8-K/A 1 0001.txt ASSET ACQUISITION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 April 19, 2000 ------------------------------------------------- (Date of Report (Date of earliest event reported) eWeb21 Corp. ----------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 0-5367 11-1717709 --------------- ----------- ------------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 21st Floor, Technomart 546-4 Kui-dong, Kwangjin-gu, Seoul, Korea #143-7212 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: +82 2 2204 3619 D-LANZ DEVELOPMENT GROUP, INC. -------------------------------------------------------------- (Former name or former address, if changed since last report.) Item 1. Change in Control of Registrant (a) The Registrant has had a change in control. On April 19, 2000, the Registrant acquired all the capital stock of Eweb21, Inc., a Korean corporation, in exchange for 14,880,000 shares of the Registrant's common stock, whereby control of the registrant has changed to the controlling stockholders of Eweb21, Inc. (b) There are no arrangements by which a change in control will occur in the future. Item 2. Acquisition of Capital Stock On April 19, 2000, the Registrant acquired all the capital stock of Eweb21, Inc., a Korean corporation, in exchange for 14,880,000 shares of the Registrant's common stock, whereby control of the Company has changed to the controlling stockholders of Eweb21, Inc. Eweb21, Inc.'s business provides services on the internet under the names Eweb Mail, Eweb Commerce, Eweb Wizard and Eweb Find for over 60,000 on-line distributors through offices in London, U.K., Seoul, Korea, Tokyo, Japan and Sydney, Australia. The Agreement of Business Combination By Stock Exchange is attached to the Registrant's is attached to the Registrant's Form 8-K filed with the Commission on May 23, 2000. as Exhibit 1. For the next 12 months, the Registrant plans to devote the majority of its efforts to (i) obtaining financing to expand Eweb21 Inc.'s distributor base, (ii) hire necessary personnel; (iii) improve its web portal site and expand product offerings and (iv) acquire assets needed to continue that expansion. Item 3. Bankruptcy or Receivership Not applicable. Item 4. Changes in Registrant's Certifying Public Accountant. Not applicable. Item 5. Other events. None reported. Item 6. Resignations of Registrant's Officers and Directors. On April 19, 2000, as a condition of, and as result of, the above mentioned acquisition, Roger L. Fidler and Jay Hait resigned their positions as officers and directors of the corporation after appointing their replacements. The copies of the letters of resignation of Mr. Fidler and Mr. Hait were attached as Exhibit 2a and 2b to the Form 8K filed with the Commission on May 23, 2000. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Pro-forma Consolidated Financial Statement of D-Lanz Development Group, Inc. giving effect to transfer of certain assets to Global Agri-Med Technologies, Inc. Pro-forma Consolidated Financial Statement of D-Lanz Development Group, Inc. giving effect to the exchange of common stock for all the all the capital stock of eWeb21, Inc., a Korean corporation. Audited Financial statements for eWeb21, Inc., a Korean corporation, for the period from inception (October 11, 1999) to December 31, 1999 Unaudited financial statements of eWeb21, Inc., a Korean corporation, as of March 31, 2000. Item 8. Change in Fiscal Year: Not applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: November 3, 2000 eWeb21 Corp. By:/s/Paul Lambert ----------------------- Paul Lambert Chief Executive Officer EXHIBIT 4 D-LANZ DEVELOPMENT GROUP, INC. Pro-forma Consolidated Financial Statement of D-Lanz Development Group, Inc. giving effect to transfer of certain assets to Global Agri-Med Technologies, Inc. (Unaudited) The following unaudited proforma combined condensed financial statements present a combined balance sheet and related statements of income, cash flows and stockholders' equity of D-Lanz Development Group, Inc. (the "Company"), Global Agri-Med Technologies, Inc. ("Agri-Med") giving effect to the spin off of Global Agri-Med Technologies, Inc. and as if the reverse pooling method of accounting for the proposed spin off pursuant to an Agreement of Sale, the ("Agreement"), which was dated on April 1, 2000. The Company formed a subsidiary with the name Global Agri-Med Technologies, Inc. and on March 31, 2000 and in April, 2000 assigned the License rights to certain patented technology to manufacture and market for the countries of Chile and Singapore a temperature sensing device and diagnostic direct reading, digital device to screen the breast for abnormalities, including cancer and transferred the other assets and debts of the Company to this subsidiary The pro forma combined condensed balance sheet as of April 1, 2000 and the related statements of income for the three months ended April 1, 2000 giving effect to the proposed transactions as if they had been in effect throughout the periods presented. The information shown is based upon numerous assumptions and estimates and is not necessarily indicative of the results of future operations of the combined entities or the actual results that would have occurred had the transaction been consummated during the periods indicated. These statements should be read in conjunction with the consolidated financial statements of the Company, and the financial statements of Agri-Med included herein. D-LANZ DEVELOPMENT GROUP, INC. (a development stage company) PROFORMA BALANCE SHEET
Unaudited Global Agri-Med Adjustments D-Lanz Technologies, to reflect spin D-Lanz Development Inc. off to Agri-Med Development Group, Inc. Technologies, Inc. Group, Inc. Assets Current assets Cash $ 292 $ (292) $ -0- --------- ---------- ---------- Total current assets 292 (292) -0- Other assets Organization costs 475 License agreement 252,500 (252,500) -0- --------- ------- ---------- Total other assets 252,500 $ 475 (252,500) -0- --------- ------- ---------- -------- Total assets $ 252,792 $ 475 $ (252,792) $ -0- ========= ======= =========== ========== Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 420,250 $ 420,250 Officer loan payable 23,091 23,091 -0- --------- ---------- ------- Total current liabilities 443,341 443,341 Stockholders' equity Preferred stock authorized 50,000,000 shares; $.001 per share each. At March 31, 2000 there are -0- shares out- standing Common Stock authorized 50,000,000 shares, $0.001 par value each. At March 31, 2000, there were 11,900,000 shares outstanding 11,900 500 11,900 Additional paid in capital 1,470,151 252,500 1,217,651 Deficit accumulated during the development stage (1,672,600) (25) (443,049) (1,229,551) ----------- ----- --------- ----------- Total stockholders' equity (190,549) 475 (190,549) -0- ----------- ----- ----------- Total liabilities and stockholders' equity $ 252,792 $ 475 $252,792 $ -0- ============ ====== ======== ==========
See accompanying notes to financial statements. F-1 D-LANZ DEVELOPMENT GROUP, INC. (a development stage company) PROFORMA STATEMENT OF OPERATIONS Unaudited MARCH 31, 2000
Adjustments to D-Lanz Global Agri-Med reflect spin off D-Lanz Development Technologies. to Agri-Med Development Group, Inc. Inc. Technologies, Inc. Group, Inc. ---------- ------- ----------------- ---------- Revenue $ -0- $ -0- $ -0- $ -0- Costs of goods sold -0- -0- -0- -0- ------ ------ ------ ------ Gross profit -0- -0- -0- -0- Operations: General and administrative 402,311 2,250 -0- 402,311 Non cash expenses-consulting fees Depreciation and amortization -0- 25 -0- -0- -------- ------ ----- -------- Total expense 402,311 2,275 -0- 402,311 Loss from operations (402,311) (2,275) -0- (402,311) Other income Interest income Interest expense (340) (340) -------- ---------- Total other income (340) (340) Net income (loss) $(402,651) $ (2,275) $ -0- $(402,651) ========== ========== ======= ==========
