SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________.
Commission File No. 0-23900
FUSION NETWORKS HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0393382
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8115 N.W. 29th Street, Miami, Florida 33122
---------------------------------------------
(Address of principal executive offices)
(305) 477-6701
-----------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
_____
As of November 6, 2000, 37,036,226 shares of Common Stock of the issuer
were outstanding.
Explanatory Note: This amendment is filed to restate certain financial
statements relating to the Company's investment in Marketing Services Group,
Inc. to carry that investment at fair value, with unrealized gains and losses
reported as a separate component of stockholders' equity.
FUSION NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
Number
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999.......................................... 3
Consolidated Statements of Operations - For the three
and nine months ended September 30, 2000 and 1999.......... 4
Consolidated Statements of Cash Flows - For the nine months ended
September 30, 2000 and 1999................................ 5
Notes to Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 11
Item 3. Quantitative and Qualitative Disclosures about Market
Risk....................................................... 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................. 16
Item 6. Exhibits and Reports on Form 8-K........................... 16
SIGNATURES............................................................. 17
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FUSION NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
September 30, December 31,
ASSETS 2000 1999
--------------- -------------
Current Assets:
Cash $ 942,695 $ 7,044,458
Accounts receivable 99,109 -
Employee and other loans receivable 64,847 535
Note receivable 58,881 -
Prepaid expenses and other current assets 454,508 21,858
------------- ------------
Total Current Assets 1,620,040 7,066,851
Investment in equity securities 4,500,000 25,500,000
Web site costs 352,503 -
Property, plant and equipment, net 1,690,674 642,558
------------- ------------
$ 8,163,217 $ 33,209,409
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 646,672 $ 131,080
------------- ------------
Total Current Liabilities 646,672 131,080
Long-Term Debt 4,000,000 -
------------- ------------
Total Liabilities 4,646,672 131,080
------------- ------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 60,000,000 shares $.00001
par value, issued and outstanding 37,036,226 at
September 30, 2000 and 33,113,333 at December 31, 1999 374 331
Additional paid-in capital 65,063,482 54,437,419
Foreign currency translation (4,482) 14,551
Retained earnings (deficit) (40,542,829) (21,373,972)
------------- -------------
Accumulated other comprehensive income (loss):
Foreign currency transaction (4,482) 14,551
Unrealized gain (loss) on equity securities (21,000,000) -
------------- -------------
3,516,545 33,078,329
------------- -------------
$ 8,163,217 $ 33,209,409
============= =============
________________________________________________________________________________
The accompanying notes are an integral part of these consolidated
financial statements.
3
FUSION NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-------- --------- -------- ---------
Revenues from licensing agreements $ 106,243 $ - $ 106,243 $ -
----------- ---------- ------------ ----------
Total revenues 106,243 - 106,243 -
----------- ---------- ------------ ----------
Costs and Expenses:
General and administrative expenses 1,493,369 39,111 4,735,456 39,111
Product development and engineering 517,918 310,931 3,036,000 310,931
Sales and marketing 432,502 17,655 1,305,032 17,655
Merger expenses - 46,000 - 46,000
Depreciation and amortization 4,784 - 153,079 -
----------- ---------- ------------ ----------
2,439,573 413,697 9,229,567 413,697
----------- ---------- ------------ ----------
Loss from Operations (2,333,330) (413,697) (9,123,324) (413,697)
----------- ---------- ------------ ----------
Other Income (Expense):
Loss on sale of subsidiary (1,320,847) - (1,320,847) -
Miscellaneous other income, net 83,447 - 10,707 -
Interest income (expense), net (57,802) 4,459 24,422 4,459
----------- ---------- ------------ ----------
(1,295,202) 4,459 (1,285,718) 4,459
----------- ---------- ------------ ----------
Loss before credit for income taxes (3,628,532) (409,238) (10,409,042) (409,238)
Provision (credit) for income taxes - - - -
----------- ---------- ------------ ----------
Loss from continued operations (3,628,532) (409,238) (10,409,042) (409,238)
Loss on discontinued operations - - (8,759,818) -
----------- ---------- ------------ ----------
Net loss on common stock $(3,628,532) $ (409,238) $(19,168,860) $ (409,238)
=========== ========== ============ ==========
Loss per share:
Basic loss per share:
From continued operations $ (0.10) $ (0.01) $ (0.29) $ (0.01)
From discontinued operations - - (0.25) -
----------- ---------- ------------ ----------
$ (0.10) $ (0.01) $ (0.54) $ (0.01)
=========== ========== ============ ==========
Basic common shares outstanding 37,129,782 27,450,136 35,745,753 27,450,136
=========== ========== ============ ============
Diluted common shares outstanding 37,129,782 27,450,136 35,745,753 27,450,136
=========== ========== ============ ============
________________________________________________________________________________
The accompanying notes are an integral part of these consolidated
financial statements.
