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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 3, 2001
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eResource Capital Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-8662 23-2265039
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification Number)
incorporation)
3353 Peachtree Road, N.E., Suite 130 Atlanta, Georgia 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 760-2570
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This Amendment No. 2 amends and supplements Items 7(a) and 7(b) of the Current
Report on forms 8-K and 8-K/A filed on April 18, 2001 and May 15, 2001,
respectively, by the registrant (the "Company") with respect to, among other
things, the Company's acquisition of LST, Inc. d/b/a Lifestyle Technologies,
Inc. ("Lifestyle") In accordance with Item 7 of Form 8-K, the financial
statements required thereby are being filed with this Amendment No. 2.
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 LST, Inc. prepared in accordance with regulation S-X are
included in this report:
1. Audited financial statements
Independent Auditors' Report
Balance Sheet as of December 31, 2000
Statement of Operations and Accumulated Deficit for the
period from March 24, 2000 (date of incorporation) through
December 31, 2000.
Statement of Cash Flows for the period from March 24, 2000
through December 31, 2000.
Notes to Financial Statements
2. Unaudited condensed financial statements
Balance Sheets at March 31, 2001 and December 31, 2000
Statements of Operations for the three months ended March 31,
2001 and 2000.
Statement of Changes in Stockholders' Equity for the three
months ended March 31, 2001.
Statements of Cash Flows for the three months ended March 31,
2001 and 2000.
Notes to Unaudited Condensed 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 March 31, 2001
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the nine months ended March 31, 2001
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended June 30, 2000
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(c) Exhibits
2.1 The Stock Purchase Agreement between the Company and the majority of the stockholders of LST, Inc. (Certain of the
exhibits and schedules to the agreement have been omitted from this Report pursuant to Item 601(b)(2) of
Regulation S-B, and the Company agrees to furnish copies of such omitted exhibits and schedules supplementally to the
Securities and Exchange Commission upon request.)(*)
2.2 Stock Purchase Agreement between the Company and Glenn I. Barrett, Jr. dated March 16, 2001. (Certain of the exhibits
and schedules to the agreement have been omitted from this Report pursuant to Item 601(b)(2) of Regulation S-B, and
the Company agrees to furnish copies of such omitted exhibits and schedules supplementally to the
Securities and Exchange Commission upon request.)(*)
2.3 Stock Purchase Agreement between the Company and Brandon Holdings, Inc. dated March 21, 2001. (Certain of the
exhibits and schedules to the agreement have been omitted from this Report pursuant to Item 601(b)(2) of
Regulation S-B, and the Company agrees to furnish copies of such omitted exhibits and schedules supplementally to the
Securities and Exchange Commission upon request.)(*)
(*) Incorporated by reference to the Current Form 8-K filed by the Company
on April 18, 2001.
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of LST, Inc.
d/b/a LifeStyle Technologies
We have audited the accompanying balance sheet of LST, Inc. d/b/a LifeStyle
Technologies as of December 31, 2000 and the related statements of income
(loss), changes in stockholders' equity and cash flows for the period from
inception (March 24, 2000) to 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 generally accepted auditing
standards. These 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 audit provides 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 LST, Inc. as of December 31,
2000 and the results of their operations and cash flows for the initial period
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in NOTE 6: COMMITMENTS
AND CONTINGENCIES to the financial statements, the Company's significant
operating losses, as well as its reliance on the home building industry, raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ E. D. Duncan, CPA, PA
--------------------------
E. D. Duncan, CPA, PA
February 23, 2001
Huntersville, North Carolina
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Balance Sheet
December 31, 2000
ASSETS
Current assets:
Cash $ 108,454
Accounts receivable - trade 182,096
Accounts receivable - other 6,534
Inventories (Note 2) 85,416
Prepaid expenses 21,578
-----------
Total current assets 404,078
-----------
Furniture, fixtures and equipment,
net of accumulated depreciation (Note 3 ) 192,189
-----------
Deferred income taxes (Note 4) --
Other assets:
Deposits 32,184
Prepaid expenses - non current 36,007
-----------
Total other assets 68,191
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Total assets $ 664,458
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 335,014
Payroll taxes payable 101,260
Accrued expenses 20,597
Unearned revenue 5,342
Note payable (Note 5) 100,000
-----------
Total current liabilities 562,213
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Commitments and contingencies (Note 6)
Stockholders' equity (Notes 8 and 9):
Common stock ($.001 par value, 20,000,000 shares
authorized, 8,259,750 shares issued and outstanding) 8,260
Additional paid-in-capital 2,251,490
Retained earnings (deficit) (2,157,505)
-----------
Total stockholders' equity 102,245
-----------
Total liabilities and stockholders' equity $ 664,458
===========
See Notes to the Financial Statements
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Statement of Income (Loss)
For the Period from Inception to December 31, 2000
Net sales $ 843,666
Cost of goods sold 1,216,132