See accompanying notes to financial statements. F-2 Note 1 - During April, 2000, D-Lanz Development Group, Inc., (the "Company") completed a series of transactions as follows: a. Reverse Split In April, 2000, the Company reversed split the number of shares of common stock outstanding in a ration of 100 to 1 restating the number of shares of common stock outstanding from 11,900,000 to 120,000. b. Formation of Subsidiary The Company formed a subsidiary, Global Agri-Med Technologies, Inc., and, on March 31, 2000 and in April, 2000, assigned the license rights to certain patented technology to manufacture and market for the countries of Chile and Singapore a temperature sensing device and diagnostic direct reading, digital device to screen the breast for abnormalities, including cancer, and transferred the other assets and debts of the Company to this subsidiary. c. Reverse Merger of eWeb21, Inc. and Recapitalization of the Company In April, 2000, the Company completed a reverse merger with eWeb21, Inc. (eWeb) giving effect to the reverse acquisition which has been accounted for as the issuance of 11,880,000 shares of common stock by a private company for the net assets of the Company, accompanied by a recapitalization pursuant to an Agreement of Business Combination, the ("Agreement"), which was dated on March, 2000. Accordingly, the financial statements of Company became the consolidated financial statements of eWeb21 Corporation. The pro forma combined condensed balance sheet as of March 31, 2000 consists of the Unaudited balance sheet of the Company as at March 31, 2000 and the unaudited balance sheet of eWeb at March 31, 2000 and the unaudited related statements of income, cash flows and stockholders equity for the three months ended March 31, 2000 and the unaudited related statements of income, cash flows and stockholders equity for eWeb for the three months ended March 31, 2000 giving effect to the proposed transactions as if they had been in effect throughout the periods presented. EXHIBIT 5 D-LANZ DEVELOPMENT GROUP, INC. Pro-forma Consolidated Financial Statement of D-Lanz Development Group, Inc. giving effect to the exchange of common stock for all the all the capital stock of eWeb21, Inc., a Korean corporation. (Unaudited) The following unaudited proforma combined condensed financial statements present a combined balance sheet and related statements of income, cash flows and stockholders' equity of D-Lanz Development Group, Inc. (the "Company") and eWeb21, Inc., a Republic of Korea corporation giving effect to the reverse acquisition which has been accounted for as the issuance of 11,880,000 shares of common stock by a private company for the net assets of the Company, accompanied by a recapitalization pursuant to an Agreement of Business Combination, the ("Agreement"), which was dated on March 31, 2000. Accordingly, the financial statements of Company became the consolidated financial statements of eWeb21 Corporation. The pro forma combined condensed balance sheet as of March 31, 2000 and the related statements of income, cash flows and stockholders' equity for the three months ended March 31, 2000 giving effect to the proposed transactions as if they had been in effect throughout the periods presented. The information shown is based upon numerous assumptions and estimates and is not necessarily indicative of the results of future operations of the combined entities or the actual results that would have occurred had the transaction been consummated during the periods indicated. These statements should be read in conjunction with the consolidated financial statements of the Company, and the financial statements of eWeb21 Corporation. D-Lanz Development Group, Inc. (a development stage company) (Unaudited) PROFORMA BALANCE SHEET March 31, 2000
Consolidated D-Lanz D-Lanz Development eWeb21, Development Group, Inc. Inc. Adjustments Group, Inc. ----------- ----------- ----------- ---------- Assets Current assets Cash and cash equivalents $ -0- $ 1,389,482 $ -0- $ 1,389,482 Accounts receivable 960,898 960,898 Short term loans receivable 276,137 276,137 Other current assets 660,951 660,951 ---------- ---------- --------- ----------- Total current assets -0- 3,287,468 -0- 3,287,468 Property and equipment Vehicles 64,303 64,303 equipment, furniture and fixtures 605,957 605,957 Less accumulated depreciation (73,580) (73,580) ----------- ---------- Net property and equipment 596,680 596,680 Other assets Software development costs 368,346 368,346 Guarantee deposit 1,295,852 1,295,852 Government security deposit 90 90 Intangible asset 41,697 41,697 --------- ------------ Total other assets 1,705,985 1,705,985 ---------- ------------ Total assets $ -0- $ 5,590,133 $ -0- $ 5,590,133 ========= ============ ======== =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 340,382 $ 340,382 Short term borrowing 2,870,388 2,870,388 Deferred income 271,458 271,458 ---------- ---------- Total current liabilities 3,482,228 3,482,228 Stockholders' equity Preferred stock authorized 50,000,000 shares, $.001 par value each. At March 31, 2000 there are -0- shares outstanding Common Stock authorized 50,000,000 shares, $0.001 par value each. At March 31, 2000, there were 119,343 shares outstanding with 14,880,000 shares being issued. 11,900 2,475,877 (2,472,777) 15,000 Common stock subscribed 1,490,231 1,490,231 Additional paid in capital (11,900) 2,472,777 2,460,877 Currency translation adjustment 17,203 17,203 Deficit accumulated during the development stage -0- (1,875,406) (1,875,406) --------- ----------- -----------` Total stockholders' equity -0- 2,107,905 2,107,905 --------- ---------- --------- Total liabilities and stockholders' equity $ -0- $ 5,590,133 $ -0- $5,590,133 ======== =========== ======= ==========
See accompanying notes to financial statements. F-1 D-Lanz Development Group, Inc. (a development stage company) PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS For the three months ended March 31, 2000
Consolidated Consolidated D-Lanz Development eWeb21, Development Group, Inc. Inc. Adjustments Group, Inc. ------------ ----------- ----------- ------------ Revenue $ -0- $1,378,958 $1,378,958 Costs of services -0- 1,062,407 1,062,407 ---------- ---------- Gross profit -0- 316,551 316,551 Operations: Selling, general and administrative expenses 666,283 672,116 Depreciation expense -0- -0- Non cash payment for consulting fees 1,480,154 1,480,154 ---------- --------- Total expense -0- 2,146,437 2,146,437 Income (Loss) from operations and before corporate (1.829,886) (1,829,886) income taxes Corporate income taxes Other income and expenses Interest income 1,037 1,037 Interest expense (16,048) (16,048) Foreign currency transaction loss-net (16,853) (16,853) Other net 241 241 -------- -------- (31,208) (31,208) Net income (loss) $ -0- $(1,861,094) $ -0- $(1,861,094) ========= ============ ======== ============ Net income (loss) per share -basic $ 0.00 $ (1.37) $ 0.00 $ (1.37) ========= ============ ======== ============= Number of shares outstanding-basic 1,360,000 1,360,000 1,360,000 1,360,000 ========== ========== ========== =============
See accompanying notes to financial statements. F-2 Note 1 - During April, 2000, D-Lanz Development Group, Inc., (the "Company") completed a series of transactions as follows: a. Reverse Split In April, 2000, the Company reversed split the number of shares of common stock outstanding in a ration of 100 to 1 restating the number of shares of common stock outstanding from 11,900,000 to 120,000. b. Formation of Subsidiary The Company formed a subsidiary with the name Global Agri-Med Technologies, Inc. and on March 31, 2000 and in April, 2000 assigned the License rights to certain patented technology to manufacture and market for the countries of Chile and Singapore a temperature sensing device and diagnostic direct reading, digital device to screen the breast for abnormalities, including cancer and transferred the other assets and debts of the Company to this subsidiary. c. Reverse Merger of eWeb2, Inc. and Recapitalization of the Company In April, 2000, the Company completed a reverse merger with eWeb21, Inc. ("eWeb") giving effect to the reverse acquisition which has been accounted for as the issuance of 11,880,000 shares of common stock by a private company for the net assets of the Company, accompanied by a recapitalization pursuant to an Agreement of Business Combination, the ("Agreement"), which was dated on March, 2000. Accordingly, the financial statements of Company became the consolidated financial statements of eWeb21, Inc. The pro forma combined condensed balance sheet as of March 31, 2000 consists of the Unaudited balance sheet of the Company as at March 31, 2000 and the unaudited balance sheet of eWeb at March 31, 2000 and the unaudited related statements of income, cash flows and stockholders' equity for the three months ended March 31, 2000 and the unaudited related statements of income, cash flows and stockholders' equity for eWeb for the three months ended March 31, 2000 giving effect to the proposed transactions as if they had been in effect throughout the periods presented. EXHIBIT 6 Audited Financial statements for eWeb21, Inc., a Korean corporation, for the period from inception (October 11, 1999) to December 31, 1999 eWeb21, Inc. Financial Statements As of December 31, 1999 (With Independent Auditors' Report) Sejong Accounting Corporation SEJONG ACCOUNTING CORPORATION Sejong Accounting Corporation 6th floor, Dong-in Building, 1606-2 Seocho-dong, Seocho-gu, Seoul 137-070, Korea Telephone +82 2 523 3367 Facsimile +82 2 523 2305 Independent Auditors' Report The Board of Directors and Stockholders eWeb21, Inc. (a development stage company) : We have audited the accompanying balance sheet of eWeb21, Inc. ("the Company") as of December 31, 1999 and the related statements of operations and retained earnings and cash flows for the period from inception, October 11, 1999, to December 31, 1999. 