4
FUSION NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
2000 1999
------------ -------------
Cash Flows from Operating Activities:
Net loss on Common Stock $(19,168,860) $ (409,238)
Adjustments to reconcile net loss on common stock
to net cash used in operating activities:
Depreciation and amortization 153,079 -
Adjustment for discontinued operations 8,824,401 -
Loss on sale of subsidiary 1,320,847 -
Decrease (Increase) In:
Accounts receivable (99,109) -
Employee and other loans (64,312) -
Prepaid expenses and other current assets (432,650) -
Increase (Decrease) In:
Accounts payable and accrued expenses 515,592 204,609
------------- ------------
Net cash used in operating activities (8,951,012) (204,629)
------------- ------------
Cash Flows from Investing Activities:
Disposal (purchase) of property, plant and equipment (1,201,114) (308,659)
Payment for Web site costs (352,503) -
Deposits on equipment - (134,353)
Loan receivable from sale of subsidiary (58,881) -
------------- ------------
Net cash used in investing activities (1,612,498) (443,012)
------------- ------------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock and warrants 475,000 3,359,501
Proceeds from private placement 4,000,000 -
Proceeds from exercise of stock options and warrants 5,780 -
------------- ------------
Net cash provided by financing activities 4,480,780 3,359,501
------------- ------------
Effect of exchange rate changes on cash (19,033) -
------------- ------------
Net (Decrease) in Cash and Cash Equivalents (6,101,763) 2,711,860
Cash and Cash Equivalents, beginning of period 7,044,458 -
------------- ------------
Cash and Cash Equivalents, end of period $ 942,695 $ 2,711,860
============= ============
Supplemental disclosure of noncash inverting and financial activities:
Unrealized loss on equity securities $ 21,000,000 $
============= ============
________________________________________________________________________________
The accompanying notes are an integral part of these consolidated
financial statements.
5
FUSION NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Fusion Networks Holdings, Inc. (the "Company") is a holding company
incorporated under the laws of the State of Delaware in August 1999 with
its operations conducted through Fusion Networks, Inc. ("Fusion"). Fusion
was incorporated under the laws of the State of Delaware on June 30, 1999.
Fusion develops, markets and provides software for One-to-One
Internet-based business solutions. Fusion's products encompass a full range
of Internet Customer Relationship Management ("ICRM") tools within "next
generation" Internet platforms and customer-oriented applications including
a dynamic multimedia portal design, e-commerce platforms. integrated
One-to-One marketing solutions, personalized content and community
services.
2. MERGER
On July 26, 1999, Fusion and IDM Environmental Corp. ("IDM") announced that
they had entered into a nonbinding letter of intent to form a new holding
company with Fusion and IDM to become wholly-owned subsidiaries of the
holding company through the merger of those companies with subsidiaries of
the holding company (the "Merger"). On August 18, 1999, the Company, Fusion
and IDM entered into a definitive merger agreement.
In March 2000, the Merger was approved by the shareholders of Fusion and
IDM and the Merger was completed on April 13, 2000.
The stockholders of Fusion and IDM each received one share of common stock
of the Company for each share of Fusion or IDM common stock held, resulting
in the shareholders of Fusion owning approximately 90% of the common stock
of the Company and shareholders of IDM owning approximately 10% of the
common stock of the Company.
The Merger has been accounted for as a purchase with Fusion being deemed
the acquiror for accounting and financial reporting purposes. Historical
financial statements of the Company are the financial statements of Fusion
with financial statements of IDM being included only from the date of the
Merger forward. In connection with the Merger, the Company recorded
goodwill of $7,354,181. The purchase price and goodwill were determined as
follows:
IDM common shares outstanding 3,922,893
Estimated fair value of shares issued $2.47 (a)
-----------
Purchase price before merger costs $9,689,546
Merger costs 450,000
-----------
Purchase price 10,139,546
IDM net book value 2,785,365
-----------
Goodwill $7,354,181
===========
(a) The estimated fair value of shares issued was determined using the
average closing market price of IDM's common stock for the 3 days
prior to and 3 days subsequent to the public announcement of the
letter of intent.
3. SALE OF IDM
On July 25, 2000, the Company entered into a letter of intent pursuant to
which the Company agreed in principal to sell all of its stock of IDM to
two principal officers of IDM. The Company completed the sale of IDM on
August 18, 2000. Pursuant to the terms of the IDM sale, the Company
received a promissory note in the amount of $58,881 and were relieved of
guarantees in the amount of $300,000.
Based on the agreement in principal to sell IDM, the Company recorded a
write-down of the goodwill associated with the acquisition of IDM in the
amount of $7,354,181 in the second quarter of 2000 and recorded the loss on
the sale of $1,320,847 in the third quarter of 2000.
6
4. INTERIM PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. These statements include the
accounts of Fusion Networks Holdings, Inc. and all of it's wholly-owned and
majority-owned subsidiary companies. The December 31, 1999 balance sheet
data was derived from audited financial statements of Fusion (the acquiror)
but does not include all disclosures required by generally accepted
accounting principles. The Merger has been accounted for as a purchase with
Fusion being deemed the acquiror for accounting and financial reporting
purposes. Historical financial statements of the Company are the financial
statements of Fusion with financial statements of IDM being included as
discontinued operations from the date of the Merger through the date of
sale. The interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 8-K/A dated April 13, 2000. In the opinion of management,
the interim financial statements reflect all adjustments of a normal
recurring nature necessary for a fair statement of the results for the
interim periods presented. The current period results of operations are not
necessarily indicative of results which ultimately will be reported for the
full year ending December 31, 2000.
