,820 34,547 Other accrued expenses (210,641) (113,270) ------------------ ---------------- Net cash used by operating activities (2,744,139) (2,233,522) ------------------ ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash from acquisitions 157,869 61,110 Purchases of property and equipment (56,229) (483,477) ------------------ ---------------- Net cash provided by investing activities 101,640 (422,367) ------------------ ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 560,000 3,350,981 Proceeds from exercise of options 12,000 600,000 Payments on borrowings from shareholders (12,000) - Proceeds from issuance of debt 1,695,809 300,000 Proceeds from issuance of warrants 148,800 - Payments of capital lease obligations (38,052) - Proceeds from other notes payable 183,250 (47,463) Repayments of debt (101,623) (456,000) ------------------ ---------------- Net cash provided by financing activities 2,448,184 3,747,518 ------------------ ---------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (194,315) 1,091,629 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 278,164 351,312 ------------------ ---------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 83,849 1,442,941 ================== ================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 85,723 13,548 ================== ================
See accompanying notes. 6 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION, BUSINESS AND BASIS OF PRESENTATIONS - iExalt, Inc., ("iExalt" or "Company"), was originally incorporated as Louisiana Northern Gas, Inc. a Nevada corporation on April 23, 1979. The name of the Company was changed to Sunbelt Exploration, Inc. on December 21, 1979. From 1989 until September 1, 1999, the Company had very limited operations. On September 1, 1999, the Company consummated a merger (hereinafter referred to as the "Merger") with iExalt, Inc., a Texas corporation incorporated on January 7, 1999, ("iExalt-Texas") whereby the shareholders of iExalt-Texas acquired an approximate 89% ownership interest in the Company. The Merger has been accounted for as a reverse takeover with the Company being the surviving legal entity and iExalt-Texas being the acquiror for accounting purposes. Concurrent with the Merger, the Company changed its name from Sunbelt Exploration, Inc. to iExalt, Inc. iExalt blends the positive modern technologies available through the Internet with traditional media to provide products, services, and Internet solutions to Christian families, businesses, schools, communities, and organizations. iExalt currently markets filtered internet service, publishes Christian electronic books and reference materials, a Christian events magazine, a Christian business directory, and a Christian newspaper, produces a radio program five nights per week and is affiliated with a youth oriented Christian radio program, operates a comprehensive contemporary Christian music website, one of the largest speaker's bureaus dedicated to Christian speakers, and an agency business for Christian artists. In addition, iExalt sells tickets for Christian events, manages one of the most popular Christian portal sites, provides access to on-line web based sermon resources through its web site, and provides through the Internet a cutting-edge, information-packed, online monthly newsletter for local youth programs. iExalt provides psychiatric counseling services for senior citizens earning healthcare revenues from the implementation and management of geriatric psychiatric programs for hospitals and other health facilities. iExalt also operates a Christian inpatient mental health management company. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. INTERIM RESULTS - The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries reflect, in the opinion of management, all adjustments necessary to present fairly the Company's consolidated financial position at May 31, 2001 and the Company's consolidated results of operations and cash flows for the three and nine month periods ended May 31, 2001 and May 31, 2000. Interim period results are not necessarily indicative of the results that may be expected for an entire year. These consolidated financial statements and the notes thereto should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended August 31, 2000, including the financial statements and notes thereto. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments having maturities of three months or less at the date of purchase to be cash equivalents. 7 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) PROPERTY AND EQUIPMENT - Property and equipment is carried at original cost or adjusted net realizable value, as applicable. Maintenance and repair costs are charged to expense as incurred. When assets are sold or retired, the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. For financial reporting purposes depreciation of property and equipment is provided using the straight-line method based upon the expected useful lives of each class of assets. Estimated lives of assets are as follows: Furniture and fixtures - five to seven years; computers and software - three to five years; automobiles - three to five years; and leasehold improvements - over the estimated useful life or the remaining life of the lease, whichever is shorter. FINANCIAL INSTRUMENTS - FAIR VALUE - The carrying values of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, royalties and debt, approximate their respective fair values because of short lives and the use of market interest rates. CREDIT RISK - The Company maintains its cash and cash equivalents with high credit quality institutions and limits the credit exposure to any one institution. The Company's accounts receivable arise from sales to customers and the Company periodically evaluates its credit exposure with its customers. Included in accounts receivable is $326,338 due from one customer of PremierCare, a subsidiary of the Company. The Company has fully reserved this receivable since the payment has been disputed for more than twelve months, however, management is vigorously pursuing collection of this balance. GOODWILL AND OTHER INTANGIBLES - Goodwill represents the cost in excess of fair value of the assets of businesses acquired and is being amortized using the straight-line method over 20 years. Other intangible assets represent costs allocated to covenants not to compete and other intangibles acquired in business acquisitions. Other intangible assets are being amortized using the straight-line method over their estimated useful lives, which range from two to five years. STOCK BASED COMPENSATION - Under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected the method that requires disclosure of stock-based compensation. The Company accounts for its employee stock-based compensation plan under Accounting Principles Board ("APB") Opinion No. 25 and the related interpretations. Accordingly, deferred compensation is recorded for stock-based compensation grants to employees based on the excess of the estimated fair value of the common stock on the measurement date over the exercise price. The deferred compensation is amortized over the vesting period of each unit of stock-based compensation. If the exercise price of the stock-based compensation grant is equal to or greater than the estimated fair value of the Company's stock on the date of grant, no compensation expense is recorded. Additionally, for stock-based compensation grants to consultants, the Company recognizes as compensation expense the estimated fair value of such grants as calculated pursuant to SFAS No. 123, recognized over the related service period. IMPAIRMENT OF LONG LIVED ASSETS - In September 2000, management made the decision to dispose of two acquisitions and terminate a funding arrangement with another potential acquisition. The carrying values of goodwill and intangible assets of the related dispositions were not recovered. Therefore, an impairment loss of $3,451,407 was recognized during August 2000 on these assets. Management believes there is no other impairment of goodwill and other intangibles. 8 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) REVENUE RECOGNITION - The Company generally recognizes revenue on services as they are performed and on products when they are sold net of sales returns. Speaker revenues are recognized when the speech or event occurs. The Company grants refunds and returns on electronic publishing products if the software and publications sold are returned within thirty days. Revenue from ticket operations is recognized as tickets are sold. Although iExalt collects ticket receipts representing the full ticket price on behalf of its clients, the Company only records as revenue the convenience charges and handling fees included in the ticket price. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which clarifies certain existing accounting principles for the timing of revenue recognition and its classification in the financial statements. The SEC delayed the required implementation date of SAB 101 by issuing Staff Accounting Bulletins No. 101A, "Amendment: Revenue Recognition in Financial Statements" and 101B, "Second Amendment: Revenue Recognition in Financial Statement" in March and June 2000, respectively. As a result, the SAB 101 will become effective for the Company in the fourth quarter of fiscal year end August 31, 2001. The Company believes the adoption of SAB 101 will not be material to the earnings and financial position of the Company. 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While it is believed that such estimates are reasonable, actual results could differ from those estimates. CONDITIONS AFFECTING ONGOING OPERATIONS - The Company is currently dependent upon external financing to continue its current level of operations. The Company hopes to obtain additional debt and equity financing from various sources in order to finance its operations, repay current debt in default as discussed in Note D and continue to grow through merger and acquisition opportunities. In the event the Company is unable to obtain additional debt and equity financing, the Company may not be able to continue its current level of operations. If the Company is unable to continue its current level of operations, the value of the Company's assets could experience a significant decline in value from the net book values reflected in the accompanying consolidated balance sheet. 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 comply with the terms of its financing agreements, to obtain additional financing or refinancing as may be required, and ultimately to attain profitability. Accordingly, management believes that period-to-period comparisons of results of operations should not be relied upon as an indication of future results of operations. NOTE B ACQUISITIONS AND DISPOSITIONS During September 2000, the Company re-evaluated its business mix and projected cash flows and made decisions to dispose of First Choice and the Company's filtering software and related technology. First Choice was sold to a company owned by a former member of the Board of Directors in exchange for the assumption of future liabilities. As a part of the transaction, the Company made a payment to First Choice of $25,000 during October and issued 25,000 shares of the Company's common stock to an employee for past services rendered. The filtering software and related technology was sold to a former employee of the Company. The Company issued 150,000 shares of the Company's common stock with piggyback registration rights to the former employee in exchange for a note receivable of $84,359, the total of existing liabilities related to the filtering technology at the closing. The note receivable is secured by the 150,000 shares of common stock. 9 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE B ACQUISITIONS AND DISPOSITIONS (continued) The note is to be repaid upon sale of the stock or six months, whichever occurs first. The Company is currently working to resolve the outstanding note receivable collection. The Company retained the right to use and market the filtering technology to the Christian market. The Company had also made the decision to cancel its acquisition efforts related to a start-up Internet Company. The Company had been funding the start-up under a management and funding agreement since April, 2000. Under the Termination Agreement, the Company issued 100,000 shares of the Company's common stock with piggyback registration rights, retained a 49% interest in the start-up and received a note receivable for the total funds advanced of $368,112. An impairment loss of the total of all funds advanced and the related acquisition costs incurred was recorded due to the low probability of collecting the note receivable or realizing future income from the equity interest. Related impairment costs recorded during fiscal year 2000 totaled $3,451,407 and an additional $240,813 loss was recognized from operations and losses on disposal of fixed assets on the dispositions during the three months ended November 30, 2000 and nine months ended May 31, 2001. On September 29, 2000 the Company acquired a seven percent indirect interest in Sonora Behavioral Hospital, a 30-plus-bed psychiatric hospital in Arizona. The Company exchanged 150,000 shares of its common stock for the interest in Integral Behavioral Health Services, Inc., the 100% owner and operator of Sonora. This acquisition has been accounted for under the cost method. On October 3, 2000, the Company acquired all the stock of ListenFirst.com ("ListenFirst"), a Christian music news website for 60,000 shares of the Company's common stock. If certain revenue or profit levels are reached over the next three years, a maximum of 50,000 additional shares will be issued for the acquisition. The transaction was accounted for as a purchase and goodwill was recorded in the amount of $60,588. On October 18, 2000, the assets of Northwest Christian Journal ("NWCJ"), a monthly Christian newspaper in the Seattle area, were acquired for 37,500 shares of the Company's common stock and cash proceeds of $7,500. The transaction was accounted for as a purchase and goodwill was recorded in the amount of $41,250. On October 29, 2000, the assets of the Christian Blue Pages, LLC ("Blue Pages") that produces a directory of Christian businesses in four editions in Southern California, were acquired in exchange for 60,000 shares of the Company's common stock and a percentage of the first year's advertising revenues. The transaction was accounted for as a purchase and goodwill was recorded in the amount of $112,182. Both of these acquisitions were added to the operations of Christian Times, a subsidiary of the Company. All the outstanding stock of Clean Web, Inc. ("Clean Web"), a national filtered ISP with approximately 6,000 users, was acquired on October 24, 2000 for 2,313,000 shares of the Company's common stock. The transaction was accounted for as a purchase and goodwill was recorded in the amount of $2,236,680. Effective November 1, 2000, the Company acquired all the assets of Rapha ("Rapha"), a Christian inpatient mental health management company. Under the terms of the acquisition agreement, the Company issued 200,000 shares of common stock at closing. When contracts noted within the purchase agreement are certified by PsyCare that such contracts have been assigned within 180 days of closing, then final valuation will be increased by $200,000 per contract, not to exceed $1,000,000 in total, and settled with additional shares of common stock, if necessary, in October, 2002. The transaction was accounted for as a purchase and originally goodwill was recorded in the amount of $284,228. As of the period ended May 31, 2001 the contracts had been certified and goodwill was recorded in the amount of an additional $715,772 as an adjustment to the purchase price. 