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 audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eWeb21, Inc. (a development stage company) at December 31, 1999, and the results of its operations and retained earnings and cash flows for the period from inception, October 11, 1999, to December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that eWeb21 Corporation (a development stage company) will continue as a going concern. As more fully described in note1, the Company has incurred operating losses since the date of inception and requires additional capital to continue operations. The operations of the Company, and those of other companies in the Republic of Korea have also been significantly affected, and will continue to be affected for the foreseeable future, by the country's unstable economy caused by the currency devaluation, volatile stock markets and slowdown in growth in the Asia-Pacific region. While the Korean economy has recently shown signs of improvement, there are still uncertainties in the region that may affect future operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from those uncertainties. Management's plans as to these matters are described in Note 1. The financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of eWeb21 Corporation (a development stage company) to continue as a going concern. Seoul, Korea February 25, 2000 eWeb21, Inc. Balance Sheet December 31, 1999
Won (thousands) U.S. dollars (note 1(i)) --------------- ------------------------ Assets Current assets: Cash and cash equivalents (note 1(C)) W 25,955 $ 22,661 Accounts receivable 942,711 823,041 Prepaid assets (note 2) 222,015 193,832 -------------- ------------- Total current assets 1,190,681 1,039,534 Property and equipment: (note 3) Equipments and furniture 139,791 122,046 Less accumulated depreciation (8,018) (7,000) --------------- -------------- Net property and equipment 131,773 115,046 Other assets Guarantee Deposits 269,677 235,444 Government Securities 100 87 Capitalized Computer Software (Note 1(f)) 4,669 4,076 ---------- ------------ Total other assets 274,446 239,607 ---------- ----------- W 1,596,900 $ 1,394,187 ============ =============
See accompanying notes to financial statements. eWeb21, Inc. Balance Sheet, Continued
Won (thousands) U.S. dollars (note 1(i)) --------------- ------------------------ Liabilities and Stockholders' equity Current liabilities: Accounts payable and accrued expenses W 862,271 $ 752,813 Short-term borrowings (note 4) 594,775 519,273 Deferred income 56,602 49,417 ---------------- -------- Total current liabilities 1,513,648 1,321,503 Stockholders' equity: Common stock of W 5,000 par value Authorized - 80,000 shares Issued and outstanding 20,000 shares at December 31, 1999 (note 11) 100,000 83,146 Currency translation adjustment - 3,850 Accumulated deficit (16,748) (14,312) --------------- -------------- Total stockholders' equity 83,252 72,684 Commitment and contingencies (note 6) - - ------------- ----------- W 1,596,900 $ 1,394,187 ============== =============
See accompanying notes to financial statements. eWeb21, Inc. Statement of Operations For the period from October 11, 1999 to December 31, 1999
Won (thousands, except earnings per share) U.S. dollars (note 1(i)) ------------------- ------------------------ Sales (note 1(k)) W 479,664 $ 409,892 Costs of sales 407,715 348,408 --------------- -------- Gross profit 71,949 61,484 Selling and administrative expenses: 80,765 69,018 -------------- ------------- Operating gain (loss) (8,816) (7,534) Other income (deductions): Interest income 171 146 Other, net 1 1 -------------- ------------- 172 147 -------------- ------------- Loss before income taxes (8,644) (7,387) Income taxes (note 5) 8,104 6,925 -------------- ------------- Net income (loss) W (16,748) $ (14,312) =================== ==========
See accompanying notes to financial statements. eWeb21, Inc. Statement of Stockholders' Equity For the period from October 11, 1999 to December 31, 1999
Currency Won (thousands) Common Accumulated translation Stock deficit adjustment Total ---------- ------------ ----------- ------- Initial capitalization of 20,000 shares W 100,000 - W 100,000 on October 11, 1999 Net income (loss) - (16,748) (16,748) --------- ----------- ---------- Balance at December 31, 1999 100,000 (16,748) - W 83,252 ========= =========== ======== ===========
U.S.Dollars Currency ----------- Common Accumulated translation Stock deficit adjustment Total ---------- ------------ ----------- ------- Initial capitalization of 20,000 shares $ 83,146 - $ 83,146 on October 11, 1999 Net income (loss) - (14,312) 3,850 (10,462) ---------- ---------- --------- ----------- Balance at December 31, 1999 $ 83,146 (14,312) 3,850 $ 72,684 =========== ========== ========= == =========
See accompanying notes to financial statements. eWeb21, Inc. Statement of Cash Flows For the period from October 11, 1999 to December 31, 1999
Won (thousands) U.S. dollars (note 1(j)) --------------- ------------------------ Net Income W (16,748) $ (14,312) Cash flows from operating activities: Depreciation of property and equipment 8,018 7,000 Increase in accounts receivable (942,711) (823,041) Increase in advance payments (219,320) (191,479) Increase in accounts payable 801,304 699,585 Increase in other payables 32,476 28,353 Increase in withholdings 2,315 2,022 Increase in deferred income 56,602 49,417 Increase in currency translation adjustment - 3,850 Other, net 23,481 20,500 ------------- ------------- Net cash used in operating activities: (254,583) (218,105) -------------- -------------- Cash flows from investing activities: Increase in investment securities (100) (87) Increase in guarantee deposit (269,677) (235,444) Purchase of equipment and furniture (139,791) (122,046) Increase in development costs (4,669) (4,076) ------------- -------------- Net cash used in investing activities (414,237) (361,653) -------------- -------------- Cash flows from financing activities: Increase in short-term borrowings, net 594,775 519,273 Issuance of common stock 100,000 83,146 ------------- ------------- Net cash provided by financing activities 694,775 602,419 ------------- ------------- Increase in cash and cash equivalents 25,955 22,661 Cash and cash equivalents at beginning of year - - ------------- ------------- Cash and cash equivalents at end of year W 25,955 $ 22,661 ============= =============