-----------
Gross profit (loss) (372,466)
Selling and general and administrative expenses 1,746,349
-----------
Income (loss) from operations (2,118,815)
-----------
Other income (expenses):
Interest income 600
Interest expense (19,581)
Depreciation expense (19,709)
-----------
(38,690)
-----------
Net (loss) before income tax benefit (2,157,505)
Income taxes (Note 4) --
-----------
Net (loss) $(2,157,505)
===========
See Notes to the Financial Statements
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7
LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Statement of Changes in Stockholders' Equity
For the Period from Inception to December 31, 2000
Additional Retained
Common Paid-in- Earnings
Stock Capital (Deficit) Total
----------- ----------- ----------- ----------
Beginning balance, March 24, 2000 $ -- $ -- $ -- $ --
Issuance of common stock 8,260 2,251,490 -- 2,259,750
Net (loss) (2,157,505) (2,157,505)
----------- ----------- ----------- ----------
Ending balance, December 31, 2000 $ 8,260 $ 2,251,490 $(2,157,505) $ 102,245
=========== =========== =========== ==========
See Notes to Financial Statements
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Statement of Cash Flows
For the Period from Inception to December 31, 2000
Cash flows from operating activities:
Net (loss) $(2,157,505)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation expense 19,709
Changes in operating assets and liabilities:
(Increase) in accounts receivable (188,630)
(Increase) in inventories (85,416)
(Increase) in prepaid expenses (21,578)
Increase in accounts payable 335,014
Increase in payroll taxes payable 101,260
Increase in accrued expenses 20,597
Increase in unearned revenue 5,342
Increase in note payable 100,000
-----------
Net cash (used in) operating activities (1,871,207)
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Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (211,898)
Increase in other assets (68,191)
-----------
Net cash (used in) investing activities (280,089)
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Cash flows from financing activities:
Issuance of common stock 2,259,750
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Net cash provided by financing activities 2,259,750
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Net increase in cash 108,454
Beginning cash at March 24 --
-----------
Ending cash at December 31 $ 108,454
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Supplemental Cash Flow Information:
Cash paid during the year for interest $ 10,734
===========
See Notes to the Financial Statements
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a privately-held Delaware "C" corporation. It was formed on
March 24, 2000 and provides a new emerging home networking technology, which
integrates existing internet, security, satellite television, entertainment and
communications technology for the home. The Company has positioned itself to be
the "one stop shop" of technology needs for homebuilders and homebuyers in
both North and South Carolina.
REVENUE RECOGNITION AND BASIS OF ACCOUNTING
The Company invoices its customers and records revenue as work is completed on
each project. Generally, the work is completed in two phases -- wiring, then
hardware installation. For customers that purchase contracts for alarm
monitoring services, revenue is recognized only when the contracts are sold to
third parties. The Company sells substantially all of its alarm monitoring
contracts immediately subsequent to the date the contracts are signed by the
customer.
The Company uses the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased with
an original maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the carrying amount of cash, accounts receivable, other
current assets, note and accounts payable, and other accrued liabilities
approximates fair value due to their short maturity.
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances in a major financial institution, which
limits the amount of credit exposure. Periodically throughout the initial
period, the Company has maintained balances in excess of federally insured
limits of $100,000. At December 31, 2000 the company had $7,354 in excess of
federally insured limits.
The Company primarily transacts its business within one business segment,
mainly home building. If any conditions occurred, which would have an adverse
effect on the home building industry, operating results could be adversely
affected.
INVENTORIES
Inventories are priced at the lower of cost or market with cost being
determined on a first-in, first-out (FIFO) method.
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost, net of accumulated
depreciation. Depreciation is calculated by using the straight-line method over
the estimated useful lives of the assets, which is five to seven years for all
categories except for computer software, which is depreciated over 3 years.
Repairs and maintenance are charged to expense as incurred. Expenditures for
betterments and renewals are capitalized. The cost of furniture, fixtures and
equipment and the related accumulated depreciation are removed from the
accounts upon retirement or disposal with any resulting gain or loss being
recorded as other income or expense.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards, SFAS 109, "Accounting for Income Taxes". This Statement
prescribes the use of the asset/liability method. Deferred taxes represent the
expected future tax consequences when the reported amounts of assets and
liabilities are recovered or paid. They arise from differences between the
financial reporting and tax basis of assets and liabilities and are adjusted
for changes in tax laws and tax rates when those changes are enacted. The
provision for income taxes represents the total of income taxes paid or payable
for the current year, plus the change in deferred taxes during the year.