5. OTHER COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No.130 "Reporting Comprehensive
Income" effective in 1998, requires the disclosure of comprehensive income
(loss) to reflect changes in equity that result from transactions and
economic events from nonowner sources. Due to the availability of net
operating losses there is no tax effect on any component of other
comprehensive income (loss).
Due to the availability of net operating losses there is no tax effect with
any component of other comprehensive income (loss).
For the three
Months ended Year to date
Septmeber 30, 2000 September 30, 2000
------------------ ------------------
Net Income (loss) $ ( 3,628,532) $ (19,168,860)
Other comprehensive income (loss):
Unrealized gain (loss) on equity
securities ( 2,157,000) (21,000,000)
Foreign currency translation adjustments (11,753) ( 19,033)
------------- -------------
Total other comprehensive (loss) $ ( 5,797,285) $ (40,187,893)
------------- -------------
7
6. INVESTMENTS IN EQUITY SECURITIES
As of March 31, 2000 all equity securities are deemed by management to be
available for sale and are reported at fair value with net unrealized gains
or losses reported within shareholders' equity as a separate component of
other comprehensive income. Realized gains and losses are recorded in the
statement of operations in the period in which they become known. The
carrying amount of the company's investments is shown as follows:
September 30, 2000
Market
Cost Value
------ --------
Investment in equity securitie $ 25,500,000 $ 4,500,000
Allowance for unrealized
gains (losses) (21,000,000)
------------ -----------
4,500,000 4,500,000
------------ -----------
During 2000 the investment in MSGI suffered a significant decline in it's
fair value. During the fourth quarter of 2000, the Company wrote down the
value of their investment and recorded from the original cost a realized
loss of $ 12,750,000 and provided an allowance for an additional unrealized
loss of $ 10,980,000, which reduces the carrying value of the investment to
$ 1,770,000 at December 31, 2000.
7. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are based on the weighted average number of
common shares outstanding including common stock equivalents. For the
periods reported within these consolidated financial statements, weighted
average shares for basic and diluted computations are the same due to
losses reported for each of the periods.
8. ADDITIONAL SIGNIFICANT ACCOUNTING POLICIES -- WEBSITE COSTS
Website costs include only those costs paid to third parties for the
purchase of websites or relating to the purchase of websites or the
application development phase of website design and implementation. The
costs will be amortized over their future expected utility which is
estimated to be 3-5 years.
9. CONVERTIBLE DEBENTURES AND WARRANTS
On June 15, 2000, the Company sold $4,000,000 of 6% Secured Convertible
Debentures and 1,500,000 Warrants. The Debentures and Warrants were sold to
three accredited investors. The Debentures and Warrants were sold for an
aggregate offering price of $4,000,000. A finders fee of 5%, or $200,000,
was paid in connection with the sale of the Debentures and Warrants. The
Debentures and Warrants were sold pursuant to the exemption from
registration set out in Rule 506 as promulgated pursuant to Section 4(2) of
the Securities Act of 1933. The securities were offered without general
solicitation in a privately negotiated transaction with three accredited
investors. During 2000 the investment suffered a significant decline in
it's fair value. During the fourth quarter of 2000 the company wrote down
the value of their investment and recorded from the original cost a
realized loss of $ 12,750,000 and provided an allowance for an additional
unrealized loss of $ 10,980,000, which reduces the carrying value of the
investment to $ 1,770,000 at December 31, 2000.
The Debentures bear interest at 6% per annum, are due on June 13, 2001 and
are secured by a pledge of the investment in affiliates of Marketing
Services Group, Inc. The Debentures are convertible into shares of Common
Stock of the Company at a fixed conversion price of $1.75 per share. The
Warrants are exercisable to purchase Common Stock of the Company at $1.50
per share.
10. CONTINGENCIES AND COMMITMENTS
In May 2000 the Company entered into an employment contract with Mr. Gary
Goldfarb to serve as President and Chief Executive Officer of the Company
for an undisclosed period of time. The contract provides for a monthly
compensation of $18,750 per month. The contract also grants Mr. Goldfarb
1,000,000 five year stock options exercisable at the closing price of the
Company's common stock on the effective date. The options will vest 25% on
each of the first three anniversaries, the remaining 25% will vest at
various times.
8
11. CHANGE IN STRATEGIC FOCUS
Overview
In July, 2000, following the appointment of the Company's new President and
Chief Executive Officer, the Company altered its business model and
strategic focus in response to changing market conditions. Under the
revised business model, the Company's focus will be the sale and licensing
of its Rapid Deployment Portals called ICRM/V2 as well as its proprietary
suite of One-to-One Internet-based software and business solutions which
were developed in conjunction with the development of the Company's
www.latinfusion.com Web portal. The Company has changed it web address to
www.fusionnetworks.net and is using the existing technology originally
developed to create its previous portal, plus new developments and advances
evident in this portal as a marketing tool to highlight the capabilities
offered by the Company's software. Additionally, the Company will continue
to offer Internet design, development and support services.
