TACONIC DATA CORP.
FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1996
TACONIC DATA CORP.
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------- --------
CURRENT ASSETS
Cash $ 33,570 $ 4,733
Accounts receivable 317,665 343,901
Investment in Assetrac -0- 14,395
Prepaid expense and other current assets
45 489
-------- --------
Total Current Assets 351,280 363,518
PROPERTY AND EQUIPMENT, Net 168,983 277,978
OTHER ASSETS 8,333 8,333
-------- --------
TOTAL ASSETS $528,596 $649,829
======== ========
The accompanying notes are an integral part of these financial statements.
TACONIC DATA CORP.
BALANCE SHEETS
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
1997 1996
----------- -----------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 412,856 $ 1,050,555
Deferred revenue 317,506 663,875
Current maturities of capital lease
obligations 105,385 20,176
Note payable, bank -0- 250,000
----------- -----------
Total Current Liabilities 835,747 1,984,606
----------- -----------
OTHER LIABILITIES
Capital lease obligations,
less current maturities 37,842 225,490
Notes payable 234,902 -0-
Notes payable, stockholders
216,958 -0-
Notes payable, related parties 472,459 -0-
----------- -----------
Total Other Liabilities
962,161 225,490
----------- -----------
TOTAL LIABILITIES 1,797,908 2,210,096
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock - no par value;
200 shares authorized, issued
and outstanding 2,000 2,000
Accumulated deficit (1,271,312) (1,562,267)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (1,269,312) (1,560,267)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 528,596 $ 649,829
=========== ===========
The accompanying notes are an integral part of these financial statements.
TACONIC DATA CORP.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
SALES $ 3,099,139 $ 3,813,407
COST OF SALES 1,610,853 2,817,344
----------- -----------
GROSS PROFIT 1,488,286 996,063
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,109,736 1,612,483
----------- -----------
OPERATING INCOME (LOSS) 378,550 (616,420)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense, net of interest income of
$161 and $2,517, respectively (104,205) (24,272)
Equity in earnings (loss) of Assetrac 4,083 (110,090)
Other income 14,527 41,046
----------- -----------
TOTAL OTHER EXPENSE (85,595) (93,316)
----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES 292,955 (709,736)
INCOME TAXES 2,000 -0-
----------- -----------
NET INCOME (LOSS) $ 290,955 $ (709,736)
=========== ===========
The accompanying notes are an integral part of these financial statements.
TACONIC DATA CORP.
STATEMENTS OF ACCUMULATED DEFICIT
For the Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
(ACCUMULATED DEFICIT) RETAINED EARNINGS -
Beginning, as originally reported
$(1,562,267) $ 365,618
Prior Period Adjustments -0- (1,218,149)
----------- -----------
ACCUMULATED DEFICIT - Beginning, as restated (1,562,267) (852,531)
Net Income (Loss)
290,955 (709,736)
----------- -----------
ACCUMULATED DEFICIT - Ending
$(1,271,312) $(1,562,267)
=========== ===========
The accompanying notes are an integral part of these financial statements.
TACONIC DATA CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 290,955 $(709,736)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 127,861 120,352
Equity in (earnings) loss of Assetrac (4,083) 110,090
Decrease (increase) in accounts receivable 26,236 (237,898)
Decrease in prepaid expense and other
current assets 444 4,918
Decrease in other assets -0- 13,946
(Decrease) increase in accounts
payable and accrued expenses
(465,033) 616,205
Decrease in deferred revenue (346,369) (119,704)
--------- ---------
TOTAL ADJUSTMENTS (660,944) 507,909
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (369,989) (201,827)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (18,867) (69,807)
Investment in Assetrac (331,522) (124,485)
Proceeds from sale of Assetrac 350,000 -0-
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (389) (194,292)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments) proceeds of note payable, bank (250,000) 250,000
Proceeds from notes payable 62,236 -0-
Proceeds from notes payable, related parties 472,459 -0-
Proceeds from notes payable, stockholders 216,958 -0-
Principal repayments of capital lease obligations (102,438) (91,158)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 399,215 158,842
--------- ---------
NET INCREASE (DECREASE) IN CASH 28,837 (237,277)
CASH - Beginning 4,733 242,010
--------- ---------
CASH - Ending $ 33,570 $ 4,733
========= =========
The accompanying notes are an integral part of these financial statements.