See accompanying notes to financial statements. eWeb21, Inc. Notes to Financial Statements December 31, 1999 (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements (a) Business overview eWeb21, Inc. (the "Company") was incorporated in the Republic of Korea on October 11, 1999 to engage primarily in an internet website and software development of e-marketing, e-commerce, e-design and e-advertising products and services. The products and services were developed to meet the needs of companies in the niche market of e-level marketing such as Promoweb (e-level marketing), C3 Shopping Store (e-commerce), Wizard (e-design), and Find (e-advertising). (b) Basis of Presenting Financial Statements The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $14,312 for the period from inception October 11, 1999, to December 31, 1999. These factors indicate that the Company's continuation as a going concern is dependent upon its ability to obtain adequate financing. The Company is anticipating that with the completion of a public offering and with the resulting increase in working capital, the Company will be able to continue to develop the Company's marketing program to develop its internet presence and experience an increase in revenue. The Company will require substantial additional funds to finance its business activities on an ongoing basis and will have a continuing long-term need to obtain additional financing. The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress developing its software, initiating marketing penetration and signing distributors to internet contracts. The Company plans to engage in such ongoing financing efforts on a continuing basis. The financial statements presented consist of the balance sheet of the Company as at December 31, 1999 and the related statements of operations, stockholders equity and cash flows for the period from inception, October 11, 1999, to December 31, 1999. (c) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and with banks, overnight repurchase agreements and certificates of deposit with initial terms less than three months when purchased with cash. For purposes of the statement of cash flows, the Company considers financial instruments with original maturities of three months or less to be cash equivalents. (d) Allowance for Doubtful Accounts Allowance for doubtful accounts is estimated based on management's judgment and an analysis of portfolio quality and past experience. (e) Property and Equipment Property and equipment are stated at cost. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense when incurred. Depreciation is computed by the declining-balance method using rates based on estimated useful lives of the respective assets as follows: Estimated useful lives Equipment and furniture 5 (f) Software Development Costs Under SFAS No.86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed", capitalization of software development costs begins upon the establishment of technological feasibility of the product, which the Company has defined as the completion of beta testing of a working product. The establishment of technological feasibility and the on going assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology. As of December 31, 1999, the Company has capitalized $4,076 in software development costs. (g) Recent Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 is effective for financial statements for years beginning after December 15, 1998. SOP 98-1 provides guidance over accounting for computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. (h) Retirement and Severance Benefits Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company's estimated liability under the plan, which would be payable if all employees left on the balance sheet date, is to be accrued in the accompanying balance sheet. As of December 31, 1999, none of the Company's employees have been with the Company for more than one year and accordingly, no provision has been recorded for retirement and severance benefits. (i) Foreign Currency Transactions The functional currency is the Korean Won. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date and reported in US Dollars with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W1,145.4 to US$1, the rate of exchange on December 31, 1999. Revenue, expenses, gains and losses from foreign currency transactions are converted at the exchange rate in effect on the date on which the transaction occurred. All foreign exchange transaction gains and losses are included in the results of operations. Balance sheet accounts, principally in Korean currency, are translated at the current exchange rate as of the balance sheet date. The resulting translation adjustment is recorded as a separate component of shareholders' equity. (j) Contingent Liabilities Contingent losses are generally recognized as liability when probable and reasonably estimable. (k) Revenue Recognition The revenue of the Company consist of product sale and services of internet website software. The product sale of the software is recognized when the Company confirms and authorizes each new sub domain name. The service of the software is recognized on a prorata basis during the service period. The revenue of the Company's sales through C3 (Cyber Consumer Centre: Shopping Mall ) is recognized when members or cyber dealers order any products through our C3 mall and the actual delivery is done. (l) Costs of Sales Cost of sales relating to the internet website software consist of commission and hosting costs. (m) Selling and Marketing Costs Selling and marketing costs are expensed as incurred and totaled W23,065 thousands(US$19,710) for the period from inception, October 11, 1999 to December 31, 1999. These costs are reported under selling, general and administrative expenses on the statement of operating. (n) Income Taxes Income tax on the earnings or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of operations except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable earnings will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (o) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make a number of estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates. (p) Accounting for Derivative Instruments and Hedging Activities SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities", requires the recognition of all derivatives as either assets or liabilities and the measurement of those instruments at fair value. SFAS No.137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.133", issued in August 1999, postpones for one year the mandatory effective date for adoption of SFAS No. 133 to January 1, 2001. The Company does not currently engage in derivative trading or hedging activities; hence, SFAS No.133 and SFAS No.137 will not have a material impact on its financial position or results of operations. (2) Prepaid Assets Prepaid assets at December 31, 1999 are summarized as follows: Won (thousands) U.S. dollars --------------- ------------ Advance payment W 219,320 $ 191,479 VAT receivable 2,657 2,320 Prepaid income taxes 38 33 -------- ----------- W 222,015 $ 193,832 ========= ==========
(3) Property and Equipment Property and Equipment for the Company consisted of the following at December 31, 2000: Won (thousands) Asset Acquisition Accumulated Cost Depreciation Balance Equipment and furniture 139,791 8,018 131,773 U.S. dollars ----------------------- Acquisition Accumulated Asset Cost Depreciation Balance Equipment and furniture 122,046 7,000 115,046
(4) Short-term Borrowings Short-term borrowings at December 31, 1999 are summarized as follows: Lender Annual Interest Rate Won (thousands) U.S. dollars Sea-Hyoung Oh 0.0% W 594,570 $ 519,094 Others 0.0% 205 179 -------------- ------------ W 594,775 $ 519,273 ============== ============
(5) Income Taxes The Company provides for the tax effects of transactions reported in the financial statements. The provision if any, consists of taxes currently due plus deferred taxes related primarily to differences between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities, if any, represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The Company is subject to corporate income tax and resident surtax normally at an aggregate rate of 30.8% on taxable income over W100,000 thousands and 17.6% on taxable income up to W100,000 thousands. (6) Commitments and Contingencies (a) Agreements with service centers Under the terms of the Company's service agreement with its service centers, the Company is obligated to update any information necessary for the operations of the service centers, provide analysis and guidance to the service centers' business, and arrange a formal consultations to discuss the performance and operation of the service centers. Also, the Company must administer the operation of a worldwide commission calculation system and arrange global network incentives. The agreement is valid for five years from the commencement date, unless otherwise terminated in accordance with the terms and conditions of the agreement. The service centers may, at their option, renew the agreement for periods of five years unless breach of the agreement