Exhibit 99.1
CONSOLIDATED FINANCIAL STATEMENTS
SDR TECHNOLOGIES, INC.
YEARS ENDED DECEMBER 31, 1999 AND 1998
WITH REPORT OF INDEPENDENT AUDITORS
Independent Auditors' Report
Board of Directors
SDR Technologies, Inc.
We have audited the accompanying consolidated balance sheets of SDR
Technologies, Inc. and Subsidiary as of December 31, 1999 and 1998 and the
related consolidated statements of operations, changes in stockholders'
deficit and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements
of SDR Software Engineering, Pvt., Ltd., a majority-owned subsidiary of SDR
Technologies, Inc., which statements reflect total assets of $83,929 and
$20,469 as of December 31, 1999 and 1998 respectively and total revenues of
$100,677 and $114,750 for the years then ended respectively. Those
statements were audited by other auditors whose reports have been furnished
to us, and our opinion, as it relates to the amounts included for SDR
Software Engineering, Pvt., Ltd., is based solely on the reports of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free from 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, based on our audits and the reports of the other auditors,
the consolidated financial statements present fairly, in all material
respects, the financial position of SDR Technologies, Inc. and Subsidiary
at December 31, 1999 and 1998 and the results of operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Hurley & Company
Granada Hills, CA
February 9, 2000
SDR Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
Assets
December 31,
1999 1998
---------- -------
Current Assets
Cash and Cash Equivalents $ 73,459 $ 8,956
Accounts Receivable, Less Allowance
for Doubtful Accounts of $0 458,544 134,219
Prepaid Expenses 2,927 1,535
Note Receivable, Officer 0 2,920
Other Receivables 38,313 0
--------- ----------
Total Current Assets 573,243 147,630
--------- ----------
Property and Equipment, Net (Note 2) 307,537 152,874
--------- ----------
Capitalized Equipment Lease, Net (Note 2) 0 3,610
--------- ----------
Other Assets
Deposits 15,846 8,108
Deferred Finance Costs, Net of Accumulated Amortization
of $39,302 and $12,736 respectively 2,316 28,882
Deferred Charges 0 654
--------- ----------
Total Other Assets 18,162 37,644
--------- ----------
Total Assets $ 898,942 $ 341,758
========= ==========
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
(continued)
Liabilities and Stockholders' Deficit
December 31,
1999 1998
---------- -------
Current Liabilities
Accounts Payable $ 287,305 $ 184,135
Loans Payable - Related Parties (Note 3) 200,000 89,000
Accrued Expenses 150,873 116,066
Advances Payable - Related Parties (Note 5) 279,784 388,265
Note Payable - Current Portion (Note 6) 7,700 7,325
Capital Lease Payable (Note 2) 0 2,250
Deferred Revenue 71,860 482,000
Credit Line - Current Portion (Note 4) 1,950,000 0
---------- ----------
Total Current Liabilities 2,947,522 1,269,041
---------- ----------
Long-term Liabilities
Note Payable - Long Term (Note 6) 3,997 11,697
Credit Line - Long Term (Note 4) 0 1,327,500
---------- ----------
Total Long-term Debt 3,997 1,339,197
---------- ----------
Commitments and Contingencies (Notes 10 and 12) - -
---------- ----------
Total Liabilities 2,951,519 2,608,238
---------- ----------
Stockholders' Deficit
Series A Preferred Stock, non
cumulative, no par or stated
value, 10,000,000 and 0 Shares
Authorized, 205,907 and 0 Shares
Issued and Outstanding, Respectively 891,025 0
Common Stock, no par or stated value,
20,000,000 Shares Authorized,
2,758,104 and 2,885,981 Shares Issued and
Outstanding, Respectively 200,851 70,441
Stock Options 733,000 0
Deferred Compensation (415,000) 0
Accumulated Deficit (3,461,310) (2,336,870)
Accumulated Other Comprehensive Income (Loss) (1,143) (51)
----------- -----------
Total Stockholders' Deficit (2,052,577) (2,266,480)
----------- -----------
Total Liabilities and Stockholders' Deficit $ 898,942 $ 341,758
========== ==========
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Statements of Operations
Years Ended December 31,
1999 1998
------- --------
Net Sales $2,634,567 $1,350,959
Cost of Sales 866,486 556,918
---------- ----------
Gross Margin 1,768,081 794,041
Operating Expenses 2,626,107 1,834,631
---------- ----------
Loss From Operations (858,026) (1,040,590)
Interest Expense (126,871) (70,469)
Interest Income 3,157 107
----------- -----------
Net Loss Before Provision For Income Taxes (981,740) (1,110,952)
Provision for Income Taxes 800 815
----------- -----------
Net Loss (982,540) (1,111,767)
Other Comprehensive Income (Loss)
Loss on Foreign Currency Exchange (1,092) (51)
----------- ------------
Total Comprehensive Income (Loss) $ (983,632) $(1,111,818)