TACONIC DATA CORP.
STATEMENTS OF CASH FLOWS, Continued
For the Years Ended December 31, 1997 and 1996
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
1997 1996
---------- ----------
Interest $ 72,267 $ 26,790
Noncash activities:
During 1997, the Company converted certain trade accounts payable to a note
payable in the amount of $172,666.
During 1996, property and equipment value at $120,474 was obtained through
capital lease obligations.
During 1996, a prior period adjustment was made affecting the following
accounts:
Deferred revenue $ 783,579
Property and equipment 145,911
Due from stockholder 288,659
----------
$1,218,149
==========
The accompanying notes are an integral part of these financial statements.
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
Taconic Data Corp. (the "Company") is a professional business information
company with a specialty in real estate, public records data and
newspapers. It develops and manages complex real estate and marketing
information data bases under long-term service contracts to multiple
listing services, realtor associations, newspapers, and other information
companies located primarily in the eastern United States.
Revenue Recognition
The Company utilizes long-term contracts and recognizes revenue for
financial statement purposes under the percentage of completion method
and, therefore, takes into account the costs, estimated earnings and
revenue-to-date on contracts not yet completed.
The amount of revenue recognized at the financial statement date is the
portion of the total contract price that the costs expended to date bears
to the anticipated total costs, based on current estimates of costs to
complete. Contract costs include all direct labor and benefits, materials
unique to or installed in the project, subcontract costs and allocated
indirect costs.
Revisions in estimates of costs and earnings during the life of the
contracts are reflected in the accounting period in which such revisions
become known.
At the time a loss on a contract becomes known, the entire amount of the
estimated loss is recognized in the financial statements.
The unearned revenue represents billings in excess of costs and estimated
earnings on uncompleted contracts.
Property and Equipment and Depreciation
Property and equipment is stated at cost and is depreciated using
accelerated methods over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed as
incurred and improvements that extend the useful life of the assets are
capitalized. When property and equipment is sold or otherwise disposed of,
the cost and related accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is recognized in income.
Income Taxes
The Company with the consent of their stockholders, has elected under the
Internal Revenue Code to be an 'S' corporation. In lieu of corporate
income taxes, the stockholders of an 'S' corporation are taxed on their
proportionate share of the corporation's taxable income. Accordingly, no
provision for federal and state income taxes has been included in the
accompanying financial statements.
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Advertising Costs
Advertising costs are expensed as incurred.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent asset 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.
NOTE 2 - Investment in Assetrac
During 1996 the Company entered into a joint venture with an unrelated
party to form Assetrac Data Corporation (Assetrac) to compile information
regarding the real estate industry into various database products. The
Company accounts for this investment in Assetrac under the equity method
of accounting. On November 11, 1998, the assets and liabilities of
Assetrac were sold to an unrelated third party for a purchase price of
$415,288. As a result of this transaction, the Company has recorded a gain
on investment of $4,083 at December 31, 1997.
NOTE 3 - Property and Equipment
Property and equipment at December 31, 1997 and 1996 consists of the
following:
Estimated
1997 1996 Useful Lives
--------- --------- ------------
Furniture and fixtures $ 73,790 $ 73,790 5-7 years
Computer equipment 552,621 533,755 3-5 years
--------- ---------
626,411 607,545
Less: accumulated depreciation (457,428) (329,567)
--------- ---------
Property and Equipment, Net $ 168,983 $ 277,978
========= =========
Depreciation expense for the years ended December 31, 1997 and 1996 was
$127,861 and $120,352, respectively.
