Exhibit "E"
SUPPLYPOINT, INC.
Index to Financial Statements
for the Year Ended December 31, 2000
Independent Auditors' Reports F - 2
Balance Sheet F - 3 - 4
Statements of Operations F - 5
Statements of Changes in Stockholders' Deficiency F - 6
Statements of Cash Flows F - 7
Notes to Financial Statements F - 8 - 18
Computation of Earnings per Share F - 19
F-1
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
SupplyPoint, Inc.
We have audited the accompanying balance sheet of SupplyPoint, Inc. as of
December 31, 2000 and the related statements of operations, changes in
stockholders' deficiency and cash flows for the period from July 22, 1999
("Inception") to December 31, 1999 and the year ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our 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.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of SupplyPoint, Inc. as of December
31, 2000 and the results of its operations and its cash flows for the period
from Inception to December 31, 1999 and the year ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has had recurring losses since inception along
with a minimum amount of revenues. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 10. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Seligson & Giannattasio, LLP
N. White Plains, NY
May 9, 2001
F-2
SUPPLYPOINT, INC.
Balance Sheet
December 31, 2000
Page 1 of 2
ASSETS
Current assets:
Cash $195,562
Accounts receivable 38,200
Prepaid expenses 13,353
--------
Total current assets $247,115
Fixed assets (net of accumulated
depreciation of $41,512) 231,156
Other assets:
Security deposits 27,780
--------
Total assets $506,051
========
See notes to financial statements.
F-3
SUPPLYPOINT, INC.
Balance Sheet
December 31, 2000
Page 2 of 2
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Notes payable $ 100,000
Notes payable-related party 2,703,000
Accounts payable 188,714
Accrued expenses 206,606
-----------
Total liabilities $ 3,198,320
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.01 par value, 5,000,000
authorized, none issued and outstanding --
Common stock, $.01 par value, 40,000,000
authorized, 9,073,260 issued and outstanding 90,733
Additional paid-in-capital 105,737
Retained deficit (2,888,739)
-----------
Total stockholders' deficiency (2,692,269)
-----------
Total liabilities and stockholders' deficiency $ 506,051
===========
See notes to financial statements.
F-4
SUPPLYPOINT, INC.
Statements of Operations
July 22, 1999,
Year Ended Date of Inception
December 31, 2000 to December 31, 1999
----------------- --------------------
Income $ 292,506 $ 16,800
Cost of sales 1,257,261 613,710
Gross loss (964,755) (596,910)
----------- -----------
Operating expenses:
Selling 1,007,767 32,706
General and administrative 2,204,397 262,837
Development costs -- 490,422
Depreciation 36,098 5,414
Total operating expenses 3,248,262 791,379
----------- -----------
Loss from operations (4,213,017) (1,388,289)
Other income (expense)
Interest income 137 625
Interest expense (75,034) --
----------- -----------
Loss before income taxes (4,287,914) (1,387,664)
Income taxes 2,657 800
----------- -----------
Net loss $(4,290,571) $(1,388,464)
=========== ===========
Weighted shares outstanding:
Basic 9,073,260 6,804,945
Diluted 9,073,260 6,804,945
Loss per share:
Basic $ (.47) $ (.20)
Diluted $ (.47) $ (.20)
F-5
SUPPLYPOINT, INC.
Statement of Stockholders' Deficiency
For the Period From July 22, 1999 (Inception) Through December 31, 1999 and for
the Year Ended December 31, 2000
Additional
Members Preferred Stock Common Stock Paid-in Retained
Equity Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------ ------- -------
Balance - July 22, 1999,
date of inception $ -- -- $ -- -- $ -- $ -- $ --
Capital contributed 1,561,766 -- -- -- -- -- --
Net loss (1,388,464) -- -- -- -- -- --
----------- ------ ------ --------- ------- -------- -----------
Balance - December 31, 1999 173,302 -- -- -- -- -- --
Capital contributed 1,425,000 -- -- -- -- -- --
Net loss (1,401,832) -- -- -- -- -- (2,888,739)
Conversion of LLC to corporation (196,470) -- -- 9,073,260 90,733 105,737 --
----------- ------ ------ --------- ------- -------- -----------
Balance - December 31, 2000 $ -- -- -- 9,073,260 $90,733 $105,737 $(2,888,739)
=========== ====== ====== ========= ======= ======== ===========
See notes to financial statements.
F-6
SUPPLYPOINT, INC.
