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