Products
The Company's products encompass a full range of Internet Customer
Relationship Management ("ICRM") tools within "next generation" Internet
platforms and customer-oriented applications including a dynamic multimedia
portal design, e-commerce platforms, integrated One-to-One marketing
solutions, personalized content and community services. The Company is
currently deploying its version 2.0 ICRM/V2 Rapid Deployment Portal as well
as beginning to deliver the individual modules of its software suite.
The Company's ICRM/V2 delivers a dynamic multimedia portal design,
e-commerce platform, innovative advertising, integrated One-to-One
marketing solutions and personalized content. ICRM/V2 functionally
integrates six modules including a portal server, user administration and
profiling server, advertising server, e-commerce server, content server,
and direct e-mail server. The individual modules are:
* The user administration and profiling server creates user preference
profiles based on individuals' navigational habits, e-commerce
behavior and personal preferences, allowing companies to obtain
customer insight vital to creating and managing online business
strategies. This module includes the report generator which is
utilized by the other 5 modules.
* The ad server delivers advertisements to individual users based on
navigation and e-commerce habits, enabling a company to manage and
maximize the effect of online advertising campaigns.
* The e-commerce server allows e-commerce merchants to effectively
target product promotions based on shoppers' preferences and
purchasing behavior.
* The content server provides companies with the ability to enhance
overall customer satisfaction via the delivery of personalized content
focused on each customer's usage habits.
* The direct e-mail server gives marketers the tools to create and
manage targeted e-mail campaigns and track the results in real time.
IRCM/V2 One-to-One applications are designed for use in mission-critical,
high-performance environments by companies with demanding architecture,
deployment and maintenance requirements. Some of the key capabilities of
the applications include:
Ease of use -- tools designed with graphical user interfaces allowing
non-technical business managers to modify business rules and content in
real time.
Scalability -- robust embedded application server functionality allows
One-to-One applications to support large numbers of concurrent customers
and transactions.
Secure transaction processing -- secure handling of a wide range of
commerce and financial services transactions includes order pricing and
discount/incentive handling, tax computation, shipping and handling
charges, payment authorization, credit card processing, order tracking,
news and stock feeds through a combination of built-in functionality and
integration with other products.
9
Application Service Provider Model
The Company plans to offer, and is presently offering, its broad suite of
customizable software applications on an application service provider
("ASP") model whereby we offer complete Web solutions, utilizing our
ICRM/V2 software, at a low initial cost with a predictable monthly fee.
Target Markets - Ibero-America and Mid-Tier U.S.
The Company initially plans to target, and believes that its software
solutions and ASP model are ideally suited for, the Ibero-American
(Spanish- and Portugese-speaking) and mid-tier U.S. markets, where rapid
time to market and competitive, predictable pricing are key determinants of
Internet solutions adopted.
Distribution Channels
The Company's initial marketing and distribution efforts are expected to be
conducted by our direct sales force in the countries where the Company
presently has offices. Longer term, the Company plans to focus on the
establishment of relationships with Value Added Resellers, consisting of
systems integrators and information technology consultants, as its primary
means of delivering its software and solutions to customers.
12. VISUALCOM PURCHASE
In August 2000, the Company entered into a letter of intent to acquire
Visualcom, Inc., a Miami based Internet consulting company specializing in
Strategic Consulting, I-Business Solutions, Internet Marketing and Internet
Wireless. Under the terms of the letter of intent, the Company agreed to
issue 2 million shares of common stock and 2.5 million five year warrants,
exercisable at 110% of the average closing price of the Company's common
stock over the seven trading days preceding closing, in exchange for all of
the issued and outstanding shares of Visualcom. One million of the shares
and one million of the warrants issuable under the letter of intent are
issuable in escrow subject to release upon satisfaction of certain
"earn-out" criteria. The letter of intent also provided that certain
shareholders of Visualcom would purchase shares of the Company's common
stock with the proceeds of that sale to be used to fund Visualcom
operations pending closing. In November 2000, the Company and Visualcom
signed a definitive Plan of Share Exchange and the Company completed the
acquisition of Visualcom.
13. PRIVATE PLACEMENT AND VISUALCOM CREDIT FACILITY
In September 2000, certain Visualcom shareholders acquired an aggregate of
359,574 shares of common stock of the Company for $475,000, or $1.321 per
share. The Company utilized the proceeds from the sale to establish a
credit facility for Visualcom with funds being advanced subject to
forgiveness on closing of the acquisition of Visualcom by the Company.
14. SUBSEQUENT EVENTS
A. Visualcom Purchase
In November 2000, the Company and Visualcom signed a definitive Plan
of Share Exchange and the Company completed the acquisition of
Visualcom.