COST OF GOODS SOLD
Gross profit is negative as the majority of direct labor and operating overhead
dollars, two significant components of cost of goods sold, are mostly fixed in
nature and revenues during the initial period were not sufficient to absorb
these costs.
ADVERTISING COSTS
Advertising costs are generally charged to operations in the year incurred and
totaled $64,771 for the initial period ending December 31, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 2: INVENTORIES
At December 31, 2000 inventories consisted of equipment and installation
supplies, which are used in the Company's installation of the various technology
products.
NOTE 3: FURNITURE, FIXTURES AND EQUIPMENT
A summary of furniture, fixtures and equipment at December 31, 2000 is as
follows:
Furniture and fixtures $ 63,618
Computer equipment 74,264
Office equipment 26,553
Showroom equipment 36,592
Computer software 10,871
----------
Total furniture, fixtures and equipment 211,898
Less: Accumulated depreciation (19,709)
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Net furniture, fixtures and equipment $ 192,189
==========
NOTE 4: INCOME TAXES
Deferred income taxes (benefits) are provided for certain income and expenses,
which are recognized in different periods for tax and financial reporting
purposes. Sources of temporary differences and the resulting tax assets are as
follows:
Current
Deferred Tax Period
Assets Changes
------------ ------------
Net operating loss carryforward
Federal and State $ (2,139,358) $ (2,139,358)
============ ============
Applicable tax rate:
(34% Federal, 6.9% State)
Deferred taxes $ 824,808 $ 824,808
Less: Valuation allowance (824,808) (824,808)
------------ ------------
Amount per balance sheet $ 0 $ 0
============ ============
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 4: INCOME TAXES (CONTINUED)
The provision (benefit) for taxes for the initial period ending December 31,
2000 is as follows:
Current:
Federal $0
State $0
Deferred:
Federal $0
State $0
For federal and state income tax purposes, the Company has a net operating loss
carryforward of $2,139,358, which expires in 2020. As the Company has operating
losses and future profits cannot be assured, an allowance to reduce deferred tax
asset for the full amount of the asset, has been recorded.
NOTE 5: NOTE PAYABLE
Note payable at December 31, 2000 represents a note payable to a director of the
Company. The note has a 12% interest rate per annum and is due and payable with
accrued interest on demand. The note is also personally guaranteed by an officer
and by a stockholder of the Company. At December 31, 2000, accrued interest of
$7,733 was included in accounts payable.
NOTE 6: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases a fleet of vehicles on an operating lease basis with a
monthly lease commitment of $13,706. The term of each lease is for three years
except for one vehicle, which has a two-year lease. At the lease expiration
date, the Company has the option to purchase the vehicles at the residual value
as determined at the inception of the lease. Vehicle lease expense amounted to
$54,309 for the initial period ending December 31, 2000.
The Company occupies office and warehouse space under several operating leases,
which expire at various dates from June 30, 2001 to December 18, 2003. Minimum
rental commitments for the premises are $19,242 per month. The rental
commitments are subject to pro rata share increases of certain operating
expenses incurred by the landlords for such items as common area maintenance
expense and taxes. Rent expense amounted to $119,167 for the initial period
ending December 31, 2000.
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 6: COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum operating lease commitments, under non-cancelable leases, are
summarized as follows:
Office
Year Total Vehicles Premises
-------- -------- --------
2001 $389,856 $164,469 $225,387
2002 283,623 164,037 119,586
2003 167,136 104,783 62,353
-------- -------- --------
$840,615 $433,289 $407,326
======== ======== ========
GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $2,157,505 during the initial period from March 24, 2000 to December 31,
2000. This, as well as the Company's reliance on the home building industry,
creates an uncertainty about the Company's ability to continue as a going
concern. Management has a non-binding letter of intent as explained in NOTE 9:
TRANSACTIONS WITH RELATED PARTIES to these financial statements. The ability of
the Company to continue as a going concern is dependent on the success of that
merger or obtaining additional financing. The financial statements do not
include any adjustment that might be necessary if the Company is unable to
continue as a going concern.
NOTE 7: MAJOR CUSTOMER
Revenue from a major customer amounted to 43% of net sales or $357,627. Amounts
included in accounts receivable for this customer at December 31, 2000 were
$26,320.
NOTE 8: STOCK OPTIONS AND WARRANTS
On September 29, 2000 the Company created an Omnibus Stock Option and Award Plan
to help attract and retain personnel of superior ability for positions of
exceptional responsibility, to reward employees and directors for past services
and to motivate such individuals through added incentives to further contribute
to the success of the Company. Awards under the Plan may be made to eligible
persons in the form of incentive stock options to eligible employees only,
nonqualified stock options, restricted stock, stock awards, performance shares
or any combination of the foregoing. For the initial period ending December 31,
2000, the only awards outstanding were for incentive stock options to purchase
shares of the Company's common stock.
