Exhibit 99-1
TELCOM ASSISTANCE CENTER
CORPORATION
T/A ACTIV-E SOLUTIONS
---------------------------------------
Financial Statements
Years Ended December 31, 2000 and 1999
F-1
Independent Auditor's Report
March 23, 2001
Shareholders
Telcom Assistance Center Corporation
Plymouth Meeting, Pennsylvania
We have audited the accompanying balance sheets of TELCOM
ASSISTANCE CENTER CORPORATION T/a ACTIV-E SOLUTIONS as of December 31, 2000 and
1999 and the related statements of operations, of shareholders' equity
deficiency and of 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 these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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
audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, TELCOM
ASSISTANCE CENTER CORPORATION T/a ACTIV-E SOLUTIONS changed its method of
accounting for organization costs in 1999.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of TELCOM
ASSISTANCE CENTER CORPORATION T/a ACTIV-E SOLUTIONS as of December 31, 2000 and
1999, 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/ Goldenberg Rosenthal, LLP
------------------------------
Goldenberg Rosenthal, LLP
F-2
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
December 31
-------------------------------------------
ASSETS 2000 1999
------------------ ------------------
Current assets
Cash $ 15,159 $ 904
Accounts receivable and unbilled revenue,
net of allowance for doubtful accounts of
$969 and $450 in 2000 and 1999 735,487 378,934
Inventories 5,532 48,963
Prepaid expenses 39,852 40,573
------------------ ------------------
Total current assets 796,030 469,374
------------------ ------------------
Property and equipment
Office equipment 1,075,794 928,534
Furniture and fixtures 163,112 263,112
Leasehold improvements 192,979 192,979
Software 156,591 108,007
------------------ ------------------
1,588,476 1,492,632
Less accumulated depreciation 1,199,962 1,135,438
------------------ ------------------
Net property and equipment 388,514 357,194
------------------ ------------------
Other assets
Security deposits 18,523 19,021
------------------ ------------------
Total other assets 18,523 19,021
------------------ ------------------
Total Assets $ 1,203,067 $ 845,589
================== ==================
F-3
December 31
---------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY 2000 1999
------------------- -------------------
Current liabilities
Accounts payable and accrued expenses $ 829,268 $ 721,756
Dividends payable 13,925 -
Note payable, related party 22,581 -
Note payable, bank 695,000 670,925
Current maturities of long-term debt 16,667 71,035
Current portion of capital lease obligations 11,604 27,049
Payroll and sales tax payable 110,159 92,385
Customer deposits 43,205 85,108
Deferred revenue 115,113 42,099
------------------- -------------------
Total current liabilities 1,857,522 1,710,357
------------------- -------------------
Long-term liabilities
Long-term debt, net of current maturities 29,167 45,833
Capital lease obligations, net of current portion - 11,096
------------------- -------------------
Total long-term liabilities 29,167 56,929
------------------- -------------------
Redeemable Preferred Stock (redemption value $595,800) 595,800 -
------------------- -------------------
Commitments
Shareholders' equity deficiency
Common stock, $.01 par value
Authorized, 1,000,000 shares
Issued 116,196 shares in 2000 and 129,203 shares in 1999 1,162 1,292
Additional paid in capital 656,726 697,442
Deficit (1,937,310) (1,536,431)
------------------- -------------------
(1,279,422) (837,697)
Treasury stock, at cost
Common stock, 27,824 shares in 1999 - 84,000
------------------- -------------------
Total shareholders' equity deficiency (1,279,422) (921,697)
------------------- -------------------
Total Liabilities and Shareholders' Equity Deficiency $ 1,203,067 $ 845,589
=================== ===================
See notes to financial statements
F-4
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------
2000 1999
------------------ ------------------
Revenue $ 7,215,625 $ 4,564,083
Direct costs 5,828,627 3,560,734
------------------ ------------------
Gross profit 1,386,998 1,003,349
Operating expenses 1,514,882 1,596,504
------------------ ------------------
Loss from operations before
depreciation and amortization (127,884) (593,155)
Depreciation and amortization 142,473 206,767
------------------ ------------------
Loss from operations (270,357) (799,922)
------------------ ------------------
Other income (expense)
Interest expense (106,037) (76,957)
Interest income 526 428
Other income 19,744 8,834
------------------ ------------------
Total other income (expense) (85,767) (67,695)
------------------ ------------------
Loss before cumulative effect of a change
in accounting principle (356,124) (867,617)
Cumulative effect of a change in
accounting principle - (6,071)
------------------ ------------------
Net loss $ (356,124) $ (873,688)
================== ==================
See notes to financial statements
F-5
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF SHAREHOLDERS' EQUITY DEFICIENCY
YEARS ENDED ENDED DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Telcom Assistance Center Corporation
------------------------------------------------------------------
Common Stock
--------------------------------
Number Additional
of Paid-in
Shares Amount Capital
------------- ------------- ---------------
Balance, January 1, 1999 81,000 $ 810 $ 452,090
Redemption of 27,824 shares of
common stock upon buyout of
shareholder (27,824) - -
Issuance of 39,216 shares of common
stock from rights offering 39,216 392 199,608
Issuance of 8,987 shares of common
stock in lieu of officer's salary 8,987 90 45,744
Net loss - - -
------------- ------------- ---------------
Balance, December 31, 1999 101,379 1,292 697,442
