EXHIBIT 99.1
AUDITED FINANCIAL STATEMENTS OF TRILLIANT CORPORATION AS OF DECEMBER 31, 2004 AND 2003 AND FOR THE TWO YEARS THEN ENDED
TRILLIANT CORPORATION
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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TRILLIANT CORPORATION
TABLE OF CONTENTS
PAGE | |
Report of Independent Registered Public Accounting Firm | 3 |
Financial Statements: | |
Balance Sheets as of December 31, 2004 and 2003 | 4 |
Statements of Operations for the years ended December 31, 2004 and 2003 | 5 |
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2004 and 2003 | 6 |
Statements of Cash Flows for the years ended December 31, 2004 and 2003 | 7 |
Notes to Financial Statements | 8 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Directors
Trilliant Corporation
Houston, Texas
We have audited the accompanying balance sheets of Trilliant Corporation as of December 31, 2004 and 2003, and the related statements of operations, stockholders' equity (deficit) and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trilliant Corporation as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
Malone and Bailey, P.C.
www.malone-bailey.com
Houston, Texas
January 31, 2006
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TRILLIANT CORPORATION
BALANCE SHEETS
December 31, 2004 and 2003
December 31, | |||||||
2004 | 2003 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | - | $ | 67,588 | |||
Accounts receivable, net | 222,556 | 363,272 | |||||
Total current assets | 222,556 | 430,860 | |||||
Property and equipment, net | 19,078 | 28,138 | |||||
Intangible assets, net | 1,250 | 1,250 | |||||
Total assets | $ | 242, 884 | $ | 460,248 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||||||
Current liabilities: | |||||||
Bank line of credit | $ | 50,191 | $ | 33,363 | |||
Notes payable - related parties | 269,903 | 160,985 | |||||
Accounts payable | 15,727 | 14,338 | |||||
Accrued liabilities | 27,410 | 9,170 | |||||
Total current liabilities | 363,231 | 217,856 | |||||
Long term debt - related party | 30,249 | 44,248 | |||||
Total liabilities | 393,480 | 262,104 | |||||
Stockholders' equity (deficit): | |||||||
Common stock, no par value, 10,000,000 shares authorized, issued and outstanding at December 31, 2004 and December 31, 2003, respectively | 1,000 | 1,000 | |||||
Additional paid-in capital | 2,100 | 2,100 | |||||
Treasury stock | (39,877 | ) | (39,877 | ) | |||
Retained earnings (deficit) | (113,819 | ) | 234,921 | ||||
Total stockholders' equity (deficit) | (150,596 | ) | 198,144 | ||||
Total liabilities and stockholders' equity (deficit) | $ | 242,884 | $ | 460,248 |
See accompanying summary of accounting policies and notes to financial statements.
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TRILLIANT CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31, 2004 and 2003
Year Ended December 31, | |||||||
2004 | 2003 | ||||||
Service revenue | $ | 1,195,640 | $ | 1,925,985 | |||
Cost of services | - | - | |||||
Gross margin | 1,195,640 | 1,925,985 | |||||
Selling, general and administrative expenses | 1,518,545 | 1,742,857 | |||||
Income (loss) from operations | (322,905 | ) | 183,128 | ||||
Interest expense and other | 25,835 | 19,594 | |||||
Net income (loss) | $ | (348,740 | ) | $ | 163,534 |
See accompanying summary of accounting policies and notes to financial statements.
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TRILLIANT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2004 and 2003
Common Stock | Addi- tional Paid In | Treasury | Retained Earnings | Total Stockholders' Equity | |||||||||||||||
Amount | Shares | Capital | Stock | (Deficit) | (Deficit) | ||||||||||||||
Balances December 31, 2002 | $ | 1,000 | 10,000,000 | $ | - | $ | - | $ | 71,387 | $ | 72,387 | ||||||||
Net income | - | - | - | - | 163,534 | 163,534 | |||||||||||||
Additional paid in capital | - | - | 2,100 | - | - | 2,100 | |||||||||||||
Purchase of 692,500 shares of treasury stock | - | - | - | (39,877 | ) | - | (39,877 | ) | |||||||||||
Balances December 31, 2003 | 1,000 | 10,000,000 | 2,100 | (39,877 | ) | 234,921 | 198,144 | ||||||||||||
Net loss | - | - | - | - | (348,740 | ) | (348,740 | ) | |||||||||||
Balances December 31, 2004 | $ | 1,000 | 10,000,000 | $ | 2,100 | $ | (39,877 | ) | $ | (113,819 | ) | $ | (150,596 | ) |
See accompanying summary of accounting policies and notes to financial statements.
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TRILLIANT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
December 31, | December 31, | ||||||
2004 | 2003 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (348,740 | ) | $ | 163,534 | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Depreciation | 14,416 | 15,062 | |||||
Bad debt expense | - | 13,942 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 140,716 | (215,980 | ) | ||||
Accounts payable and accrued liabilities | 19,629 | (5,188 | ) | ||||
Other assets and liabilities | - | 1,315 | |||||
Net cash used in operating activities | (173,979 | ) | (27,315 | ) | |||
Cash flows from investing activities: | |||||||
Purchase of property and equipment | (5,356 | ) | (23,405 | ) | |||
Net cash used in investing activities | (5,356 | ) | (23,405 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from notes payable to related parties | 233,000 | 256,924 | |||||
Repayment of notes payable to related parties | (138,081 | ) | (173,068 | ) | |||
Proceeds from notes payable | 20,139 | 33,363 | |||||
Repayment of notes payable | (3,311 | ) | - | ||||
Net cash provided by financing activities | 111,747 | 117,219 | |||||
Net increase (decrease) in cash and cash equivalents | (67,588 | ) | 66,499 | ||||
Cash and cash equivalents at beginning of period | 67,588 | 1,089 | |||||
Cash and cash equivalents at end of period | $ | - | $ | 67,588 | |||
Non cash transactions: | |||||||
Note payable for treasury stock | $ | - | $ | 39,877 | |||
Related party forgiveness of debt | - | 2,100 | |||||
Supplemental disclosures: | |||||||
Cash paid for interest | 39,404 | 35,149 |
See accompanying summary of accounting policies and notes to financial statements.