10 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE B ACQUISITIONS AND DISPOSITIONS (continued) On November 21, 2000, in exchange for 30,000 shares of the Company's common stock, the Company acquired all of the speaker contracts and speaking engagements related to the Christian market from Alive Communications ("Alive"). The transaction was accounted for as a purchase and goodwill was recorded in the amount of $10,969. Alive is a leading provider of speakers to the Christian community and the business will be combined with ChristianSpeakers.com. On December 1, 2000, in exchange for 50,000 shares of the Company's common stock, the Company acquired the assets of Gilmore Marketing Company. The company provides marketing related products and services such as multi media development, advertising art work and content, publication brochures, printing designs, and logos. The transaction was accounted for as a purchase and goodwill was recorded in the amount of $20,718. On March 1, 2001, the Company completed the acquisition of the Global Christian Network, Inc. (GCN), a technology company and the creators of an online Christian Community based in Reno, Nevada. GCN will substantially increase the Company's online presence and add significant technology improvements. As consideration for the acquisition, the Company issued a total of 1,520,105 of its common shares to certain GCN shareholders and $11,958 of cash to certain GCN shareholders in exchange for all issued and outstanding stock of GCN. The Company issued 500,000 of its common shares for full payment of an outstanding promissory note owed by GCN to an investor (which upon the anniversary of closing the value of such shares must equal a minimum of $273,104 or additional shares must be issued to for the difference). The Company issued 207,000 of its common shares to four employees of GCN for past services. The Company agreed to a contingent payment of $26,033 of cash to selected employees for past services based on the achievement of certain performance objectives. Pursuant to the execution of a funding agreement dated June 30, 2000, the Company had advanced cash totaling $369,170 for pre-acquisition expenditures. The transaction was accounted for as a purchase and goodwill of $1,102,828 was recorded. On March 1, 2001, the Company completed the acquisition of Capital Artists Agency, Inc., a full service talent agency representing a variety of names in contemporary Christian music headquartered in Nashville, TN. The purchase will substantially increase the Company's presence in the Christian entertainment service sector. In conjunction with the acquisition, Capital Artist Agency changed its name to ChristianArtists.com. The Company paid 187,500 shares of its common stock and additional shares may be issued under certain contingencies to provide for a purchase price of $150,000 at the final closing on March 1, 2002. The transaction was accounted for as a purchase and goodwill of $169,789 was recorded. On May 31, 2001, the Company completed the sale of certain assets to 711.NET, Inc. Assets sold include iExalt's right, title and interest in all of CleanWeb's current internet access subscribers, selected other assets used in, related to, and common and necessary to the operations of the business including the assignment of certain lease obligations and certain tangible/intangible property (which will be specifically identified within an exhibit being developed by the company and 711.NET, Inc.) CleanWeb will continue to market, resell, and produce additional business and Internet subscriber sales and services to iExalt constituency, market influences, and other organizations as a Reseller of such Internet services of the buyer's ISPBrand Internet access services through a Strategic Marketing and Reseller Agreement with the Buyer. iExalt expects to produce additional subscribers for Buyer and has committed to securing at least 10,000 new subscribers to the Buyer within the initial twelve months following closing. iExalt will receive royalty amounts on a monthly basis for all active fully paying subscribers developed through the Marketing relationship. For subscribers up to 10,000 a royalty of $5.00 per subscriber per month will be remitted. For subscribers from 10,001 - 20,000 a royalty of $6.00 per subscriber per month will be remitted. For subscribers over 20,000 a royalty of $7.00 per subscriber per month will be remitted. Should iExalt not equal or exceed 10,000 subscribers in the initial twelve months after closing then it will pay the Buyer $50,000 worth of common shares 11 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE B ACQUISITIONS AND DISPOSITIONS (continued) of iExalt not to exceed 100,000 shares. As consideration for the sale, iExalt received a lump sum payment of $150,000 cash at closing, an agreement for $648,000 such amount to be paid in monthly payments of not less than $24,000 and payable in not more than 25 months from the date of transition, and an agreement to receive 438,667 shares of Buyer's common stock issued at a price of $1.50 per share for a value of $658,000. Proceeds of $1,456,000 and a net gain of $25,445 were recorded. An allocation, based upon estimated market values, of CleanWeb's goodwill ($2,236,680) was developed to determine the amount attributable to the assets that were sold. As a result of the analysis $1,606,262 of goodwill was determined to relate to the assets that were sold and goodwill was reduced accordingly The following unaudited pro forma combined results of operations of the Company for the nine months ended May 2001 and 2000 assume significant acquisitions and dispositions had occurred as of the beginning of the respective periods.
PRO FORMA NINE MONTHS ENDED ----------------- May 31, May 31, 2001 2000 ---------------- --------------- Revenues $ 6,867,539 $ 5,970,383 Loss from operations $ (4,244,495) $ (2,444,736) Net loss $ (4,592,955) $ (2,511,768) Net loss per share $ (0.13) $ (0.09) Pro Forma Weighted Average Number of Shares Outstanding 35,810,163 28,881,882
The pro forma information has been adjusted to reflect the amortization of goodwill from the beginning of the respective periods for each of the acquired companies that were significant. The pro forma financial information is not necessarily indicative of the combined results that would have occurred had the acquisitions taken place at the beginning of the period, nor is it necessarily indicative of results that may occur in the future. . NOTE C PROPERTY AND EQUIPMENT Property and equipment consisted of the following at:
May 31, August 31, 2001 2000 ---------------- ---------------- Computer equipment and software $ 473,561 $ 383,532 Furniture, fixtures and office equipment 255,126 224,390 Automobiles 190,091 186,090 Leasehold improvements 62,836 34,360 ---------------- ---------------- 981,614 828,372 Less accumulated depreciation (228,171) (111,347) ---------------- ---------------- $ 753,443 $ 717,025 ================ ================
12 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE D SHORT-TERM BORROWINGS Short-term borrowings consisted of the following at:
May 31, August 31, 2001 2000 -------------- --------------- Revolving line of credit with bank, interest at prime $ 150,000 $ 150,000 payable monthly, due December 18, 2000, guaranteed by shareholder Convertible debentures, interest at prime plus one half, due March 22, 2001 500,000 - Bridge loan, non-interest bearing, due April 9, 2001 180,000 - Convertible debentures, non-interest bearing, due April 15, 2001 180,000 - Convertible debentures, interest at 11%, initial $200,000 payment due August 28, 2001 500,000 - Less: Discounts on debentures (148,800) - Other unsecured revolving lines of credit in the form of credit cards, interest ranging from 11.9% to 22.9%, payable monthly 94,928 91,678 -------------- --------------- $ 1,456,128 $ 241,678 ============== ===============
In August 1999, the Company negotiated a $50,000 revolving line of credit with a bank. The credit line was increased to $150,000 in December 1999. The line was guaranteed by a shareholder without the Company's authority, and matured in late December 2000. The bank has provided forbearance and the Company continues to service the debt with monthly interest payments. The Company is working with the bank to develop a mutually agreeable plan to repay the debt. In October 2000, the shareholder/guarantor of the line indicated that the guarantee would not be renewed. On September 20, 2000, the Company agreed to issue $500,000 in convertible debentures. The debentures bear interest at prime plus one half and were convertible into common stock at the lesser of $0.17 per share or fifty percent of the current market price. Principal and interest were due on October 20, 2000 but the due date was extended to January 15, 2001 and as additional consideration, the Company issued a five-year warrant to purchase one million shares at $1.13 per share to the holders of the convertible debentures. The debenture holders subsequently agreed to again extend the due date to March 22, 2001, convert no more than 4,950,000 shares, and provide a bridge loan of $180,000 in return for the adjustment of the conversion price per share to $0.07 and the adjustment of the exercise price of outstanding warrants to $0.21. Currently, these amounts are in default for lack of payment. The Company is working with the debenture holders to determine the form of repayment. On February 16, 2001, the Company agreed to issue $180,000 in the form of a convertible debenture. The debenture bears no interest, provides for conversion of $90,000 of the principal for shares with a conversion price of $0.18, and matured on April 15, 2001. Additional consideration was issued in the form of warrants for the purchase of up to 1,000,000 shares, the first 818,182 at an exercise price of $0.11 and the balance of 181,818 shares at an exercise price of $0.18. The Company is working with the debenture holder to determine the form of repayment. 13 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE D SHORT-TERM BORROWINGS (continued) In November 2000, the Company agreed to terms for issuing convertible debentures for $1,200,000 and the establishment of an 18-month equity line of $3,000,000. Subsequently on December 11, 2000 the terms were modified to issue $600,000 in convertible debentures and a $3,400,000 equity line. The agreement was with Thomson Kernaghan & Co. Limited and provided for two year debentures carrying a 10% accumulating interest rate and convertible into common shares. In addition, the Company had agreed to issue five-year warrants to purchase 1,250,000 shares of its common stock with an exercise price equal to 110% of the average closing bid price for the three trading days preceding closing. The Company also agreed to place 2,883,333 shares of its common stock (loaned by three shareholders) as collateral. Definitive agreements were signed and effective December 11, 2000. The Company complied with all requirements for closing including the placement of the shares as collateral but the transaction did not close under the terms of the agreement and the equity line was not established. Funds totaling $600,000 were ultimately received and the Company has reached an agreement with Thomson Kernaghan & Co. Limited regarding repayment. Thomson Kernaghan & Co. Limited retained the collateralized shares and was issued an additional 250,000 of restricted shares in repayment for the $600,000. The Company provided 4,999,997 restricted shares of common stock to the three shareholders in repayment for the collateralized shares. On February 23, 2001, the Company agreed to a $6,000,000 capital investment by Woodcrest Capital II Limited Partnership. The initial funding will be $1,000,000 paid in installments over nine months and subsequent funding of $5,000,000 subject to the following loan conditions: (a) the Company is not in default under the Note, nor any of the Loan Documents (b) The Company is in full compliance with all applicable and materially mandated SEC filings, rules, and regulations (c) the Company is cash flow positive, as determined by the Lender (d) the Company is earnings positive, as determined by the Lender (e) Lender determines, in Lender's sole discretion, that the Company is still an acceptable credit risk and (f) Lender determines, in Lender's sole discretion, that the Company is not a going concern risk. The Company received $200,000 at closing and is able to receive an additional $100,000 each month thereafter. The loans are to be repaid within six months of funding and bear interest at 11%. As additional consideration, the Company issued warrants totaling 10,812,500 shares at an exercise price of $0.16 related to the first $1,000,000 loaned. The warrants are vested and have a five-year term. The Company has the option to repay the principal and interest with cash or shares of common stock which shares will be valued at the lesser of $0.20 per share or 75% of the average of the stock's closing price in the previous 5 trading days. If the Company borrows amounts over the initial loan of $1,000,000 the interest rate and repayment terms are similar and additional warrants to purchase shares of common stock would be granted of 5 shares for every $1.00 loaned. As of May 31, 2001 the Company has received $500,000 in cash advances from Woodcrest Capital II Limited Partnership. NOTE E NOTES PAYABLE TO SHAREHOLDERS Notes payable to shareholders consist of the following at:
May 31, August 31, 2001 2000 -------------- -------------- Non-interest bearing note payable to shareholder, due $ 350,000 $ 350,000 on demand secured by all assets of NetXpress Unsecured note payable to shareholder, 8% interest, due on demand 195,000 195,000 Unsecured note payable to shareholder, 8% interest, due on demand - 12,000 ------------- ------------ $ 545,000 $ 557,000 ============= ============
14 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE E NOTES PAYABLE TO SHAREHOLDERS (continued) In connection with the acquisition of NetXpress, iExalt, Inc. (Texas) assumed a $350,000 note payable to a shareholder of the Company. Under the terms of this note, the balance becomes payable on demand when net assets of iExalt, Inc. (Texas) exceed $5,000,000. As of November 2000, the shareholder made demand for payment through his attorney and the Company is evaluating this claim. As an alternative, the Company is offering Christian mediation under the rules of the Institute for Christian Conciliation. During August 2000, U.S. Sporting Interests LLC and a shareholder loaned the Company $195,000 and $12,000 respectively under two separate demand notes each with an 8% interest rate. The $12,000 demand note was repaid in November 2000. Demand for payment of the $195,000 has been made and the company is currently evaluating this claim. During September 2000, a shareholder loaned the Company $55,000 under a promissory note with an 11.75% interest rate due on or before March 16, 2001. The note was repaid in December 2000. During November 2000, three shareholders loaned a total of 2,883,333 common shares in conjunction with its funding agreement with Thomson Kernaghan & Co. Limited to the Company to be held as collateral by Thomson Kernaghan. The Company agreed to repay the shareholders within six months. The shareholders agreed that the collateralized shares could be repaid in restricted shares in the event the shares loaned were not returned. As further consideration, the shareholders also receive interest on the fair market value of the shares loaned paid at 12%. On March 28, 2001, the Company provided 4,999,997 restricted shares of common stock to the three shareholders in repayment for the collateralized shares of which 86,957 shares was earned interest. NOTE F LONG-TERM DEBT Long-term debt consisted of the following at:
May 31, August 31, 2001 2000 -------------- -------------- Note payable to bank, interest at prime payable $ 550,000 $ 550,000 quarterly, due June 30, 2001, unsecured, guaranteed by shareholder Vehicle notes payable, interest ranging from 1.9% to 14.25%, maturing June 2001 to June 2004, secured by vehicles 99,217 131,173 Notes payable on various insurance policies 14,358 19,414 Other unsecured note payables, due on demand 7,512 2,500 ------------- ------------- 671,087 703,087 Less: current maturities 587,302 613,037 ------------- ------------- $ 83,785 $ 90,050 ============= =============
The note payable to the bank matured on June 30, 2001; however, the bank has provided forbearance and the Company continues to service the debt with interest payments. The Company is working with the bank to develop a mutually agreeable plan to repay the debt. 15 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE G SHAREHOLDERS' EQUITY First Choice was sold to a company owned by a former member of the Board of Directors in exchange for the assumption of future liabilities. As a part of the transaction, the Company made a payment to First Choice of $25,000 during October and issued 25,000 shares of the Company's common stock to an employee for past services rendered. The filtering software and related technology was sold to a former employee of the Company. The Company issued 150,000 shares of the Company's common stock with piggyback registration rights to the former employee in exchange for a note receivable of $84,359, the total of existing liabilities related to the filtering technology at the closing. The note is to be repaid upon sale of the stock or six months, whichever occurs first. The Company is currently working to resolve the outstanding note receivable collection. A funding agreement related to the acquisition of a start-up Internet Company that the Company had signed in April 2000 was terminated. The Company issued 100,000 shares of the Company's common stock with piggyback registration rights, retained a 49% interest in the start-up company, and received a note receivable for the total funds advanced of $368,112. These assets were fully impaired at August 31, 2000 due to the low probability of collecting the note receivable or realizing future income from the equity interest. On September 16, 2000, the Company issued 300,000 shares of its common stock valued at $274,212 to SunState Equity Inc., for consulting services related to corporate financing activities, market acceptance of the Company's business and securities, recommendations relating to specific business operations and investments, advice relating to financial planning, and advice regarding future finances involving securities of the Company. On September 25, 2000, the Company granted a one-year option to purchase 600,000 shares of the Company's common stock at an exercise price of $0.02 per share to Consulting Strategies, Inc. for consulting services provided as part of the Company's reorganization and restructuring. These options were exercised on October 10, 2000 for $12,000. The Company incurred non-cash expense of $681,773 for the fair value of the options under SFAS No. 123. On September 29, 2000, the Company acquired a seven percent indirect interest in Sonora Behavioral Hospital, a 30-plus-bed psychiatric hospital in Arizona. The Company exchanged 150,000 shares of its common stock for the interest in Integral Behavioral Health Services, Inc., to the 100% owner and operator of Sonora. On October 3, 2000, the Company acquired all the stock of ListenFirst.com ("ListenFirst"), a Christian music news website for 60,000 shares of the Company's common stock. If certain revenue or profit levels are reached over the next three years, a maximum of 50,000 additional shares will be issued for the acquisition. On October 17, 2000, the Company sold 879,906 shares of common stock to an accredited investor for $560,000. On October 18, 2000, the assets of Northwest Christian Journal ("NWCJ"), a monthly Christian newspaper in the Seattle area, were acquired for 37,500 shares of the Company's common stock and cash proceeds of $7,500. On October 29, 2000, the assets of the Christian Blue Pages, LLC ("Blue Pages") that produces a directory of Christian businesses in four editions in Southern California, were acquired in exchange for 60,000 shares of the Company's common stock and a percentage of the first year's advertising revenues. 16 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE G SHAREHOLDERS' EQUITY (continued) All the outstanding stock of CleanWeb, Inc. ("CleanWeb"), a national filtered ISP with approximately 6,000 users, was acquired on October 24, 2000 for 2,313,000 shares of the Company's common stock. Effective November 1, 2000, the Company acquired all the assets of Rapha ("Rapha"), a Christian inpatient mental health management company. Under the terms of the acquisition agreement, the Company issued 200,000 shares of common stock at closing. When contracts noted within the purchase agreement are certified by Psycare that such contracts have been assigned within 180 days of closing, then the final valuation will be increased by $200,000 per contract, not to exceed $1,000,000 in total, and settled with additional shares of common stock, if necessary, in October, 2002. The transaction was accounted for as a purchase and originally goodwill was recorded in the amount of $284,228. The contracts have been certified and goodwill was recorded in the amount of an additional $715,772. On November 21, 2000, in exchange for 30,000 shares of the Company's common stock, the Company acquired all of the speaker contracts and speaking engagements related to the Christian market from Alive Communications ("Alive"). On November 21, 2000, in exchange for 75,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Shepherd Productions, Inc. in which two websites were purchased and commitments for future collaborative efforts were formalized such as the development of radio and Internet related programs. On November 29, 2000, in exchange for 75,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Dawson McAllister in which the Company's products and services will be marketed through radio and Internet related communications. On November 2, 2000 a signing bonus of 50,000 shares of the Company's common stock was provided per an agreement of employment and non-competition with the Company's Vice President - Marketing. On December 1, 2000, in exchange for 50,000 shares of the Company's common stock, the Company acquired all of the assets of Gilmore Marketing. On December 11, 2000, in exchange for 20,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Wes Holloman for services related to the TheParentLink on-line site that offers an online monthly newsletter for parents that youth ministers can download and customize for their own use. On December 15, 2000 the Board of Directors provided that 150,000 shares of common stock be issued to two individuals as compensation for services provided to the Company and 100,000 shares of common stock be issued to a director for services. On February 9, 2001, in exchange for 100,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with TeamImpact, Inc. in which TeamImpact will promote the Company's internet service provider product, and other related products and services as well as naming iExalt as a key sponsor of TeamImpact promotional events. On February 15, 2001, the warrant issued to Robert Horn as compensation for services performed related to the CleanWeb, Inc. acquisition was exercised resulting in 10,000 shares of the Company's stock being issued. 17 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE G SHAREHOLDERS' EQUITY (continued) On February 23, 2001, the Company provided 93,500 shares of its common stock to W. Michael Greene as compensation for services related to the closing of the Woodcrest Capital investment. On March 1, 2001 the Company completed its acquisition of Global Christian Network, Inc. ("GCN"), a technology company and the creators of an online Christian Community based in Reno, Nevada. The Company issued a total of 1,520,105 of its common shares to certain GCN shareholders and $11,958 of cash to certain GCN shareholders in exchange for all issued and outstanding stock of GCN. The Company also issued 500,000 of its common shares for full payment of an outstanding promissory note owed by GCN to an investor. The Company issued 207,000 of its common shares to four employees of GCN for past services. On March 1, 2001, the Company completed the acquisition of Capital Artists Agency, Inc., a full service talent agency representing a variety of names in contemporary Christian music headquartered in Nashville, TN. The Company paid 187,500 shares of its common stock and additional shares may be issued under certain contingencies to provide for a purchase price of $150,000 at the final closing on March 1, 2002. On March 28, 2001, the Company provided 4,999,997 restricted shares of common stock to three shareholders in repayment for the collateralized shares. The shareholders had loaned a total of 2,883,333 common shares in conjunction with its funding agreement with Thomson Kernaghan & Co. Limited to the Company to be held as collateral by Thomson Kernaghan & Co. Limited. Thomson Kernaghan & Co. Limited retained the collateralized shares and was issued an additional 250,000 of restricted shares in repayment for the $600,000 in convertible debentures. On March 23, 2001, the Company provided 100,000 shares of its common stock to its Chief Financial Officer, Chris L. Sisk, related to compensation for services provided during December, 2000. On April 15, 2001, the company provided 45,000 shares of its common stock to three employees based on terms of their employment contracts. On April 24, 2001, the Company provided 100,000 shares of its common stock to Roger Dartt as a settlement of the compensation for services agreement. On April 24, 2001, the Company provided a total of 222,547 shares of its common stock to pay for radio airtime related to the broadcast of iExalt's radio program Life Perspectives. These radio stations will carry the Life Perspectives program five days each week and agreed to stock as compensation in lieu of cash. NOTE H STOCK OPTIONS AND WARRANTS The board of directors elected to issue stock options at an exercise price of $0.20 per share to directors for a number of shares equal to the number of dollars loaned or guaranteed personally by any such director. Accordingly, options to purchase an aggregate 800,000 shares of common stock were granted within the quarter ended February 28, 2001. A non-cash expense of $13,249 was recorded related to the fair value of the options. The board of directors elected to issue stock options at an exercise price of $0.19 per share to directors for serving on the executive committee. Accordingly, options to purchase an aggregate 750,000 shares of common stock were granted within the quarter ended February 28, 2001. 