B. Bridge Loan
In October and November 2000, the Company secured a short-term bridge
loan in the amount of $500,000 from the sale of Convertible Bridge
Loan Notes and 125,000 Bridge Loan Warrants. The Bridge Loan Notes are
due on or before December 31, 2000 with interest accruing at 12% per
annum. The Bridge Loan Notes are convertible into common stock, at the
option of the holder, at market value on the date of closing. The
Bridge Loan Warrants are exercisable for a term of five years to
purchase common stock at $0.845 per share with respect to 100,000 of
the warrants and $0.875 per share with respect to 25,000 of the
warrants.
10
Item 2. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21e of Securities Exchange Act of
1954. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report.
Merger
On July 26, 1999, Fusion Networks, Inc. ("Fusion") and IDM Environmental Corp.
("IDM") announced that they had entered into a nonbinding letter of intent to
form a new holding company with Fusion and IDM to become wholly-owned
subsidiaries of the holding company through the merger of those companies with
subsidiaries of the holding company (the "Merger"). On August 18, 1999, the
Company, Fusion and IDM entered into a definitive merger agreement. In March
2000, the Merger was approved by the shareholders of Fusion and IDM and the
Merger was completed on April 13, 2000. The stockholders of Fusion and IDM each
received one share of common stock of the Company for each share of Fusion or
IDM common stock held, resulting in the shareholders of Fusion owning
approximately 90% of the common stock of the Company and shareholders of IDM
owning approximately 10% of the common stock of the Company.
The Merger has been accounted for as a purchase with Fusion being deemed the
acquiror for accounting and financial reporting purposes. Historical financial
statements of the Company are the financial statements of Fusion with financial
statements of IDM being included only from the date of the Merger forward. In
connection with the Merger, the Company recorded goodwill of $7,354,181.
Sale of IDM
In August 2000, following a determination by management that the operations of
IDM were not compatible with the Company's long-term objectives, the Company
sold of all of the stock of IDM to the principal officers of IDM. The
consideration paid for the stock of IDM consisted of a three year secured
interest bearing promissory note in the amount of $58,881 and the release of the
Company from guarantees in the aggregate amount of $300,000.
Following the sale of IDM, the Company's operations consist exclusively of the
technology and software development operations conducted by Fusion.
Change in Strategic Focus
Overview
In July, 2000, following the appointment of the Company's new President and
Chief Executive Officer, the Company altered its business model and strategic
focus in response to changing market conditions. Under the revised business
model, the Company's focus will be the sale and licensing of its Rapid
Deployment Portals called ICRM/V2 as well as its proprietary suite of One-to-One
Internet-based software and business solutions which were developed in
conjunction with the development of the Company's www.latinfusion.com Web
portal. The Company has changed it web address to www.fusionnetworks.net and is
using the existing technology originally developed to create its previous
portal, plus new developments and advances evident in this portal as a marketing
tool to highlight the capabilities offered by the Company's software.
Additionally, the Company will continue to offer Internet design, development
and support services.
Products
The Company's products encompass a full range of Internet Customer Relationship
Management ("ICRM") tools within "next generation" Internet platforms and
customer-oriented applications including a dynamic multimedia portal design,
e-commerce platforms, integrated One-to-One marketing solutions, personalized
content and community services. The Company is currently deploying its version
2.0 ICRM/V2 Rapid Deployment Portal as well as beginning to deliver the
individual modules of its software suite.
11
The Company's ICRM/V2 delivers a dynamic multimedia portal design, e-commerce
platform, innovative advertising, integrated One-to-One marketing solutions and
personalized content. ICRM/V2 functionally integrates six modules including a
portal server, user administration and profiling server, advertising server,
e-commerce server, content server, and direct e-mail server. The individual
modules are:
* The user administration and profiling server creates user preference
profiles based on individuals' navigational habits, e-commerce behavior and
personal preferences, allowing companies to obtain customer insight vital
to creating and managing online business strategies. This module includes
the report generator which is utilized by the other 5 modules.
* The ad server delivers advertisements to individual users based on
navigation and e-commerce habits, enabling a company to manage and maximize
the effect of online advertising campaigns.
* The e-commerce server allows e-commerce merchants to effectively target
product promotions based on shoppers' preferences and purchasing behavior.
* The content server provides companies with the ability to enhance overall
customer satisfaction via the delivery of personalized content focused on
each customer's usage habits.
* The direct e-mail server gives marketers the tools to create and manage
targeted e-mail campaigns and track the results in real time.
The suite interacts within a report generator module that allows for real-time
reporting and sophisticated multi- dimensional analysis of customer behavior and
e-marketing campaign efficiency.
IRCM/V2 One-to-One applications are designed for use in mission-critical,
high-performance environments by companies with demanding architecture,
deployment and maintenance requirements. Some of the key capabilities of the
applications include:
* Ease of use -- tools designed with graphical user interfaces allowing
non-technical business managers to modify business rules and content in
real time.
* Scalability -- robust embedded application server functionality allows
One-to-One applications to support large numbers of concurrent customers
and transactions.
* Secure transaction processing -- secure handling of a wide range of
commerce and financial services transactions includes order pricing and
discount/incentive handling, tax computation, shipping and handling
charges, payment authorization, credit card processing, order tracking,
news and stock feeds through a combination of built-in functionality and
integration with other products.