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TRILLIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Trilliant Corporation (Trilliant) is a Texas Corporation that provides assessment, design, vendor selection, procurement and project management for large technology initiatives, particularly in the healthcare arena. Following is a summary of Trilliant's significant accounting policies:
SIGNIFICANT ESTIMATES |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.
CASH AND CASH EQUIVALENTS |
Trilliant considers all highly liquid short-term investments with an original maturity of three months or less when purchased, to be cash equivalents.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Accounts receivable are amounts due on sales and are unsecured. Accounts receivable are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus accounts receivable do not bear interest. Accounts receivable are periodically evaluated for collectibility based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions.
PROPERTY AND EQUIPMENT |
Property and equipment is recorded at cost and depreciated on the straight-line method over the estimated useful lives of the various classes depreciable property as follows:
Furniture and equipment | 5-7 years |
Computer equipment | 3 years |
Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations.
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TRILLIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED |
IMPAIRMENT OF LONG-LIVED ASSETS
In the event facts and circumstances indicate the carrying value of a long-lived asset, including associated intangibles, may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required. Based upon a recent evaluation by management, an impairment write-down of the Company's long-lived assets was not deemed necessary.
INCOME TAXES |
Trilliant uses the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end. The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value.
REVENUE RECOGNITION |
Trilliant recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred and services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. This typically occurs when Trilliant delivers its service to the customer.
2. | ACCOUNTS RECEIVABLE, NET |
Accounts receivable were $222,556 and $363,272 as of December 31, 2004 and 2003, respectively. There is no allowance for bad debt as of December 31, 2004 and 2003.
3. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consists of the following at December 31, 2004 and 2003, respectively:
2004 | 2003 | ||||||
Computer equipment | $ | 64,343 | $ | 57,986 | |||
Office furniture | 3,858 | 3,858 | |||||
68,201 | 61,844 | ||||||
Less accumulated depreciation | (49,123 | ) | (33,706 | ) | |||
$ | 19,078 | $ | 28,138 |
Depreciation expense for the years ended December 31, 2004 and 2003 was $14,416 and $15,062, respectively.
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TRILLIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. | INTANGIBLE ASSETS, NET |
Intangible assets consist of the following at December 31, 2004 and 2003:
2004 | 2003 | ||||||
Goodwill | $ | 1,000 | $ | 1,000 | |||
Long term investment | 250 | 250 | |||||
Total intangible assets, net | $ | 1,250 | $ | 1,250 |
5. | NOTES PAYABLE |
Notes payable at December 31, 2004 and 2003 are summarized below:
2004 | 2003 | ||||||
Notes payable: | |||||||
Note payable to a bank bearing interest at 10%, due on demand | $ | 50,191 | $ | 33,363 | |||
Notes payable to related parties: | |||||||
Note payable bearing interest at 10%, due on demand | 42,051 | 57,846 | |||||
Note payable bearing interest at 6%, due on demand | 227,852 | 103,139 | |||||
Total related party notes payable | 269,903 | 160,985 | |||||
Total notes payable | $ | 320,094 | $ | 194,348 |
6. | ACCRUED LIABILITIES |
Accrued liabilities consists of the following at December 31, 2004 and 2003:
2004 | 2003 | ||||||
Accrued payroll | $ | 19,719 | $ | - | |||
Accrued payroll related expense | 7,691 | 9,170 | |||||
$ | 27,410 | $ | 9,170 |
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TRILLIANT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. | LONG TERM DEBT - RELATED PARTY |
Long term debt - related party consists of the following as of December 31, 2004 and 2003:
2004 | 2003 | ||||||
Loans | $ | 11,500 | $ | 11,500 | |||
Note for treasury stock | 18,749 | 32,748 | |||||
$ | 30,249 | $ | 44,248 |
On September 26, 2003, Trilliant entered into an agreement with a related party to purchase 692,500 shares of Trilliant's common stock held by the individual in exchange for a $39,877 note bearing interest at 10% calling for one payment of $5,000, 23 monthly payments of $1,667 and one payment of $1,659.
Future payments on the note are $28,170 and $4,993 for the years ended December 31, 2003 and December 31, 2004, respectively.
8. | LEASE COMMITMENT |
The Company operates from leased office space under an operating lease that expires in June 2006 and includes no provisions for extension. The lease includes lease payment escalation and provisions for other increases to rental payments should certain costs of the landlord increase. A future annual lease payments due under this lease is as follows:
YEAR | PAYMENTS | |||
2005 | $ | 42,875 | ||
2006 | 21,437 |
Rent expense incurred under operating leases for years ended December 31, 2004 and 2003 was $40,541 and $42,325, respectively.
9. | RELATED PARTY TRANSACTIONS |
During the years ended December 31, 2004 and 2003, Trilliant engaged in various related party transactions as follows:
- | During 2004 and 2003, Trilliant entered into note payable agreements with various, officers, employees, directors and/or founding stockholders. These notes are described in Notes 5 and 7. |
- | During the years ended December 31, 2004 and 2003, Trilliant incurred interest expense on related party debt of approximately $8,415 and $40,309, respectively. |
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