Statements of Cash Flows
Period From
July 22, 1999,
Year Ended (Inception)
December 31, 2000 to December 31, 1999
----------------- --------------------
OPERATING ACTIVITIES:
Net loss $(4,290,571) $(1,388,464)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 36,098 5,414
Write-down of software development costs -- 490,422
Changes in operating assets and liabilities:
Accounts receivable (21,400) (16,800)
Prepaid expenses 16,989 (30,342)
Security deposits (5,521) (1,875)
Accounts payable 98,846 69,488
Accrued expenses 156,222 50,380
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES (4,009,337) (821,777)
----------- -----------
INVESTING ACTIVITIES:
Acquisition of fixed assets (186,094) (86,574)
----------- -----------
FINANCING ACTIVITIES:
Capital contributions 1,425,000 1,071,344
Proceeds from notes payable 2,803,000 --
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 4,228,000 1,071,344
----------- -----------
NET CHANGE IN CASH 32,569 162,993
CASH AT BEGINNING OF PERIOD 162,993 --
----------- -----------
CASH AT END OF PERIOD $ 195,562 $ 162,993
=========== ===========
Supplemental cash flow information:
Cash paid during year for:
Interest $ 64,149 $ --
=========== ===========
Income taxes $ 2,758 $ 800
=========== ===========
Member capital contributions for
software development costs $ -- $ 490,422
=========== ===========
See notes to financial statements.
F-7
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF COMPANY'S BUSINESS
SupplyPoint.com, Inc. (the "Company") was incorporated in the State of Delaware
on May 3, 2000 as a developer of software to be used by medium to large
manufacturing companies. In November 2000, the Company changed its name to
SupplyPoint, Inc.
The Company originally commenced operations in July 1999 as Decision Solutions
Interactive, LLC ("DSI"), a Delaware limited liability company. The operations
of DSI were transferred to the Company through a certificate of conversion dated
May 3, 2000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from license agreements are recognized upon completion of the
installation of the Company's software. These revenues are typically a one-time
non-refundable fee. Revenues from maintenance contracts are recognized ratably
over the term of the contract. Revenues from services are recognized as services
are rendered.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Reserve for Bad Debts
The Company, due to its current customer base, has not provided for a reserve
for bad debts.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable. The Company
maintains substantially all its cash balances in a limited number of financial
institutions. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 2000, the Company's uninsured cash
balances totaled $34,522.
F-8
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation and Amortization
Fixed assets are recorded at cost. Depreciation is generally provided on a
straight-line method over the estimated useful lives of the various assets as
follows:
Computer equipment 5 years
Furniture and fixtures 7 years
Office equipment 7 years
Maintenance and repairs are expensed as incurred while renewals and betterments
are capitalized.
Software Development
Upon formation of DSI, certain of its original members contributed software
development costs. During 1999 and 2000, the Company made substantial changes to
its products. As a result, the Company has written off these original costs.
Income Taxes
The Company's deferred income taxes arise primarily from net operating losses
and the differences in the reporting of depreciation and amortization for
financial reporting and income tax purposes. The Company was organized as a
limited liability company until May 3, 2000, and as such losses reported by DSI
are not included in net operating losses. The losses by DSI were reported on the
income tax returns of its members. There was no income tax expense reported by
the Company through May 3, 2000.
Accrued Vacation
Employees can accrue up to 20 days of vacation time per year. Any unused
vacation time may be carried forward to the following year.
F-9
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for Stock-Based Compensation
The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to Employees" and its related interpretations. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which established a fair value-based method of accounting for
stock-based compensation plans. The Company has adopted the disclosure only
alternative under SFAS No. 123, which requires disclosure of the pro forma
effects on net income (loss) and net income (loss) per share as if the
stock-based compensation was measured utilizing the fair value method as well as
certain other information. The Company accounts for stock-based compensation to
nonemployees using the fair value method in accordance with SFAS No. 123.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect 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.
Fair Value
The Company has a number of financial instruments, none of which is held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 2000, does not differ materially from the aggregate
carrying values of these financial instruments recorded in the accompanying
balance sheets. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
F-10
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (loss) per Share
Earnings (loss) per share for the years ended December 31, 2000 were computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding and also is adjusted for the assumed conversion of
shares issuable upon exercise of options. The Company had a net loss for the
years ended December 31, 2000 and 1999, accordingly, common stock equivalents
are excluded as the effect would be anti-dilutive.
NOTE 3 - FIXED ASSETS
Fixed assets at December 31, 2000 were comprised of the following:
Computer equipment $218,413
Furniture and fixtures 42,176
Office equipment 12,079
--------
272,668
Less: accumulated depreciation 41,512
--------
$231,156
========
Depreciation expense for the year ended December 31, 2000 and for the period
July 1999, date of inception, through December 31, 1999 was $36,098 and $5,414,
respectively.
NOTE 4 - NOTE PAYABLE RELATED PARTY
During 2000, a shareholder and related entities, loaned the Company $2,703,000.
The loans incur interest at the rate of 9.24% and are due on demand. Interest
accrued through December 31, 2000 totaled $75,034. In January 2001, the notes
were converted to common stock with each share of stock converted for $1 in
notes owed (Note 11 - conversion of debt).