Treasury stock retired - (278) (83,722)
Sale of 23,176 shares of common
stock of shareholder (23,176) (232) -
Purchase of 23,176 shares of common
stock 23,176 232 -
Issuance of 14,000 shares of common
stock in lieu of bonuses 14,000 140 34,860
Issuance of 817 shares of common
stock in lieu of officer's salary 817 8 4,159
Purchase of 120,000 warrants - - 3,987
Accretion of Redeemable Preferred Stock - - -
Dividends Declared - - -
Net loss - - -
------------- ------------- ---------------
Balance, December 31, 2000 116,196 $ 1,162 $ 656,726
============= =========== =============
F-6
[RESTUBBED TABLE]
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF SHAREHOLDERS' EQUITY DEFICIENCY
YEARS ENDED ENDED DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Telcom Assistance Center Corporation
------------------------------------------------------------------
Treasury
Stock Deficit Total
------------------ ------------------- ------------------
Balance, January 1, 1999 $ - $ (662,743) $ (209,843)
Redemption of 27,824 shares of
common stock upon buyout of
shareholder (84,000) - (84,000)
Issuance of 39,216 shares of common
stock from rights offering - - 200,000
Issuance of 8,987 shares of common
stock in lieu of officer's salary - - 45,834
Net loss - (873,688) (873,688)
------------------ ------------------- ------------------
Balance, December 31, 1999 (84,000) (1,536,431) (921,697)
Treasury stock retired 84,000
- -
Sale of 23,176 shares of common
stock of shareholder - - -
Purchase of 23,176 shares of common
stock - - -
Issuance of 14,000 shares of common
stock in lieu of bonuses - - 35,000
Issuance of 817 shares of common
stock in lieu of officer's salary - - 4,167
Purchase of 120,000 warrants - - 3,987
Accretion of Redeemable Preferred Stock - (30,830) (30,830)
Dividends Declared - (13,925) (13,925)
Net loss - (356,124) (356,124)
------------------ ------------------- -----------------
Balance, December 31, 2000 $ - $ (1,937,310) $ (1,279,422)
================ ================ =================
See notes to financial statements
F-7
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------
2000 1999
-------------------- -----------------
Cash flows from operating activities
Net loss $ (356,124) $ (873,688)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 142,473 212,838
Allowance for doubtful accounts 519 -
Common stock issued in lieu of payment for services 4,167 45,834
Loss on sale of property and equipment 9,300 -
Loss on abandoned and stolen equipment - 6,562
(Increase) decrease in assets
Accounts receivable (307,072) 939,757
Inventory 43,431 (13,306)
Prepaid expenses 721 20,422
Security deposits 498 522
Increase (decrease) in liabilities
Accounts payable and accrued expenses 242,512 (641,909)
Payroll and sales tax payable 17,774 (36,858)
Customer deposits (41,903) 50,197
Deferred revenue 73,014 1,489
-------------------- -----------------
Net cash used in operating activities (170,690) (288,140)
-------------------- -----------------
Cash flows from investing activities
Acquisition of property and equipment (195,842) (18,119)
-------------------- -----------------
Cash flows from financing activities
Proceeds from (repayments of) notes payable, bank 24,075 (271,000)
Proceeds from related party note payable 22,581 -
Net proceeds from issuance of redeemable preferred stock 414,970 -
Net proceeds from the issuance of warrants 3,987 -
Principal payments on long-term debt (71,035) (35,131)
Principal payments on capital lease obligations (26,541) (25,557)
Proceeds from issuance of common stock - 200,000
Redemption of common stock - (7,000)
Proceeds from sale of property and equipment 12,750 -
Insurance proceeds for stolen equipment - 2,766
-------------------- -----------------
Net cash provided by (used in) financing activities 380,787 (135,922)
-------------------- -----------------
Net increase (decrease) in cash 14,255 (442,181)
Cash, beginning of year 904 443,085
-------------------- -----------------
Cash, end of year $ 15,159 $ 904
==================== =================
See notes to financial statements
F-8
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------
2000 1999
-------------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 99,405 $ 75,731
==================== =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of preferred stock in lieu of repayment of related
party note payable $ 75,000 $ -
==================== =================
Proceeds not received at year end for issuance of
preferred stock $ 50,000 $ -
==================== =================
Issuance of preferred stock in lieu of accrued compensation $ 25,000 $ -
==================== =================
Note payable issued to buy out shareholder $ - $ 77,000
==================== =================
Issuance of common stock in lieu of accrued bonuses $ 35,000 $ -
==================== =================
Treasury stock retired $ 84,000 $ -
==================== =================
Dividend declared $ 13,925 $ -
==================== =================
See notes to financial statements
F-9
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 Description of Business
-----------------------
Summary of
Significant Telcom Assistance Center Corporation ("TAC") is a Delaware
Accounting corporation originally formed in 1996. Telcom Assistance
Policies Center Corporation receives the majority of its revenue from
selling, implementing and supporting computer technology. It
also operates a support organization which specializes in the
deployment, support and ordering of telecommunication
services. The Company's computer technology revenue is
primarily received from businesses located in the northeastern
portion of the United States and its telecommunication related
revenue is received from businesses located throughout the
United States. As of January, 2000, the Company is doing
business as Activ-e Solutions.