18 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE H STOCK OPTIONS AND WARRANTS (continued) The board of directors elected to issue stock warrants at an exercise price of $0.14 per share to Wes Christian for legal services. Accordingly, warrants to purchase an aggregate 300,000 shares of common stock were granted within the quarter ended February 28, 2001. A non-cash expense of $37,500 was recorded related to the fair value of the warrants. NOTE I INCOME TAXES The Company has had losses since inception and, therefore, has not been subject to federal income taxes. As of May 31, 2001 the Company estimates an accumulated taxable net operating loss ("NOL") carryforward for income tax purposes of approximately $12.9 million, resulting in a deferred tax asset of $4.5 million. These carryforwards begin to expire in 2019. Because U.S. tax laws limit the time during which NOL and tax credit carryforwards may be applied against future taxable income and tax liabilities, the Company may not be able to take full advantage of its NOL and tax credits for federal income tax purposes. A valuation allowance has been established to fully offset the deferred tax assets. NOTE J BUSINESS SEGMENTS The Company's operations are grouped into three business segments based on types of service and delivery media: Internet and technology applications, print publications, and healthcare services. Internet and technology applications consist of CleanWeb, iExalt.com (portal), Electronic Publishing, ChristianSpeakers.com, ListenFirst.com, Global Christian Network, ChristianArtists.com, Gilmore Marketing, iSermons, the ParentLink, and Life Perspectives. Print publications consist of Christian Happenings, Christian Times, and Christian Blue Pages. Healthcare services consist of the counseling programs of PremierCare and Rapha. 19 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE J BUSINESS SEGMENTS (continued) The Company's reportable segment information for the nine months ended May 31, 2001 and May 31, 2000 is as follows:
Nine Months Ended Internet & Print Healthcare Corporate/ Reportable May Technology Publications Services Other Segments ------------------------ --------------- -------------- -------------- --------------- --------------- Revenues: 2001 $ 3,654,146 $ 1,487,804 $ 2,600,266 $ - $ 7,742,216 2000 $ 1,795,413 $ 722,513 $ - $ - $ 2,517,926 Gross Profit: 2001 $ 980,188 $ 436,303 $ 989,433 $ - $ 2,405,924 2000 $ 382,292 $ 266,698 $ - $ - $ 648,990 (Loss)/Income from Operations: 2001 $ (767,825) $ (153,839) $ 149,106 $ (3,761,101) $ (4,533,659) 2000 $ (947,859) $ (40,493) $ - $ (1,160,192) $ (2,148,544) Depreciation/Amort: 2001 $ 144,419 $ 67,858 $ 88,078 $ 49,615 $ 349,970 2000 $ 78,269 $ 16,723 $ - $ 16,615 $ 111,607 Assets: 2001 $ 5,324,471 $ 1,378,258 $ 2,376,637 $ 437,096 $ 9,516,462 2000 $ 4,796,582 $ 211,503 $ - $ 1,812,071 $ 6,820,156
The following table reconciles reportable segment gross profit to the Company's consolidated loss before income taxes for the nine months ended May 31, 2001 and May 31, 2000:
May 31, May 31, 2001 2000 ---------------- ---------------- Gross profit of reportable segments $ 2,405,924 $ 648,990 Other expenses 6,939,583 2,797,534 ---------------- ---------------- Loss from operations (4,533,659) (2,148,544) Other Income/(Expense) Interest income/other (5,405) 27,325 Interest expense (356,404) (10,015) ---------------- ---------------- Loss before income taxes $ (4,895,468) $ (2,131,234) ================ ================
20 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE J BUSINESS SEGMENTS (continued) The Company's reportable segment information for the three months ended May 31, 2001 and May 31, 2000 is as follows:
Three Months Internet & Print Healthcare Corporate/ Reportable Ended May Technology Publications Services Other Segments ------------------------ --------------- -------------- -------------- --------------- --------------- Revenues: 2001 $ 1,458,376 $ 535,219 $ 845,478 $ - $ 2,839,073 2000 $ 952,279 $ 270,204 $ - $ - $ 1,222,483 Gross Profit: 2001 $ 365,563 $ 141,541 $ 292,478 $ - $ 799,582 2000 $ 232,273 $ 98,258 $ - $ - $ 330,531 (Loss)/Income from Operations: 2001 $ (391,810) $ (57,970) $ (5,149) $ (774,639) $ (1,229,568) 2000 $ (386,079) $ (34,819) $ - $ (472,762) $ (893,660) Depreciation/Amort: 2001 $ 49,214 $ 23,505 $ 35,510 $ 16,752 $ 124,981 2000 $ 46,251 $ 8,423 $ - $ 1,617 $ 56,291 Assets: 2001 $ 5,324,471 $ 1,378,258 $ 2,376,637 $ 437,096 $ 9,516,462 2000 $ 4,796,582 $ 21,503 $ - $ 1,812,071 $ 6,820,156
The following table reconciles reportable segment gross profit to the Company's consolidated loss before income taxes for the three months ended May 31, 2001 and May 31, 2000:
May 31, May 31, 2001 2000 ---------------- ---------------- Gross profit of reportable segments $ 799,582 $ 330,531 Other expenses 2,029,150 1,224,191 ---------------- ---------------- Loss from operations (1,229,568) (893,660) Other Income/(Expense) Interest income/other (9,317) 22,073 Interest expense (131,726) (5,651) ---------------- ---------------- Loss before income taxes $ (1,370,611) $ (877,238) ================ ================
21 iEXALT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE K CONTINGENCIES A disclosure was included within the Company's 10-KSB annual report as of August, 31, 2000 that noted the Company had received written demand from three shareholders who had purchased shares of common stock and claimed the right to additional shares based on claimed anti-dilution provisions associated with their investment. The Company has held several discussions with the shareholders and expects to resolve the differences in a mutually beneficial manner. Though not formally resolved as of the date of this report, Management has estimated that a contingent liability exists as of the end of the third quarter and accrued $100,000 as a potential liability for this demand. NOTE L SUBSEQUENT EVENTS On June 1, 2001, the company provided 100,000 shares of its common stock to two employees based on terms of their employment as compensation. On June 5, 2001, the Company agreed to issue $100,000 in the form of a convertible debenture. The debenture bears interest payable monthly of 22,500 of the company's restricted common shares, provides for conversion of $25,000 of the principal for common shares with a conversion price of $0.08, and matures on December 31, 2001. On June 5, 2001, the Company agreed to issue $150,000 in the form of a convertible debenture. The debenture bears interest payable monthly of 33,750 of the company's restricted common shares, provides for conversion of $150,000 of the principal for common shares with a conversion price of $0.08, and matures on December 31, 2001. On June 13, 2001, the Company provided 46,500 shares of its common stock to Steve Tuggle as partial compensation for services related to the preparation of the company's federal income tax filing for the fiscal year 2000. On June 25, 2001, the Company filed a Form S-8 with the Securities and Exchange Commission to register 5,000,000 of its common shares. The company signed three consulting contracts that each have a term of two years and provide for consulting and advisory services to iExalt towards developing iExalt's technology plan to accomplish its strategic and business plans and integrate the Company's business operations, assistance with debt consolidation and cash-flow planning and assistance in negotiations with creditors, for rationalization of subsidiary structure and divestiture of lines of business, rationalization of personnel post-divesture consolidation and related compensation issues for 5,000,000 of its common shares. 22 Part I- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read together with our financial statements, which are included earlier within this Form 10-QSB. The discussion contains certain forward-looking statements regarding our expectations for our business and our capital resources. These expectations are subject to various uncertainties and risks that may cause actual results to differ significantly from these forward-looking statements. General iExalt, Inc., ("iExalt" or "Company"), was originally incorporated as Louisiana Northern Gas, Inc. a Nevada corporation on April 23, 1979. The name of the Company was changed to Sunbelt Exploration, Inc. on December 21, 1979. From 1989 until September 1, 1999, the Company had very limited operations. On September 1, 1999, the Company consummated a merger (hereinafter referred to as the "Merger") with iExalt, Inc., a Texas corporation incorporated on January 7, 1999, ("iExalt-Texas") whereby the shareholders of iExalt-Texas acquired an approximate 89% ownership interest in the Company. The Merger has been accounted for as a reverse takeover with the Company being the surviving legal entity and iExalt-Texas being the acquiror for accounting purposes. Concurrent with the Merger, the Company changed its name from Sunbelt Exploration, Inc. to iExalt, Inc. iExalt blends the positive modern technologies available through the Internet with traditional media to provide products, services, and Internet solutions to Christian families, businesses, schools, communities, and organizations. iExalt currently markets filtered internet service, publishes Christian electronic books and reference materials, a Christian events magazine, a Christian business directory, a Christian newspaper, produces a radio program five nights per week, is affiliated with a youth oriented Christian radio program, operates a comprehensive contemporary Christian music website, one of the largest speakers bureaus dedicated to Christian speakers, and an agency that provides Christian artists. In addition, iExalt sells tickets for Christian events, manages one of the most popular Christian portal sites, provides access to on-line web based sermon resources through its web site, and provides, through the internet, a cutting-edge information-packed, online monthly newsletter for local youth programs called the ParentLink. iExalt provides psychiatric counseling services for senior citizens from the implementation and management of geriatric psychiatric programs for hospitals and other health facilities. iExalt also operates a Christian inpatient mental health management company. iExalt is a company formed to meet the needs of the Christian community. Our vision is to reflect Jesus Christ by providing the highest quality Christian products, services and Internet solutions. iExalt's primary goals are as follows: o Media: iExalt will acquire, develop and expand our influence through print, radio, television, and the Internet o Migration: iExalt will migrate each company in the iExalt family to a Web related strategy o Market: iExalt will enter fields where we can reasonably expect to be the dominant entity o Ministry: iExalt must ensure that each company within the family of iExalt companies has a ministry focus, and shares our commitment to the Christian faith o Monetary: iExalt must create positive returns for our shareholders On September 13, 2000, Donald W. Sapaugh, who had served as President of iExalt from the Company's inception was elected to the office of Chairman of The Board and Chief Executive Officer. This action was initiated subsequent to the resignation of some of the Company officers and Board members. Both the Board of Directors and the resigning directors and officers stated that the resignations resulted from philosophical management differences and were unrelated to operating performance or accounting issues. Subsequent to those actions, we re-evaluated our business mix and reviewed economic expectations from the various businesses. This analysis allowed management to determine which lines of business would best enable iExalt to achieve the company goals. Decisions were made that resulted in the disposition of two businesses and the termination of an acquisition effort related to a third business. We divested all of our interest in First Choice to the management of that subsidiary for their assumption of future liabilities. We divested ourselves of our filtering software and related technologies to the management of that function for their assumption of future liabilities, while retaining the rights to use the filtering software in our ISP business and to market it to the Christian community. 