UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 14, 2004
AUXILIO, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 0-27507
NEVADA 88-0350448
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27130A PASEO ESPADA, SUITE 1427
SAN JUAN CAPISTRANO, CALIFORNIA 92675
(Address, including zip code, of principal executive offices)
(949) 481-7550
(Registrant's telephone number, including area code)
-1-
The undersigned Registrant hereby amends its current report on Form 8-K dated
April 16, 2004 to file the following information:
ITEM 2.01 ACQUISITION OR DISPOSITION OF ASSETS.
See the Registrant's periodic reports on Form 10QSB filed September 20, 2004 and
May 15, 2004, for further information regarding the acquisition by the
Registrant of Alan Mayo and Associates, Inc. dba The Mayo Group.
ITEM 9.01 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial statements of business acquired.
The audited financial statements of Alan Mayo and Associates, Inc. dba THE
MAYO GROUP ("The Mayo Group"), for the years ended December 31, 2003 and 2002
immediately follow the signature page below.
(b) Pro forma financial information.
Pro forma financial information required by Article 11 of Regulation S-X,
with respect to the Registrant and THE MAYO GROUP, follow the audited financial
statements described above.
(c) Exhibits
Exhibit No. Description
- ----------- -----------
2.1(1) Agreement and Plan or Merger, dated April 1, 2004, by and between
AUXILIO, INC. a Nevada corporation ("Parent"), PPVW ACQUISITION
CORPORATION, a California corporation and a wholly-owned
subsidiary of Parent ("Sub") and ALAN MAYO & ASSOCIATES, INC., a
California corporation and doing business as THE MAYO GROUP.
(1) Previously filed as an exhibit to the Registrant's current report on
Form 8-K on April 16, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Auxilio, Inc.
By: /s/ Joseph Flynn
--------------------------------
Joseph Flynn
Date: September 21, 2004 Chief Executive Officer
-2-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Alan Mayo and Associates, Inc.
dba The Mayo Group
Glendale, California
We have audited the accompanying balance sheets of Alan Mayo & Associates, Inc.
dba The Mayo Group (the "Company") as of December 31, 2003 and 2002, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alan Mayo & Associates, Inc.
dba The Mayo Group as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/Stonefield Josephson, Inc.
Certified Public Accountants
Irvine, California
August 16, 2004
F-1
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
BALANCE SHEETS
ASSETS
December 31,
-------------------
2003 2002
--------- --------
CURRENT ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . $367,187 $170,673
Accounts receivable . . . . . . . . . . . . . 59,820 38,681
Supplies. . . . . . . . . . . . . . . . . . . 151,877 559,175
Prepaid and other current assets. . . . . . . 47,922 8,267
-------- --------
Total current assets. . . . . . . . . . . . 626,806 776,796
PROPERTY AND EQUIPMENT, net of
accumulated depreciation . . . . . . . . . . 56,045 52,114
DEPOSITS. . . . . . . . . . . . . . . . . . . . 27,355 8,409
-------- --------
Total Assets. . . . . . . . . . . . . . . . $710,206 $837,319
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses . . . . $358,161 $584,500
Loan from stockholder . . . . . . . . . . . . 30,494 -
Deferred revenue. . . . . . . . . . . . . . . 241,600 -
-------- --------
Total current liabilities . . . . . . . . . 630,255 584,500
-------- --------
COMMITMENTS . . . . . . . . . . . . . . . . . . - -
STOCKHOLDERS' EQUITY:
Common stock, no par value,
1,000,000 shares authorized,
105,265 and 100,000 issued and
outstanding, respectively . . . . . . . . . 110,000 100,000
Additional paid in capital. . . . . . . . . . 40,832 -
Retained earnings (deficit) . . . . . . . . . (70,881) 152,819
-------- --------
Total stockholders' equity. . . . . . . . . 79,951 252,819
-------- --------
Total Liabilities and Stockholders' Equity. $710,206 $837,319
======== ========
The accompanying notes are an integral part of these financial statements.