Application Service Provider Model
The Company plans to offer, and is presently offering, its broad suite of
customizable software applications on an application service provider ("ASP")
model whereby we offer complete Web solutions, utilizing our ICRM/V2 software,
at a low initial cost with a predictable monthly fee.
Target Markets - Ibero-America and Mid-Tier U.S.
The Company initially plans to target, and believes that its software solutions
and ASP model are ideally suited for, the Ibero-American (Spanish- and
Portugese-speaking) and mid-tier U.S. markets, where rapid time to market and
competitive, predictable pricing are key determinants of Internet solutions
adopted.
Distribution Channels
The Company's initial marketing and distribution efforts are expected to be
conducted by our direct sales force in the countries where the Company presently
has offices. Longer term, the Company plans to focus on the establishment of
relationships with Value Added Resellers, consisting of systems integrators and
information technology consultants, as its primary means of delivering its
software and solutions to customers.
12
Comparability of Financial Data
Fusion, and the Company, had no operations during the three and six month
periods ended June 30, 1999. From July 1999 through May 2000, Fusion was
involved in the development of its Internet portal network, with sites being
launched in Bogota, Miami, Buenos Aires, Mexico City, Sao Paulo and Madrid, and
additional sites planned to be launched in ten additional markets in North
America, South America and Europe.
Based on the agreement to sell IDM, the Company recorded a write-down of the
goodwill associated with the acquisition of IDM at June 30, 2000 and a loss on
the sale of IDM in the third quarter.
From the date of the Merger, April 13, 2000, until June 30, 2000, the Company's
results include IDM as discontinued operations.
Because the Company and Fusion had limited operations during 1999 and because of
the shift in the Company's business model during 2000, prior year comparative
financial information may be of limited value.
Results of Operations for the Three and Nine Months ended September 30, 2000 and
September 30, 1999
Revenues. The Company's consolidated revenues totaled $106,000 for the quarter
and nine months ended September 30, 2000 compared to $-0- for the same periods
in 1999. Revenues for the 2000 periods were attributable to the commencement of
software licensing by the Company during the September 2000 quarter. Prior to
the September 2000 quarter, the Company was engaged in product development
activities and reported no revenues.
General and Administrative Expenses. The Company's consolidated general and
administrative ("G&A") expense totaled $1,493,000 for the quarter ended
September 30, 2000 and $4,735,000 for the nine months ended September 30, 2000
compared to G&A expenses of $39,000 for the quarter and nine month periods in
1999. Sequentially, G&A expense was down 34%, from $2,245,000, excluding IDM,
for the second quarter of 2000. General and administrative expense consists
primarily of salaries and corporate overhead. The increase in G&A on a
year-over-year basis was attributable to the start-up nature of the Company's
operations during the 1999 quarter. The sequential decline in G&A expense from
the second quarter to the third quarter of 2000 was attributable to cost control
and efficiency measures implemented by the Company's new management beginning
late in the second quarter of 2000.
Product Development and Engineering. The Company's consolidated product
development and engineering expenses totaled $518,000 for the quarter ended
September 30, 2000 and $3,036,000 for the nine months ended September 30, 2000
compared to $311,000 for the quarter and nine month periods in 1999.
Sequentially, product development and engineering expenses were down 48.5%, from
$1,007,000 for the second quarter of 2000. Product development and engineering
expenses consist of engineering salaries and consulting fees relating to the
development of the Company's software and web sites. The increase in product
development and engineering expenses on a year-over-year basis was attributable
to the start-up nature of the Company's operations during the 1999 quarter. The
sequential decline in product development and engineering expense from the
second quarter to the third quarter of 2000 was attributable to the substantial
completion of development of the Company's suite of software products early in
the third quarter of 2000.
Sales and Marketing. The Company's consolidated sales and marketing expenses
totaled $433,000 for the quarter ended September 30, 2000 and $1,305,000 for the
nine months ended September 30, 2000 compared to $18,000 for the quarter and
nine month periods in 1999. Sequentially, sales and marketing expenses were down
28%, from $602,000 for the second quarter of 2000. Sales and marketing expenses
consist of salaries, travel expense and outdoor advertising costs. The increase
in sales and marketing expenses on a year-over-year basis was attributable to
the start-up nature of the Company's operations during the 1999 quarter. The
sequential decline in sales and marketing expense from the second quarter to the
third quarter of 2000 was attributable to our transition from a portal company
to a software company.
Merger Expenses. The Company reported $46,000 in merger expenses in the quarter
and nine month periods ended September 30, 1999. The Company reported no similar
expenses in the quarter and nine month periods ended September 30, 2000. Merger
expenses during 1999 were attributable to the merger transaction with IDM which
was consummated in April 2000.
13
Depreciation and Amortization. Consolidated depreciation and amortization
expense totaled $5,000 for the quarter ended September 30, 2000 and $153,000 for
the nine months ended September 30, 2000 compared to $-0- for the quarter and
nine month periods in 1999. The increase in depreciation and amortization
expense on a year-over-year basis was attributable to the start-up nature of the
Company's operations during the 1999 quarter.
Loss on Sale of Subsidiary. The Company recorded a loss on the sale of IDM of
$1,321,000 during the quarter and nine months ended September 30, 2000.