has taken place. (b) Lease agreements The Company has located its operating and administrative facilities at 21F Techno-mart 546-4 Kui-dong, Kwanggin-gu, Seoul, Korea pursuant to a lease agreement dated on Jan 31, 2000 for a term of 2 years with minimum annual rental payments as follows: For the period from inception, October 11, 1999, to December 31, 1999, rent expense was $15,443. According to a lease terms and conditions of Korea, the Company has paid lease deposit ($1,212,700) when the Company made lease contract. The Company could get full refund when the lease contract expired. Therefore the actual lease cost might be more than above figures. (c) Consulting Agreements The Company has entered in an consulting agreement with Samil Accounting corporation for a period of 1 years with annual consulting fee of $5,400. (d) Retirement and Severance Benefits The Company's retirement and severance program is that which is required under Korean legislation. As disclosed in note 1(h), each employee is entitled to a lump-sum payment based on a number of factors when they leave the Company. The employees are fully vested in these amounts and are entitled to receive the amounts immediately upon separation. The management of the Company believes that the amount of the Company's retirement and severance liability as of December 31, 1999 is immaterial due to the Company's short period of operation and, therefore, did not reflect the corresponding amount of liability on the accompanying balance sheet in accordance with Korean GAAP. Under U.S. GAAP, in accordance with the consensus in the Financial Accounting Standards Board ("FASB") Emerging Issues Task Force ("EITF") Issue No. 88-1, the basis of provision for allowance for retirement and severance benefits liability is adequately disclosed. (7) Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: (a) Cash and cash equivalents, accounts receivable, short-term borrowings, and accounts payable: The carrying amount approximates fair value because of the nature or short maturity of those instruments. (b) Other Investments: The fair value of other investments such as government securities which are recorded in other assets is estimated based on quoted market prices for those or similar investment. The estimated fair value of the Company's other investment at December 31, 1999 is summarized as follows:
Won (thousands) U.S. dollars -------------------------------- ------------------------- Carrying amount Fair value Carrying amount Fair value --------------- --------------- ----------------- ---------- Other investment W 100 65 $ 87 57
(8) Segment and Regional Information All of the Company's operations are currently represented by Promoweb software services. Revenues and costs by geographic area for the period from October 11, 1999 to December 31, 1999 are as follows: Korea Sales of services Sales of merchandises Total ---------------------- ----------------------- ------------ Won(thousand) U.S.dollar Won(thousand) U.S.dollar Won(thousand) U.S.dollar Revenues W 51,159 $ 43,717 W 428,505 $ 366,175 W 479,664 $409,892 Costs of service 43,485 37,160 364,230 311,248 407,715 348,408 -------- ------- --------- -------- --------- -------- Gross Profit(Loss)W7,674 $ 6,557 W 64,275 $ 54,927 W 71,949 $ 61,484 ======= ======= ======== ======= ======== ======= (9) Comprehensive Income Under U.S. GAAP, the Company applies the provisions of Statement of Financial Accounting Standards ("SFAS") No.130, which requires the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) for period presented. Such a presentation is not required under Korean GAAP. As of December 31, 1999, the Company does not have any other comprehensive income (loss) items that are required for disclosure under U.S. GAAP and total comprehensive income (loss) is equal to net loss for the period from October 11, 1999 to December 31, 1999. (10) Related Party Transactions a. Inssuance of Shares of Common Stock On October 11, 1999, the Company sold an aggregate of 20,000 shares of common stock for an aggregate consideration of W100,000 thousands (US$83,146) or $4.16 per share as follows: 10,000 shares of common stock to Sea-Hyoung Oh; 5,000 shares of common stock to Paul Lambert and 5,000 shares of common stock to Edward George Spear. (11) Common Stock (a) Description The Company was incorporated in the Republic of Korea on October 11, 1999 and is authorized to issue 80,000 shares of common stock, $4.16 par value each share. (b) Issuance of Shares of Common Stock. On October 11, 1999, the Company sold an aggregate of 20,000 shares of common stock for an aggregate consideration of W100,000 thousands(US$83,146) or $4.16 per share as follows: 10,000 shares of common stock to Sea-Hyoung Oh(President); 5,000 shares of common stock to Paul Lambert(Chairman) and 5,000 shares of common stock to Edward George Spear. (12) Economic Environment The Republic of Korea is believed to have overcome the economic crisis that began in late 1997 in Korea and in the Asia Pacific region in general. Nevertheless, it would be premature to be complacent about the economic recovery given, among other factors, the remaining residual effects of the crisis, which could have a continuing impact on the economy. The accompanying financial statements reflect management's current assessment of the impact to date of the economic situation on the financial position of the Company. Actual results could differ from management's current assessments and such differences could be material (13) Development Stage Company The Company is considered to be a development stage company with little operating history. The Company is dependent upon the financial resources of the Company's management and from the net proceeds of private placements for its continued existence. The Company will also be dependent upon its ability to raise additional capital to complete its marketing plans, acquire additional equipment, management talent, and working capital to engage in any profitable business activity. Since its organization, the Company's activities have been limited to the preliminary development of its website, development of its infrastructure for basic staffing and management, hiring personnel and acquiring equipment and office space, development of its internet technology and preparation of documentation and the sale of a registered offering through its parent Company D-Lanz. EXHIBIT 7 Unaudited financial statements of eWeb21, Inc., a Korean corporation, as of March 31, 2000. eWeb21, Inc. Notes to Financial Statements, Continued Financial Statements As of March 31, 2000 (With Independent Accountants' Review Report) Sejong Accounting Corporation SEJONG ACCOUNTING CORPORATION Sejong Accounting Corporation 6th floor, Dong-in Building, 1606-2 Seocho-dong, Seocho-gu, Seoul 137-070, Korea Telephone +82 2 523 3367 Facsimile +82 2 523 2305 Independent Accountants' Review Report To the Shareholders and Board of Directors of eWeb21,Inc. (a development company) We have reviewed the accompanying balance sheet of eWeb21, Inc. (a development stage company) as of March 31, 2000 and the related statement of operations and of cash flows for the three month period ended on March 31, 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited, in accordance with generally accepted auditing standards, the balance sheet as of December 31, 1999, and the related statements of operations, of changes in shareholders' equity and of cash flows for the year then ended (not presented herein), and in our report dated February 25, 2000, we expressed an unqualified opinion on financial statements. In our opinion, the balance sheet information as of December 31, 1999, is fairly stated, in all material respects in relation to the balance sheet from which it has been derived. The accompanying financial statements have been prepared assuming that a development stage company will continue as a going concern. The Company has incurred operating losses since the date of inception and requires additional capital to continue operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans as to these matters are described in Note 1. The financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of a development stage company to continue as a going concern. Seoul, Korea May 13, 2000 eWeb21, Inc. Balance Sheet March 31, 2000