Inventories
-----------
Inventories which consist of merchandise held for resale, are
stated at the lower of cost or market, with cost determined by
the first-in, first-out method.
Property and Equipment and Depreciation
---------------------------------------
Property and equipment are stated at cost. Expenditures for
maintenance, repairs and renewals of a minor nature are
charged against earnings as incurred. Major renewals and
betterments are capitalized. Depreciation is provided by using
the straight-line method over the estimated useful lives of
the related assets.
Deferred Revenue
----------------
Deferred revenue represents monies received on unexpired
service agreements.
Concentration of Credit Risk
----------------------------
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of trade
accounts receivable and cash balances.
The Company grants credit terms in the normal course of
business to its customers. The Company's customers operate in
various industries. Concentration of credit risk with respect
to these trade receivables are considered minimal due to the
stability of the companies involved. As part of its ongoing
control procedures, the Company monitors the credit worthiness
of its customers. The Company does not normally require
collateral or other security to support revenues from services
rendered or credit sales.
F-10
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 The Company maintains its cash balances in a financial
Summary of institution located in the Philadelphia, Pennsylvania suburbs.
Significant The balances are insured by the Federal Deposit Insurance
Accounting Corporation up to $100,000. At times the Company's balances
Policies may exceed federally insured limits. The Company has not
(continued) experienced any losses in these accounts and believes it is
not exposed to significant credit risk on such deposits.
Capital Leases
--------------
Assets under capital leases and lease obligations are recorded
at the lower of the net present value of the minimum lease
obligations or fair value of the assets at the lease inception
date. Assets under capital leases are depreciated on the
straight-line method over the estimated useful life of the
related assets.
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.
Advertising Costs
-----------------
The Company expenses advertising costs as they are incurred.
Advertising costs for the years ended December 31, 2000 and
1999 were $36,598 and $91,613, respectively.
Revenue Recognition
-------------------
The Company recognizes service fee revenue on hours worked by
the technical staff at the relevant hourly billing rates. The
Company recognizes hardware and software revenue on delivery
and telecommunication support revenue upon the completion of
the associated service.
401(k) Plan
-----------
The Company's employees are covered by a 401(k) plan
maintained by the Company. The plan has been qualified by the
Internal Revenue Service under Section 401(a). The Company's
contribution to the plan for the years ended December 31, 2000
and 1999 was $6,637 and $1,119, respectively.
F-11
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 Income Taxes
Summary of ------------
Significant The Company has adopted the Statement of Financial Accounting
Accounting Standards No. 109, ("SFAS No. 109") "Accounting for Income
Policies Taxes", which requires the use of the liability method of
(continued) accounting for deferred income taxes.
NOTE 2 Effective January 1, 1999, the Company adopted Statement of
Change in Position No. 98-5 Reporting on the Costs of Start-Up
Accounting Activities. Under Statement of Position No. 98-5, costs of
Principle start-up activities and organization costs are to be expensed
as incurred. The adoption of Statement of Position No. 98-5
decreased income for the year ended December 31, 1999 and
decreased retained earnings as of that date by $4,202.
NOTE 3 In 2000, the Company maintained a working capital
Note Payable, line-of-credit which expires in June, 2001, and bears interest
Bank at the prime rate plus 2.00% (prime was 9.50% as of December
31, 2000), collateralized by all corporate assets. The
collateral for this loan is cross-defaulted and
cross-collateralized with all other loans the Company has with
this bank. The Company can borrow up to the lesser of (a)
$800,000 or (b) an amount up to 80% of the eligible accounts
receivable. As of December 31, 2000, the Company had borrowed
$695,000 and $105,000 remained available for use.