F-2
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
2003 2002
----------- ----------
NET REVENUES . . . . . . . . . . . . . . . . . . $4,190,247 $1,571,050
COST OF REVENUES . . . . . . . . . . . . . . . . 2,978,227 831,709
---------- ----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . 1,212,020 739,341
OPERATING EXPENSES:
Sales and marketing. . . . . . . . . . . . . . 541,233 282,554
General and administrative expenses. . . . . . 693,039 184,608
---------- ----------
INCOME (LOSS) FROM OPERATIONS. . . . . . . . . . (22,252) 272,179
LOSS ON DISPOSAL OF ASSETS . . . . . . . . . . . (7,579) -
---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES. (29,831) 272,179
PROVISION FOR INCOME TAXES . . . . . . . . . . . 900 4,400
---------- ----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . $ (30,731) $ 267,779
========== ==========
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED. $ (0.30) $ 2.68
========== ==========
NUMBER OF WEIGHTED AVERAGE SHARES -
BASIC AND DILUTED. . . . . . . . . . . . . . . 103,952 100,000
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Additional Retained Total
Common Stock Paid Earnings Stockholders'
Shares Amount in Capital (Deficit) Equity
---------------------------------------------------------------
Balance at January 1, 2002 . . . . . $ - $ - $ - $ -
Sale of stock - initial investment 100,000 100,000 100,000
Distributions. . . . . . . . . . . (114,960) (114,960)
Net Income . . . . . . . . . . . . 267,779 267,779
-----------------------------------------------------------
Balance at December 31, 2002 . . . . 100,000 100,000 - 152,819 252,819
Sale of stock. . . . . . . . . . . 5,265 10,000 10,000
Capital Contribution . . . . . . . 40,832 40,832
Distributions. . . . . . . . . . . (192,969) (192,969)
Net loss . . . . . . . . . . . . . (30,731) (30,731)
-----------------------------------------------------------
Balance at December 31, 2003 . . . . 105,265 $ 110,000 $ 40,832 $ (70,881) $ 79,951
===========================================================
The accompanying notes are an integral part of these financial statements.
F-4
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2003 2002
---------- ----------
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . $ (30,731) $ 267,779
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization. . . . . . . . . . . . . . 14,308 3,341
Loss on disposition of property and equipment. . . . . . 7,579 -
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS
Accounts receivable. . . . . . . . . . . . . . . . . . (21,139) (38,681)
Supplies . . . . . . . . . . . . . . . . . . . . . . . 407,298 (559,175)
Prepaid and other current assets . . . . . . . . . . . (39,655) (8,267)
Deposits . . . . . . . . . . . . . . . . . . . . . . . (18,946) (8,409)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable and accrued expenses. . . . . . . . . (226,339) 584,500
Deferred revenue . . . . . . . . . . . . . . . . . . . 241,600 -
---------- ----------
Net cash provided by operating activities. . . . . . . 333,975 241,088
---------- ----------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
Purchases of property and equipment. . . . . . . . . . . (25,818) (55,455)
---------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from stockholder loan . . . . . . . . . . . . . 71,326 -
Distributions. . . . . . . . . . . . . . . . . . . . . . (192,969) (114,960)
Proceeds from issuance of common stock . . . . . . . . . 10,000 100,000
---------- ----------
Net cash used for financing activities . . . . . . . . (111,643) (14,960)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . 196,514 170,673
CASH AND CASH EQUIVALENTS, beginning of period . . . . . . 170,673 -
---------- ----------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . $ 367,187 $ 170,673
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . $ - $ -
========== ==========
Income tax paid. . . . . . . . . . . . . . . . . . . . . $ 7,555 $ -
========== ==========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of stockholder loan to additional
paid in capital. . . . . . . . . . . . . . . . . . . . $ 40,832 $ -
========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
The Company was incorporated in California on December 21, 2001 as an S
corporation. The Company is engaged in the business of servicing and providing
image expense consulting and related services.
The Company provides third party document/image equipment (printers, faxes,
copiers) to customers, together with onsite customer support and technical
services under long-term contracts which typically last five years. These
contracts are initiated when a HUIA ("Historical Usage & Inventory Assessment")
is performed at the potential customer's location on the current imaging
equipment. The HUIA is a detailed assessment where the Company develops and
documents its understanding of the potential customer's operational framework as
it relates to their imaging equipment and the number of images created per piece
of equipment. The results of the HUIA are incorporated into a detailed
financial and operational analysis. This analysis is presented to the potential
customer, highlighting the benefits of the Company's solution.