23 Our management believed that the effort to take this technology to other markets would have diverted too much capital and management attention away from the goals of the company. We terminated the acquisition of a start-up Internet company with which we had signed a funding agreement in April 2000, because of our perception of delays in business prospects necessary for it to reach positive cash flow. The value of the goodwill and intangible assets on our books as of August 31, 2000, relating to First Choice and the prospective acquisition was fully impaired and written down to zero within the year then ended. The carrying value of the filtering and related software was reduced to the value of future cost savings that we estimate will be realized by having our own filtering technology rather than having to license it as is generally the case with other filtered internet service providers. In addition to writing off the associated assets and paying expenses through the time of disposition, we have made a supplemental payment of $25,000 to First Choice and have issued 150,000 shares of our common stock to the filtering software acquirer and 100,000 shares to the terminated acquisition target. We acquired a note receivable from the filtering software acquirer of $84,359 and a note receivable from the terminated acquisition target of $368,112 Also, as a result of the funding agreement, we retained a 49% interest in the acquisition target as the note was not repaid by the agreed upon date of January 1, 2001. These assets were fully impaired at August 31, 2000 due to the low probability of collecting the note receivable or realizing future income from the equity interest. On September 16, 2000, the Company issued 300,000 shares of common stock to a financial advisor for consulting services. On September 29, 2000, we acquired an indirect seven percent interest in Sonora Behavioral Health Hospital, LLC, a 30-plus-bed psychiatric hospital in Arizona. Management believes this acquisition provides us with an opportunity to expand our counseling activities. Our interest is held through Integral Behavioral Health Service, Inc., in which we acquired a seven percent interest in exchange for 150,000 shares of our common stock. On October 3, 2000, we acquired all of the stock of ListenFirst.com, Inc., which operates a music news website, for 60,000 shares of our common stock. If certain revenue and profit levels are reached over the next three years, a maximum of 50,000 additional shares of common stock will be issued. This acquisition provides us with another element to our mix of Internet websites oriented to the Christian market. Management also believes it provides potential synergies with radio programs and Christian events. On October 17, 2000, the Company sold 879,906 shares of common stock to an accredited investor for $560,000. On October 18, 2000, we acquired substantially all of the assets of Northwest Christian Journal for 37,500 shares of our common stock plus $7,500. Northwest Christian Journal is a monthly Christian newspaper with a circulation of about 20,000 published in the Seattle area. The newspaper is being renamed Northwest Christian Times and is now operated by our Christian Times subsidiary. On October 24, 2000, we acquired all of the outstanding stock of CleanWeb, Inc., another filtered ISP, for 2,313,000 shares. iExalt is combining the operations of iExalt.net and CleanWeb and markets the product through CleanWeb, Inc. On October 29, 2000, we acquired all of the assets of Christian Blue Pages, LLC in exchange for 60,000 shares of our common stock and 25%-50% of the first year's advertising revenues. Christian Blue Pages produces a "yellow pages" of Christian businesses in four editions in southern California. Its operations are now conducted through our Christian Times subsidiary. Effective November 1, 2000, we acquired the assets of Rapha from PsyCare America, LLC, expanding our counseling services to Christian inpatient mental health management. Under the terms of the acquisition, we issued 200,000 shares of common stock. If the contracts noted within the purchase agreement are certified by PsyCare America, LLC that such contracts have been assigned within 180 days of closing then the final valuation will be increased by $200,000 per contract, not to exceed $1,000,000 in total, and settled with additional shares of common stock, if necessary, in October 2002. Our chairman, chief executive officer, and president had been president of Rapha Treatment Centers from 1987 to 1996, prior to its sale to PsyCare America, LLC. On November 2, 2000, a signing bonus of 50,000 shares of the Company's common stock was paid per an agreement of employment and non-competition with the Company's Vice President - Marketing. 24 On November 21, 2000, in exchange for 30,000 shares of our common stock, we acquired from Alive Communications all of its speaker contracts and speaking engagements relating to the Christian market. Alive is a leading provider of speakers to the Christian community. Their business has been combined with ChristianSpeakers.com. On November 21, 2000, in exchange for 75,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Shepherd Productions, Inc. in which two websites were purchased and commitments for future collaborative efforts were formalized such as the development of radio and internet related programs. On November 29, 2000, in exchange for 75,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Dawson McAllister in which the Company's products and services will be marketed through radio and internet related communications. On December 1, 2000, in exchange for 50,000 shares of the Company's common stock, the Company acquired the assets of Gilmore Marketing Company. The company provides marketing related products and services such as multi media development, advertising art work and content, publication brochures, printing designs, and logos. On December 11, 2000, in exchange for 20,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Wes Holloman for services related to the TheParentLink on-line site that offers an online monthly newsletter for parents that youth ministers can download and customize for their own use. On February 9, 2001, in exchange for 100,000 shares of the Company's common stock, the Company concluded a strategic relationship agreement with Team Impact, Inc. in which Team Impact will promote the Company's internet service provider product, and other related products and services as well as naming iExalt as a key sponsor of Team Impact promotional events. On March 1, 2001, the Company completed the acquisition of the Global Christian Network, Inc. (GCN), a technology company and the creators of an online Christian Community based in Reno, Nevada. GCN will substantially increase the Company's online presence and add significant technology improvements. As consideration for the acquisition, the Company issued a total of 1,520,105 of its common shares to certain GCN shareholders and $11,958 of cash to certain GCN shareholders in exchange for all issued and outstanding stock of GCN. The Company issued 500,000 of its common shares for full payment of an outstanding promissory note owed by GCN to an investor (which upon the anniversary of closing the value of such shares must equal a minimum of $273,104 or additional shares must be issued to for the difference). The Company issued 207,000 of its common shares to four employees of GCN for past services. The Company agreed to a contingent payment of $26,033 of cash to selected employees for past services based on the achievement of certain performance objectives. Pursuant to the execution of a funding agreement between the companies dated June 30, 2000, the Company had advanced cash totaling $369,170 for pre-acquisition expenditures. On March 1, 2001, the Company completed the acquisition of Capital Artists Agency, Inc., a full service talent agency representing a variety of names in contemporary Christian music headquartered in Nashville, TN. The purchase will substantially increase the Company's presence in the Christian entertainment service sector. In conjunction with the acquisition, Capital Artist Agency changed its name to ChristianArtists.com. The Company provided 187,500 shares of its common stock and additional shares may be issued under certain contingencies to provide for a purchase price of $150,000 at the final closing on March 1, 2002. On April 24, 2001, the Company provided a total of 222,547 shares of its common stock to pay for radio airtime related to the broadcast of iExalt's radio program Life Perspectives. These radio stations will carry the Life Perspectives program five days each week receiving stock as compensation. On May 31, 2001, the Company completed the sale of certain assets to 711.NET, Inc. Assets sold include iExalt's right, title and interest in all of CleanWeb's current internet access subscribers, selected other assets used in, related to, and common and necessary to the operations of the business including the assignment of certain lease obligations and certain tangible/intangible property (which will be specifically identified within an exhibit being 25 developed by the company and 711.NET, Inc.) CleanWeb will continue to market, resell, and produce additional business and Internet subscriber sales and services to iExalt constituency, market influences, and other organizations as a Reseller of such Internet services of the buyer's ISPBrand Internet access services through a Strategic Marketing and Reseller Agreement with the Buyer. iExalt expects to produce additional subscribers for Buyer and has committed to securing at least 10,000 new subscribers to the Buyer within the initial twelve months following closing. iExalt will receive royalty amounts on a monthly basis for all active fully paying subscribers developed through the Marketing relationship. For subscribers up to 10,000 a royalty of $5.00 per subscriber per month will be remitted. For subscribers from 10,001 - 20,000 a royalty of $6.00 per subscriber per month will be remitted. For subscribers over 20,000 a royalty of $7.00 per subscriber per month will be remitted. Should iExalt not equal or exceed 10,000 subscribers in the initial twelve months after closing then it will pay the Buyer $50,000 worth of common shares of iExalt not to exceed 100,000 shares. As consideration for the sale, iExalt received a lump sum payment of $150,000 cash at closing, an agreement for $648,000 such amount to be paid in monthly payments of not less than $24,000 and payable in not more than 25 months from the date of transition, and an agreement to receive 438,667 shares of Buyer's common stock issued at a price of $1.50 per share for a value of $658,000. Proceeds of $1,456,000 and a net gain of $25,445 were recorded. An allocation, based upon estimated market values, of CleanWeb's goodwill ($2,236,680) was developed to determine the amount attributable to the assets that were sold. As a result of the analysis $1,734,189 of goodwill was determined to relate to the assets that were sold and goodwill was reduced accordingly. iExalt has a limited operating history upon which an evaluation of business results can be based. The company is involved in a dynamic and rapidly developing technology and is attempting to incorporate the tremendous power of the internet to market its products and services while seeking to generate revenues from its internet portal through advertising and sponsorship. Partnered with its technology efforts, iExalt is also providing products and services through print media and healthcare services. The risk and rewards associated with start-up ventures or early developmental companies like iExalt are often volatile. iExalt has incurred net losses since its inception and expects to continue to operate at a loss until its companies generate sufficient revenues in excess of expenditures. As of May 31, 2001, iExalt has experienced a cumulative deficit of $12,970,750 comprised of both cash and non cash components. Management has determined that the Company will emphasize the monetary goal, and to that end, will execute plans that will increase revenues while simultaneously seeking acquisitions that add immediate positive value to earnings during the final months of fiscal year 2001. Results of Operations Our operating units are grouped into three business segments based on types of service and delivery media: (1) Internet & Technology Applications, (2) Print Publications, and (3) Healthcare Services. Internet & Technology Applications consist of CleanWeb, iExalt.com (portal), Electronic Publishing, ChristianSpeakers.com, ListenFirst.com, Global Christian Network, ChristianArtists.com, Gilmore Marketing, iSermons, the ParentLink, and Life Perspectives radio. Print Publications consist of Christian Happenings, Christian Times, and Christian Blue Pages. Healthcare Services consist of the counseling programs of PremierCare and Rapha. Net loss for the nine months ended May 31, 2001 totaled $4,895,468 compared to a net loss of $2,131,234 for the same period ended May 31, 2000. However, this loss includes significant non-cash expenses totaling $2,199,267 related to businesses that we disposed of during September 2000, depreciation, amortization, common stock shares issued for services, and stock options and warrants that were issued. Excluding these non-cash expenses, the loss for the nine months ended May 31, 2001 was $2,696,201. Net loss for the quarter ended May 31, 2001 totaled $1,370,611 compared to a net loss of $877,238 for the same quarter in year 2000. Revenues Internet & Technology Applications generate revenues from product sales, speaker fees, artists fees, subscriptions, user fees, and advertising. Revenues for Print Publications consist of advertising and ticket service fees. Healthcare Services revenues are earned from hospitals for providing services in accordance with our contracts. Total revenues were $7,742,216 for the nine months ended May 31, 2001 compared with $2,517,926 for the nine months ended May 31, 2000. Increases to revenue are primarily attributable to sales recognized from the businesses and the business assets that have been purchased through the company's aggressive acquisition program. Revenues by segment for the two periods are as follows. 26
Nine Months Ended ------------------------------------------------------------- May 31, May 31, 2001 2000 ----------------------------- ---------------------------- REVENUES AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Internet and Technology Applications $ 3,654,146 47% $ 1,795,413 71% Print Publications 1,487,804 19% 722,513 29% Healthcare Services 2,600,266 34% - -%
Total revenues were $2,839,073 for the quarter ended May 31, 2001 compared with $1,222,483 for the quarter ended May 31, 2000. Revenues by segment for the two periods are as follows.