The line-of-credit requires that certain covenants be met by
the Company or the bank may demand payment in full. On
September 5, 2000, the Company received a waiver of these
covenants from the bank effective June 30, 1999 through
September 30, 2000. As of December 31, 2000, the Company was
not in compliance with the bank covenants.
In 1999, the Company maintained a working capital
line-of-credit which expired in June, 2000, and bear interest
at the prime rate plus 1.25% (prime was 8.50% as of December
31, 1999), collateralized by all corporate assets. The bank
required a stock pledge as additional collateral. The
collateral for this loan was cross-defaulted and
cross-collateralized with all other loans the Company had with
this bank. In addition, the Company was required to maintain
its primary account with this bank. The Company could borrow
up to the lesser of (a) $700,000 or (b) an amount up to 80% of
the eligible accounts receivable. As of December 31, 1999, the
Company had borrowed $670,925 and $29,075 remained available
for use.
Total interest expense on the note payable, bank, was $82,759
and $62,389 for the years ended December 31, 2000 and 1999,
respectively.
F-12
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 The Company is obligated under the following notes payable as
Notes Payable of December 31, 2000 and 1999 as follows:
2000 1999
------- --------
Note payable, bank, due in monthly payments of $1,389
plus interest at 11.00%, until August 1, 2003,
collateralized by all corporate assets $45,834 $ 62,500
Note payable, former shareholder, repaid during the
current year - 54,368
------- --------
45,834 116,868
Less current portion 16,667 71,035
------- --------
$29,167 $ 45,833
======= ========
Scheduled maturities of notes payable as of December
31, 2000 are as follows:
Year Ending December 31
-----------------------
2001 $16,667
2002 18,503
2003 10,664
-------
$45,834
=======
Total interest expense on the notes payable was $5,731
and $8,280 for the years ended December 31, 2000 and
1999, respectively.
NOTE 5 The Company is obligated under capital leases for
Capital Lease office equipment and furniture with terms ranging from
Obligations two to five years. The capitalized equipment costs were
$304,699 with associated accumulated depreciation of
$235,115 and $201,173 as of December 31, 2000 and 1999
respectively.
F-13
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 Scheduled minimum future obligations on leases in
Capital Lease effect as of December 31, 2000 are as follows:
Obligations
(continued)
Year Ending December 31
-----------------------
2001 $13,020
Less amount representing interest 1,416
-------
Present value of net minimum obligations 11,604
Less current portion 11,604
-------
Long-term obligation $ -
=======
The present values of future minimum obligations are
calculated based on interest rates ranging from 8.5%
to 13% determined to be applicable at the inception
of the lease.
Total interest expense on the outstanding obligations
under capital leases was $2,552 and $5,562 for the
years ended December 31, 2000 and 1999, respectively.
NOTE 6 The Company is obligated under a lease for its office
Commitments which expires in 2006 with the option to renew.
The future minimum annual rents due under this lease
are:
Year Ending December 31
-----------------------
2001 $144,950
2002 132,514
2003 135,916
2004 139,420
2005 142,914
Thereafter 23,916
--------
$719,630
========
F-14
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 Rent expense for the years ended December 31, 2000
Commitments and 1999 was $188,636 and $167,743, respectively.
(continued)
The Company has also entered into an agreement with a
financial consultant. The future commitment due under
this agreement is $22,500 for the year ending December
31, 2001.
NOTE 7 As discussed in Note 1, the Company has adopted SFAS
Income Taxes No. 109.
Under the provisions of SFAS 109, an entity recognizes
deferred tax assets and liabilities for future tax
consequences of events that have been previously
recognized in the Company's financial statements or tax
returns. The measurement of deferred tax assets and
liabilities is based on provisions of the enacted tax
law. The effects of future changes in tax laws or rates
are not anticipated.
The Company's total deferred tax asset and deferred tax
valuation allowance was as follows as of December 31,
2000 and 1999:
2000 1999
-------- --------
Deferred tax asset $800,000 $733,000
Less valuation allowance 800,000 733,000
-------- --------
Net deferred tax asset $ - $ -
======== ========
The Company has net operating loss carryforwards of
approximately $1,818,000 which will expire in the year
2015. The valuation allowance increased $67,000 in 2000
as a result of the current year net operating loss.
F-15
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 In 2000, stock warrants to purchase shares of the
Stock Warrants Company's $.01 par value common stock at $5.10 per
and Options share totaling 10,500 shares have been granted to
members of the Board. 8,500 of these warrants expire in
December, 2010 and 2,000 of these warrants expire on
December 31, 2004.