If the potential customer sees the benefit to the solution, then the analysis is
put into a formal contract. The contract details the equipment that will be
sold to the customer, the service and maintenance that will be provided and the
finance company that the operating lease will be with. All contracts are set-up
in such a way that the customer does not take title of the equipment. It is
actually purchased by a leasing/finance company subject to acceptance by the end
user (customer). The Company receives all equipment purchased and performs
quality control tests prior to delivery to the customer. Upon acceptance by the
end user the finance company will pay the Company for the equipment. The
service and maintenance portion of the contract will then start and last over
the length of the contract.
The Company could enter into contracts for just the equipment or service and
maintenance, but has not done so at this time.
On April 1, 2004, PPVW Acquisition Company, a subsidiary of Auxilio, Inc.,
completed an acquisition of the Company, where it received 4,000,070 shares of
common stock of Auxilio, Inc., together with a payment of $615,000.
USE OF 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 date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-6
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
REVENUE RECOGNITION:
In accordance with EITF 00-21, the Company recognizes revenue for its multiple
revenue generating activities as separate units of accounting. Revenues from
equipment sales transactions are earned upon equipment being accepted by the
customer. For equipment that is to be placed at the customer's location at a
future date, revenue is deferred until that equipment is placed. Under EITF
99-19, the Company qualifies for gross revenue recognition due to the Company
being the primary obligor in the arrangement, having latitude in the
establishment of price, having discretion in the supplier selection,
determination of the product or service specifications, and risk related to
physical loss of inventory
Monthly service and supply revenue is earned monthly during the term of the
contract (currently 5 years), as services and supplies are provided monthly.
The Company is currently recognizing this revenue on a straight-line basis due
to the lack of historical data to the contrary.
Overages from customers are earned when the number of images in any period
exceeds the number allowed for in the contract, per period. Pursuant to
historical challenges incurred in collecting payments for overages, the Company
creates an allowance for doubtful accounts equal to any revenue earned from
overages.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations. The Company had no cash equivalents
at December 31, 2003 or 2002.
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
ACCOUNTS RECEIVABLE:
The Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts receivable. It
is reasonably possible that the Company's estimate of the allowance for doubtful
accounts will change. No allowance for doubtful accounts has been established
at December 31, 2003 and 2002.
F-7
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost. Depreciation of the property and
equipment is provided using the straight line method based on the following
estimated useful life:
Years
-----
Machinery and Equipment 5
Furniture and Fixture 7
Software 3
Expenditures for maintenance and repairs are charged to expense as incurred.
SUPPLIES:
Supplies consist primarily of equipment and supplies used for the repair and
maintenance of equipment at customer locations and are stated at cost.
INCOME TAXES:
The Company has elected under the Internal Revenue code to be an S corporation.
In lieu of corporation income taxes, the shareholders of an S Corporation are
taxed on their proportionate share of the Company's taxable income. Therefore,
no provision or liability for Federal income taxes has been included in these
financial statements. Under the California state law, the Company is required
to pay a 1.5% tax based on taxable income or a minimum franchise tax of $800.
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are determined based on
the differences between the financial statements and the tax bases of assets and
liabilities using enacted rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the taxes payable for the period and
the change during the period in deferred tax assets and liabilities.
F-8
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(2) PROPERTY AND EQUIPMENT:
A summary is as follows:
2003 2002
------- -------
Furniture and fixture. . . . . . . . . . . . . . . $ 7,186 $ 9,553
Office, computer and warehouse equipment . . . . . 62,676 45,902
Leasehold improvement. . . . . . . . . . . . . . . 1,858 -
------- -------
71,720 55,455
Less accumulated depreciation and amortization 15,675 3,341
------- -------
$56,045 $52,114
======= =======
Depreciation and amortization expense for property, equipment, and
improvements amounted to $14,308 and $3,341 for the years ended December 31,
2003 and 2002 respectively.
(3) LOAN FROM STOCKHOLDER:
The Company received a non-interest bearing loan from a stockholder for $71,326
during the year ended December 31, 2003. At December 31, 2003, $40,832 of this
amount was reclassed to a capital contribution. The remaining amount was paid
by March 31, 2004.
(4) DEFERRED REVENUE:
Deferred revenue is an estimate of revenue expected to be earned in the future
under the equipment contracts for additional equipment (printers and faxes) to
be placed at the customer's location that has been included in the original
contract amount. This additional equipment is identified by the Company at the
start of a contract based on the initial HUIA (see Note 1 - Business Activity).