Three Months Ended ------------------------------------------------------------- May 31, May 31, 2001 2000 ----------------------------- ---------------------------- REVENUES AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Internet and Technology Applications $ 1,458,376 51% $ 952,279 78% Print Publications 535,219 19% 270,204 22% Healthcare Services 845,478 30% - -%
Cost of Sales and Services Cost of Sales and Services for Internet & Technology Applications includes royalties, direct labor, payments to speakers and artists, Internet connectivity, and communications costs. Cost of Sales and Services for Print Publications consists of printing, shipping, delivery, credit card fees and direct labor. Healthcare Services Cost of Sales and Services is primarily direct personnel costs. Increases to costs are primarily attributable to expenditures incurred from the businesses and the business assets that have been purchased through the company's aggressive acquisition program. The Cost of Sales and Services was $5,336,292 for the nine months ended May 31, 2001 compared with $1,868,936 for the nine months ended May 31, 2000. Cost of Sales and Services by segment for the two periods is shown below.
Nine Months Ended ------------------------------------------------------------- May 31, May 31, 2001 2000 ----------------------------- ---------------------------- COST OF SALES AND SERVICES AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Internet and Technology Applications $ 2,673,958 50% $ 1,413,121 76% Print Publications 1,051,501 20% 455,815 24% Healthcare Services 1,610,833 30% - -%
The Cost of Sales and Services was $2,039,491 for the quarter ended May 31, 2001 compared with $891,952 for the quarter ended May 31, 2000. Cost of Sales and Services by segment for the two periods is shown below.
Three Months Ended ---------------------------------------------------------- May 31, May 31, 2001 2000 ---------------------------- -------------------------- COST OF SALES AND SERVICES AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Internet and Technology Applications $ 1,092,813 54% $ 720,006 81% Print Publications 393,678 19% 171,946 19% Healthcare Services 553,000 27% - -%
27 Selling, General and Administrative Selling, General and Administrative costs for Internet & Technology Applications include primarily personnel and advertising costs. Selling, General and Administrative costs for Print Publications consist of personnel and communication services. Healthcare Selling, General and Administrative costs are primarily personnel, travel and transportation. Corporate overhead costs are primarily professional fees, costs of issuing stock options and warrants and costs of issuing shares for services. Selling, General and Administrative costs were $4,270,260 for the nine months ended May 31, 2001 compared with $1,389,711 for the nine months ended May 31, 2000. Included in the nine months ended May 31, 2001 are significant non-cash expenses totaling $1,721,480 related to stock options and warrants that were issued and common stock shares issued for services provided. Excluding these non-cash expenses, the total Selling, General and Administrative costs were $2,548,780 for the nine months ended May 31, 2001. Increases to Selling, General and Administrative costs are primarily attributable to expenditures incurred from the businesses and the business assets that have been purchased through the company's aggressive acquisition program along with the costs of implementing the company's growth strategy. Selling, General and Administrative costs by segment for the two periods are shown below.
Nine Months Ended ---------------------------------------------------------- May 31, May 31, 2001 2000 ---------------------------- -------------------------- SELLING, GENERAL, AND ADMINISTRATIVE AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Internet and Technology Applications $ 919,702 22% $ 650,553 47% Print Publications 234,256 6% 87,707 6% Healthcare Services 246,500 6% - -% Corporate Overhead 2,869,802 66% 651,451 47%
Selling, General and Administrative costs were $1,026,163 for the quarter ended May 31, 2001 compared with $573,710 for the quarter ended May 31, 2000. Selling, General and Administrative costs by segment for the two periods are shown below.
Three Months Ended ---------------------------------------------------------- May 31, May 31, 2001 2000 ---------------------------- -------------------------- SELLING, GENERAL, AND ADMINISTRATIVE AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Internet and Technology Applications $ 371,835 36% $ 229,176 40% Print Publications 73,705 7% 36,343 6% Healthcare Services 80,979 8% - -% Corporate Overhead 499,644 49% 308,191 54%
Payroll costs were $2,191,536 for the nine months ended May 31, 2001 compared with $1,296,216 for the nine months ended May 31, 2000. Increases to costs related to payroll are primarily attributable to the additional personnel added to provide for effective human resources to manage, operate, and administer the efforts of a rapidly growing and dynamic business. Payroll costs were $903,451 for the three months ended May 31, 2001 compared with $594,190 for the three months ended May 31, 2000. Liquidity and Capital Resources As of May 31, 2001, iExalt had $1,986,730 in current assets, $5,143,315 in current liabilities and a retained deficit of $12,970,750. We had a net loss of $4,895,468 for the nine months ended May 31, 2001. Net cash used by operating activities for the period was $2,760,323. 28 In August 1999, the Company negotiated a $50,000 revolving line of credit with a bank. The credit line was increased to $150,000 in December 1999. The line is guaranteed by a shareholder, and matured in late December 2000. The bank has provided forbearance and the Company continues to service the debt with monthly interest payments. The Company is working with the bank to develop a mutually agreeable plan to repay the debt. In October 2000, the shareholder/guarantor of the line indicated that the guarantee would not be renewed. In July 2000, iExalt borrowed $550,000 from a bank under a term loan that is due on June 30, 2001. A shareholder guaranteed the term loan. The bank has provided forbearance and the Company continues to service the debt with interest payments. The Company is working with the bank to develop a mutually agreeable plan to repay the debt. In October 2000, the shareholder/guarantor of the debt indicated that the guarantee would not be renewed. During August 2000, U.S. Sporting Interests LLC and a shareholder loaned the Company $195,000 and $12,000 respectively under two separate demand notes each with an 8% interest rate. The $12,000 demand note was repaid in November 2000. Demand for payment of the $195,000 has been made through an attorney and the company is currently evaluating this claim. During September 2000, a shareholder loaned the Company $55,000 under a promissory note with an 11.75% interest rate due on or before March 16, 2001. The note was repaid in December 2000. In connection with the acquisition of NetXpress, iExalt, Inc. (Texas) assumed a $350,000 note payable to a shareholder of the Company. Under the terms of this note, the balance becomes payable on demand when net assets of iExalt, Inc. (Texas) exceed $5,000,000. As of November 2000, the shareholder made demand for payment through his attorney and the Company is evaluating this claim. On September 20, 2000, the Company agreed to issue $500,000 in convertible debentures to Travin Partners LLLP and TCA Investments, Inc. The debentures bear interest at prime plus one half percent and were convertible into common stock at the lesser of $0.17 per share or fifty percent of the current market price. Principal and interest were due on October 20, 2000 but the due date was extended to January 15, 2001 and as additional consideration, the Company issued a five-year warrant to purchase one million shares at $1.13 per share to the holders of the convertible debentures. The debenture holders subsequently agreed to again extend the due date, convert no more than to 4,950,000 shares, and provide a bridge loan of $180,000 in return for the adjustment of the conversion price from $0.17 per share to $0.07 per share and the adjustment of the exercise price of outstanding warrants to $0.21. As of May 31, 2001, both the $500,000 convertible debenture and $180,000 bridge loan are in default. The Company is working with the debenture holders to determine the form of repayment. On September 25, 2000, we granted options to the principals of Consulting and Strategy International Inc. to purchase 600,000 shares at an option price of $0.02 as compensation for services since August 2000. The underlying shares were registered on our Form S-8 filed with the Commission on October 6, 2000, and we received $12,000 to exercise the options on October 10, 2000. On October 17, 2000, we sold 879,906 unregistered shares of common stock to an accredited investor for $560,000. In November 2000, the Company agreed to terms for issuing convertible debentures for $1,200,000 and the establishment of an 18-month equity line of $3,000,000. Subsequently, the terms were modified to issue $600,000 in convertible debentures and a $3,400,000 equity line. The agreement was with Thomson Kernaghan & Co. Limited and provided for two year debentures carrying a 10% accumulating interest rate and convertible into common shares. In addition, the Company had agreed to issue five-year warrants to purchase 1,250,000 shares of its common stock with an exercise price equal to 110% of the average closing bid price for the three trading days preceding closing at December 11, 2000. The Company also agreed to place 2,883,333 shares of its common stock (loaned by three shareholders) as collateral. Definitive agreements were signed and effective December 11, 2000. The Company complied with all requirements for closing including the placement of the shares as collateral but the transaction did not close under the terms of the agreement and the equity line was not established. Funds totaling $600,000 were ultimately received and the Company has reached an agreement with Thomson Kernaghan & Co. Limited regarding repayment. Thomson Kernaghan & Co. Limited retained the collateralized shares and was issued an additional 250,000 of restricted shares in repayment for the $600,000 in convertible debentures. The Company 29 provided 4,999,997 restricted shares of common stock to the three shareholders in repayment for the collateralized shares. On February 16, 2001, the Company agreed to issue $180,000 in the form of a convertible debenture to Ignatius Leonards. The debenture bears no interest, provides for conversion of $90,000 of the principal for shares with a conversion price of $0.18, and matured on April 15, 2001. Additional consideration was issued in the form of warrants for the purchase of up to 1,000,000 shares, the first 818,182 at an exercise price of $0.11 and the balance of 181,818 shares at an exercise price of $0.18. The Company is working with the debenture holder to determine the form of repayment. On February 23, 2001, the Company agreed to a $6,000,000 capital investment by Woodcrest Capital. The initial funding will be $1,000,000 paid in installments over nine months and subsequent funding of $5,000,000 subject to the following loan conditions: (a) the Company is not in default under the Note, nor any of the Loan Documents (b) The Company is in full compliance with all applicable and materially mandated SEC filings, rules, and regulations (c) the Company is cash flow positive, as determined by the Lender (d) the Company is earnings positive, as determined by the Lender (e) Lender determines, in Lender's sole discretion, that the Company is still an acceptable credit risk and (f) Lender determines, in Lender's sole discretion, that the Company is not a going concern risk. The Company received $200,000 at closing and is able to receive an additional $100,000 each month thereafter. The loans are to be repaid within six months of funding and bear interest at 11%. As additional consideration, the Company issued warrants totaling 10,812,500 shares at an exercise price of $0.16 related to the first $1,000,000 loaned. The warrants are vested and have a five-year term. The Company has the option to repay the principal and interest with cash or shares of common stock which shares will be valued at the lesser of $0.20 per share or 75% of the average of the stock's closing price in the previous 5 trading days. If the Company borrows amounts over the initial loan of $1,000,000 the interest rate and repayment terms are similar and additional warrants to purchase shares of common stock would be granted of 5 shares for every $1.00 loaned. Our working capital requirements and cash flow provided by operating activities can vary from quarter to quarter, depending on revenues, operating expenses, capital expenditures and other factors. Working capital is critical to our on-going business and from inception has been provided primarily through external investment instead of cash flow from the various businesses. Since inception, we have experienced negative cash flow from operations and expect to experience negative cash flow until at least the end of this fiscal year ending August 31, 2001. With the investment from Woodcrest Capital and expected improvements with regard to revenue generation, the Company is anticipating that reliance on other sources for working capital should be diminished. Nonetheless, it is not expected that the internal source of liquidity will improve until operating activities provide significant net cash, and until such time, we will need to rely upon external sources for liquidity. We have not entered into any arrangements with any other financial institutions or third parties to provide additional financing, other than as described above. If we are unable to maintain adequate working capital in the amounts desired and on acceptable terms, we may be required to reduce the scope of our presently anticipated activities and we may not be able to assure continuation as a going concern. Our financial statements are prepared using principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We may in the future experience significant fluctuations in our results of operations. Such fluctuations may result in volatility in the price and/or value of our common stock. Shortfalls in revenues may adversely and disproportionately affect our results of operations because a high percentage of our operating expenses are relatively fixed. Accordingly, we believe that period-to-period comparisons of results of operations should not be relied upon as an indication of future results of operations. FORWARD LOOKING INFORMATION This report on Form 10-QSB includes "forward-looking statements" within the meaning of SECTION 27A of the Securities Act of 1933 and SECTION 21E of the Securities Exchange Act of 1934. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters. The 30 Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we caution readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in our forward-looking statements. These risks and uncertainties, many of which are beyond our control, include (i) the sufficiency of our existing capital resources and our ability to raise additional capital to fund cash requirements for future operations, (ii) uncertainties involved in the rate of growth and acceptance of the Internet, (iii) adoption by the Christian community of electronic technology for gathering information, facilitating e-commerce transactions, and providing new products, websites, and services, (iv) volatility of the stock market, particularly within the technology sector, and the ability to use our capital stock as a currency for acquisitions, and (v) general economic conditions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, the expectations reflected in these forward-looking statements may prove to be incorrect. Part II - Item 2. Changes in Securities We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements in this Form 10-QSB after the date of this report. The following transactions involving unregistered securities occurred during the three months ended May 31, 2001, in transactions in which the Company relied on the exemption from registration available under SECTION 4(2) of the Securities Act of 1933, as amended. All the outstanding stock of Global Christian Network, Inc. ("GCN"), a technology company and the creators of an online Christian Community based in Reno, Nevada was acquired on March 1, 2001.As consideration for the acquisition, the Company issued a total of 1,520,105 of its common shares to certain GCN shareholders and $11,958 of cash to certain GCN shareholders in exchange for all issued and outstanding stock of GCN. The Company issued 500,000 of its common shares for full payment of an outstanding promissory note owed by GCN to an investor. The Company issued 207,000 of its common shares to four employees of GCN for past services. On March 1, 2001, the Company completed the acquisition of Capital Artists Agency, Inc., a full service talent agency representing a variety of names in contemporary Christian music headquartered in Nashville, TN. The Company provided 187,500 shares of its common stock and additional shares may be issued under certain contingencies to provide for a purchase price of $150,000 at the final closing on March 1, 2002. Three shareholders loaned a total of 2,883,333 common shares in conjunction with its funding agreement with Thomson Kernaghan & Co. Limited to the Company to be held as collateral by Thomson Kernaghan. On March 28, 2001, the Company provided 4,999,997 restricted shares of common stock to the three shareholders in repayment for the collateralized shares. Thomson Kernaghan & Co. Limited retained the collateralized shares and was issued an additional 250,000 of restricted shares in repayment for the $600,000 in convertible debentures. On March 23, 2001, the Company provided 100,000 shares of its common stock to its Chief Financial Officer, Chris L. Sisk, related to compensation for services provided during December, 2000. On April 15, 2001, the company provided 45,000 shares of its common stock to three employees based on terms of their employment contracts. On April 24, 2001, the Company provided 100,000 shares of its common stock to Roger Dartt as a settlement of the compensation for services agreement. On April 24, 2001, the Company provided a total of 222,547 shares of its common stock to pay for radio airtime related to the broadcast of iExalt's radio program Life Perspectives. These radio stations will carry the Life Perspectives program five days each week and agreed to stock as compensation in lieu of cash. 31 Part II - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
EXHIBIT DESCRIPTION OF EXHIBIT ---------- ---------------------- 3.1 Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ending May 31, 2000, as filed with the Commission on April 14, 2000, is incorporated herein by reference). 3.2 Amended Bylaws of the Company as adopted on April 24, 1979 (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-QSB for the quarter ending May 31, 2000, as filed with the Commission on April 14, 2000, is incorporated herein by reference). 4.1 Investor's Rights Agreement, dated October 24, 2000 by and among iExalt, Inc., certain shareholders of iExalt, and Ted L. Parker (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, as filed with the Commission on November 8, 2000, is incorporated herein by reference). 4.2 Convertible Debenture issued to TCA Investments, Inc. on September 20, 2000 (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-KSB for the year ended August 31, 2000, is incorporated herein by reference). 4.3 Convertible Debenture issued to Travin Partners LLLP on September 20, 2000 (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-KSB for the year ended August 31, 2000, is incorporated herein by reference). 4.4 Warrants issued to TCA Investments, Inc. on September 20, 2000 (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-KSB for the year ended August 31, 2000, is incorporated herein by reference). 4.5 Warrants issued to Travin Partners LLLP September 20, 2000 (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-KSB for the year ended August 31, 2000, is incorporated herein by reference). 4.6 Letter Agreement between iExalt, Inc. and Consulting & Strategy International LLC dated September 25, 2000 (filed as Exhibit 4.1 to the Company's Form S-8 as filed with the Commission on October 6, 2000, is incorporated herein by reference). 4.7 Registration Rights Agreement dated November 1, 2000 between iExalt, Inc. and PsyCare America LLC. (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, as filed with the Commission on February 23, 2001, is incorporated herein by reference). 4.8 Convertible Debenture issued to Thomson Kernaghan & Co., Ltd. on December 11, 2000 (filed as Exhibit 4.8 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 4.9 Registration Rights Agreement dated December 11, 2000 between iExalt, Inc. and Thomson Kernaghan & Co., Ltd. (filed as Exhibit 4.9 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 4.10 Warrant issued to Thomson Kernaghan & Co., Ltd. on December 11, 2000. (filed as Exhibit 4.10 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 4.11 Convertible Debenture issued to Ignatius Leonards on February 15, 2001. (filed as Exhibit 4.11 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 32 4.12 Warrant issued to Ignatius Leonards on February 15, 2001. (filed as Exhibit 4.12 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 4.13 Warrant issued to Woodcrest Capital II Limited Partnership on February 23, 2001. (filed as Exhibit 4.13 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 4.14 Warrant issued to Woodcrest Capital, L.L.C. on February 23, 2001. (filed as Exhibit 4.14 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 4.15 Registration Rights Agreement dated February 23, 2001 between iExalt, Inc. and Woodcrest Capital II Limited Partnership and Woodcrest Capital, L.L.C. (filed as Exhibit 4.15 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). *4.16 Convertible Debenture issued to Don Ballard on June 5, 2001. *4.17 Convertible Debenture issued to Don Ballard on June 5, 2001. 10.1 Exchange Agreement among the Company, iExalt, Inc.-Texas, and the Shareholders of iExalt, Inc.-Texas dated August 12, 1999 (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K, as filed with the Commission on September 14, 1999, is incorporated herein by reference). 10.2 Stock Purchase Agreement, dated September 27, 2000, between iExalt, Inc. and iExalt Financial Services, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the Commission on October 12, 2000, is incorporated herein by reference). 10.3 Stock Exchange Agreement, dated October 24, 2000, between iExalt, Inc. and Ted L. Parker, the sole shareholder of Cleanweb, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the Commission on November 8, 2000, is incorporated herein by reference). 10.4 Employment Agreement dated November 27, 2000 between iExalt, Inc. and Chris L. Sisk. (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 10.5 Amended and Restated Asset Purchase Agreement, dated February 12, 2001, between iExalt, Inc. and PsyCare America LLC. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the Commission on February 23, 2001, is incorporated herein by reference). 10.6 Agreement and Plan of Reorganization, dated November 30, 2000, between iExalt, Inc., GCN Combination Corp. and Global Christian Network, Inc. and its Principal Shareholders. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the Commission on March 13, 2001, is incorporated herein by reference). 10.7 Plan of Merger, dated November 30, 2000, between iExalt, Inc., GCN Combination Corp. and Global Christian Network, Inc. (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, as filed with the Commission on March 13, 2001, is incorporated herein by reference). 10.8 Plan Asset Purchase Agreement, dated December 12, 2000, between iExalt, Inc. and Barry Wineroth trustee for the Showcase Financial Services, Inc. Profit Sharing Plan. (filed as 33 Exhibit 2.3 to the Company's Current Report on Form 8-K, as filed with the Commission on March 13, 2001, is incorporated herein by reference). 10.9 Written Consent of Contingent Closing of Global Christian Network, Inc., iExalt, Inc., David Fritsche, GCN Combination Corp. & Princ. Shareholders. (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K, as filed with the Commission on March 13, 2001, is incorporated herein by reference). 10.10 Demand Note dated November 22, 2000 issued to Hunter M.A. Carr. (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 10.11 Demand Note dated November 22, 2000 issued to Morris Chapman. (filed as Exhibit 10.11 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 10.12 Demand Note dated November 22, 2000 issued to Donald Sapaugh. (filed as Exhibit 10.12 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 10.13 Demand Note dated November 22, 2000 issued to Donald Sapaugh. (filed as Exhibit 10.13 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 10.14 Loan Agreement dated February 23, 2001 between iExalt, Inc. and Woodcrest Capital II Limited Partnership. (filed as Exhibit 10.14 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 10.15 Warrant issued to James W. Christian on March 21, 2001. (filed as Exhibit 10.15 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). *10.16 Stock Purchase Agreement issued to Don Ballard on July 3, 2001. *10.17 Stock Purchase Agreement issued to Randy James on July 16, 2001. 99.1 Press Release, dated February 26, 2001, related to the announcement of $6,000,000 of funding from Woodcrest Capital II LP. (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K, as filed with the Commission on March 7, 2001, is incorporated herein by reference). 99.2 Press Release, dated March 12, 2001, related to the acquisition of Capital Artist Agency, Inc. (filed as Exhibit 99.2 to the Company's Quarterly Report on Form 10-QSB for the quarter ended February 28, 2001, is incorporated herein by reference). 99.3 Press release issued by iExalt relating to the acquisition of Global Christian Network, Inc. (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K, as filed with the Commission on March 13, 2001, is incorporated herein by reference).