Won (thousands) U.S. dollars (note 1(i)) --------------- ------------------------ Assets Current assets: Cash and cash equivalents (note 1(c)) W 1,539,963 $ 1,389,482 Accounts receivable 1,064,963 960,898 Short-term loans receivable (note 2) 306,043 276,137 Prepaid assets (note 3) 732,533 660,951 -------------- ------------- Total current assets 3,643,502 3,287,468 -------------- ------------- Property and equipment : (note 4) Vehicles 71,267 64,303 Equipments and furniture 671,582 605,957 Less accumulated depreciation (81,549) (73,580) --------------- -------------- Net property and equipment 661,300 596,680 -------------- ------------- Other assets Guarantee deposits 1,436,193 1,295,852 Government securities 100 90 Capitalized computer software(note1(f)) 408,238 368,346 Intangible assets 46,212 41,697 ----------- ---------- Total other assets 1,890,743 1,705,985 ----------- ----------- W 6,195,545 $ 5,590,133 ================ ============
See accompanying notes to financial statements. eWeb21, Inc. Balance Sheet, Continued
Won (thousands) U.S. dollars (note 1(i)) --------------- ------------------------ Liabilities and Stockholders' equity Current liabilities: Accounts payable and accrued expenses W 377,246 $ 340,382 Short-term borrowings (note 5) 3,181,251 2,870,388 Deferred income 300,857 271,458 --------------- ------------- Total current liabilities 3,859,354 3,482,228 --------------- ------------- Stockholders' equity: Common stock of W 5,000 par value Authorized - 3,000,000 shares Issued and outstanding 556,331shares at March 31, 2000 (note 12) 2,781,655 2,475,877 Common stock subscribed 1,665,780 1,490,231 Currency translation adjustment - 17,203 Accumulated deficit (2,111,244) (1,875,406) --------------- -------------- Total stockholders' equity 2,336,191 2,107,905 -------------- ------------- Commitment and contingencies (note 7) - - ---------------- ------------- W 6,195,545 $ 5,590,133 ============== =============
See accompanying notes to financial statements. eWeb21, Inc. Statement of Operations For the period from January 1, 2000 to March 31, 2000
Won (thousands, except earnings per share) U.S. dollars (note 1(i)) ------------------- ------------------------ Sales (note 1(k)) W 1,551,893 $ 1,378,958 Costs of sales 1,195,645 1,062,407 -------------- ------------- Gross profit 356,248 316,551 Selling and administrative expenses 749,843 666,283 Non cash payment for consulting fee 1,665,780 1,480,154 -------------- ------------- 2,415,623 2,146,437 -------------- ------------- Operating gain(loss) (2,059,375) (1,829,886) Other income (deductions): Interest income 1,167 1,037 Interest expenses (18,060) (16,048) Foreign currency transaction profit 467 415 Foreign currency transaction loss (18,966) (16,853) Other, net 271 241 -------------- ------------- (35,121) (31,208) --------------- -------------- Loss before income taxes (2,094,496) (1,861,094) Income taxes (note 6) - - -------------- ------------- Net income(loss) W (2,094,496) $ (1,861,094) ================ ===============
See accompanying notes to financial statements. eWeb21, Inc. Statement of Stockholders' Equity For the period from January 1, 2000 to March 31, 2000
Won(thousands) Common Common stock Accumulated Currency stock subscribed deficit translation Total ------- ------------ ----------- adjustment ------- Balance at December 31, 1999 W 100,000 - (16,748) W 83,252 of 20,000 shares Net loss for the period ended - - (2,094,496) (2,094,496) March 31, 2000 Issuance of common stock 2,681,655 1,665,780 - 4,347,435 --------- ---------- ---------- ---------- of 536,331 shares Balance at March 31, 2000 W 2,781,655 1,665,780 (2,111,244) - W 2,336,191 ========== ========== ============ --------- ==========
Currency U.S.Dollars Common Common stock Accumulated translation stock subscribed deficit adjustment Total ----------- ---------- ------------- ---------- ------ Balance at December 31, 1999 $ 83,146 - (14,312) $ 68,834 of 20,000 shares Net loss for the period ended - - (1,861,094) (1,861,094) March 31, 2000 Issuance of common stock 2,392,731 1,490,231 - 17,203 3,900,165 ---------- ---------- ----------- ------- ---------- of 536,331 shares Balance at March 31, 2000 $ 2,475,877 1,490,231 (1,875,406) 17,203 $ 2,107,905 ========== ========== ============ ======= ==========
See accompanying notes to financial statements. eWeb21, Inc. Statement of Cash Flows For the period from January 1, 2000 to March 31, 2000
Won (thousands) U.S. dollars (note 1(j)) ------------ ------------------------ Net Income W (2,094,496) $(1,861,094) Cash flows from operating activities: Depreciation of property and equipment 73,531 66,580 Amortization of intangible asset 1,936 1,720 Non-cash payment for consulting fee 1,665,780 1,480,154 Loss on foreign currency transactions, net 18,499 16,438 Increase in accounts receivable (121,785) (137,857) Increase in advance payments (400,294) (358,144) Decrease in accounts payable (728,672) (628,704) Increase in withholdings 24,503 22,176 Increase in other payables 84,545 77,233 Increase in deferred income 244,255 222,041 Increase in currency translation adjustment - 48,626 Other, net 7,983 7,889 ------------- ------------- Net cash used in operating activities: (1,224,215) (1,042,942) -------------- -------------- Cash flows from investing activities: Increase in short-term loans, net (308,617) (276,137) Increase in other investment assets (1,166,515) (1,102,018) Purchase of vehicles (71,267) (64,303) Purchase of tools, furniture and fixtures (531,791) (483,911) Increase in software development costs (403,569) (364,270) Purchase of intangible assets (48,149) (43,444) -------------- -------------- Net cash used in investing activities (2,529,908) (2,334,083) -------------- -------------- Cash flows from financing activities: Increase in short-term borrowings, net 2,586,476 2,351,115 Issuance of common stock 1,015,875 902,500 Increase in common stock subscribed 1,665,780 1,490,231 ------------- ------------- Net cash provided by financing activities 5,268,131 4,743,846 ------------- ------------- Increase in cash and cash equivalents 1,514,008 1,366,821 Cash and cash equivalents at beginning of year 25,955 22,661 ------------- ------------- Cash and cash equivalents at end of year W 1,539,963 $ 1,389,482 ============= =============
See accompanying notes to financial statements. eWeb21, Inc. Notes to Financial Statements March 31, 2000 (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements (a) Business overview eWeb21, Inc. (the "Company") was incorporated in the Republic of Korea on October 11, 1999 to engage primarily in an internet website and software development of e-marketing, e-commerce, e-design and e-advertising products and services. The products and services were developed to meet the needs of companies in the niche market of e-level marketing such as Promoweb(e-level marketing), C3 Shopping Store(e-commerce), Wizard(e-design), and Find(e-advertising). (b) Basis of Presenting Financial Statements The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $1,861,094 for the period from January 1, 2000, to March 31, 2000. These factors indicate that the Company's continuation as a going concern is dependent upon its ability to obtain adequate financing. The Company is anticipating that with the completion of a public offering and with the resulting increase in working capital, the Company will be able to continue to develop the Company's marketing program to develop its internet presence and experience an increase in revenue. The Company will require substantial additional funds to finance its business activities on an ongoing basis and will have a continuing long-term need to obtain additional financing. The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress developing its software, initiating marketing penetration and signing distributors to internet contracts. The Company plans to engage in such ongoing financing efforts on a continuing basis. The financial statements presented consist of the balance sheet of the Company as at March 31, 2000 and the related statements of operations, stockholders equity and cash flows for the period from January 1, 2000 to March 31, 2000. (c) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and with banks, overnight repurchase agreements and certificates of deposit with initial terms less than three months when purchased with cash. For purposes of the statement of cash flows, the Company considers financial instruments with original maturities of three months or less to be cash equivalents. (d) Allowance for Doubtful Accounts Allowance for doubtful accounts is estimated based on management's judgment and an analysis of portfolio quality and past experience. (e) Property and Equipment Property and equipment are stated at cost. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense when incurred. Depreciation is computed by the declining-balance method using rates based on estimated useful lives of the respective assets as follows: Estimated useful lives Vehicles 5 Equipments and furniture 5 Software purchased 5 (f) Software Development Costs Under SFAS No.86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed", capitalization of software development costs begins upon the establishment of technological feasibility of the product, which the Company has defined as the completion of beta testing of a working product. The establishment of technological feasibility and the on going assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology. As of March 31, 2000, the Company has capitalized W408,238thousand($368,346) in software development costs. (g) Recent Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 is effective for financial statements for years beginning after December 15, 1998. SOP 98-1 provides guidance over accounting for computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. (h) Retirement and Severance Benefits Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company's estimated liability under the plan, which would be payable if all employees left on the balance sheet date, is to be accrued in the accompanying balance sheet. As of March 31, 2000, none of the Company's employees have been with the Company for more than one year and accordingly, no provision has been recorded for retirement and severance benefits. (i) Foreign Currency Transactions The functional currency is the Korean Won. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date and reported in US Dollars with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W1,108.3 to US$1, the rate of exchange on March 31, 2000. Revenue, expenses, gains and losses from foreign currency transactions are converted at the exchange rate in effect on the date on which the transaction occurred. All foreign exchange transaction gains and losses are included in the results of operations. Balance sheet accounts, principally in Korean currency, are translated at the current exchange rate as of the balance sheet date. The resulting translation adjustment is recorded as a separate component of shareholders' equity. (j) Contingent Liabilities Contingent losses are generally recognized as liability when probable and reasonably estimable. (k) Revenue Recognition The revenue of the Company consist of product sale and services of internet website software. The product sale of the software is recognized when the Company confirms and authorizes each new sub domain name. The service of the software is recognized on a prorata basis during the service period. The revenue of the Company's sales through C3 (Cyber Consumer Centre: Shopping Mall) is recognized when members or cyber dealers order any products through our C3 mall and the actual delivery is done. (l) Cost of sales Cost of sales relating to the internet website software consist of commission and hosting costs. (m) Selling and Marketing Costs Selling and marketing costs are expensed as incurred W113,073thousand($100,472) for the period from January 1, 2000 to March 31, 2000. Those costs are reported under selling, general and administrative expenses on the statement of operations. (n) Income Taxes Income tax on the earnings or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of operations except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable earnings will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (o) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make a number of estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates. (p) Unaudited Financial Information In the opinion of Management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the financial position of the Company as at March 31, 2000 and the results of its operations and its cash flows for the three months ended March 31, 2000. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the SEC's rules and regulations of the Securities and Exchange Commission. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. (q) Accounting for Derivative Instruments and Hedging Activities SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities", requires the recognition of all derivatives as either assets or liabilities and the measurement of those instruments at fair value. SFAS No.137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.133", issued in August 1999, postpones for one year the mandatory effective date for adoption of SFAS No. 133 to January 1, 2001. The Company does not currently engage in derivative trading or hedging activities; hence, SFAS No.133 and SFAS No.137 will not have a material impact on its financial position or results of operations. (2) Short-term Loans Receivable The details of the Company's balance of short-tem loans receivable as of March 31, 2000 are as follows: Won(thousands) U.S.dollars eWeb Internationl PTY 294,143 $ 265,400 short-term loans to employees 11,900 10,737 ------- ------- W 306,043 $ 276,137 ======= ======= (3) Prepaid Assets Prepaid assets at March 31, 2000 are summarized as follows: Won (thousands) U.S. dollars --------------- ------------ Advance payment W 609,148 $ 549,623 Advance expenses 122,343 110,388 Accrued revenue 1,007 909 Prepaid income taxes 35 31 ---------- ---------- W 732,533 $ 660,951 ============ ========== (4) Property and equipment Property and equipment for the Company consist of the followings at March 31, 2000. Won(thousands) Acquisition Accumulated Assets costs Depreciation Balance Vehicles 71,267 W 2,679 W 68,588 Equipments and furniture 671,582 78,870 592,712 --------- -------- --------- Total W 742,849 W 81,549 W 661,300 ========= ======== ======== US dollars Acquisition Accumulated Assets costs Depreciation Balance Vehicles $ 64,303 $ 2,417 $ 61,886 Equipments and furniture 605,957 71,163 534,794 --------- --------- --------- Total $ 670,260 $ 73,580 $ 596,680 ========= ========== ========= (5) Short-term Borrowings Short-term borrowings at March 31, 2000 are summarized as follows:
Lender Annual Interest Rate Won (thousands) U.S. dollars ------------------ -------------------- --------------- ------------ Prime Mutual Savings and 13.0% W 1,140,000 $ 1,028,602 Finance Company Sea-Hyoung Oh 0.0% W 2,041,251 $ 1,841,786 --------------- ------------- Total W 3,181,251 $ 2,870,388 =============== =============
(6) Income Taxes The Company provides for the tax effects of transactions reported in the financial statements. The provision if any, consists of taxes currently due plus deferred taxes related primarily to differences between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities, if any, represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The Company is subject to corporate income tax and resident surtax normally at an aggregate rate of 30.8% on taxable income over W100,000 thousands and 17.6% on taxable income up to W100,000 thousands The components of the net deferred tax asset as of March 31, 2000 are as follows: Deferred tax asset: Won(thousands) U.S.dollars Net operating loss carry forward 72,174 64,130 Valuation allowance (72,174) (64,130) ---------- ---------- Net deferred tax asset - - ========== ========== (7) Commitments and Contingencies (a) Agreements with service centers Under the terms of the Company's service agreement with its service centers, the Company is obligated to update any information necessary for the operations of the service centers, provide analysis and guidance to the service centers' business, and arrange a formal consultations to discuss the performance and operation of the service centers. Also, the Company must administer the operation of a worldwide commission calculation system and arrange global network incentives. (b) Lease agreements The Company has located its operating and administrative facilities at 21F Techno-mart 546-4 Kui-dong, Kwanggin-gu, Seoul, Korea pursuant to a lease agreement dated on