In 2000, 1,500 warrants issued to a former shareholder
were canceled as part of a stock purchase agreement.
In 2000, stock warrants to purchase shares of the
Company's $.01 par value common stock at $5.10 per
share totaling 120,000 shares have been purchased by
investors as part of the Redeemable Preferred Stock
transaction (Note 12). These warrants expire on
December 31, 2010.
In 2000, stock warrants to purchase shares of the
Company's $.01 par value common stock at $5.10 per
share totaling 2,500 shares were granted to a
consultant. These warrants expire on December 31, 2010.
In 1999, stock warrants to purchase shares of the
Company's $.01 par value common stock at $5.10 per
share totaling 10,500 shares, have been granted to
members of the board. These warrants expire in
December, 2004.
In 1999, stock warrants to purchase shares of the
Company's $.01 par value common stock at $7.47 per
share totaling 5,447 shares, have been granted to a
lender. These warrants expire in September, 2008.
The Company has a nonqualified stock option plan which
provides for the granting of options to key employees
of the Company. The option price, number of shares and
grant date are determined at the discretion of the
Company's board of directors. Grantees vest in the
options over 1 to 4 years.
In 1998, the Company has elected to account for the
stock option plan under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. The
compensation expense recorded for each of the years
ended December 31, 2000 and 1999 was $-0-.
Had compensation expense for the stock option plan been
determined based on the fair value of the options at
the grant date consistent with the methodology
prescribed under Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," the Company's net income would have been
decreased by approximately $19,974 and $7,900 using the
nonpublic entity method for the years ended December
31, 2000 and 1999, respectively.
F-16
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 The Black-Scholes option valuation model was developed
Stock Warrants for use in estimating the fair value of traded options
and Options which have no vesting restrictions and are fully
(continued) transferable. In addition, option valuation models
require the input of highly subjective assumptions.
Because the Company's employee stock options have
characteristics significantly different from those of
traded options, and because changes in the subjective
input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
Pro forma information regarding net income (loss) is
required by SFAS No. 123, and has been determined as if
the Company had accounted for its employee stock
options under the fair value method of that Statement.
The fair value for these options was estimated at the
date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
risk-free interest rate of 5%, dividend yield of 0%,
and a weighted-average expected life of the option of
five years. SFAS No. 123 permits nonpublic companies to
use a valuation method that excludes volatility,
resulting in an amount termed minimum value.
A summary of option transactions during the year ended
December 31, 2000 is shown below:
Weighted
Number Average
of Exercise
Shares Price
-------- --------
Outstanding as of January 1, 1999 - $ -
Granted during 1999 7,100 $5.10
--------
Outstanding as of January 1, 1999 7,100 $5.10
Granted during 2000 17,900 $5.10
--------
Outstanding as of December 31, 2000 25,000 $5.10
======== ========
NOTE 9 In August, 1999, the Company redeemed 27,824 shares of
Stock stock from its former president for $84,000. The
Redemption Company made an initial payment of $7,000 and issued a
7% interest bearing note for the balance (see Note 4).
In 2000, the Company retired these shares.
F-17
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 In lieu of salary, the Company's Chief Executive
Stock Officer receives the following:
Compensation
o An initial 100% vested grant of 1,000 options valued
at $5.10 per option.
o Compensation of 817 shares of stock per month valued
at $5.10 per share.
o Additional options equal to 3% of all shares
outstanding to be calculated when the Company is
sold. Options are to be vested equally over a
three-year period with an acceleration if the Company
is sold earlier.
This compensation agreement expired January, 2000.
As of December 31, 2000 and 1999, the officer owned
24,804 and 8,987 shares, respectively of common stock.
NOTE 11 In September, 2000, the Company entered into an
Agreements employment agreement with its Chief Executive Officer
which expires on December 31, 2003. The agreement
commits to an annual base salary and to expenses and
discretionary bonuses as determined by the Board of
Directors.
NOTE 12 In 2000, the Company authorized an aggregate of 20
Redeemable units, consisting of 4,965 shares of Redeemable
Preferred Preferred Stock per unit, and a warrant to purchase
Stock 10,000 shares of common stock which expire on December
31, 2010 (see Note 8) for $50,000 per unit.
The holders of the preferred stock shall be entitled to
receive cumulative dividends, at the per share rate of
10% of the share value payable quarterly. In addition,
certain events may trigger the redemption of the
preferred stock before maturity date. If any shares of
preferred stock have not been redeemed prior to
December 31, 2003 (maturity date), the Company will
redeem all of the outstanding shares. The preferred
stock is redeemable as follows:
If redemption occurs Then the redemption price will be:
---------------------------------------- -------------------------------------------
Prior to December 31, 2001 120% of liquidation preference
Prior to December 31, 2002 140% of liquidation preference
Thereafter 160% of liquidation preference
F-18
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 As of December 31, 2000, $600,000 of Redeemable
Redeemable Preferred Stock was issued to investors. Included in
Preferred accounts receivable as of December 31, 2000, $50,000
Stock was due from investors for the Redeemable Preferred
(continued) Stock which was subsequently paid in January, 2001.
