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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 9, 1998
Safe Technologies International, Inc.
(Exact Name of Registrant as Specified in its Charter)
33-20064 Delaware 22-2824492
-------- -------- ----------
(Commission (State or Other (IRS Employer
File Number) Jurisdiction of Indemnification
Incorporation) Number)
249 Peruvian Avenue, Palm Beach, Florida 33480
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 832-2700
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Item 1. Change in Control of Registrant.
On January 30, 1998, at a Special Meeting, the shareholders of Safe
Technologies International, Inc., formerly known as Safe Aid Products
Incorporated ("Safe Aid") approved a proposal to merge Intelligence Network
International, Inc., a Florida corporation ("INI") with and into Safe Aid
pursuant to the terms and conditions of a merger agreement dated August 29,
1997, as amended (the "Merger Agreement"). The transaction was a "reverse
merger" wherein the former Shareholders of INI (the "INI Shareholders") acquired
a majority interest (83%) of Safe Aid.
Pursuant to the Merger Agreement, the INI Shareholders acquired
beneficial ownership of 83% of Safe Aid's Common Stock (the "Acquired Shares").
As consideration for the Acquired Shares, the INI Shareholders delivered to Safe
Aid all of the capital stock of INI. Pursuant to the Merger Agreement, INI was
merged with and into Safe Aid (the "Merger"). The Merger became effective on
February 9, 1997 when Safe Aid filed a Certificate of Merger with the Delaware
Secretary of State and Articles of Merger with the Florida Secretary of State
(the "Effective Time"). At the Effective Time, the separate corporate existence
of INI terminated, and each issued and outstanding share of INI Common Stock was
converted into the right to receive one share of Safe Aid Common Stock.
The foregoing summary of the Merger Agreement is qualified by reference
to the complete text of the Merger Agreement, which is filed as Exhibit 2 and is
incorporated herein by reference. Please also review the description of the
Merger and the Merger Agreement in Item 2 hereof.
The basis of control of Safe Aid by the INI Shareholders results from
their beneficial ownership of approximately 83% of the issued and outstanding
shares of Safe Aid's Common Stock. There are no arrangements known to Safe Aid,
the operation of which may at a subsequent date result in another change of
control of Safe Aid.
On the closing date of the Merger Agreement, the existing directors and
officers of Safe Aid resigned, and new officers and directors appointed by INI's
management took their place. The former officers and directors of Safe Aid were
Stanley Snyder, President and Director, Barney Melsky, Secretary, Treasurer and
Director and Melvin Fritz, Director. The new officers and directors of Safe Aid
are Barbara Tolley, Chief Executive Officer and Chairman, Michael Bhathena, Vice
President and Chief Information Officer, Bradford Tolley, Secretary and
Treasurer, Charles Martus, Director, Jack Tolley, Director, Franklin Frank,
Director and Robert Alexander, Director. Moreover, the name of Safe Aid was
changed from Safe Aid Products Incorporated to Safe Technologies International,
Inc.
Prior to the Merger, Safe Aid's Common Stock was owned by approximately
1,207 stockholders of record ("Safe Aid's former shareholders"). After the
Merger, Safe Aid's former
2
shareholders will own approximately 10% of Safe Aid's Common Stock. The
principal stockholders of Safe Aid after the Merger are identified in Exhibit 99
accompanying this Current Report.
Item 2. Acquisition and Disposition of Assets.
As described in Item 1, above, on February 9, 1997, the INI
Shareholders acquired 83% of the beneficial ownership of Safe Aid's Common Stock
and INI was merged with and into Safe Aid pursuant to the terms of the Merger
Agreement. As of the Effective Time, the separate corporate existence of INI
terminated, and each issued and outstanding share of INI Common Stock was
converted into the right to receive one share of Safe Aid Common Stock. In the
aggregate, INI Shareholders received 585,819,936 restricted shares of Safe Aid
Common Stock in the Merger. This consideration for the acquired capital stock of
INI was determined as a result of arm's length negotiations between Safe Aid and
Barbara Tolley, a representative of all of the INI Shareholders. Additionally,
Safe Aid issued 49, 109,544 restricted shares of its common stock to certain
brokers, finders and consultants for services rendered in the Merger
transaction.
INI offers a broad range of Internet services and products and has two
divisions. The Internet Software and Commerce Division specializes in developing
Internet bundled software packages and Internet Electronic Commerce, and the
Internet Information/Data/Directory Division specializes in providing
information, data and directories for select subjects on the Internet. After the
Merger, Safe Aid's new management will continue the businesses conducted by INI
and focus on developing Safe Aid's Internet, New Media and New Technology
Products and Services.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
I. Intelligence Network International, Inc.
a. Audited Financial Statements for the Fiscal Year ended December 31, 1996
Independent Auditor's Report.............................................
Balance Sheet as of December 31, 1996....................................
Statement of Revenues, Expenses and Retained Earnings for the period
beginning October 2, 1996 (inception), ending December 31, 1996..........
Statement of Changes in Stockholders' Equity - December 31, 1996.........
Statement of Cash Flows for the period beginning October 2, 1996
(inception), ending December 31, 1996....................................
Notes to Financial Statements............................................
b. Unaudited Financial Statements for the Quarter Ended September 30, 1997
Balance Sheet as of September 30, 1997...................................
Statements of Income for the nine months ended September 30, 1997........
Statement of Cash Flows for the nine months ended September 30, 1997.....
3
JAY S. SHAPIRO, P.A.
Certified Public Accountant
1031 Ives Dairy Road Member: American Institute of
Suite 127 Certified Public Accountants
North Miami Beach, Florida 33179 and
Dade (305) 654-9989 Florida Institute of
Broward (954) 522-2915 Certified Public Accountants
Fax (305) 654-0055
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders'
of Intelligence Network International, Inc.