============ =============
Earnings (Loss) Per Share:
Basic and Diluted $(0.35) $(0.39)
====== ======
Weighted Average Number of Shares Outstanding
Basic and Diluted 2,808,708 2,872,064
========= =========
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Deficit
Years Ended December 31, 1998 and 1999
Other Total Stock-
Common Preferred Stock Deferred Accumulated Comprehensive holders'
Shares Amount Shares Amount Options Compensation Deficit Income (loss) Deficit
------ ------ ------ ------ ------- ------------ ----------- ------------- -----------
Balance, December 31,
1997 2,885,981 $52,000 $(1,206,662) $(1,154,662)
Repurchase of
Common Stock (173,215) (1,177) (18,441) (19,618)
Common Stock
Issued/Services 173,215 19,618 19,618
Net Loss (1,111,767) (1,111,767)
Loss on Foreign $(51) (51)
Currency Exchange
-------------------------------------------------------------------------------------------------------
Balance, December 31,
1998 2,885,981 70,441 (2,336,870) (51) (2,266,480)
Repurchase of
Common Stock (155,579) (8,100) (141,900) (150,000)
Common Stock
Issued/Services 27,702 138,510 138,510
Preferred Stock
Issued 205,907 $891,025 891,025
Stock Options
Granted with
Exercise Price
Less than Fair
Market Value on
Date of Grant $733,000 $(415,000) 318,000
Net Loss (982,540) (982,540)
Loss on Foreign
Currency Exchange (1,092) (1,092)
-------------------------------------------------------------------------------------------------------
Balance, December 31,
1999 2,758,104 $200,851 205,907 $891,025 $733,000 $(415,000) $(3,461,310) $(1,143) $(2,052,577)
=======================================================================================================
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,
--------------------------
1999 1998
------------- -----------
Cash Flows From Operating Activities:
Net Loss $ (982,540) $(1,111,767)
Adjustments to Reconcile Net Loss to
Net Cash Used By Operating Activities:
Depreciation and Amortization 77,515 49,366
Compensation Expense Related to Stock Options Granted 318,000 0
Decrease (Increase) In:
Accounts Receivable (321,405) 243,067
Prepaid Expenses (1,392) 5,730
Deposits (7,738) 249
Other Receivables (38,313) 0
Increase (Decrease) In:
Accounts Payable 103,170 (19,920)
Accrued Expenses 34,807 74,749
Deferred Revenue (410,140) 197,000
---------- ----------
Net Cash Used By Operating Activities (1,228,036) (561,526)
----------- ----------
Cash Flows From Investing Activities:
Purchases of Property and Equipment (201,349) (38,480)
Collections of Loans 0 6,946
---------- ----------
Net Cash Used By Investing Activities (201,349) (31,534)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from Loans 200,000 89,000
Proceeds from Line of Credit 622,500 614,500
Stockholder's Loan 0 5,945
Payments on Note Payable (7,324) 0
Payments on Loans - Officer (129) (596)
Payments on Advances - Related Party (108,352) (119,963)
Payments on Equipment Lease (2,250) (2,263)
Proceeds From Sale of Stock 940,535 0
Repurchase of Common Stock (150,000) 0
---------- -----------
Net Cash Provided By Financing Activities 1,494,980 586,623
---------- ----------
Foreign Currency Adjustments: (1,092) (51)
----------- ----------
Net Increase (Decrease) In Cash and Cash Equivalents 64,503 (6,488)
Cash and Cash Equivalents at Beginning of Year 8,956 15,444
--------- ----------
Cash and Cash Equivalents at End of Year $ 73,459 $ 8,956
========= ==========
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Note 1 - Summary of Significant Accounting Principles:
Organization and Operation
SDR Technologies, Inc. (the "Company") was incorporated in the state
of California on December 4, 1991. The Company operates in the
government electronic filing industry specializing in Internet
technologies. The Company is a provider of information technology
services to the ethics and elections industries and fulfills the
software development, data processing, network and distributed systems
needs of U.S. Federal, state, local and Canadian ethics agencies. The
Company also provides business-to-government, citizen-to-government
and government-to-government services ranging from consulting to
creation of e-business marketplaces. Additionally, the Company
develops technologies, engineering solutions and analytical systems
for government electronic filing markets.
The Company enters into contracts with Secretary of State ethics
agencies to develop an electronic marketplace where candidates,
committees, and lobbyists file their financial information and the
public and agency investigators have access to search, compare and
print the data. During fiscal year 1999, over 200,000 financial
reports were electronically accepted over the Company's systems.