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Capitalized Lease Obligations
The Company is the lessee of equipment under four capital leases expiring
through the year 2000. The assets and liabilities are recorded at
fair-market value. The assets are being depreciated over their estimated
useful lives. Depreciation of assets under capital leases charged to
expense for the years ended December 31, 1997 and 1996 was $80,955 and
$73,768, respectively. The following is a summary of property held under
capital leases included in equipment:
1997 1996
--------- ---------
Equipment $ 355,009 $ 355,009
Less: accumulated depreciation (235,901) (167,495)
--------- ---------
$ 119,108 $ 187,514
========= =========
Minimum future lease payments under capital leases as of December 31, 1997
for each of the next three years, and in the aggregate, are as follows:
For the Year Ending
December 31, Amount
-------------------- --------
1998 $123,041
1999 32,769
2000 5,416
--------
Total minimum lease payments 161,226
Less: amount representing interest 17,999
--------
Present value of net minimum
lease payments $143,227
========
Current portion $105,385
Long-term portion 37,842
--------
Total $143,227
========
Interest rates on capitalized leases vary from 5.43% to 17.43% and are
imputed based on the lessor's implicit rate of return.
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - Notes Payable
Notes payable at December 31, 1997 and 1996 consists of the following:
1997 1996
-------- --------
Note payable - principal due on April 9, 1999
bearing interest at 10% per annum
$105,000 $ -0-
Note payable, with interest at 11% and principal
due on July 24, 1999. (1)
62,236 -0-
Note payable, with interest at 11% and principal
due on October 31, 1999. (1) (2)
67,666 -0-
-------- ----
Total Notes Payable $234,902 $ -0-
======== ====
(1) If the Company offers to repay the outstanding principal and interest
prior to maturity date, the lender has the option to convert any or all of
the outstanding amount into an equity investment in the Company.
If the Repayment Option is chosen by the lender, the Company shall pay the
lender cash for the unconverted portion. In addition, the Company shall
issue warrants to the lender for one-fourth (') of the shares the lender
will receive should the Conversion Option be chosen.
If the Conversion Option is chosen, the Company shall provide an equity
interest in the form of common stock in the Company for the unconverted
portion as defined in the Agreement.
If a majority interest in the Company is purchased prior to maturity date,
the Company shall provide the lender shares equal to a percentage of
ownership as defined in the Agreement.
(2) Subsequent to December 31, 1997, the above note was converted to equity
(see Note 12).
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - Notes Payable, Stockholders
Notes payable, stockholders at December 31, 1997 and 1996 consists of the
following:
1997 1996
-------- --------
Note payable, stockholder (J. Garfinkle),
with interest at 11% and principal due
on August 12, 1999 $ 53,087 $ -0-
Note payable, stockholder (J. Garfinkle),
with interest at 11% and principal due
on September 4, 1999 55,451 -0-
Note payable, stockholder (M. Deutsch),
with interest at 11% and principal due
on August 12, 1999 53,059 -0-
Note payable, stockholder (M. Deutsch),
with interest at 11% and principal due
on September 4, 1999 55,361 -0-
-------- --------
Notes Payable, Stockholders $216,958 $-0-
======== ========
Subsequent to December 31, 1997, the above notes were converted to equity
(see Note 12).
NOTE 7 - Notes Payable, Bank
The Company had a $250,000 line of credit with a bank with interest
payable monthly at 1.5% above prime. The line of credit was secured by
substantially all of the assets of the Company. The line expired in 1997.
NOTE 8 - Notes Payable, Related Parties
Notes payable, related parties at December 31, 1997 and 1996 consists of
the following:
1997 1996
-------- --------
Note payable - David Garfinkle,
with interest at 11% and principal
due on May 20, 1999 (including
accrued interest of $5,844) $ 80,844 $ -0-
Note payable - David Garfinkle,
with interest at 11% and principal
due on June 25, 1999 (including
accrued interest of $7,219) 132,219 -0-
-------- -----
(Forward) $213,063 $ -0-
-------- -----
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - Notes Payable, Related Parties, continued
1997 1996
-------- --------
(Forward) $213,063 $ -0-
Note payable - Barry Garfinkle,
with interest at 11% and principal
due on June 24, 1999 (including
accrued interest of $9,396) 259,396 -0-
-------- -----
Notes Payable, Related Parties $472,459 $ -0-
======== =====
The above note holders are related to one of the stockholders of the
Company and are subject to the same provisions of the notes payable as
described in Note 5.
Subsequent to December 31, 1997, the above notes were converted to equity
(see Note 12).