F-11
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 5 - NOTES PAYABLE
During 2000, three investors made interest free advances to the Company
aggregating $100,000. In January 2001, these loans were converted into 100,000
shares (159,179 shares after giving effect to the 1.5918 for 1 stock split) of
the Company's common stock.
NOTE 6 - STOCKHOLDERS DEFICIENCY
Preferred Stock
The Company is authorized to issue 5,000,000 shares of $.01 par value preferred
stock. The stock may be issued by the Board of Directors in one or more series
and with such preferences, conversion of other rights, voting powers and other
provisions as may be fixed by the Board of Directors in the resolution
authorizing their issuance without any further action by the stockholders.
Common Stock Issuance Upon Conversion of DSI
In May 2000, 5,700,000 shares (9,073,260 shares after giving effect to the
1.5918 for 1 stock split) of the Company's common stock were issued for owner
shares in DSI.
Stock Split
In January 2001, the Company effected a 1.5918 for 1 stock split. All common
share and per share amounts have been adjusted to give retroactive effect to the
split.
Stock Option Plan
In September 1999, the Company adopted the 1999 Share Option Plan (the "DSI
Plan"). The DSI Plan provided for the grant of options to qualified employees of
the Company to purchase an aggregate of 1,320,000 owner shares in the Company.
In May 2000, upon conversion of DSI into SupplyPoint, the Company adopted and
shareholders approved the 2000 Long-Term Incentive Plan (the "2000 Plan"). The
2000 Plan, which is in effect for a ten year period, provides for the grant of
options to employees and directors of the Company, to purchase an aggregate of
3,000,000 shares of the Company's common stock. Options granted under the DSI
Plan were canceled and a like number of options granted under the 2000 Plan.
F-12
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 6 - STOCKHOLDERS DEFICIENCY (continued)
Stock Option Plan activity is summarized as follows:
Weighted Average
Shares Exercise Price
------ --------------
Options outstanding July 22, 1999 -- $ --
Granted 343,284 1.00
Exercised -- --
Canceled -- --
-------
Options outstanding - December 31, 1999 343,284 1.00
Granted 593,200 1.00
Exercised -- --
Canceled -- --
-------
Options outstanding - December 31, 2000 936,484 1.00
Options exercisable - December 31, 2000 41,516 1.00
Exercise prices for options outstanding as of December 31, 2000 were $1.00. The
weighted-average remaining contractual life of these options is approximately
five years.
In January 2001, the Company granted an employee options to purchase 10,000
shares of the Company's common stock. The options are exercisable at $1.00 per
share and vest during the first three years of the term and expire in January
2008.
In 2001, employees holding options to purchase 197,284 shares of the Company's
common stock were terminated. As a result, options to purchase 158,496 shares of
the Company's common stock were immediately canceled, while vested options to
purchase 38,788 shares remain temporarily outstanding.
In April 2000, a newly appointed director of the Company, was granted options to
purchase 200,000 shares of the Company's common stock. The options are
exercisable at $1 per share and vest over a two year period.
F-13
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 6 - STOCKHOLDERS DEFICIENCY (continued)
Stock Options
The Company currently accounts for its employee stock-based compensation plans
using the accounting prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees". The Company has determined its pro
forma net earnings (loss) and earnings (loss) per share information as required
by SFAS No. 123 "Accounting for Stock Issued to Employees" as if the Company had
elected to account for these options utilizing SFAS No. 123 fair value methods.
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: there has been virtually no volatility during 1999 and 2000; risk
free interest rate of 6.75% in 2000 and 1999; and expected lives of 4 to 5
years. The fair value of the options granted was $169,751, in 2000 and $98,235
in 1999.
The pro forma basic net loss and loss per share for the year ended December 31,
2000 and 1999 would have been $(4,460,322) and $(1,486,699) and $(.49) and
$(.22) respectively, had the fair value method been applied.
The effects of applying SFAS 123 in the above pro forma disclosures are not
indicative of future amounts as they are likely to be affected by the number of
equity instruments granted and the vesting of such awards.
F-14
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 7 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes using the enacted tax
rates in effect in the years in which the differences are expected to reverse.
The Company's deferred income taxes are comprised of the following:
Deferred tax assets
Net operating losses $1,235,057
Software development costs 103,378
----------
Total deferred tax assets 1,338,435
Deferred tax liabilities
Depreciation 14,101
----------
Net deferred tax assets 1,324,334
Valuation allowance 1,324,334
----------
Deferred tax assets $ --
==========
The Company's income tax expense consists of the following:
July 22, 1999,
Year Ended Date of Inception
December 31, 2000 to December 31, 1999
----------------- --------------------
Current:
Federal $ -- $ --
States 2,657 800
------ ------
2,657 800
------ ------
Deferred:
Federal -- --
States -- --
------ ------
------ ------
------ ------
Provision for income taxes $2,657 $ 800
====== ======
F-15
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 7 - INCOME TAXES (continued)
The Company has net operating loss carryforwards of approximately 3,000,000,
which expire through 2020. The utilization of this operating loss carryforward
may be limited based upon changes in ownership as defined in the Internal
Revenue Code.