The Company derives its revenues primarily from fees paid by
government agencies for its products and services. In addition, the
Company receives monthly subscription fees through site hosting, data
processing and application time-sharing services.
In 1998 the Company invested $6,350 for a 51% ownership in an Indian
software development company, SDR Software Engineering Pvt., Ltd.
(SDRSE) based in Pune, India. The subsidiary was incorporated under
the applicable laws and regulations of India and all of its revenue
during 1999 and 1998 were generated by software exports to SDR
Technologies, Inc. in the United States. Also, see Note 15.
Basis of Consolidation
For the years ended December 31, 1999 and 1998 the financial
statements of SDR Technologies, Inc. and SDRSE are consolidated. All
significant inter-company transactions, including all revenues of
SDRSE, have been eliminated from the consolidated financial
statements. All of the consolidation data for SDRSE was obtained from
their audited financial statements as of December 31, 1999 and March
31, 1999. In 1999, SDRSE changed its year-end to December 31. Minority
interest at December 31, 1999 is approximately $7,000 and is not
considered material to the consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those
estimates.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share is computed by dividing
net income (loss) by the weighted-average number of shares issued and
outstanding during the current year. Diluted net loss per share gives
effect to the potential exercise of outstanding stock options and
warrants. Basic and diluted earnings per share are the same in 1999
and 1998.
Allowance for Doubtful Accounts
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts
receivable at the balance sheet date. At December 31, 1999 and 1998 no
allowances have been provided as all accounts receivable have been
determined to be collectible.
Revenue Recognition
The Company recognizes revenue in accordance with Statement of
Position 97-2, "Software Revenue Recognition". Revenue is recognized
on a portion of the fee allocated to a delivered element of a
contract. The delivery of an element of a contract is considered to
have occurred if there are no undelivered elements that are essential
to the functionality of the delivered element. Revenue from product
sales is recorded when the related products are shipped. Maintenance
revenue is recognized ratably over the contract period, generally 12
months.
Depreciation and Amortization
Fixed assets are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment
is computed under the straight-line method over the following
estimated useful lives:
Years
Furniture and Fixtures 7
Computer Equipment 5
Capitalized Equipment 5-7
Leasehold Improvements 5
When assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the
accounts, and any resulting gain or loss is reflected in the results
of operations for the period. The cost of maintenance and repairs is
charged to expense as incurred, whereas significant renewals or
betterments are capitalized. Included in the consolidated statement of
operations for the years ended December 31, 1999 and 1998 is a
provision for depreciation and amortization of property and equipment
in the amount of $45,737 for SDR Technologies, Inc., and $4,559 for
SDRSE, and $37,232 for SDR Technologies, Inc. and $5,187 for SDRSE
respectively.
Amortization of deferred finance costs is calculated using the
straight-line method from 12 to 38 months. Amortization expense for
the years ended December 31, 1999 and 1998 was $26,566 and $6,947
respectively.
Statement of Cash Flows
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. For
the years ended December 31, 1999 and 1998, cash paid for interest and
income taxes was $140,454 and $800 respectively and $80,514 and $815
respectively.
During the years ended December 31, 1999 and 1998 SDR Technologies,
Inc. entered into the following non-monetary transactions: Repayment
of a $50,000 and $39,000 loan payable including interest of $5,095 in
exchange for 18,819 shares of preferred stock in 1999; purchase of
production equipment through a capital lease agreement for $4,513 and
repurchase of 173,215 shares of common stock in exchange for a note
payable for $19,618 issued to an ex-officer of the company in 1998
(see Note 6); Issuance of 173,215 common shares valued at $19,618 for
services in 1998; Issuance of 27,702 shares of common stock valued at
$138,510 in lieu of cash for professional services relating to raising
capital in 1999.
Income Taxes
In the beginning of 1998, SDR Technologies, Inc., by the consent of
its stockholders, elected to terminate its S Corporation election
under the Internal Revenue Code and the laws of the State of
California.
The Company's operations for the year ended December 31, 1999 and 1998
resulted in net losses of $982,540 and $1,111,767 respectively.
Therefore there were no provisions made for corporate income taxes
under the Internal Revenue Code. The laws of the State of California
however require the payment of a minimum annual Franchise Tax,
therefore, a provision for state income taxes was provided in the
consolidated financial statements.
The Company computes deferred income taxes in accordance with
Financial Accounting Standards Board Statement No. 109 (SFAS No. 109),
"Accounting for Income Taxes". Deferred taxes are computed based on
the tax liability or benefit in future years of the reversal of
temporary differences in the recognition of income or deduction of
expenses between financial and tax reporting purposes. As of December
31, 1999 and 1998 deferred income taxes, after application of
valuation allowances, were negligible. Therefore, no deferred taxes
have been recognized as of December 31, 1999 and 1998.