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 8: STOCK OPTIONS AND WARRANTS (CONTINUED)
Employee options vest and become exercisable at various dates between September
29, 2000 and September 29, 2002. From time to time, vested options may be
exercised in whole or in part. In no event may the option be exercised after
September 29, 2010, which represents the ending date of the ten-year option
period. Special provisions apply in the event of death, disability or
termination of employment other than for cause.
As part of a non-binding letter of intent for the merger of LST, Inc. by
eResource Capital Group, Inc., the Company cannot grant any additional stock
options to employees and all stock options currently outstanding will be
terminated as of the closing date of the merger at the Company's expense. See
NOTE 9: TRANSACTIONS WITH RELATED PARTIES. Upon consummation of the merger,
eResource will negotiate in good faith to enter into employee stock option
agreements with the Company's employees who are not stockholders of the Company
and whose options with the Company were terminated.
Number of options outstanding on March 24, 2000 0
Number of options granted in 2000 355,000
Number of options terminated in 2000 5,000
Number of options outstanding on December 31, 2000 350,000
Number of options exercisable at December 31, 2000 242,500
Weighted average exercise price per share outstanding
and per share exercisable $1.00
Grant date fair value of options granted in 2000 $355,000
Weighted average grant date fair value of options
granted in 2000 $1.00
Weighted average remaining contractual life of
options outstanding and exercisable 9 years and 9 months
No options were exercised or expired in 2000.
At December 31, 2000, the Company had an obligation to issue a Common Stock
Purchase Warrant entitling the holder to purchase 10,000 shares of common stock
at $1.00 per share.
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LST, INC.
D/B/A LIFESTYLE TECHNOLOGIES
Notes to Financial Statements
December 31, 2000
NOTE 9: TRANSACTIONS WITH RELATED PARTIES
On November 23, 2000, eResource Capital Group, Inc. (eResource), a publicly held
American Stock Exchange company, and LST, Inc. signed a non-binding letter of
intent for the acquisition of LST, Inc. According to the terms of the letter of
intent, the Company would merge into a wholly-owned subsidiary of eResource. The
stockholders of the Company would receive restricted common stock of eResource
at a fixed exchange ratio based on the average closing prices on the American
Stock Exchange of eResource's common stock over the ten trading days immediately
preceding the closing date. If the average share price is less than $1, then the
exchange ratio shall be based on a $1 share price for eResource. The acquisition
price for the Company is $13 million.
The President and Chief Executive Officer of eResource is also the Chairman of
the Board of LST, Inc.
Additionally, the Company is exploring other ways of structuring a transaction
with eResource, including, but not limited to, a transaction in which eResource
would purchase stock directly from the stockholders of the Company.
NOTE 10: DEFINED CONTRIBUTION PLAN
The Company has a 401(k) plan that covers all employees who have attained
twenty-one years of age and completed six months of service. Contributions to
the plan by the Company are at the discretion of the Company. For the initial
period ended December 31, 2000, the Company incurred no expense for matching
contributions to the Plan.
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Condensed Balance Sheets at March 31, 2001 and December 31, 2000
March 31, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 1,064 $ 108,454
Accounts receivable-trade 324,175 182,096
Accounts receivable-other 2,781 6,534
Inventories 112,297 85,416
Prepaid expenses 26,333 21,578
------------ ------------
Total current assets 466,650 404,078
------------ ------------
Furniture, fixtures and equipment, 208,289 192,189
net of accumulated depreciation ------------ ------------
Deferred income taxes -- --
Other assets:
Deposits 35,322 32,184
Prepaid expenses-non current 36,578 36,007
------------ ------------
Total other assets 71,900 68,191
------------ ------------
Total assets $ 746,839 $ 664,458
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 503,879 $ 355,611
Payroll taxes payable 62,595 101,260
Unearned revenue 4,448 5,342
Note payables 550,000 100,000
------------ ------------
Total current liabilities 1,120,922 562,213
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Common stock ($.001 par value, 20,000,000 shares authorized,
8,099,750 and 8,259,750 shares issued, respectively) 8,100 8,260
Additional paid-in capital 2,591,150 2,251,490
Surrender of stock-retained earnings 500 --
Retained earnings (deficit) (2,973,833) (2,157,505)
------------ ------------
Total stockholders' equity (374,083) 102,245
------------ ------------
Total liabilities and stockholders' equity $ 746,839 $ 664,458
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Condensed Statements of Income (Loss) (Unaudited)
For the Three Months Ended March 31, 2001 and March 31, 2000
Three Months Ended
-------------------------------
March 31, March 31,
2001 2000
---------- ----------
Net sales $ 734,923 $ 22,125
Cost of goods sold 632,131 59,821
---------- ----------
Gross profit (deficit) 102,792 (37,696)
Selling and general and administrative expenses 901,095 167,471
---------- ----------
Loss from operations (798,303) (205,167)
Other expenses:
Interest expense 5,500 --
Depreciation expense 12,525 1,650
---------- ----------
Net loss before income tax benefit (816,328) (206,817)
Income taxes -- --
---------- ----------
Net loss $ (816,328) $ (206,817)
========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Condensed Statement of Changes in Stockholders' Equity
For the Period December 31, 2000 to March 31, 2001
Additional Retained
Common Paid-in- Earnings
Stock Capital (Deficit) Total
------- ---------- ----------- ---------
Beginning balance, December 31, 2000 $ 8,260 $2,251,490 $(2,157,505) $ 102,245
Issuance of common stock 340 339,660 340,000
Surrender of common stock (500) -- 500 --
Net (loss) -- -- (816,328) (816,328)
------- ---------- ----------- ---------
Ending balance, March 31, 2001 $ 8,100 $2,591,150 $(2,973,333) $(374,083)
======= ========== =========== =========
The accompanying notes are an integral part of these condensed financial
statements.