Legal costs of $31,043 that were incurred as part of
the agreement are treated as a reduction of Redeemable
Preferred Stock.
NOTE 13 Net sales from one customer amounted to approximately
Significant $2,025,000 or 28% of the total net sales for the year
Risks, ended December 31, 2000. Accounts receivable due from
Significant this customer was $-0- as of December 31, 2000.
Customers
Net sales from one customer amounted to approximately
$736,000 or 16.1% of the total net sales for the year
ended December 31, 1999. Accounts receivable due from
this customer amounted to approximately $59,000 or
15.5% of total accounts receivable as of December 31,
1999.
F-19
TELCOM ASSISTANCE CENTER
CORPORATION
T/A ACTIV-E SOLUTIONS
---------------------------------------
Unaudited Financial Statements
As of September 30, 2001 and for the Nine Months Ended
September 30, 2001 and 2000
F-20
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
BALANCE SHEET
September 30, 2001
(Unaudited)
- -----------------------------------------------------------------------------------------------------
(Unaudited)
Current assets
Cash $ 2,483
Accounts receivable and unbilled revenue,
net of allowance for doubtful accounts of
$969 877,449
Inventories 3,428
Prepaid expenses 48,138
--------------------
Total current assets 931,498
--------------------
Property and equipment
Office equipment 752,759
Furniture and fixtures 149,015
Leasehold improvements 41,181
Computer hardware and software 497,221
--------------------
1,440,176
Less accumulated depreciation 858,184
--------------------
Net property and equipment 581,992
--------------------
Other assets
Security deposits 29,574
--------------------
Total other assets 29,574
--------------------
Total Assets $ 1,543,064
======================
F-21
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
BALANCE SHEET
September 30, 2001
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
Current liabilities
Accounts payable and accrued expenses $ 1,222,473
Dividends payable 18,904
Notes payable, financial institutions 617,724
Current maturities of long-term debt 18,503
Current portion of capital lease obligations 88,092
Payroll and sales tax payable 44,027
Customer deposits 86,282
Deferred revenue 145,924
-----------------
Total current liabilities 2,241,929
-----------------
Long-term liabilities
Long-term debt, net of current maturities 13,441
Capital lease obligations, net of current portion 288,509
-----------------
Total long-term liabilities 301,950
-----------------
Redeemable Preferred Stock (redemption value $718,957) 718,957
-----------------
Commitments
Shareholders' equity deficiency
Common stock, $.01 par value
Authorized, 1,000,000 shares
Issued 228,196 and outstanding 2,282
Additional paid in capital 791,620
Deficit (2,513,674)
-----------------
Total shareholders' equity deficiency (1,719,772)
-----------------
Total Liabilities and Shareholders' Equity Deficiency $ 1,543,064
=================
See notes to financial statements
F-22
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF OPERATIONS
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------------------
2001 2000
------------------ ------------------
(Unaudited) (Unaudited)
Revenue $ 4,837,433 $ 5,705,640
Direct costs 3,649,809 4,690,693
------------------ ------------------
Gross profit 1,187,624 1,014,947
Operating expenses 1,484,933 1,168,700
------------------ ------------------
Loss from operations before
depreciation and amortization (297,309) (153,753)
Depreciation and amortization 166,261 104,860
------------------ ------------------
Loss from operations (463,570) (258,613)
------------------ ------------------
Interest expense (61,309) (76,248)
---------------- ----------------
Net loss $ (524,879) $ (334,861)
================== ==================
See notes to financial statements
F-23
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF SHAREHOLDERS' EQUITY DEFICIENCY
NINE MONTHS ENDED ENDED SEPTEMBER 30, 2001
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Telcom Assistance Center Corporation
-----------------------------------------------------------------------------------------
Common Stock
--------------------
Number Additional
of Paid-in
Shares Amount Capital Deficit Total
------- ------ -------- ----------- -----------
Balance, December 31, 2000 116,196 $1,162 $656,726 $(1,937,310) $(1,279,422)
Issuance of 112,000 shares of
common stock 112,000 1,120 134,894 - 136,014
Dividends Declared - - - (51,485) (51,485)
Net loss - - - (524,879) (524,879)
------- ------ -------- ----------- -----------
Balance, September 30, 2001 228,196 2,282 791,620 (2,513,674) (1,719,772)
======= ====== ======== =========== ===========
See notes to financial statements
F-24
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF CASH FLOWS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
------------------------------------------
2001 2000
-------------------- ---------------
Cash flows from operating activities (Unaudited) (Unaudited)
Net loss $ (524,879) $ (334,861)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 179,860 104,860
(Increase) decrease in assets
Accounts receivable (141,962) (840,896)
Inventory 2,104 (9,817)
Prepaid expenses (8,286) 9,842
Security deposits (29,574) (2)
Increase (decrease) in liabilities
Accounts payable and accrued expenses 393,205 610,367