Concentration of Risk
The Company is currently dependent on one major lender for operating
funds. If this lender were to decide not to renew the loan, the
Company would need to secure an operating loan from one or more
additional sources. Management believes that this risk is limited by
working with the lender well in advance of any renewal date.
The Company currently employs and has outside contracts with several
individuals highly specialized in writing custom tailored electronic
reporting software programs for various governmental entities. If the
services of one or more employees or outside contractors were to be
lost, this could have at least a short-term impact on the ability of
the Company to fulfill current contracts and to obtain new business.
Management believes this risk is limited by their ongoing search for
qualified individuals on a world-wide basis.
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables. The Company sells
mainly to various government entities at all levels. The credit risk
associated with related receivables is limited by their geographic
dispersion and variety of government agencies. The Company has not
experienced any significant credit losses. The three largest customers
comprised approximately 45.7%, 35.9% and 16.5% of accounts receivable
at December 31, 1999 and the three largest customers comprised
approximately 43.2%, 33.5% and 19.2% of accounts receivable at
December 31, 1998.
Computer Software Costs
The Company accounts for computer software costs in accordance with
Financial Accounting Standards Board Statement No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed". The Company's policy is to record costs incurred to develop
software for sale as research and development expense until such time
as the product proves it has market acceptance. At that time, costs of
significant development and improvements are capitalized and amortized
over the life of the expected revenue stream of the product. The cost
of the Company's current products was expensed in the period prior to
market acceptance and the software development costs subsequently
incurred were expensed. Capitalizable costs could be more significant
in the future. Purchased software is capitalized and amortized over
its estimated useful life.
Reclassification of Consolidated Financial Statement Presentation
Certain reclassifications have been made to the 1998 consolidated
financial statements to conform with the 1999 consolidated financial
statement presentation. Such reclassifications had no effect on
financial results as previously reported.
Dividends
The Company has not paid cash dividends to date, nor does the Company
anticipate the payment of cash dividends on its Common and/or
Preferred stock in the foreseeable future.
Stock-Split
On August 1, 1999 the Company's Board of Directors adopted a
resolution to split its common stock. Each outstanding share of the
Company's common stock was split into 75.05 shares. As of December 31,
1999, after the effect of the stock-split, there were 2,758,104 shares
of the Company's common stock outstanding. The effect of the stock
split has been retroactively reflected in the consolidated financial
statements for all periods presented.
Note 2 - Property and Equipment:
Property and equipment is recorded at cost and is summarized as
follows:
1999 1998
----------- --------
Computer, Furniture, and Fixtures - SDRSE $ 24,782 $ 17,968
Furniture, Fixtures and Equipment 70,450 8,962
Computer Equipment 252,923 179,748
Leasehold Improvements 40,366 4,377
Purchased Software Costs 26,900 0
--------- ---------
415,421 211,055
Less Accumulated Depreciation and Amortization (107,884) (58,181)
--------- ----------
307,537 152,874
--------- ---------
Capitalized Equipment Lease 0 4,513
Less Accumulated Amortization 0 (903)
--------- ---------
0 3,610
--------- ---------
$ 307,537 $ 156,484
========= =========
Note 3 - Loans Payable:
On July 23, 1998 SDR Technologies, Inc. entered into a loan agreement
with a group of foreign investors for $39,000. The loan matured on
July 23, 1999. In accordance with the terms of the loan agreement SDR
refinanced the loan at maturity by repaying the entire loan with 7,800
shares of SDR Technologies, Inc Series A Preferred stock.
On August 31, 1998 SDR Technologies, Inc. borrowed an additional
$50,000 under a separate loan agreement. The $50,000 loan matured on
August 31, 1999 and was repaid, including interest of $5,095 with the
issuance of 11,019 shares of SDR Technologies, Inc. Series A Preferred
stock.
In November of 1999 SDR Technologies, Inc. signed a convertible
promissory note payable to Linea Associates for $200,000. The note
bears interest at 7% per annum and both principal and interest are due
on March 19, 2000 unless, in accordance with the loan agreement, the
note is converted to SDR Technologies Inc. common stock prior to the
note's maturity date. The interest accrued on the note as of December
31, 1999 is $1,595.
1999 1998
-------------- ----------
Note 4 - Revolving Line of Credit:
Bank of America, revolving line of credit in the original amount of
$500,000 and subsequently raised to $1,950,000, collateralized by
marketable securities of the Stein Family Trust, a stockholder,
payable interest only monthly at the bank's FIRST rate which
approximates LIBOR (5.83% at December 31, 1999). Average interest rate
during 1999 was approximately 5.35%. Outstanding principal due
March 1, 2000. $1,950,000 $1,327,500
========== ==========
Note 5 - Advances Payable, Related Parties:
SDRSE has an unsecured non-interest bearing payable, due
on demand to an officer/stockholder of the company. The
payable is expected to be settled within the current year.