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LST, INC. D/B/A LIFESTYLE TECHNOLOGIES
Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2001 and March 31, 2000
Three Months Ended
-------------------------------
March 31, March 31,
2001 2000
---------- ----------
Cash flows from operating activities:
Net loss $ (816,328) $ (206,817)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 12,525 1,650
Changes in operating assets and liabilities:
(Increase) in accounts receivable (138,326) (30,473)
(Increase) in inventories (26,881) (8,889)
(Increase) in prepaid expenses (4,755) (34,362)
Increase in accounts payable and accrued expenses 148,268 106,083
Increase (decrease) in payroll taxes payable (38,665) 1,047
Increase (decrease) in unearned revenue (894) 259
Increase in notes payable 450,000 --
---------- ----------
Net cash used in operating activities (415,056) (171,502)
---------- ----------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment (28,625) (27,917)
Increase in other assets (3,709) (1,650)
---------- ----------
Net cash used in investing activities (32,334) (29,567)
---------- ----------
Cash flows from financing activities:
Issuance of common stock 340,000 300,000
---------- ----------
Net cash provided by financing activities 340,000 300,000
---------- ----------
Net increase (decrease) in cash (107,390) 98,931
Cash balance at beginning of period 108,454 --
---------- ----------
Cash balance at end of period $ 1,064 $ 98,931
========== ==========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 8,013 $ --
The accompanying notes are an integral part of these condensed financial
statements.
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LST, INC.
Notes to Condensed Financial Statements (Unaudited)
For The Quarter Ended March 31, 2001
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a privately held Delaware "C" corporation. It was formed on March
24, 2000 and provides a new emerging home networking technology, which
integrates existing internet, security, satellite television, entertainment and
communications technology for the home. The Company has positioned itself to be
the "one stop shop" of technology needs for homebuilders and homebuyers in both
North and South Carolina.
REVENUE RECOGNITION AND BASIS OF ACCOUNTING
The Company invoices its customers and records revenue as work is completed on
each project. Generally, the work is completed in two phases-wiring, then
hardware installation. For customers that purchase contracts for alarm
monitoring services, revenue is recognized only when the contracts are sold to
third parties. The Company sells substantially all of its alarm monitoring
contracts immediately subsequent to the date the contracts are signed by the
customer.
The Company uses the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the carrying amount of cash, accounts receivable, other
current assets, notes and accounts payable, and other accrued liabilities
approximates fair value due to their short maturity.
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21
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances in a major financial institution, which
limits the amount of credit exposure. Periodically throughout the period, the
Company has maintained balances in excess of federally insured limits of
$100,000. At March 31, 2001 the Company was not in excess of federally insured
limits.
The Company primarily transacts its business within one business segment, mainly
home building. If any conditions occurred, which would have an adverse effect on
the home building industry, operating results could be adversely affected.
INVENTORIES
Inventories are priced at the lower of cost or market with cost being determined
on a first-in, first-out (FIFO) method. Inventories consist of equipment and
installation supplies, which are used in the Company's installation of the
various technology products.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost net of accumulated
depreciation. Depreciation is calculated by using the straight-line method over
the estimated useful lives of the assets, which is five to seven years for all
categories except for computer software, which is depreciated over 3 years.