Miscellaneous other Income, Net. Consolidated other income, net, totaled $83,000
for the quarter ended September 30, 2000 and $11,000 for the nine months ended
September 30, 2000 compared to $-0- for the same quarter in 1999. Miscellaneous
other income consisted principally of foreign currency translation gains.
Interest Income (Expense), Net. Net interest income (expense) totaled ($58,000)
for the quarter ended September 30, 2000 and $24,000 for the nine months ended
September 30, 2000 compared to $4,000 for the quarter and nine month periods in
1999. The adverse change in net interest was attributable to the sale during
June 2000 of $4.0 million of convertible debentures.
Loss on Discontinued Operations. For the nine month period ended September 30,
2000, the Company reported a loss from discontinued operations of $8,760,000.
The loss from discontinued operations reflects the operating loss and write-down
of goodwill attributable to the sale of IDM and reflecting the operations of IDM
during the period its was owned by the Company.
Liquidity and Capital Resources
At September 30, 2000, the Company had consolidated working capital of
approximately $973,000 and a cash balance of $943,000. Fusion had working
capital of $3.1 million and a cash balance of $3.2 million compared to working
capital of $6.9 million and a cash balance of $7 million at December 31, 1999.
The decrease in working capital and cash of Fusion was attributable to losses
incurred in connection with the roll-out of Fusion's portal network and
development of various technologies which was partially offset by the sale of $4
million of convertible debentures.
On June 15, 2000, the Company sold $4,000,000 of 6% Secured Convertible
Debentures and 1,500,000 Warrants. The Debentures and Warrants were sold to
three accredited investors. The Debentures and Warrants were sold for an
aggregate offering price of $4,000,000. A finders fee of 5%, or $200,000, was
paid in connection with the sale of the Debentures and Warrants. The Debentures
and Warrants were sold pursuant to the exemption from registration set out in
Rule 506 as promulgated pursuant to Section 4(2) of the Securities Act of 1933.
The securities were offered without general solicitation in a privately
negotiated transaction with three accredited investors.
The Debentures bear interest at 6% per annum, are due on June 13, 2001 and are
secured by a pledge of 1,500,000 shares of common stock of Marketing Services
Group, Inc. The Debentures are convertible into shares of Common Stock of the
Registrant at a fixed conversion price of $1.75 per share. The Warrants are
exercisable to purchase Common Stock of the Registrant at $1.50 per share.
At September 30, 2000, equity securities held by the Company totaled $4,500,000
with approximately $21,000,000 of unrealized loss and a decline in equity of the
same amount from December 31, 1999. The decline in value was due to a reduction
in the market price of stock of Marketing Services Group, Inc. held by the
Company.
The Company requires substantial working capital to support ongoing operations.
The Company began realizing operating revenues in the quarter ended September
30, 2000. Monthly expenditures averaged $813,000 per month during the quarter
ended September 30, 2000 compared to average monthly expenditures of $1.2
million during the first six months of 2000. Projected monthly expenditures for
the following twelve months are approximately $12,000,000, or $1,000,000 per
month. The decrease in monthly expenditures during the quarter ended September
30, 2000 and the decrease in the projected monthly expenditures is attributable
to cost containment measures implemented by management and a decision to defer
the opening of additional portal sites in favor of an increased emphasis on
Fusion's offering of Internet software packages which are expected to produce
more predictable revenue streams more rapidly and at less initial cost. There
can be no assurance that actual expenditures will not exceed the projected
expenditures over the next twelve months.
In conjunction with the shift in the Company's business model, the Company sold
IDM Environmental Corp. during the quarter ended September 30, 2000. The Company
received a promissory note in the amount of $58,881 and was release from a
guarantee in the amount of $300,000 in connection with the sale of IDM.
14
In August 2000, the Company entered into a letter of intent to acquire
Visualcom, Inc., a Miami based Internet consulting company specializing in
Strategic Consulting, I-Business Solutions, Internet Marketing and Internet
Wireless. Under the terms of the letter of intent, the Company agreed to issue 2
million shares of common stock and 2.5 million five year warrants, exercisable
at 110% of the average closing price of the Company's common stock over the
seven trading days preceding closing, in exchange for all of the issued and
outstanding shares of Visualcom. One million of the shares and one million of
the warrants issuable under the letter of intent are issuable in escrow subject
to release upon satisfaction of certain "earn-out" criteria. The letter of
intent also provided that certain shareholders of Visualcom would purchase
shares of the Company's common stock with the proceeds of that sale to be used
to fund Visualcom operations pending closing.
In September 2000, certain Visualcom shareholders acquired an aggregate of
359,574 shares of common stock of the Company for $475,000, or $1.321 per share.
The Company utilized the proceeds from the sale to establish a credit facility
for Visualcom with funds being advanced subject to forgiveness on closing of the
acquisition of Visualcom by the Company.