There is no signed note for the above transaction. $5,816 $5,945
SDR Technologies, Inc. has an unsecured, non-interest
bearing payable, due on demand to Kimball Petition
Management, Inc., which is owned by two officer/stockholders
of the Company. 262,391 370,743
SDR Technologies, Inc. has an unsecured, non-interest bearing
payable, due on demand to an officer/stockholder of the Company. 11,577 11,577
---------- ----------
$ 279,784 $ 388,265
========== ==========
Note 6 - Note Payable:
SDR Technologies, Inc. has an unsecured note payable due to a former
stockholder resulting from a stock redemption agreement between the
Company and a former stockholder. The Company, in consideration for
the stockholder's surrender of 173,215 shares of SDR stock, issued a
promissory note payable to the stockholder for $19,618. The note bears
interest at 5% per annum and is payable in 31 equal monthly payments
including principal and interest.
1999 1998
--------- -------
Principal Balance, December 31 $11,697 $19,022
Less Current Portion (7,700) (7,325)
------ --------
Long Term Portion $ 3,997 $11,697
======== =======
Future minimum payments under the above obligation are as follows:
December 31,
2000 $ 7,700
2001 3,997
---------
$ 11,697
Note 7 - Income Taxes:
Provision for income taxes is comprised of the following:
1999 1998
---- ----
Current:
Federal $ 0 $ 0
State 800 815
----- -----
Deferred 0 0
----- ----
Income Tax Expense $800 $815
==== ====
The Company has accumulated tax loss carryforwards of approximately
$1,397,540 and $1,111,767 for Federal tax purposes for the years ended
December 31, 1999 and 1998 respectively. In addition the Company has a
tax loss carryforward of $698,770 and $555,884 for California
franchise tax purposes for the years ended December 31, 1999 and 1998
respectively. The Federal net operating losses (NOL's) expire in 2018
and 2019. The state NOL's expire in 2003 and 2004. The carryforward
amounts are subject to review and revisions if any, by tax
authorities. As of December 31, 1999 and 1998 deferred tax assets,
after application of valuation allowances, were negligible.
Note 8 - Related Party Transactions:
Throughout the years ended December 31, 1999 and 1998, non-interest
bearing funds advanced during 1997 and previous years were repaid to
Kimball Petition Management, Inc., owned by two officer/stockholders
of the Company. The total amounts repaid in 1999 and 1998 were
$108,352 and $119,962 respectively. Also, see Notes 4, 5 and 6.
Note 9 - Repurchase of Common Stock
In June of 1999 SDR Technologies, Inc. purchased 155,579 shares of its
common stock for $150,000 from a former officer of the Company in
complete liquidation of his interest in the Company.
Note 10 - Lease Commitments:
In June 1997 SDR Technologies, Inc., began leasing office facilities
under a five year agreement. Under the non-cancelable lease the base
monthly rent is $4,031 plus common area expenses. The base lease
amount is subject to a cost of living increase based on the CPI for
the Los Angeles - Long Beach - Anaheim area. The Company has an option
to extend the lease for an additional five years beginning in June
2002. In May of 1999 SDR Technologies Inc. began leasing an additional
suite in the same building where its offices are located under a
contract expiring May 31 of 2002. Under the lease the base monthly
rental is $3,423 subject to cost of living increases similar to those
described above.
Rent expense relative to the office space leased was $80,712 and
$55,613 for the years ended December 31, 1999 and 1998 respectively.
The minimum future obligations under the above operating leases are as
follows:
December 31,
2000 $ 89,448
2001 89,448
2002 37,272
Thereafter 0
---------
$216,168
=========
Note 11 - Major Customers:
For the year ended December 31, 1999, the five largest customers
comprised approximately 78.5% of total revenues, ranging from 12.9% up
to 18.6% each. For the year ended December 31, 1998 the three largest
customers comprised approximately 63.7%, 14.1% and 12.1% of total
revenues, or a total of 89.9%. No other customer represented more than
10% of revenues. During the year ended December 31, 1999 the Company
recognized $669,500 in revenues for the performance of contracts
awarded in 1997 and 1998.
Note 12 - Contingent Liabilities:
For the year ended December 31, 1999 as well as all prior years since
inception, the Company has been filing state income and sales tax
returns in all states where the Company deemed appropriate. Additional
state income and sales tax liabilities may however arise as a result
of eventual reviews of the Company's business activities in other
states by the respective tax authorities. Currently, the Company is
unaware of any potential tax liabilities.