Payroll and sales tax payable (66,132) (53,262)
Customer deposits 43,077 32,955
Deferred revenue 30,811 108,297
Organization costs 18,523 -
-------------------- -------------
Net cash used in operating activities (103,253) (372,517)
-------------------- -------------
Cash flows from investing activities
Disposals (acquisitions) of property and equipment 12,156 (130,703)
-------------------- -------------
Cash flows from financing activities
Proceeds from (repayments of) notes payable, financial institutions (91,166) 60,730
Increase in dividends payable 4,979 -
Payments of related party note payable (22,581) -
Net proceeds from issuance of redeemable preferred stock 123,157 550,000
Payments of capital lease obligations (20,497) (22,520)
Proceeds from issuance of common stock 136,014 43,981
Increase in shareholders' distributions (51,485) -
------------------ -------------
Net cash provided by (used in) financing activities 78,421 632,191
-------------------- -------------
Net increase (decrease) in cash (12,676) 128,971
Cash, beginning of period 15,159 (3,909)
-------------------- -------------
Cash, end of period $ 2,483 $ 125,062
==================== =============
See notes to financial statements
F-25
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
STATEMENTS OF CASH FLOWS
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
------------------------------------------
(Unaudited) (Unaudited)
2001 2000
-------------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 61,679 $ 75,742
==================== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Issuance of preferred stock in lieu of repayment of related
party note payable $ - $ 75,000
==================== ===============
Issuance of preferred stock in lieu of accrued compensation $ - $ 25,000
==================== ===============
Issuance of common stock in lieu of accrued bonuses $ - $ 35,000
==================== ===============
Treasury stock retired $ - $ 84,000
==================== ===============
Dividend declared $ 51,485 $ -
==================== ===============
Proceeds from capital leases $ 385,494 $ -
==================== ===============
See notes to financial statements
F-26
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 1 Description of Business
Summary of -------------------------
Significant Telcom Assistance Center Corporation (the Company) is
Accounting a Delaware corporation originally formed in 1996.
Policies The Company receives the majority of its revenue from
selling, implementing and supporting computer
technology. It also operates a support organization
which specializes in the deployment, support and
ordering of telecommunication services. The Company's
computer technology revenue is primarily received
from businesses located in the northeastern portion
of the United States and its telecommunication
related revenue is received from businesses located
throughout the United States. The Company conducts
business as Activ-e Solutions.
Inventories
-----------
Inventories, which consist of merchandise held for
resale, are stated at the lower of cost or market,
with cost determined by the first-in, first-out
method.
Property and Equipment and Depreciation
---------------------------------------
Property and equipment are stated at cost.
Expenditures for maintenance, repairs and renewals of
a minor nature are charged against earnings as
incurred. Major renewals and betterments are
capitalized. Depreciation is provided by using the
straight-line method over the estimated useful lives
of the related assets.
Deferred Revenue
----------------
Deferred revenue represents monies received on
unexpired service agreements.
Concentration of Credit Risk
----------------------------
The Company's financial instruments that are exposed
to concentrations of credit risk consist primarily of
trade accounts receivable and cash balances.
The Company grants credit terms in the normal course
of business to its customers. The Company's customers
operate in various industries. Concentration of
credit risk with respect to these trade receivables
are considered minimal due to the stability of the
companies involved. As part of its ongoing control
procedures, the Company monitors the credit
worthiness of its customers. The Company does not
normally require collateral or other security to
support revenues from services rendered or credit
sales.
F-27
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 1 The Company maintains its cash balances in a
Summary of financial institution located in the Philadelphia,
Significant Pennsylvania suburbs. The balances are insured by the
Accounting Federal Deposit Insurance Corporation up to $100,000.
Policies At times the Company's balances may exceed federally
(continued) insured limits. The Company has not experienced any
losses in these accounts and believes it is not
exposed to significant credit risk on such deposits.
Capital Leases
--------------
Assets under capital leases and lease obligations are
recorded at the lower of the net present value of the
minimum lease obligations or fair value of the assets
at the lease inception date. Assets under capital
leases are depreciated on the straight-line method
over the estimated useful life of the related assets.
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.
