8-K/A 1 g68007e8-ka.txt ERESOURCE CAPITAL GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 8-K/A (Amendment No. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 13, 2001 ------------------------------ eResource Capital Group, Inc. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-8662 23-2265039 ------------------------------------------------------------------------------------------ (State or other (Commission File (IRS Employer Identification jurisdiction of Number) Number) incorporation)
3353 Peachtree Road, N.E., Suite 130 Atlanta, Georgia 30326 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 760-2570 --------------------------- 2 This Amendment No. 1 amends and supplements Items 7(a) and 7(b) of the Current Report on form 8-K filed on February 13, 2001 by the registrant (the "Company") with respect to, among other things, the Company's acquisition of Avenel Ventures, Inc. ("Avenel") In accordance with Item 7 of form 8-K, the financial statements required thereby are being filed with this Amendment No. 1. Statements in this report about anticipated or expected future revenue or growth or expressions of future goals or objectives are forward-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. All forward-looking statements in this release are based upon information available to the Company on the date of this release. Any forward-looking statements involve risks and uncertainties, including those risks described in the Company's filings with the Securities and Exchange Commission, that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired In accordance with Item 7(a) of Form 8-K, the following financial statements of Avenel Ventures, Inc. and Subsidiary prepared in accordance with regulation S-X are included in this report: Independent Auditors' Report Balance Sheet as of December 31, 2000 Statement of Operations and Accumulated Deficit for the period from June 6, 2000 (date of incorporation) thru December 31, 2000. Statement of Cash Flows for the period from June 6, 2000 thru December 31, 2000. Notes to Financial Statements (b) Pro Forma Financial Information In accordance with Item 7(b) of Form 8-K, the following pro forma financial statements of eResource Capital Group, Inc. prepared in accordance with regulation S-X are included in this report: Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended December 31, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended June 30, 2000 2 3 (c) Exhibits 2.1 Share Exchange Purchase Agreement dated as of November 8, 2000 between the Company, Avenel and the Stockholders of Avenel signatory thereto (the "Purchase Agreement"). (Certain of the exhibits and schedules to the Purchase Agreement have been omitted from this Report pursuant to Item 601(b)(2) of Regulation S-K and the Company agrees to furnish copies of such omitted exhibits and schedules supplementally to the Securities and Exchange Commission upon request.) (*) 10.1 Employment Agreement dated November 8, 2000 between the Company and Mr. Michael D. Pruitt. (*) 10.2 Employment Agreement dated November 8, 2000 between the Company and Ms. Melinda Morris Zanoni. (*) (*) Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended December 31, 2000 filed by the Company on February 14, 2001. 3 4 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Avenel Ventures, Inc. Charlotte, North Carolina We have audited the accompanying consolidated balance sheet of Avenel Ventures, Inc. and Subsidiary as of December 31, 2000 and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from June 6, 2000 (date of incorporation) through December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Avenel Ventures, Inc. and Subsidiary as of December 31, 2000 and the results of their operations and their cash flows for the period from June 6, 2000 (date of incorporation) through December 31, 2000 in conformity with U.S. generally accepted accounting principles. /s/ Crisp Hughes Evans LLP Charlotte, North Carolina February 23, 2001 4 5 AVENEL VENTURES, INC. AND SUBSIDIARY Consolidated Balance Sheet December 31, 2000