The Company is involved in a legal action arising in the normal course
of business. The ultimate resolution of this matter is not
ascertainable at this time. In the opinion of management, such matter
will not have a material effect upon the financial position of the
Company. No provision has been made in these consolidated financial
statements related to this claim.
Note 13 - Stock Options and Warrants:
The Company has adopted a 1999 Stock Option Plan ("Plan"), which
permits the Company to grant options to employees, officers,
directors, consultants and independent contractors. An aggregate of
700,000 shares of common stock may be issued pursuant to the Plan. As
of December 31, 1999, 366,450 options have been granted, 158,949
options have vested under the plan with 207,501 future options
pending. The shares vest over 3 years and expire 10 years after the
grant date. In accordance with SFAS No. 123, "Stock-Based
Compensation", the Company has recognized stock-based compensation of
$318,000 for 1999.
A summary of the Company's stock option activity and related
information for the year ended December 31, 1999 is as follows:
Weighted-Average
Options Exercise Price
------- --------------
Outstanding at Beginning of Year 0 0
Granted 366,450 $1.04
Exercised 0 0
Forfeited 0 0
------- -----
Outstanding at End of Year 366,450 $1.04
======= =====
Exercisable at End of Year 158,949 $1.00
Weighted-Average Fair Value
Of Options Granted During
the year $3.00
The following table summarizes information about stock options
outstanding under the Plan at December 31, 1999:
Options Outstanding Options Exercisable
-------------------------------------------- ----------------------
Weighted Weighted
Weighted Average Average Average
Shares Remaining Exercise Shares Exercise
Range of Exercise Price Outstanding Contractual Life Price Outstanding Price
----------------------- ----------- ---------------- ---------- ----------- --------
$ 1.00 364,950 9.5 $ 1.00 158,949 $ 1.00
$11.59 1,500 9.5 $ 11.59 0 $ 11.59
There are 205,907 warrants with the option to buy one share of common
stock at $7.50 per share.
Each share of Series A Preferred stock includes a warrant (see Note
14). All warrants were outstanding at December 31, 1999 and all expire
by 2003. All options expire by 2009.
Note 14 - Capital Stock
In August of 1999 the Company designated 1,000,000 of its authorized
shares of Preferred stock as Series A Preferred stock. The no par
Series A Preferred stock has dividend and voting rights equal to the
common stock. Each Series A share is convertible into common stock at
a conversion price of $5.00 per share, subject to adjustment pursuant
to certain anti-dilution provisions. However, at such time as the
Company's common stock becomes listed for trading on a U.S. stock
exchange, the conversion price shall be adjusted to the lower of the
conversion price then in effect or 80% of the initial public offering
price per share. During 1999 the Company raised $891,025 by issuing
205,907 shares of Series A Preferred stock, net of $138,510 in common
stock issued in exchange for professional services related to the sale
of the Preferred stock.
Each share of Preferred stock includes a warrant. Each warrant
entitles its holder to purchase one share of common stock at an
exercise price of $7.50 per share, subject to adjustment pursuant to
certain anti-dilution provisions. The warrants may be exercised at any
time until September 2003, at which time the unexercised warrants will
expire by their own terms.
Note 15 - Subsequent Events:
In January of 2000, SDR Technologies signed a convertible promissory
note payable to National Information Consortium, Inc. a Colorado
company, for $1,000,000. The note bears interest at 10% per annum and
both principal and interest are due on June 30, 2000 unless, in
accordance with the loan agreement, the note is converted to SDR
Technologies, Inc. Common Stock.
During the first quarter of year 2000, SDR Technologies, Inc.
purchased an additional 49% of the outstanding Common Stock of SDRE
for $6,000. After this transaction SDR Technologies, Inc. owns 100% of
the outstanding stock of the subsidiary.
The Company's ability to operate over the next twelve months is
dependent upon the raising of additional capital. The capital can be
raised by executing a Series B Preferred Stock offering, which the
Company has already verbally obtained commitments. Also, the Company
has entered into discussions and has signed a term sheet regarding a
potential business combination with National Information Consortium,
Inc. If the merger was to consummate, it would substantially improve
the financial viability of SDR Technologies, Inc.
CONSOLIDATED FINANCIAL INFORMATION
SDR TECHNOLOGIES, INC.