------------- * Filed herewith (b) Reports on Form 8-K and Form 8-K/A filed during the three months ended May 31, 2001: 34 Form 8-K filed on March 6, 2001, reporting the agreement to a capital investment by Woodcrest Capital II Limited Partnership of up to $6,000,000. Form 8-K filed on March 13, 2001, reporting the acquisition by iExalt of Global Christian Network, Inc. SIGNATURES In accordance with the requirements Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IEXALT, INC. July 12, 2001 /s/ Donald W. Sapaugh ------------------------------ Donald W. Sapaugh, C.E.O. / Chairman / President (Principal Executive Officer) /s/ Russell Ivy ------------------------------ Russell Ivy, Executive Vice President/ Chief Operating Officer /s/ Chris L. Sisk ------------------------------ Chris L. Sisk, Executive Vice President/CFO (Primary Financial Officer) 35 EX-4.16 2 a2054257zex-4_16.txt EXHIBIT 4-16 Exhibit 4.16 CONVERTIBLE PROMISSORY NOTE $150,000.00 Houston, Texas June 5, 2001 FOR VALUE RECEIVED, iExalt, Inc., a Nevada Corporation (Maker), promises to pay to Don Ballard, 13902 Barryknoll, Houston, Texas 77079 (Holder) the principal sum of One Hundred Fifty Thousand Dollars ($150,000.00) with interest from date at the rate of 33,750 restricted shares to be issued, per month, plus 100,000 restricted shares if total amount of Promissory Note is delivered to iExalt, Inc. prior to June 30, 2001. In addition to the above, Holder has the right to convert all of the Principal and accrued interest to restricted common stock at the rate of sixty-five percent (65%) of the closing price of the common stock traded on the date of this Note. The total shares to be issued in full satisfaction of this Promissory Note, may not exceed 1,500,000 shares. Principal is payable in lawful money of the United States of America at 12000 Aerospace Avenue, Suite 375, Houston, Texas 77034, or at such place as may later be designated by written notice from the Holder to the Maker hereof, on the date and in the manner following: All principal and accrued interest is due on or before six (6) months from the date of this note, or December 31, 2001. This Note is unsecured. Both parties understand that the amount or value above may exceed the maximum interest allowed by law, under the statutes of the state of Texas, and acknowledge that the terms are reasonable given the nature of the loan. iExalt, Inc. a Nevada corporation By: /s/Chris L. Sisk Chris L. Sisk Its Chief Financial Officer Amount: $ 150,000 Received on: 2nd day of July, 2001 36 EX-4.17 3 a2054257zex-4_17.txt EXHIBIT 4-17 Exhibit 4.17 PROMISSORY NOTE $100,000.00 Houston, Texas June 5, 2001 FOR VALUE RECEIVED, iExalt, Inc., a Nevada Corporation (Maker), promises to pay to Randy James, Box 908 Friendswood, Texas 77549 (Holder) the principal sum of One Hundred Thousand Dollars ($100,000.00) with interest from date at the rate of 22,500 restricted shares to be issued, per month, plus 50,000 restricted shares if total amount of Promissory Note is delivered to iExalt, Inc. prior to June 30, 2001. In addition to the above, Holder has the right to convert up to twenty-five percent (25%) of Principal to restricted common stock at the rate of sixty-five percent (65%) of the closing price of the common stock traded on the date of this Note. Principal is payable in lawful money of the United States of America at 12000 Aerospace Avenue, Suite 375, Houston, Texas 77034, or at such place as may later be designated by written notice from the Holder to the Maker hereof, on the date and in the manner following: All principal and accrued interest is due on or before six (6) months from the date of this note, or December 31, 2001. This Note is secured by specific rights attached hereto. Both parties understand that the amount or value above may exceed the maximum interest allowed by law, under the statutes of the state of Texas, and acknowledge that the terms are reasonable given the nature of the loan. iExalt, Inc. a Nevada corporation By: /s/ Chris L. Sisk Chris L. Sisk Its Chief Financial Officer Amount: $100,000 Received on:28th day of June, 2001 37 EX-10.16 4 a2054257zex-10_16.txt EXHIBIT 10-16 Exhibit 10.16 STOCK PURCHASE AGREEMENT - -------------------------------------------------------------------------------- THIS AGREEMENT IS MADE AND ENTERED INTO THIS THE 3RD DAY OF JULY, 2001 BY AND BETWEEN iExalt, Inc., A NEVADA CORPORATION 12000 AEROSPACE AVENUE, SUITE 375, HOUSTON, TEXAS 77034, ("SELLER") AND DON BALLARD ("PURCHASER"). The Seller is the record owner and holder of the issued and outstanding shares of the capital stock of iExalt, Inc., ("Corporation"), a Texas corporation, which Corporation has issued capital stock of approximately 45,000,000 shares of $.001 par value common stock. In consideration of the mutual agreements contained in this Agreement, it is hereby agreed as follows: 1. PURCHASE AND SALE: Subject to the terms and conditions stated in this Agreement, the Seller shall sell and deliver to the Purchaser restricted stock certificates representing the stock purchased herein. Certificates shall be delivered within ten (10) days of the receipt of payment under the terms of this Agreement. 2. AMOUNT AND PAYMENT OF PURCHASE PRICE. The total consideration and method of payment thereof are fully set out in Exhibit "A" attached to this Agreement and incorporated herein for all purposes as if set forth in full. 3. REPRESENTATIONS AND WARRANTIES OF SELLER. Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the corporate power and authority to carry on its business as it is now being conducted. Purchaser understands that the stock received will be restricted under SEC Rule 144. 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER. Seller and Purchaser hereby represent and warrant that there has been no act or omission by Seller, Purchaser or the Corporation which would give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee, or other like payment in connection with the transactions contemplated hereby. 5. GENERAL PROVISIONS. (a) Entire Agreement. This Agreement constitutes the entire Agreement and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. (b) Governing Law. This agreement shall be governed by Texas Law. 38 6. PIGGYBACK RIGHTS: Seller agrees to register such shares at the next available filing of a registration statement with the Securities and Exchange Commission. It is understood that the Seller may require some minimal lock-out provision, and such provision shall not be unreasonable to Buyer. Seller: Purchaser: iExalt, Inc. Name: Don Ballard 12000 Aerospace Ave Address: 13902 Barryknoll Suite 375 Houston, Texas 77079 Houston, Texas 77034 By: /s/ Donald W. Sapaugh By: /s/ Don Ballard ----------------------- --------------------- 39 EXHIBIT "A" AMOUNT AND PAYMENT OF PURCHASE PRICE Consideration. As total consideration for the purchase of 1,500,000 shares of common stock, restricted under Rule 144, pursuant to this Agreement, the Purchaser shall pay to the Seller the sum of $ 150,000.00 as the purchase price of the shares. In addition, the Seller agrees to register all stock held by Buyer at its soonest opportunity (ie. SB-2, S-1, or S-3 filing, if appropriate). It is understood that this sale of stock is comprised of both interest and conversion of debt pursuant to terms outlined in the Convertible Promissory Note dated June 5, 2001. 40 EX-10.17 5 a2054257zex-10_17.txt EXHIBIT 10-17 Exhibit 10.17 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT THIS AGREEMENT IS MADE AND ENTERED INTO THIS THE 16TH DAY OF JULY, 2001 BY AND BETWEEN iExalt, Inc., A NEVADA CORPORATION 12000 AEROSPACE AVENUE, SUITE 375, HOUSTON, TEXAS 77034, ("SELLER") AND RANDY JAMES ("PURCHASER"). The Seller is the record owner and holder of the issued and outstanding shares of the capital stock of iExalt, Inc., ("Corporation"), a Texas corporation, which Corporation has issued capital stock of approximately 45,000,000 shares of $.001 par value common stock. In consideration of the mutual agreements contained in this Agreement, it is hereby agreed as follows: 6. PURCHASE AND SALE: Subject to the terms and conditions stated in this Agreement, the Seller shall sell and deliver to the Purchaser restricted stock certificates representing the stock purchased herein. Certificates shall be delivered within ten (10) days of the receipt of payment under the terms of this Agreement. 7. AMOUNT AND PAYMENT OF PURCHASE PRICE. The total consideration and method of payment thereof are fully set out in Exhibit "A" attached to this Agreement and incorporated herein for all purposes as if set forth in full. 8. REPRESENTATIONS AND WARRANTIES OF SELLER. Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the corporate power and authority to carry on its business as it is now being conducted. Purchaser understands that the stock received will be restricted under SEC Rule 144. 9. REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER. Seller and Purchaser hereby represent and warrant that there has been no act or omission by Seller, Purchaser or the Corporation which would give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee, or other like payment in connection with the transactions contemplated hereby. 10. GENERAL PROVISIONS. (a) Entire Agreement. This Agreement constitutes the entire Agreement and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. (b) Governing Law. This agreement shall be governed by Texas Law. 41 6. PIGGYBACK RIGHTS: Seller agrees to register such shares at the next available filing of a registration statement with the Securities and Exchange Commission. It is understood that the Seller may require some minimal lock-out provision, and such provision shall not be unreasonable to Buyer. Seller: Purchaser: iExalt, Inc. Name: Randy James 12000 Aerospace Ave Address: Box 908 Friendswood Suite 375 Texas 77549 Houston, Texas 77034 By: /s/Donald W. Sapaugh By: /s/ Randy James ------------------------- ---------------------- 42 EXHIBIT "A" AMOUNT AND PAYMENT OF PURCHASE PRICE Consideration. As total consideration for the purchase of 578,013 shares of common stock, restricted under Rule 144, pursuant to this Agreement, the Purchaser shall pay to the Seller the sum of $ 25,000.00 as the purchase price of the shares. In addition, the Seller agrees to register all stock held by Buyer at its soonest opportunity (ie. SB-2, S-1, or S-3 filing, if appropriate). It is understood that this sale of stock is comprised of both interest and conversion of $25,000 of the debt pursuant to terms outlined in the Promissory Note dated June 5, 2001. 43 -----END PRIVACY-ENHANCED MESSAGE-----