In October and November 2000, the Company secured a short-term bridge loan in
the amount of $500,000 from the sale of Convertible Bridge Loan Notes and
125,000 Bridge Loan Warrants. The Bridge Loan Notes are due on or before
December 31, 2000 with interest accruing at 12% per annum. The Bridge Loan Notes
are convertible into common stock, at the option of the holder, at market value
on the date of closing. The Bridge Loan Warrants are exercisable for a term of
five years to purchase common stock at $0.845 per share with respect to 100,000
of the warrants and $0.875 per share with respect to 25,000 of the warrants.
In November 2000, the Company completed the acquisition of Visualcom.
In order to fund operations at its current level, the Company anticipates that
it will require as much as $12 million of additional funding over the following
12 months. The Company has entered into an investment banking relationship with
Credit Lyonnais Securities pursuant to which it is anticipated that Credit
Lyonnais will act as advisor and placement agent for the Company in securing
additional capital to meet its financing requirements. Other than funds expected
to be provided by operations and the potential receipt of funds from the
exercise of outstanding warrants and options, the Company presently has no
sources of financing or commitments to provide financing. There is no assurance
that the Company will be successful in securing the financing necessary to
support its operations or projected growth.
Certain Factors Affecting Future Operating Results
Beginning with the hiring of a new Chief Executive Officer in May 2000, the
Company has substantially altered certain aspects of its operating plan. First,
the focus of Fusion has been modified to adopt as its principal objective the
marketing, sales and support of turnkey Internet software and service packages.
Second, Fusion re-developed its integrated software as six separate stand alone
components, which are applications suitable for any Internet presence (Website
or Portal) as well as working along with most third party applications. The
"new" products are scheduled to be rolled out by the end of the first quarter
2001. Third, a determination was made to abandon the Company's efforts to
turn-around and grow the environmental services business of IDM and IDM was
sold.
Relative to Fusion's Internet software business model, new management determined
that, in order to expand and accelerate the revenue and profit potential of the
Fusion, Fusion should utilize, package and market the "next generation" Internet
capabilities which it had developed in connection with the roll-out of Fusion's
portal network to develop and offer turnkey web-site development and maintenance
software and services. To that end, in August 2000, Fusion began actively
marketing and providing a suite of "next generation" Internet tools, services
and customer-oriented applications including integrated One-to-One Internet
marketing software, portal technology, applications and personalized content,
community services, Internet portal design and e-commerce platforms which will
be sold separately as add-on applications, suitable for any website or portal,
as well as an entire portal package, all designed to enable corporate customers
to develop effective Spanish, English and Portuguese-related Internet
strategies.
15
Initial efforts with respect to the marketing of turnkey Internet software and
service packages has produced, from July 1, 2000 to September 30, 2000, ten
agreements to create and maintain co-branded portals for customers. Each of
those contracts provides for a revenue share in the range of 50% to 75% of the
ongoing portal's revenues. Fusion will serve the future portals it licenses as
an ASP (Application Service Provider) hosting, maintaining, updating and
invoicing on behalf of its customers for a licensing fee of $ 6,800 per month
for the basic package. Additional implementation and customization fees will be
charged, as specifications require at the time of deployment.
In November 2000, the Company acquired Visualcom, Inc., a Miami based Internet
consulting company specializing in Strategic Consulting, I-Business Solutions,
Internet Marketing and Internet Wireless.
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21e of the Securities Exchange Act
of 1934. Actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: uncertainty with respect to the market acceptance of
Fusion's offering of turnkey Internet services and software; uncertainty with
respect to the timing of collection of turnkey fees; the ability of the Company
to finance continuing operating losses; the ability of the Company to complete
the sale of IDM and the terms of that sale; increases in competition in the
Internet software and services market which may adversely impact revenues and
profitability; and other factors generally affecting the timing and receipt of
revenues and cost of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In October and November 2000, the Company secured a short-term bridge loan
in the amount of $500,000 from the sale of Convertible Bridge Loan Notes and
125,000 Bridge Loan Warrants. The Bridge Loan Notes are due on or before
December 31, 2000 with interest accruing at 12% per annum. The Bridge Loan Notes
are convertible into common stock, at the option of the holder, at market value
on the date of closing. The Bridge Loan Warrants are exercisable for a term of
five years to purchase common stock at $0.845 per share with respect to 100,000
of the warrants and $0.875 per share with respect to 25,000 of the warrants. The
Convertible Bridge Loan Notes and Bridge Loan Warrants were sold to a single
accredited investor in a privately negotiated transaction without the use of a
broker or the payment of placement fees. The sale of those securities was made
pursuant to the exemption from registration set out in Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1* Loan Agreement re: Bridge Loan
10.2* 12% Convertible Bridge Loan Note
10.3* Bridge Loan Warrant
27.1 Financial Data Schedule
* Previously filed
(b) Reports on Form 8-K
Form 8-K, dated August 18, 2000, was filed reporting, under Item 2,
the sale of IDM Environmental Corp.
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FUSION NETWORKS HOLDINGS, INC.
Dated: January 12, 2001 By: /s/ Gary M. Goldfarb
-----------------------------------
Gary M. Goldfarb, President
Dated: January 12, 2001 By: /s/ Enrique Bahamon
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Enrique Bahamon, Principal
Financial and Accounting Officer