(5) DEALERSHIP
On February 6, 2002, The Company entered into a Dealer Agreement with Konica
Business Technologies, Inc. to sell Konica digital products. The term of this
Dealer Agreement shall end on December 31st of each year and is automatically
renewable unless either party gives written notice not less than 30 days before
the end of the current term. The Company does not currently have any
commitments or minimum guarantees in relation to this agreement.
F-9
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(6) CONCENTRATION OF CREDIT RISK/MAJOR CUSTOMERS:
The Company has two and one major customer that comprises 93.4%, or $4,139,345,
and 92.1%, or $1,446,937, of total revenues for the years ended December 31,
2003 and 2002, respectively. Included in accounts receivable is $52,231 and
$26,928 for the years ended December 31, 2003 and 2002, respectively.
(7) COMMITMENTS AND CONTINGENCIES:
Service Agreements
- -------------------
The Company has exclusive non-cancelable service contracts to provide
maintenance and supplies for a period of 5 years to some of their clients. In
return, the Company will also receive a fixed monthly income for providing these
services.
Revenue Commitment
- -------------------
The Company is obligated to fulfill a 36-month revenue commitment for digital
products, accessories, supplies and parts totaling $6,000,000 with Konica
Business Technologies, Inc. (Note 5)
Revenue Commitment is to be attained as follows:
2002 Commitment $1,000,000
2003 Commitment $2,000,000
2004 Commitment $3,000,000
----------
$6,000,000
----------
The Company is in compliance with the first year commitment. The Company is not
in compliance with the second year commitment; however the short fall can be
made up during the third year. Currently the Company is on target to achieve
its third year commitment and second year shortfall.
F-10
ALAN MAYO & ASSOCIATES, INC.
DBA THE MAYO GROUP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED):
Leases
- ------
The Company leases its office and warehouse facilities under noncancellable
operating lease agreements which expire through July 2006. Future minimum lease
payments are as follows:
Year Ended
December 31,
- -------------
2004 . . $ 150,120
2005 . . 116,370
2006 . . 40,320
-------------
$ 306,810
=============
Rent expense for the years ended December 31, 2003 and 2002 totaled $105,525 and
$43,619, respectively.
(8) SUBSEQUENT EVENT:
On April 1, 2004, PPVW Acquisition Company, a subsidiary of Auxilio, Inc.,
completed an acquisition of the Company. The current shareholders received
$255,000, a note payable for $360,000 and 4,000,070 shares of stock of Auxilio,
Inc. The transaction is being accounted for as an acquisition of the Company by
Auxilio, Inc. based on Auxilio, Inc. being the acquirer as defined by FASB 141.
Upon completion of the merger the Company's tax status changed from S-corp
status to C-corp status. The deferred taxes which have been derived from the
timing differences in recognition of revenue and expenses for income tax and
financial reporting purposes would be as following under the new tax status:
Deferred tax asset. . . . $103,700
Less: valuation allowance 89,400
--------
Net deferred tax asset. $ 14,300
========
Deferred tax liability. . $ 14,300
========
F-11
AUXILIO, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet aggregates
the balance sheet of Auxilio, Inc. ("Parent") as of December 31, 2003, and the
balance sheet of Alan Mayo & Associates, a California corporation doing business
as The Mayo Group ("The Mayo Group"), as of December 31, 2003. The following
unaudited pro forma condensed combined statement of operations aggregates the
statement of operations of Auxilio for the year ended December 31, 2003, and the
statement of operations of The Mayo Group for the year ended December 31, 2003.
The following unaudited pro forma condensed combined balance sheet and statement
of operations were prepared giving effect to a transaction completed on April 1,
2004, wherein a subsidiary of Auxilio, Inc., PPVW Acquisition Company, acquired
The Mayo Group.
This business combination is treated as an acquisition. The acquisition was
accomplished by merging The Mayo Group into PPVW Acquisition Corporation, a
wholly owned subsidiary of Auxilio. In exchange for acquiring The Mayo Group,
Auxilio issued its common stock and paid cash consideration to the
shareholders of The Mayo Group.
The following pro forma condensed balance sheet and statement of operations uses
the assumptions as described in the notes and the historical financial
information available at December 31, 2003. The financial statements of both
Auxilio and The Mayo Group at December 31, 2003 are audited.
The unaudited pro forma condensed combined balance sheet and statement of income
should be read in conjunction with the separate financial statements and related
notes thereto of Auxilio, Inc and The Mayo Group. The unaudited pro forma
condensed combined balance sheet and statement of income are not necessarily
indicative of the condensed combined balance sheet and statement of income which
might have existed for the periods indicated or the results of operations as
they may appear now or in the future.