A reconciliation of the difference between the expected income tax rate using
the statutory federal tax rate and the Company's effective rate is as follows:
July 22, 1999,
Year Ended Date of Inception
December 31, 2000 to December 31, 1999
----------------- --------------------
U.S. Federal income tax statutory rate (34)% (34)%
State income tax, net of Federal income
tax benefit (6) (6)
Tax benefit from losses while an LLC 13 40
Effect of net operating losses for which
there is no tax benefit 27 --
--- ---
Effective tax rate --% --%
=== ===
NOTE 8 - LEASE COMMITMENTS
The Company has entered into lease agreements for several office and sales
facilities. The leases for all facilities other than the Company's headquarters,
expire during 2001. The lease for the headquarters facility runs through April
2003, and includes provisions for an annual increase in the base rent based upon
inflation. The following is a summary of the future minimum rental commitments
at December 31, 2000.
Year Ended
December 31,
------------
2001 $ 92,099
2002 61,152
2003 20,384
---------
$173,635
========
F-16
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 9 - EMPLOYMENT AGREEMENTS
In September 2000, the Company entered into a one year employment agreement with
its president and chief executive officer. Among other provisions, the agreement
provides for a base salary of $240,000 and annual and quarterly bonuses based on
performance and stock options equal to 5% of the outstanding shares on the date
of the agreement. The agreement provides for additional options to be granted
upon sale of the Company based upon the value of the consideration received.
NOTE 10 - SIGNIFICANT OPERATING LOSSES
The Company has incurred significant operating and development costs since
inception. These costs are expected to be significant into the foreseeable
future. In addition, the Company has begun expending significant funds on
marketing its products. The Company expects to be able to fund these
expenditures through increased sales as well as through the issuance of debt and
equity securities.
NOTE 11 - SUBSEQUENT EVENTS
Proposed Acquisition
In January 2001, the Company entered into a letter of intent with Western Power
& Equipment Corp. ("WPEC"). Pursuant to the agreement as currently proposed,
WPEC would acquire the Company in exchange for 650,000 shares of WPEC's common
stock and 2,235,000 shares of WPEC series A Preferred Stock. The Series A
Preferred Stock would be convertible into 22,350,000 shares of WPEC's common
stock upon shareholder approval. In addition, WPEC intends to raise up to
$5,000,000 in an offering of convertible debentures. The majority of the funds
from this offering are to be used to make interest-bearing advances to the
Company. Also subsequent to the merger, a corporation owned by certain officers
and directors of WPEC, has entered into an asset purchase agreement to purchase
substantially all of the assets and operations of the pre-merger WPEC.
F-17
SUPPLYPOINT, INC.
Notes to Financial Statements
December 31, 2000
NOTE 11 - SUBSEQUENT EVENTS (continued)
Conversion of Debt
In January 2001, the Company converted debt from related parties totaling
$2,523,000 into 2,523,000 shares (4,016,111 shares after giving effect to the
1.5918 for 1 stock split) of the Company's common stock.
Additional Financing
In January 2001, the Company was loaned $910,451 from related parties. The notes
are due August 5, 2001 and incur interest at the rate of ten percent (10%) per
annum. In addition, the Company incurred $100,000 in fees relating to these
loans.
In March 2001, WPEC loaned the Company $70,000. The loan incurs interest at the
rate of 10% per annum and is due on demand.
Sale of Common Stock
In January 2001, the Company sold 6,282,264 shares of the Company's common stock
(10,000,000 shares after giving to the 1.5918 for 1 split) in exchange for
$100,000. In April 2001, 250,000 of the shares were repurchased by the Company
for $2,500.
F-18
SUPPLYPOINT, INC.
Computation of Earnings per Share
July 22, 1999,
Year Ended Date of Inception
December 31, 2000 to December 31, 1999
----------------- --------------------
Basic earnings per share:
Net loss $(4,290,571) $(1,388,464)
Shares:
Weighted common shares outstanding 9,073,260 6,804,945
----------- -----------
Basic earnings per common share $ (.47) $ (.20)
=========== ===========
Diluted earnings:
Net loss $(4,290,571) $(1,388,464)
----------- -----------
Shares:
Weighted common shares outstanding 9,073,260 6,804,945
Employee stock options -- --
Convertible notes -- --
----------- -----------
Total weighted shares outstanding 9,073,260 6,804,945
----------- -----------
Diluted earnings per common share $ (.47) $ (.20)
=========== ===========
F-19