Assets Current assets: Cash $ 2,184 Investments 913,159 Stock purchase warrants 71,796 Accounts receivable 32,982 Other receivables from related party 26,571 Employee advances 1,490 ---------- Total current assets 1,048,182 Property and equipment, net 87,587 Deposits 6,997 ----------- Total assets $ 1,142,766 =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,809 Accrued payroll and payroll taxes 22,971 Deferred revenue 57,333 Notes payable to related party 216,052 ----------- Total current liabilities 298,165 Stockholders' equity Common stock, par value $.001, 100,000,000 shares authorized, 6,700,000 issued and outstanding 6,700 Less stock subscriptions receivable (3,075) ----------- 3,625 Additional paid in capital 1,808,875 Retained earnings (deficit) (725,517) Accumulated other comprehensive income (242,382) ----------- Total stockholders' equity 844,601 ----------- Total liabilities and stockholders' equity $ 1,142,766 ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 AVENEL VENTURES, INC. AND SUBSIDIARY Consolidated Statement of Operations For the Period From June 6, 2000 (date of incorporation) through December 31, 2000 Revenues: Consulting revenue $ 519,505 Cost of sales 499,819 ----------- Gross profit 19,686 General and administrative expense 483,311 ----------- (463,625) Other income (expense): Unrealized loss on stock purchase warrants (262,887) Interest income 1,408 Interest expense (413) ----------- (261,892) ----------- Net loss $ (725,517) ===========
The accompanying notes are an integral part of these consolidated financial statements. 6 7 AVENEL VENTURES, INC. AND SUBSIDIARY Consolidated Statement of Stockholders' Equity For the Period From June 6, 2000 (date of incorporation) through December 31, 2000
Accumulated Stock Retained Other Number Common Subscription Paid-in Earnings Comprehensive of Shares Stock Receivable Capital (Deficit) Income (Loss) Total --------- ------ ------------ ---------- ---------- ------------- ---------- Balance June 6, 2000 -- $ -- $ -- $ -- $ -- $ -- $ -- Issuance of common stock 6,700,000 6,700 (3,075) 1,808,875 -- -- 1,812,500 Net loss -- -- -- -- (725,517) -- (725,517) Holding loss on available- for-sale securities -- -- -- -- -- (242,382) (242,382) ---------- Comprehensive income (loss) (967,899) --------- ------ ------- ---------- --------- --------- ---------- Balance December 31, 2000 6,700,000 $6,700 $(3,075) $1,808,875 $(725,517) $(242,382) $ 844,601 ========= ====== ======= ========== ========= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 7 8 AVENEL VENTURES, INC. AND SUBSIDIARY Consolidated Statement of Cash Flows For the Period from June 6, 2000 (date of incorporation) through December 31, 2000 Operating activities: Net loss $ (725,517) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 12,694 Amortization of deferred revenue (72,667) Stock purchase warrants received for services (334,683) Unrealized loss on stock purchase warrants 262,887 Net change in operating assets and liabilities: Accounts receivable (32,982) Deposits (6,997) Accounts payable 1,809 Accrued payroll and payroll taxes 22,971 ----------- Net cash used by operating activities (872,485) Investing activities: Purchases of property and equipment (100,281) Purchases of investments (131,041) Other receivables and employee advances (28,061) ----------- Net cash used by investing activities (259,383) Financing activities: Proceeds from borrowings 216,052 Proceeds from issuance of common stock 918,000 ----------- Net cash provided by financing activities 1,134,052 ----------- Net increase in cash, representing cash at the end of the period $ 2,184 =========== Supplemental cash schedule: Cash paid for interest $ 413 =========== Supplemental schedule of noncash investing and financing activities: Common stock issued for investments $ 894,500 =========== Stock subscriptions receivable $ 3,075 =========== Investments received in exchange for services $ 130,000 =========== Unrealized loss on available-for-sale securities $ 242,382 ===========
The accompanying notes are an integral part of these consolidated financial statements. 8 9 AVENEL VENTURES INC. AND SUBSIDIARY Notes to Consolidated Financial Statements For Period from June 6, 2000 (date of incorporation) through December 31, 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Avenel Ventures, Inc. ("Ventures") and its wholly-owned subsidiary, Avenel Alliance, Inc. ("Alliance"), a Florida corporation incorporated on August 8, 2000. Ventures was incorporated on June 6, 2000 in Nevada. Operations for Alliance and Ventures (collectively, "the Company") are included from the respective dates of incorporation through December 31, 2000 ("the Period"). All significant intercompany balances and transactions have been eliminated in consolidation. The Company provides e-commerce and business development services to clients implementing innovative strategies in e-commerce internet marketing throughout the United States. CASH AND CONCENTRATIONS OF CREDIT RISK - The Company maintains its cash accounts at one financial institution. At times throughout the year, the Company may have balances in excess of FDIC insured limits. Due to the strong credit