F-12
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combined Financial Statements of Auxilio, Inc. and
Subsidiary ("Company") and Alan Mayo and Associates, dba The Mayo Group ("Mayo
Group"):
The following unaudited pro forma condensed combined financial statements give
effect to the acquisition of Mayo Group by the Company using the purchase method
of accounting and include the pro forma adjustments described in the
accompanying notes.
The following unaudited pro forma condensed combined balance sheet as of
December 31, 2003, and combined statements of operations for the year ended
December 31, 2003 are based on the historical financial statements of the
Company and Mayo Group after giving the effect to the acquisition of Mayo Group
under the purchase method of accounting.
AUXILIO, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
December 31, 2003
(Unaudited)
The Mayo Proforma
Company Group Adjustments Combined
ASSETS
Current assets:
Cash and cash equivalents $226,398 $367,187 $(448,668) $144,917
Accounts receivable, net 111,426 59,820 - 171,246
Supplies - 151,877 - 151,877
Loans, advances to employees/shareholders - 47,922 - 47,922
Prepaid and other current assets 48,394 - - 48,394
Current deferred income taxes - - 14,300 14,300
------------ ------------ ----------- ------------
Total current assets 386,218 626,806 (434,368) 578,656
Property and equipment, net of accumulated
depreciation and amortization 51,907 56,045 - 107,952
Goodwill, net of accumulated amortization
of $35,827 66,534 - - 66,534
Deposits 17,422 27,355 - 44,777
Excess of purchase price over net assets - - 2,349,238 2,349,238
------------ ------------ ----------- ------------
$ 522,081 $ 710,206 $ 1,914,870 $ 3,147,157
============ ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit and note payable $ 61,983 $ - $ 315,000 $ 376,983
Current portion of long-term debt 19,123 - - 19,123
Accounts payable and accrued expenses 451,308 358,161 465,500 1,274,969
Loan from stockholder - 30,494 - 30,494
Deferred revenue - 241,600 - 241,600
------------ ------------ ----------- -----------
Total current liabilities 532,414 630,255 780,500 1,943,169
Long-term deferred tax liability - - 14,300 14,300
Stockholders' equity:
Common stock 25,037 110,000 (106,000) 29,037
Additional paid-in capital 9,833,091 40,832 1,155,189 11,029,112
Accumulated deficit (9,868,461) (70,881) 70,881 (9,868,461)
------------ ------------ ----------- ------------
Total stockholders' equity (10,333) 79,951 1,120 070 1,189,688
------------ ------------ ----------- ------------
Total Liabilities and Stockholders' Equity $ 522,081 $ 710,206 $ 1,914,870 $ 3,147,157
============ =========== =========== ============
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
F-13
AUXILIO, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(Unaudited)
The Mayo Proforma
Company Group Adjustments Combined
Revenue $ 1,374,941 $ 4,190,247 $ - $ 5,565,188
Cost of revenue 778,720 2,978,227 - 3,756,947
----------- ----------- ---------- -----------
Gross profit (loss) 596,221 1,212,020 - 1,808,241
Operating expenses:
Sales and marketing 1,515,115 541,233 - 2,056,348
Research and development 182,545 - - 182,545
General and administrative 1,419,816 693,039 - 2,112,855
----------- ----------- ---------- -----------
Loss from operations (2,521,255) (22,252) - (2,543,507)
Other income (expense):
Interest expense (16,088) - - (16,088)
Interest income 3,772 - - 3,772
Other income 2,325 - - 2,325
Gain (loss) disposal of assets (442,142) (7,579) - (449,721)
----------- ----------- ---------- -----------
Total other income (expense) (452,133) (7,579) - (459,712)
----------- ----------- ---------- -----------
Income before provision for income taxes (2,973,388) (29,831) - (3,003,219)
Income taxes 800 900 - 1,700
----------- ----------- ---------- -----------
Net Income (loss) $ (2,974,188) $ (30,731) $ - $(3,004,919)
============ =========== ========== ===========
Loss per share - basic and diluted $ (0.45) $ (0.30) $ (0.28)
============ =========== ===========
Weighted average shares outstanding -
basic and diluted 6,588,237 103,952 10,577,348
============ =========== ===========
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
F-14
AUXILIO, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements as of December
31, 2003 record the acquisition transaction as if the acquisition had taken
place on January 1, 2003. The unaudited pro forma condensed combined balance
sheet is presented to give effect to the acquisition as if it occurred on
December 31, 2003, and combines the balance sheets of Auxilio, Inc. ("Company")
and The Mayo Group ("Mayo") as of that date. The pro forma information does not
purport to be indicative of the results that would have been reported if the
above transactions had been in effect for the periods presented or which may
result in the future.