Repairs and maintenance are charged to expense as incurred. Expenditures for
betterments and renewals are capitalized. The cost of furniture, fixtures and
equipment and the related accumulated depreciation are removed from the accounts
upon retirement or disposal with any resulting gain or loss being recorded as
other income or expense.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards, SFAS 109, "Accounting for Income Taxes". This Statement
prescribes the use of the asset/liability method. Deferred taxes represent the
expected future tax consequences when the reported amounts of assets and
liabilities are recovered or paid. They arise from differences between the
financial reporting and tax bases of assets and liabilities and are adjusted for
changes in tax laws and tax rates when those changes are enacted. The provision
for income taxes represents the total of income taxes paid or payable for the
current year, plus the change in deferred taxes during the year.
For federal and state income tax purposes, the Company as of March 31, 2001 has
net operating loss carryforwards of $2,953,774, which expire between 2020 and
2021. As the Company has operating losses and future profits cannot be assured,
an allowance to reduce deferred tax asset for the full amount of the asset, has
been recorded.
COST OF GOODS SOLD
Gross profit is negative at March 31, 2000 as the majority of direct labor and
operating overhead dollars, two significant components of cost of goods sold,
are mostly fixed in nature and revenues during the quarter were not sufficient
to cover these costs.
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22
ADVERTISING COSTS
Advertising costs are generally charged to operations in the year incurred and
totaled $35,338 and $10,956 for the quarters ending March 31, 2001 and 2000,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2: NOTES PAYABLE
Notes payable at March 31, 2001 represents a note payable to a director of the
Company for $100,000 at a 12% interest rate per annum and is due and payable
with accrued interest on demand. Also, during the quarter, the Company borrowed
funds on two additional notes payable totaling $450,000. The notes have interest
rates of 8% and 12% per annum and both are due and payable with accrued interest
on demand.
NOTE 3: RELATED PARTY TRANSACTIONS
Included in notes payable at March 31, 2001 and December 31, 2000 is a note
payable in the amount of $100,000 payable to a director of the Company, Michael
D. Pruitt. The note has a 12% interest rate per annum and is due and payable
with accrued interest on demand.
NOTE 4: SUBSEQUENT EVENTS
In April 2001 eResource Capital Group, Inc. (eResource), a publicly held
American Stock Exchange company, acquired all of the outstanding common stock
directly from the stockholders of the Company. As a result, the Company became a
wholly-owned subsidiary of eResource.
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23
Item 7.(b). Pro Forma Financial Statements
On September 7, 2000, the Company completed the acquisition of DM Marketing,
Inc. ("DMM") in accordance with a definitive purchase agreement dated August 16,
2000, which provided for the exchange of 8,450,000 shares of the Company's
Common Stock for all of the common stock of DMM. On August 16, 2000, the
8,450,000 shares of common stock issued for DMM had a market value of
$5,281,250. Including direct acquisition costs, the aggregate purchase price for
DMM was $6,210,897 and the transaction was recorded using the purchase method of
accounting. The excess value of the purchase price over the fair value of DMM's
net assets on the acquisition date aggregating $5,722,267 has been allocated to
goodwill which is being amortized over five years.
On February 13, 2001, the Company acquired 100% of Avenel Ventures, Inc.
("Avenel") in exchange of 6.7 million shares of Common Stock pursuant to a share
exchange purchase agreement dated as of November 8, 2000. The total purchase
price aggregated $6,834,000 and the transaction was recorded using the purchase
method of accounting. The excess value of the purchase price over the fair value
of Avenel's net assets on the acquisition date aggregating $5,610,144 has been
allocated to goodwill which is being amortized over five years.
On April 3, 2001, the Company acquired LST, Inc. d/b/a Lifestyle Technologies,
Inc. (LST) in exchange of 8,074,675 million shares of Common Stock pursuant to
certain stock purchase agreements. The total purchase price aggregated
$7,617,208 and the transaction was recorded using the purchase method of
accounting. The excess value of the purchase price over the fair value of LST's
net assets on the acquisition date aggregating $7,991,291 has been allocated to
goodwill which is being amortized over five years.
The acquisition of each DMM and Avenel has been reported by the Company in
Current Reports on Form 8-K and 8-K/A filed prior to this Current Report.
Therefore, the following unaudited pro forma consolidated financial statements
of the Company and Lifestyle are derived from, and should be read in conjunction
with the audited financial statements of Lifestyle included in item 7(a) herein
and the audited consolidated financial statements of the Company as previously
filed on Form 10-KSB for the year ended June 30, 2000 with the Securities and
Exchange Commission, the unaudited consolidated financial statements of the
Company as previously filed on Form 10-QSB for the quarters ended December 31,
2000 and September 30, 2000, and the financial statements as previously filed on
Form 8-K/A on November 10, 2000 and March 28, 2001. The unaudited 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).