rating of this financial institution, management believes there is no significant credit risk related to these accounts. INVESTMENTS - Investments, consisting of certificates of deposit with maturities of greater than three months and not readily marketable equity securities, are classified as available for sale. Investment securities that are not readily marketable include securities (a) for which there is no market on a securities exchange or no independent publicly quoted market, (b) that cannot be publicly offered or sold unless registration has been effected under the Securities Act of 1933, or (c) that cannot be offered or sold because of other arrangements, restrictions, or conditions applicable to the securities or the Company. Certificates of deposit are recorded at cost plus accrued interest. Not readily marketable equity securities are recorded at estimated values based on quoted market values for marketable securities of the investee discounted for trading restrictions. If there is no quoted market value, the recorded values are based on the most recent transactions in the securities discounted for lack of marketability. Investment securities transactions are recorded on a trade date basis. The difference between cost and fair value is recorded as unrealized gain or loss on available for sale securities. STOCK PURCHASE WARRANTS - The Company periodically receives stock purchase warrants which are considered derivatives from companies with publicly traded common stock as part of its compensation for services. The Company recognizes revenue at the fair value of such stock purchase warrants when earned based on the Black-Scholes valuation model. The Company recognized unrealized gains or losses in the statement of operations based on the changes in value in the stock purchase warrants as determined by the Black-Scholes valuation model subsequent to the date earned. Unrealized losses for the period aggregated $262,887. PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for principally by an accelerated methods over the estimated useful lives of the related assets. DEFERRED REVENUE - Deferred revenue consists of advanced payments for consulting services and is recognized over a one year period from the date of the consulting agreement. INCOME TAXES - The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement and tax bases of existing assets and liabilities. For the Company, these temporary differences result primarily from net operating loss carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized. COMPREHENSIVE INCOME - Components of comprehensive income are net loss and all other non-owner changes in equity. The only component of other comprehensive income consists of unrealized holding losses on securities available for sale. ADVERTISING - The Company expenses advertising costs as incurred. Advertising expenses amounted to $5,405 for the Period. 9 10 ESTIMATES - The preparation of consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVESTMENTS Investments at December 31, 2000 are summarized as follows:
Gross Unrealized Fair Cost Loss Value ---------- ---------- -------- Equity securities $1,074,500 $(242,382) $832,118 Certificates of deposit 81,041 -- 81,041 ---------- --------- -------- $1,155,541 $(242,382) $913,159 ========== ========= ========
The Company's certificates of deposit are pledged as collateral security for the Company's letters of credit for building leases. 3. PROPERTY AND EQUIPMENT A summary of property and equipment at December 31, 2000 is as follows: Computer equipment $ 36,064 Office furniture 34,865 Office equipment 27,091 Lease improvements 2,261 -------- 100,281 Less accumulated depreciation (12,694) -------- $ 87,587 ========
4. NOTES PAYABLE TO RELATED PARTY Notes payable to related party consists of two demand notes from an entity owned by one of the Company's stockholders. These notes are unsecured and bear no interest. Their carrying amount approximates fair value at December 31, 2000. 5. LEASES The Company leases two office facilities under long-term non-cancelable operating leases expiring in June 2002 and August 2002. Future minimum lease payments are as follows:
2001 $ 82,704 2002 47,264 -------- $129,968 ========