NOTE 9 - Commitments and Contingencies
Lease Arrangement
The Company leases office space under a five (5) year noncancelable lease
expiring December 31, 2000. The Company pays property taxes, insurance,
and other related expenses to the leased properties. Rent expense was
$68,054 and $67,665 for the years ended December 31, 1997 and 1996,
respectively.
Future minimum rental payments required under the above non-cancelable
operating lease at December 31, 1997 are as follows:
Year Ending
December 31, Amount
------------ --------
1998 $ 76,000
1999 76,500
2000 76,500
--------
Total $229,000
========
License Agreement
The Company is obligated to pay a license fee for the use of software and
the maintenance of the software through October 1998. The future
commitment for the year ending December 31, 1998 is $24,135.
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - Commitments and Contingencies, continued
Litigation
The Company is involved in litigation through the normal course of
business. The Company believes that the resolution of these matters will
not have a material adverse effect on the financial position of the
Company.
NOTE 10 - Major Customers
The Company sells a substantial portion (greater than 10% of sales) of its
product to four major customers. During the years ended December 31, 1997
and 1996, sales to these customers totaled $2,358,982 (76%) and $2,238,155
(59%), respectively. As of December 31, 1997 and 1996, the amounts due
from these customers included in accounts receivable were $245,670 and
$197,453, respectively.
During and subsequent to December 31, 1997, three of the above major
customers terminated their contracts. Each contract was settled subsequent
to December 31, 1997. The Company will be paid approximately $310,000 in
aggregate based upon the respective settlement agreements.
During the years ended December 31, 1997 and 1996, sales to these three
terminated customers amounted to $1,972,510 (64%) and $1,851,683 (49%),
respectively.
NOTE 11 - Prior Period Adjustments
Certain errors resulting in the overstatement of previously reported
assets and the understatement of previously reported liabilities were
corrected in 1996, resulting in the following changes to retained earnings
as of December 31, 1995:
Retained Earnings - as previously reported $ 365,618
Deferred income on contracts $(783,579)
Property, plant and equipment (145,911)
Loans receivable
(288,659)
---------
Total Adjustments (1,218,149)
-----------
Accumulated Deficit - as adjusted $ (852,531)
-----------
TACONIC DATA CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - Subsequent Events
Employment Agreements
On April 14, 1998 the Company entered into employment agreements with two
stockholders of the Company, expiring on April 15, 2000 (the 'Initial
Period'). After the Initial Period employment will continue for successive
one-year periods if the agreement is not terminated with at least ninety
(90) days notice. Such agreements provide for minimum salary levels,
adjusted annually for cost of living changes, as well as for incentive
bonuses if specific management goals are attained. The agreements also
provide for all benefits generally available to the Company's managerial
employees.
The aggregate commitment for future salaries at December 31, 1997 are as
follows:
Year Ending
December 31, Amount
------------ --------
1998 $137,500
1999 220,000
2000 85,000
--------
Total $442,500
========
Purchase Commitment
During each twenty-four (24) successive months beginning April 1998, the
majority stockholder of the Company has the option to sell back to the
Company up to 3,350 shares of common stock per month at $2.00 per share.
Business Acquisition
On June 3, 1998, the Company entered into a stock purchase agreement, as
amended, with What About Me, Inc. (the 'Seller'), whereby the Company
acquired a 51% interest in Technosoft, Inc. for $123,000 in cash and
162,143 in the Company's common stock. The purchase method of accounting
will be used for this transaction.
Conversion of Debt
On June 8, 1998, the Company converted certain notes payable (see Note 4,
5 and 6) to common stock. The aggregate notes payable including accrued
interest through April 15, 1998 was $790,729. Each $1.3999 of debt was
converted into one (1) share of common stock, par value $.01. The total
shares issued for this conversion was 567,666 shares.
Stock Split
On June 12, 1998, the Board of Directors authorized a 14,018.75 for 1
stock split, thereby increasing the number of issued and outstanding
shares to 2,803,750, and increasing par value to $.01 per share. In
addition, the Board of Directors amended the certificate of incorporation
to increase the number of common shares authorized to 6,000,000, par value
$.01.