AS OF MARCH 31, 2000
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
SDR Technologies, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 2000
(unaudited)
Assets
Current Assets
Cash and Cash Equivalents $ 859,013
Accounts Receivable, Less Allowance
for Doubtful Accounts of $0 316,473
Prepaid Expenses 3,580
Other Receivables 348
-----------
Total Current Assets 1,179,414
-----------
Property and Equipment, Net 598,175
-----------
Other Assets
Deposits 29,232
Deferred Finance Costs,
Net of Accumulated
Amortization of $40,988 630
-----------
Total Other Assets 29,862
-----------
Total Assets $ 1,807,451
===========
(The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 2000
(unaudited) (continued)
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts Payable $ 440,700
Accrued Expenses 156,631
Loans Payable - Related Parties 200,000
Advances Payable - Related Parties 279,771
Note Payable - Current Portion 7,893
Deferred Revenue 30,279
Convertible Promissory Notes Payable (Note 2) 2,000,000
Credit Line - Current Portion 2,050,000
----------
Total Current Liabilities 5,165,274
----------
Long-term Liabilities
Note Payable - Long Term 2,010
----------
Total Long-term Debt 2,010
----------
Total Liabilities 5,167,284
----------
Stockholders' Deficit
Series A Preferred Stock, non cumulative,
no par or stated value, 10,000,000
Shares Authorized, 205,907 Shares
Issued and Outstanding 891,025
Common Stock, no par or stated value,
20,000,000 Shares Authorized,
2,758,104 Shares Issued and
Outstanding 200,851
Stock Options 766,000
Deferred Compensation (382,666)
Accumulated Deficit (4,833,276)
Accumulated Other Comprehensive Income (Loss) (1,767)
-----------
Total Stockholders' Deficit (3,359,833)
----------
Total Liabilities and Stockholders'
Deficit $1,807,451
==========
(The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)
Three Months Ended March 31,
2000 1999
------ ------
Net Sales $ 548,413 $ 466,512
Cost of Sales 675,823 98,798
----------- ----------
Gross Margin (127,410) 367,714
Operating Expenses 1,183,790 375,302
------------ ----------
Loss From Operations (1,311,200) (7,588)
Interest Expense (63,078) (25,290)
Interest Income 3,112 0
----------- ----------
Net Loss Before Provision For Income Taxes (1,371,166) (32,878)
Provision for Income Taxes 800 800
------------ -----------
Net Loss (1,371,966) (33,678)
Other Comprehensive Income (Loss)
Gain (Loss) on Foreign Currency Exchange (624) 405
------------ ----------
Total Comprehensive Income (Loss) $(1,372,590) $ (33,273)
=========== ==========
Earnings (Loss) Per Share:
Basic and Diluted $(0.50) $(.01)
====== =====
Weighted Average Number of Shares Outstanding
Basic and Diluted 2,758,104 2,885,981
========= =========
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
2000 1999
------------- -------------
Cash Flows From Operating Activities:
- ------------------------------------
Net Loss $ (1,371,966) $ (33,678)
Adjustments to Reconcile Net Loss to
Net Cash Used By Operating Activities:
Depreciation and Amortization 29,507 18,822
Compensation Expense Related to
Stock Options Granted 65,334 0
Decrease (Increase) In:
Accounts Receivable 142,071 (168,267)
Prepaid Expenses (653) 9
Deposits (13,386) (1,200)
Increase (Decrease) In:
Accounts Payable 153,395 (10,337)
Accrued Expenses 5,758 (4,828)
Deferred Revenue (41,581) (147,250)
----------- ----------
Net Cash Used By Operating Activities (1,031,521) (346,729)
----------- ----------
Cash Flows From Investing Activities:
Purchases of Property and Equipment (318,459) 0
Loans Made 0 (7,862)
Collection of Loans 37,965 0
---------- ----------
Net Cash Used By Investing Activities (280,494) (7,862)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from Loans 0 50,000
Proceeds from Line of Credit 100,000 397,500
Payments on Stockholder's Loan (13) (141)
Payments on Note Payable (1,794) (1,796)
Payments on Advances - Related Party 0 (76,142)
Payments on Equipment Lease 0 (749)
Proceeds From Convertible Promissory Notes (Note 2) 2,000,000 0
----------- -----------
Net Cash Provided By Financing Activities 2,098,193 368,672
----------- -----------
Foreign Currency Adjustments: (624) 405
----------- -----------
Net Increase In Cash and Cash Equivalents 785,554 14,486
Cash and Cash Equivalents at Beginning of Year 73,459 8,956
----------- -----------
Cash and Cash Equivalents at End of Period $ 859,013 $ 23,442
=========== ===========
(The Accompanying Notes are an Integral Part of These Consolidated Financial Statements)
SDR Technologies, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2000
(unaudited)
Note 1 - Unaudited Interim Consolidated Financial Information
The interim consolidated financial information of SDR Technologies, Inc.
(the "Company") as of March 31, 2000 and for the three months ended March
31, 2000 and 1999 has been prepared by the management of the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles or complete financial statements have been
condensed or omitted pursuant to such rules and regulations relating to
interim financial statements. In the opinion of management, the
accompanying unaudited interim consolidated financial information reflects
all adjustments, consisting of only normal and recurring adjustments,
necessary to present fairly the financial position of the Company as of
March 31, 2000 and the results of its operations and its cash flows for the
three months ended March 31, 2000 and 1999. Results of operations for the
interim period ended March 31, 2000 are not necessarily indicative of the
results expected for the full year.