Rent expense under these leases was approximately $36,200 for the Period. In conjunction with these lease agreements the Company has furnished the landlords irrevocable standing letters of credit from a financial institution in the aggregated amount of $79,633. 10 11 6. INCOME TAXES The Company has net operating loss carryforwards ("NOL's") of approximately $460,000 which can be used to offset future regular Federal income tax liability through the year 2020. Approximately $140,000 and $320,000 of state NOL's expire through years 2015 and 2020, respectively. Because of the loss during the Period, there is no current income tax expense. Deferred tax benefits of $96,000 resulting from the NOL's and deferred tax benefits of $55,000 resulting from unrealized losses on stock purchase warrants have been fully reserved. Therefore, there is no income tax expense or benefit on the consolidated statement of operations. No income tax payments were made during the Period. 7. RELATED PARTY TRANSACTIONS The Company recognized approximately $500,000 in consulting revenue from four entities in which the Company and or the Company's stockholders own equity securities. Accounts receivable include $13,327 from these entities. Other receivables from related party consists of expenses paid on behalf of an entity in which a stockholder of the Company owns equity securities. 8. SUBSEQUENT EVENT On November 8, 2000 the Company entered into a definitive share exchange purchase agreement with eResource Capital Group, Inc. ("eRCG"). As of that date, the former president and former vice president of the Company resigned and became officers of eRCG. At the same time eRCG assumed operating responsibility for the Company. The agreement provides that stockholders exchange all of their shares in the Company for a like number of shares of eRCG. This exchange was completed on February 13, 2001. 11 12 Item 7.(b). Pro Forma Financial Statements The following unaudited pro forma consolidated financial statements of eResource Capital Group, Inc. ("eRCG") and Avenel Ventures, Inc. ("Avenel") are derived from, and should be read in conjunction with the audited financial statements of Avenel included in item 7(a) herein and the audited consolidated financial statements of eRCG as previously filed on Form 10-KSB for the year ended June 30, 2000 with the Securities and Exchange Commission and the unaudited consolidated financial statements of eRCG as previously filed on Form 10-QSB for the quarters ended December 31, 2000 and September 30, 2000. The pro forma consolidated financial statements do not purport to be indicative of the results of operations or financial position which would have actually been reported had the acquisition been consummated on the dates indicated, or which may be reported in the future. The unaudited pro forma consolidated balance sheet reflects adjustments as if the acquisition had been consummated on December 31, 2000. The pro forma statements of operations reflect adjustments as if the acquisition had been consummated at the beginning of the period of each statement (i.e. July 1, 1999 for the twelve-month statement of operations and July 1, 2000 for the six-month statement of operations). 12 13 eResource Capital Group, Inc. and Subsidiaries Pro Forma Consolidated Balance Sheet (Unaudited) December 31, 2000 (In thousands, except share amounts)
eResource Capital Avenel Pro Forma eResource Capital Group, Inc Ventures, Inc. Adjustments Group, Inc. Actual Actual and Eliminations Pro Forma ----------------- --------------- ---------------- ----------------- ASSETS ------ Cash and cash equivalents $ 717 $ 2 $ -- $ 719 Investments -- 985 -- 985 Accounts and notes receivable 454 61 -- 515 Prepaid expenses - other 244 -- -- 244 ------- ------ ------ ------- Total current assets 1,415 1,048 -- 2,463 Net assets of discontinued operations 174 -- -- 174 Deferred costs and other assets 495 7 -- 502 Property and equipment, net 8,606 88 -- 8,694 Goodwill 6,393 -- 5,989(1) 12,382 ------- ------ ------ ------- Total assets $17,083 $1,143 $5,989 $24,215 ======= ====== ====== ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Notes payable $ 7,648 $ 216 $ -- $ 7,864 Accrued interest payable 848 -- -- 848 Accounts payable and accrued expenses 1,003 25 -- 1,028 Customer deposits 683 57 -- 740 ------- ------ ------ ------- Total current liabilities 10,182 298 -- 10,480 Commitments and contingent liabilities Shareholders' equity: Common stock, $.04 par value, 60,000,000 shares authorized, 51,324,584 and 58,024,584 issued, respectively 2,053 4 268(1) 2,321 (4)(3) Additional paid-in capital 88,812 1,809 6,566(1) 95,378 (1,809)(3) Accumulated deficit (83,826) (726) 726(3) (83,826) Accumulated comprehensive income (loss) -- (242) 242(3) -- Treasury stock - at cost (435,930 shares) (138) -- -- (138) ------- ------ ------ ------- Total shareholders' equity 6,901 845 5,989 13,735 ------- ------ ------ ------- Total liabilities and shareholders' equity $17,083 $1,143 $5,989 $24,215 ======= ====== ====== =======