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eResource Capital Group, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet (Unaudited)
March 31, 2001
(In thousands, except share amounts)
eResource Pro Forma eResource
Capital Adjustments Capital
Group, Inc. LST, Inc. and Group, Inc.
ASSETS Actual Actual Eliminations Pro Forma
------ ----------- --------- ------------ -----------
Cash and cash equivalents $ 442 $ -- $ -- $ 442
Investments 1,423 -- (350)(1) 1,073
Accounts and notes receivable 155 327 -- 482
Inventories -- 113 -- 113
Prepaid expenses - other 1,046 26 -- 1,072
-------- -------- ------ ----------
Total current assets 3,066 466 (350)(1) 3,182
Net assets of discontinued operations 68 -- -- 68
Deferred costs and other assets 232 72 -- 304
Property and equipment, net 8,618 209 -- 8,827
Goodwill 11,356 -- 7,991(1) 19,347
-------- -------- ------ ----------
Total assets $ 23,340 $ 747 $7,641 $ 31,728
======== ======== ====== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 7,616 $ -- $ -- $ 7,616
Accrued interest payable 848 -- -- 848
Accounts payable and accrued expenses 1,014 567 -- 1,581
Customer deposits 348 4 -- 352
-------- -------- ------ ----------
Total current liabilities 9,826 571 -- 10,397
Due to affiliates, net 26 550 -- 576
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.04 par value, 100,000,000
shares authorized, 51,324,584 and
68,099,259 issued, respectively 2,469 8 323(1) 2,792
(8)(2)
Additional paid-in capital 96,776 2,591 6,944(1) 103,720
(2,591)(2)
Accumulated deficit (85,681) (2,973) 2,973(2) (85,681)
Unrealized loss on marketable securities (65) -- -- (65)
Treasury stock - at cost (435,930 shares) (11) -- -- (11)
-------- -------- ------ ----------
Total shareholders' equity 13,488 (374) 7,641 20,755
-------- -------- ------ ----------
Total liabilities and shareholders' equity $ 23,340 $ 747 $7,641 $ 31,728
======== ======== ====== ==========
The accompanying notes are an integral part of these pro forma
financial statements.
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eResource Capital Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
Nine Months Ended March 31, 2001
(In thousands, except share amounts)
eResource Pro Forma
Capital DM Avenel Adjustment
Group, Inc Marketing, Inc. Pro Forma Ventures, Inc. and
Actual Actual(3) Adjustment Actual(4) Elimination SubTotal
------------ --------------- ---------- -------------- ----------- --------
Sales $ 6,547 $ 34 $ -- $ 545 $ (23)(5) $ 7,103
Lease income - commercial real estate 778 -- -- -- -- 778
------------ ------ ------- -------- ------ --------
7,325 34 -- 545 (23) 7,881
Cost of sales - aviation 6,020 -- -- -- -- 6,020
------------ ------ ------- -------- ------ --------
Gross profit 1,305 34 -- 545 (23) 1,861
Compensation expense related to issuance of
stock options and warrants 6,922 -- -- -- -- 6,922
Selling, general and administrative expenses 3,855 56 -- 910 (23)(5) 4,798
Depreciation and amortization 1,418 -- 192(6) 13 655(6) 2,278
Interest expense 629 -- -- (1) -- 628
Loss on investments 156 -- -- 263 -- 419
Write off of Web site development costs 754 -- -- -- -- 754
Write off of pre-development costs 1,164 -- -- -- -- 1,164
------------ ------ ------- -------- ------ --------
Net loss $ (13,593) $ (22) (192) $ (640) (655) $(15,102)
============ ====== ======= ======== ====== ========
Basic and diluted net loss per share $ (.28)
============
Weighted average shares outstanding used
in computing basic and diluted loss per
share 48,740,469
============
eResource Capital
LST, Inc. Pro Forma Group, Inc.
Actual Adjustment Pro Forma
--------- ---------------- ------------
Sales $ 1,425 $ -- $ 8,528
Lease income - commercial real estate -- -- 778
-------- -------- ------------
1,425 -- 9,306
Cost of sales - aviation 1,554 -- 7,574
-------- -------- ------------
Gross profit (129) -- 1,732
Compensation expense related to issuance of
stock options and warrants -- -- 6,922
Selling, general and administrative expenses 2,124 -- 6,922
Depreciation and amortization 26 1,199(1) 3,503
Interest expense 21 -- 644
Loss on investments -- -- 419
Write off of Web site development costs -- -- 754
Write off of pre-development costs -- -- 1,164
-------- -------- ------------
Net loss $ (2,300) $ (1,199) $ (18,601)
======== ======== ============
Basic and diluted net loss per share $ (.25)
============
Weighted average shares outstanding used
in computing basic and diluted loss per
share 64,461,347
============
The accompanying notes are an integral part of these pro forma financial
statements.