SUMMARY OF TRANSACTION
On April 1, 2004, one of the Company's subsidiaries, PPVW Acquisition Company,
completed an acquisition of Alan Mayo and Associates, Inc., dba The Mayo Group.
The Mayo Group provides outsourced financial and business processes for image
management in healthcare. The purchase price was as follows: $255,000 cash and
1,700,030 shares of common stock (post reverse split) upon closing; $45,000
placed in an indemnity escrow account; 300,005 shares of common stock (post
reverse split) placed in the indemnity escrow account, 2,000,035 shares of
common stock (post reverse split) to be put in an escrow account as contingency
based on certain earn-out and a note payable in the amount of $315,000 due April
15, 2005 also subject to certain earn out provisions. The value of the common
stock issued was determined based on the price of the Company's common stock in
the recent private placement of $0.30 per share (post split). This value was
determined to be more indicative of the fair market value of the stock due to
the stock being thinly traded, the large block of the shares given as
consideration, and the shares being issued in the acquisition have trading
restrictions that are similar to those on the shares sold in the private
placement. All contingent amounts from the original agreement have subsequently
been paid (both cash and stock). Therefore the amounts are included in the
excess of purchase price over assets acquired as is required under FASB 141. In
addition to the above amounts, the Company has included severance payments
directly related to the acquisition totaling $465,500 and other acquisition
costs totaling $148,668 in the purchase price. Operations from April 1, 2004
are the operations of The Mayo Group. As of April, 1, 2004, the Company has
estimated the allocation of the purchase price as follows:
Purchase price:
Cash
Paid. . . . . . . . . . . . . . $ 300,000
Non-interest bearing
note payable . . . . . . . . 315,000
Stock at FMV. . . . . . . . . . . 1,200,021
Expenses related to acquisition:
Legal and accounting. . . . . . 148,668
Severance . . . . . . . . . . . 465,500
-----------------
Total purchase price. . . . . . . $ 2,429,189
-----------------
Allocated to:
Accounts receivable . . . . . . $ 158,177
Supplies. . . . . . . . . . . . 158,514
Prepaids. . . . . . . . . . . . 30,788
Deposits. . . . . . . . . . . . 27,355
Property and equipment. . . . . 52,793
Bank overdraft. . . . . . . . . (21,067)
Accounts payable. . . . . . . . (391,944)
Deferred revenue. . . . . . . . (216,938)
-----------------
Net assets (liabilities). . . . . $ (202,322)
-----------------
Net amount allocated to excess
of purchase price. . . . . . . $ 2,631,511
=================
F-15
The Company is in the process of obtaining a formal valuation which will be done
within the time allowed in accordance with FASB 141.
PRO FORMA ADJUSTMENTS
The pro forma combined balance sheet as of December 31, 2003 gives effect to the
allocation of the total purchase price to the assets and liabilities of Mayo
Group based on their respective fair values as of that date.
Summary of pro forma adjustments follows:
December 31, 2003
Allocation of purchase price:
Cash $ (448,668)
Excess of purchase price over assets 2,349,238
Non-interest bearing note payable to shareholders
related to purchase of Mayo Group (315,000)
Payable to shareholders related to
purchase of Mayo Group (465,500)
Issuance of common stock
related to purchase of Mayo Group (4,000)
Elimination of Mayo Group common stock 110,000
Elimination of Mayo Group additional
paid in capital 40,832
Excess of purchase price over
par value of common stock (1,196,021)
Accumulated deficit of Mayo Group (70,881)
PRO FORMA NET LOSS PER SHARE
The pro forma basis and dilutive net loss per share are based on the weighted
average number of shares of pro forma Auxilio's common stock as if the shares
issued to acquire Mayo had taken place at the beginning of the year. Dilutive
shares are not included in the computation of pro forma dilutive net loss per
share as their effect would be anti-dilutive. This calculation has taken into
account the reverse 3 to 1 split that took place in 2004.
F-16