The accompanying notes are an integral part of these condensed consolidated financial statements. 13 14 eResource Capital Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Six Months Ended December 31, 2000 (In thousands, except share information)
eResource Capital Avenel Pro Forma eResource Capital Group, Inc Ventures, Inc. Adjustments Group, Inc. Actual Actual and Eliminations Pro Forma ----------------- --------------- ---------------- ----------------- Revenues: Sales - aviation $ 2,276 $ -- $ -- $ 2,276 Sales - call center 101 -- -- 101 Sales - consulting -- 520 (23)(2) 497 Lease income - commercial real estate 528 -- -- 528 ----------- ----- ----- ----------- 2,905 520 (23) 3,402 Cost of sales - aviation 2,501 -- -- 2,501 ----------- ----- ----- ----------- Gross profit 404 520 (23) 901 Selling, general and administrative expense - compensation related to issuance of stock options and warrants 6,703 -- -- 6,703 Selling, general and administrative expenses - other 2,535 971 (23)(2) 3,483 Depreciation and amortization 797 13 599(1) 1,409 Interest expense 489 (1) -- 488 Unrealized loss on investments -- 263 -- 263 Write off of Web site development costs 754 -- -- 754 Write off of pre-development costs 1,164 -- -- 1,164 ----------- ----- ----- ----------- Net loss $ (12,038) $(726) $(599) $ (13,363) =========== ===== ===== =========== Basic and diluted net loss per share $ (.27) $ (.28) =========== =========== Weighted average shares outstanding used in computing basic and diluted loss per share 44,699,415 48,049,415 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. --------- (1) The 6,700,000 shares of common stock issued by the Company for the Avenel acquisition had a fair market value of $6,834,000 on November 7, 2000. The excess value of the purchase price over the historical value of Avenel's net assets on the acquisition date has been allocated to goodwill which will be amortized over five years. Pro forma goodwill at December 31, 2000 is $5,989,000. Pro forma goodwill amortization aggregated $599,000 for six months ended December 31, 2000. (2) Elimination of intercompany transactions. (3) Elimination of Avenel equity acquired. 14 15 eResource Capital Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Year Ended June 30, 2000 (In thousands, except share information)
eResource Capital Avenel Pro Forma eResource Capital Group, Inc Ventures, Inc. Adjustments Group, Inc. Actual Actual and Eliminations Pro Forma ----------------- --------------- ---------------- ----------------- (Unaudited) (Unaudited) (Unaudited) Revenues: Sales - aviation $ 10 $ -- $ -- $ 10 Lease income - commercial real estate 1,108 -- -- 1,108 ----------- ----- ---- ----------- 1,118 -- -- 1,118 Cost of sales - aviation 93 -- -- 93 ----------- ----- ---- ----------- Gross profit 1,025 -- -- 1,025 Selling, general and administrative expense - compensation related to issuance of stock options and warrants 48,996 -- -- 48,996 Selling, general and administrative expenses - other 7,023 127 -- 7,150 Depreciation and amortization 467 -- 93 560 Interest expense 863 -- -- 863 Loss on investment 1,012 -- -- 1,012 ----------- ----- ---- ----------- Loss before discontinued operations (57,336) (127) (93) (57,556) Loss on disposal of discontinued operations (600) -- -- (600) ----------- ----- ---- ----------- Net loss $ (57,936) $(127) $(93) $ (58,156) ----------- ----- ---- ----------- Basic net loss and diluted net loss net loss per share: Loss per share before discontinued operations $ (1.81) $ (1.80) Discontinued operations (.02) (.02) ----------- ----------- $ (1.83) $ (1.82) ----------- ----------- Weighted average shares outstanding used in computing basic and diluted loss per share 31,596,541 32,037,089 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. --------- (1) The 6,700,000 shares of common stock issued by the Company for the Avenel acquisition had a fair market value of $6,834,000 on November 7, 2000. The excess value of the purchase price over the historical value of Avenel's net assets on the acquisition date has been allocated to goodwill which will be amortized over five years. Pro forma goodwill at June 30, 2000 is $6,961,000. Pro forma goodwill amortization aggregated $93,000 for the period from June 6, 2000 (date of incorporation) to June 30, 2000. (2) Includes the period from June 6, 2000 (date of incorporation) thru June 30, 2000. 15 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. eResource Capital Group, Inc. Date: March 28, 2001 By: /s/ WILLIAM L. WORTMAN ---------------------------------------- William L. Wortman Vice President, Treasurer and Chief Financial Officer 16