(1) The 8,074,675 shares of common stock issued by the Company for the
Lifestyle acquisition had a value of $7,267,208 based upon the fair
market value of the Company's stock over a reasonable period time prior
and subsequent to April 3, 2001 which is the date the terms of the
purchase agreement were reached and announced to the public. Also, the
Company had invested $350,000 in Lifestyle stock prior to the
acquisition.
The excess value of the aggregate purchase price over the historical
value of Lifestyle's net assets on the acquisition date has been
allocated to goodwill which will be amortized over five years. Pro
forma goodwill at March 31, 2001 is $7,991,000. Pro forma goodwill
amortization aggregated $1,199,000 for nine months ended March 31,
2001.
(2) Elimination of Lifestyle equity acquired.
(3) Includes the period from July 1, 2000 through August 31, 2000. Results
from September 1, 2000 through March 31, 2001 are included in the
Company's actual results.
(4) Includes the period from July 1, 2000 through January 31, 2001. Results
from February 1, 2001 through March 31, 2001 are included in the
Company's actual results.
(5) Elimination of inter-company transactions.
(6) Pro forma goodwill amortization.
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eResource Capital Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
Year Ended June 30, 2000
(In thousands, except share amounts)
eResource DM Avenel
Capital Marketing, Ventures,
Group, Inc Inc. Pro Forma Inc Pro Forma
Actual Actual Adjustment Pro Forma(1) Adjustment SubTotal
----------- ---------- ---------- ------------ ---------- --------
(Unaudited) (Unaudited)
Revenues
Sales - aviation $ 10 $ 355 $ -- $ -- $ -- $ 365
Lease income - commercial real estate 1,108 -- -- -- -- 1,108
------------ -------- ------- -------- ------- --------
1,118 355 -- -- -- 1,473
Cost of sales 93 -- -- -- -- 93
------------ -------- ------- -------- ------- --------
Gross profit 1,025 355 -- -- -- 1,380
Compensation expense related to issuance of
stock options and warrants 48,996 -- -- -- -- 48,996
Selling, general and administrative expenses 7,023 298 -- 127 -- 7,448
Depreciation and amortization 467 7 1,200(4) -- 83(4) 1,757
Interest expense 863 -- -- -- -- 863
Loss on investment 1,012 -- -- -- -- 1,012
------------ -------- ------- -------- ------- --------
Net loss before discontinued operations $ (57,336) $ 50 $(1,200) $ (127) $ (83) $(58,696)
============ ======== ------- ======== ------- ========
Basic net loss and diluted net loss
net loss per share $ (1.81)
============
Weighted average shares outstanding used
in computing basic and diluted loss per share 31,596,541
============
eResource
Pro Forma Capital
LST, Inc Adjustments Group, Inc
Actual(2) and Eliminations(3) Pro Forma
--------- ------------------- ------------
(Unaudited) (Unaudited) (Unaudited)
Revenues
Sales - aviation $ 154 -- $ 519
Lease income - commercial real estate -- -- 1,108
------ -------- ------------
154 -- 1,627
Cost of sales 294 -- 387
------ -------- ------------
Gross profit (140) -- 1,240
Compensation expense related to issuance of
stock options and warrants -- -- 48,996
Selling, general and administrative expenses 523 -- 7,971
Depreciation and amortization 7 433 2,197
Interest expense 4 -- 867
Loss on investment -- -- 1,012
------ -------- ------------
Net loss before discontinued operations $ (674) $ (433) $ (59,803)
====== ======== ============
Basic net loss and diluted net loss
net loss per share $ (1.40)
============
Weighted average shares outstanding used
in computing basic and diluted loss per share 42,706,267
============
The accompanying notes are an integral part of these pro forma financial
statements.
(1) Includes the period from June 6, 2000 (date of incorporation) thru
June 30, 2000.
(2) Includes the period from March 24, 2000 (date of incorporation) through
June 30, 2000.
(3) The 8,074,675 shares of common stock issued by the Company for the
Lifestyle acquisition had a value of $7,267,208 based upon the fair
market value of the Company's stock over reasonable period of time
prior and subsequent to April 3, 2001 which is the date the terms of
the purchase agreement were reached and announced to the public. Also
the Company had invested $350,000 in Lifestyle stock prior to the
acquisition. The excess value of the aggregate purchase price over the
historical value of Lifestyle'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 $7,991,000. Pro forma goodwill
amortization aggregated $433,000 for the year ended June 30, 2000.
(4) Pro forma goodwill amortization.
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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: July 13, 2001 By: /s/ WILLIAM L. WORTMAN
------------------------------------
William L. Wortman
Vice President, Treasurer and
Chief Financial Officer
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