Note 2 - Acquisition of SDR Technologies
On May 11, 2000, National Information Consortium, Inc. ("NIC") completed
the acquisition of the Company pursuant to an Amended and Restated
Agreement and Plan of Reorganization and Merger, dated as of May 5, 2000,
as amended (the "Merger Agreement"), by and among NIC, SDR Acquisition
Corp., a California corporation and a wholly owned subsidiary of NIC
("Merger Sub"), and the Company. Pursuant to the Merger Agreement, the
Merger Sub was merged with and into the Company (the "Merger"), with the
Company as the surviving corporation and a wholly owned subsidiary of NIC.
As a result of the Merger, each outstanding share of common stock of the
Company and each outstanding share of Series A Preferred Stock of the
Company was converted into 0.59977 share of common stock of NIC. Ten
percent of the shares of NIC common stock to be issued to former
shareholders of the Company will be held in escrow on their behalf to
secure certain indemnification obligations under the Merger Agreement.
Subject to certain limitations, one half of the escrow shares will be
delivered to the Company's shareholders nine months after the date of
closing, and the remaining escrow shares will be delivered to the Company's
shareholders 18 months after the date of closing. A total of approximately
1,912,000 shares of NIC common stock and options to purchase approximately
230,000 shares of NIC common stock were issued as consideration. The
transaction was structured to be tax free to the Company's shareholders.
Prior to the acquisition date, the Company issued two $1 million
convertible promissory notes to NIC, dated January 28, 2000 and March 27,
2000, in exchange for $2 million in cash. On April 21, 2000 NIC elected to
convert the promissory notes into 67,476 shares of SDR common stock, which
were automatically cancelled and retired upon the closing of the
acquisition. The principal amount of the January 28, 2000 promissory note,
plus interest thereon, will be deducted from the NIC shares held in escrow.
The number of shares to be deducted from escrow relating to the January 28,
2000 note will be based on the market price of NIC common stock when the
escrow shares are released to NIC. The principal amount of the March 27,
2000 promissory note will not be deducted from the escrow shares.
Additionally, 10,000 Company common shares (representing 5,998 NIC common
shares) issued on May 11, 2000 upon conversion of an SDR convertible
promissory note will also be deducted from the NIC shares in escrow.
Mar. 31, Dec. 31,
2000 1999
----------- ----------
Note 3 - Revolving Line of Credit:
Bank of America, revolving line of credit in the original amount of
$500,000 and subsequently raised to $2,050,000 collateralized by
marketable securities of the Stein Family Trust, a shareholder,
payable interest only monthly at the
bank's FIRST rate which approximates LIBOR $2,050,000 $1,950,000
========== ==========
Note 4 - Stock Options and Warrants:
The Company has adopted a 1999 Stock Option Plan ("Plan"), which
permits the Company to grant options to employees, officers,
directors, consultants and independent contractors. An aggregate of
700,000 shares of common stock may be issued pursuant to the Plan. As
of March 31, 2000, 382,950 options have been granted, 191,616 options
have vested under the plan with 191,334 future options pending. The
shares vest over 3 years and expire 10 years after the grant date. In
accordance with SFAS No. 123, "Stock-Based Compensation", the Company
has cumulatively recognized stock-based compensation of $383,334,
including $65,334 during the three months ended March 31, 2000.
A summary of the Company's stock option activity and related
information for the three months ended March 31, 2000 is as follows:
Weighted-Average
Options Exercise Price
Outstanding at Beginning of Year 366,450 $ 1.04
Granted 31,500 $ 10.25
Exercised 0 0
Forfeited/Canceled (15,000) $ 1.00
------- --------
Outstanding at March 31, 2000 382,950 $ 1.80
======= ========
Exercisable at March 31, 2000 191,616 $ 1.22
Weighted-Average Fair Value
Of Options Granted During
the period $ 2.00
The following table summarizes information about stock options
outstanding under the Plan at March 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------
Weighted Weighted
Weighted Average Average Average
Shares Remaining Exercise Shares Exercise
Range of Exercise Price Outstanding Contractual Life Price Outstanding Price
----------------------- ----------- ---------------- ---------- ----------- --------
$ 1.00 353,950 9.5 $ 1.00 187,616 $ 1.00
$ 11.59 29,000 9.5 $ 11.59 4,000 $ 11.59
There are 205,907 warrants with the option to buy one share of common
stock at $7.50 per share. All warrants were outstanding at March 31,
2000 and all expire by 2003. All the options expire by 2010.