January 1, 2000 for a term of 2 years with minimum annual rental payments as follows: For the period from January 1, 2000 to March 31, 2000, rent expense was $24,065. According to a lease terms and conditions of Korea, the Company has paid lease deposit (U$1,212,700) when the Company made lease contract. The Company could get full refund when the lease contract expired. Therefore the actual lease cost might be more than above figures. (c) Consulting Agreements The Company has entered in an consulting agreement with Samil Accounting Corporation for a period of 1 years with annual consulting fee of $5,400. (d) Retirement and Severance Benefits The Company's retirement and severance program is that which is required under Korean legislation. As disclosed in note 1(h), each employee is entitled to a lump-sum payment based on a number of factors when they leave the Company. The employees are fully vested in these amounts and are entitled to receive the amounts immediately upon separation. The management of the Company believes that the amount of the Company's retirement and severance liability as of March 31, 2000 is immaterial due to the Company's short period of operation and, therefore, did not reflect the corresponding amount of liability on the accompanying balance sheet. Under U.S. GAAP, in accordance with the consensus in the Financial Accounting Standards Board ("FASB") Emerging Issues Task Force ("EITF") Issue No. 88-1, the basis of provision for allowance for retirement and severance benefits liability is adequately disclosed. (8) Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: (a) Cash and cash equivalents, accounts receivable, short-term borrowings, and accounts payable: The carrying amount approximates fair value because of the nature or short maturity of those instruments. (b) Other Investments: The fair value of other investments such as government securities which are recorded in other assets is estimated based on quoted market prices for those or similar investment. The estimated fair value of the Company's other investment at March 31, 2000 is summarized as follows: Won (thousands) U.S. dollars ---------------------- --------------------- Carrying amount Fair value Carrying amount Fair value --------------- --------------- ----------------- --------- Other investment W 100 65 $ 90 58 (9) Segment and Regional Information All of the Company's operations are currently represented by Promoweb software sales. Sales and costs by geographic area for the period from January 1, 2000 to March 31, 2000 are as follows: eWeb Korea Sales of services Sales of merchandises Total ---------------------- ----------------------- ------------ W = won (thousands) $ = US Dollar (thousands) Sales W 278,778 $ 247,712 W1,216,941 $1,081,332 W1,495,719 $1,329,044 Costs of sales 227,885 202,491 924,875 821,812 1,152,760 1,024,303 -------- -------- -------- -------- --------- -------- Gross Profit W 50,893 $ 45,221 W 292,066 $ 259,520 W 342,959 $ 304,741 ======== ======= ======== ======== ======== ======== eWeb Japan Sales of services Sales of merchandises Total ---------------------- ----------------------- ------------ W = won (thousands) $ = US Dollar (thousands) Sales W 8,222 $ 7,306 W 45,780 $ 40,678 W 54,002 $ 47,984 Costs of slaes 6,437 5,719 34,793 30,916 41,230 36,635 ------- ------- --------- -------- -------- ------- Gross Profit W 1,785 $ 1,587 W 10,987 $ 9,762 W 12,772 $ 11,349 ======= ======= ======== ====== ======= ======== eWeb Australia Sales of services Sales of merchandises Total Sales W 167 $ 148 W 2,005 $ 1,782 W 2,172 $ 1,930 Costs of sales 131 115 1,524 1,354 1,655 1,469 ------- ------- -------- -------- --------- -------- Gross Profit W 36 $ 33 W 481 $ 428 W 517 $ 461 ====== ====== ======= ====== ======= ======= Total Sales of services Sales of merchandises Total ---------------------- ----------------------- ------------ Sales W287,167 $ 255,166 W 1,264,726 $ 1,123,792 W 1,551,893 $ 1,378,958 Costs of sales 234,453 208,325 961,192 854,082 1,195,645 1,062,407 -------- -------- --------- -------- ---------- ---------- Gros Profit W 52,714 $46,841 W 303,534 $ 269,710 W 356,248 $ 316,551 ======= ======== ======== ======== ======== ======== The balances of significant asset and liability accounts of service centers as of March 31 of 2000 are as follows:
Won (thousands) eWeb Korea eWeb Japan eWeb Australia Total Accounts receivable W 968,926 92,027 4,010 W 1,064,963 Accounts payable - 75,510 3,048 78,558 U.S. dollars eWeb Korea eWeb Japan eWeb Australia Total Accounts receivable $ 874,245 83,035 3,618 $ 960,898 Accounts payable - 68,131 2,750 70,881
(10) Comprehensive Income Under U.S. GAAP, the Company applies the provisions of Statement of Financial Accounting Standards ("SFAS") No.130, which requires the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) for period presented. Such a presentation is not required under Korean GAAP. As of March 31, 2000, the Company does not have any other comprehensive income (loss) items that are required for disclosure under U.S. GAAP and total comprehensive income (loss) is equal to net loss for the period from January 1, 2000 to March 31, 2000. (11) Related Party Transactions a. Inssuance of Shares of Common Stock As of March 31, 2000, the Company issued an aggregate of 556,331 shares of common stock for an aggregate consideration of W2,781,655 thousands(U$2,475,877) as follows: 239,922 shares to Sea-Hyoung Oh for W450,000 thousands(US$396,261) cash and W749,610 thousands(U$670,612) in additional consulting fee; 133,289 shares to Paul Lambert and Edward George Spear W250,000 thousands(U$220,496) cash and W416,445 thousands (U$372,558) in additional consulting fee respectively ; 26,656 shares to Hyo-Sung Choi for W50,000 thousands(U$44,731) cash and W83,280 thousands ($74,503) in additional consulting fee. b. Software Development For the period January 1, 2000 to March 31, 2000, the Company paid approximately $314,465 to eWeb Ltd. for the development of computer software. eWeb Ltd. is partnership between Paul Lambert, Charlie Oh and Edward George Spear. (12) Common Stock (a) Description The Company was incorporated in the Republic of Korea on October 11, 1999 and is authorized to issue 3,000,000 shares of common stock, $4.16 par value each share. (b) Issuance of Shares of Common Stock. (1) On October 11, 1999, the Company sold an aggregate of 20,000 shares of common stock for an aggregate consideration of $83,146 or $4.16 per share as follows: 10,000 shares of common stock to Sea-Hyoung Oh (President); 5,000 shares of common stock to Paul Lambert (Chairman) and 5,000 shares of common stock to Edward Spear. (2) For the period from January 1, 2000 to March 31, 2000, the Company sold an aggregate of 536,331 shares of common stock for an aggregate consideration of W2,681,655 thousand($2,392,731). (13) Economic Environment The Republic of Korea is believed to have overcome the economic crisis that began in late 1997 in Korea and in the Asia Pacific region in general. Nevertheless, it would be premature to be complacent about the economic recovery given, among other factors, the remaining residual effects of the crisis, which could have a continuing impact on the economy. The accompanying financial statements reflect management's current assessment of the impact to date of the economic situation on the financial position of the Company. Actual results could differ from management's current assessments and such differences could be material (14) Development Stage Company The Company is considered to be a development stage company with little operating history. The Company is dependent upon the financial resources of the Company's management and from the net proceeds of private placements for its continued existence. The Company will also be dependent upon its ability to raise additional capital to complete its marketing plans, acquire additional equipment, management talent, and working capital to engage in any profitable business activity. Since its organization, the Company's activities have been limited to the preliminary development of its website, development of its infrastructure for basic staffing and management, hiring personnel and acquiring equipment and office space, development of its internet technology and preparation of documentation and the sale of a registered offering through its parent Company D-Lanz.