Revenue Recognition
-------------------
The Company recognizes service fee revenue on hours
worked by the technical staff at the relevant hourly
billing rates. The Company recognizes hardware and
software revenue on delivery and telecommunication
support revenue upon the completion of the associated
service.
Income Taxes
------------
The Company has adopted the Statement of Financial
Accounting Standards No. 109, ("SFAS No. 109")
"Accounting for Income Taxes", which requires the use
of the liability method of accounting for deferred
income taxes.
NOTE 2 The Company maintained a working capital line-of-
Note Payable, credit with a bank which bears interest at the prime
Bank rate plus 2.00% (prime was 8.00% as of September 30,
2001), collateralized by all corporate assets. The
collateral for this loan is cross-defaulted and
cross-collateralized with all other loans the Company
has with this bank. The Company can borrow up to the
lesser of (a) $700,000 or (b) an amount up to 80% of
the eligible accounts receivable. As of September 30,
2001, the Company had an outstanding balance of
$310,449.
F-28
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 2
Notes Payable The line-of-credit requires that certain covenants be
(continued) met by the Company or the bank may demand payment in
full. On September 5, 2000, the Company received a
waiver of these covenants from the bank effective
June 30, 1999 through September 30, 2000. As of
September 30, 2001, the Company was not in compliance
with the bank covenants.
Total interest expense on the note payable, bank, was
$42,135 and $58,322 for the nine months ended
September 30, 2001 and 2000, respectively.
During September, 2001, the Company entered into an
factoring agreement with a financial institution
which provided for borrowings against eligible
accounts receivable for a fee of 6.75% of such
receivables. The outstanding borrowing as of
September 30, 2001 amounted to $307,275.
The Company was obligated under the following notes
payable as of September 30, 2001 as follows:
Note payable, bank, due in monthly
payments of $1,389 plus interest at
11.00%, until August 1, 2003,
collateralized by all corporate assets $31,944
Note payable, former shareholder, repaid
during the year 2000 -
--------
31,944
Less current portion 18,503
-------
$13,441
=======
Scheduled maturities of notes payable as of September
30, 2001 are as follows:
2002 18,503
2003 13,441
-------
$31,944
=======
Total interest expense on the notes payable was
$9,175 and $6,881 for the nine months ended September
30, 2001 and 2000, respectively.
F-29
TELCOM ASSISTANCE CENTER CORPORATION
T/A ACTIV-E SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 3 As discussed in Note 1, the Company has adopted SFAS
Income Taxes No. 109.
Under the provisions of SFAS 109, an entity
recognizes deferred tax assets and liabilities for
future tax consequences of events that have been
previously recognized in the Company's financial
statements or tax returns. The measurement of
deferred tax assets and liabilities is based on
provisions of the enacted tax law. The effects of
future changes in tax laws or rates are not
anticipated.
The Company's total deferred tax asset and deferred
tax valuation allowance was as follows as of
September 30, 2001:
2001
--------
Deferred tax asset $911,000
Less valuation allowance 911,000
--------
Net deferred tax asset $ -
========
As of September 30, 2001, the Company had net
operating loss carryforwards of approximately
$2,375,000, which will expire in the year 2015. The
valuation allowance increased $111,000 in 2001 as a
result of the current period net operating loss.
NOTE 4 In 2001, the company sold 248,196 shares of common
Stock Issuance stock to officers of the company at a price of $1.25
per share.
NOTE 5 In September, 2000, the Company entered into an
Agreements employment agreement with its Chief Executive Officer
which expires on December 31, 2003. The agreement
commits to an annual base salary and to expenses and
discretionary bonuses as determined by the Board of
Directors.
NOTE 6 In 2000, the Company authorized an aggregate of 20
Redeemable units, consisting of 4,965 shares of Redeemable
Preferred Stock Preferred Stock per unit, and a warrant to purchase
10,000 shares of common stock which expire on
December 31, 2010 for $50,000 per unit.
The holders of the preferred stock shall be entitled
to receive cumulative dividends, at the per share
rate of 10% of the share value payable quarterly. In
addition, certain events may trigger the redemption
of the preferred stock before maturity date. If any
shares of preferred stock have not been redeemed
prior to December 31, 2003 (maturity date), the
Company will redeem all of the outstanding shares.
The preferred stock is redeemable as follows:
If redemption occurs Then the redemption price will be:
---------------------------------------- -------------------------------------------
Prior to December 31, 2001 120% of liquidation preference
Prior to December 31, 2002 140% of liquidation preference
Thereafter 160% of liquidation preference
As of September 30, 2001, $720,000 of Redeemable
Preferred Stock was issued to investors. Legal costs
of $31,043 that were incurred as part of the
agreement are treated as a reduction of Redeemable
Preferred Stock.
F-30