We have audited the accompanying Balance Sheet of Intelligence Network
International, Inc. as of December 31, 1996, and the related statements of
(loss), changes in stockholders' equity and cash flows for the period beginning
October 2, 1996 (date of inception) and ending December 31, 1996. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An Audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intelligence Network
International, Inc. as of December 31, 1996, and the results of its operations
and cash flows for the period beginning October 2, 1996 (date of inception) and
ending December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ J.S. Shapiro, CPA, P.A.
North Miami Beach, Florida
November 12, 1997
4
INTELLIGENCE NETWORK INTERNATIONAL, INC.
STATEMENT OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
CASH $57,977
-------
57,977
$57,977
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES: --
STOCKHOLDER'S EQUITY:
Common stock, $.00 par value,
19,980,000 shares authorized,
1,449,700 shares issued and outstanding $ 0
Additional Paid-in Capital 78,000
Retained earnings (deficit) (20,023)
--------
57,977
--------
$ 57,977
========
The accompanying notes are an integral part of these Financial Statements
5
INTELLIGENCE NETWORK INTERNATIONAL, INC.
STATEMENT OF REVENUES, EXPENSES AND RETAINED EARNINGS
FOR THE PERIOD OCTOBER 2, 1996 (INCEPTION) ENDING DECEMBER 31, 1996
REVENUES: $ --
DIRECT COST OF REVENUES: --
--------
GROSS PROFIT --
GENERAL AND ADMINISTRATIVE COSTS:
Management fees 20,023
--------
NET LOSS (20,023)
RETAINED EARNINGS (DEFICIT):
Beginning of period --
--------
(20,023)
--------
End of period $(20,023)
========
The accompanying notes are an integral part of these Financial Statements
6
INTELLIGENCE NETWORK INTERNATIONAL
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1996
COMMON SHARES ADDITIONAL RETAINED
SHARES AMOUNT PAIN CAPITAL EARNINGS TOTAL
BALANCE
OCTOBER 2, 1996 1,449,700 0 $78,000 $78,000
NET INCOME FOR THE YEAR (20,023) (20,023)
LESS SHAREHOLDERS'
DIVIDEND DISTRIBUTIONS 0 0
BALANCE,
DECEMBER 31, 1996 1,449,700 0 $78,000 (20,023) $57,977
7
INTELLIGENCE NETWORK INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD BEGINNING OCTOBER 2, 1996 (INCEPTION) ENDING DECEMBER 31, 1996
OPERATING ACTIVITIES:
Net income(loss) $(20,023)
Adjustments to reconcile net income to net
cash provided by operating activities: --
--------
NET CASH USED FOR INVESTING ACTIVITIES --
--------
FINANCING ACTIVITIES
Issuance of common stock 78,000
--------
Net cash (used) by financing activities 78,000
--------
INCREASE (DECREASE) IN CASH 57,977
CASH:
Beginning of year --
--------
End of year $ 57,977
========
The accompanying notes are an integral part of these Financial Statements
8
INTELLIGENCE NETWORK INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BACKGROUND INFORMATION
Description of Business:
Intelligence Network International, Inc. (INI) was incorporated in the state of
Florida on October 2, 1996. The Company plans to offer a broad selection of
internet based products and services.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from sales of internet services are recognized upon delivery to
the customer.
Income Taxes
The income tax effects on transactions are recognized for financial reporting
purposes in the year in which they enter into the determination of recorded
income, regardless of when they are recognized for income tax purposes.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may 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 of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying values of
short term debt approximate fair value based on discounting the projected cash
flows using market rates available for similar maturities. None of the financial
instruments are held for trading purposes.
Vulnerability of a New Business in Internet Technology
The likelihood of success of the Company must be considered in view of all the
risks, expenses and delays inherent in the establishment of a new business,
including, but not limited to, unforeseen expenses, complications and delays,
the initiation of marketing activities, the uncertainty of market acceptance of
new services, intense competition from larger more established competitors and
other factors.
NOTE 3 - SUBSEQUENT EVENTS
On January 10, 1997 INI acquired assets from three internet related companies.
On August 2, 1997 INI acquired a company that wholesales and retails custom
designed and assembled computer systems and related products. On August 28, 1997
INI acquired a company that is a pre- press designer of magazines and
catalogues.
9
INTELLIGENCE NETWORK INTERNATIONAL, INC.
FINANCIAL STATEMENT
AS OF SEPTEMBER 30, 1997
10
INTELLIGENCE NETWORK INTERNATIONAL, INC
BALANCE SHEET
AS OF SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS
Cash $ 12,308
Accounts Receivable 0
Total Current Assets $ 12,308
PROPERTY AND EQUIPMENT, NET 0
---------
TOTAL ASSETS $ 12,308
---------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 8,150
Accrued expenses 2,105
Total Current Liabilities 10,255
STOCKHOLDERS' EQUITY
Common Stock 0
Additional Paid In Capital 104,000
Retained Earnings (101,947)
---------
Total Stockholders' Equity (2,053)
---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 12,308
---------
11
INTELLIGENCE NETWORK INTERNATIONAL, INC
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES:
Sales $ 0
COST OF SALES 0
--------
GROSS PROFIT 0
--------
OPERATING EXPENSES 88,399
INCOME FROM OPERATIONS (88,399)
--------
NET (LOSS) $(88,399)
--------
12
INTELLIGENCE NETWORK INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
OPERATING ACTIVITIES
Net (loss) $(88,399)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase (decrease) in accounts payable 8,150
Increase (decrease) in accrued expenses 2,105
Total adjustments 10,255
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES $(78,144)
INVESTING ACTIVITIES --
--------
NET CASH USED FOR INVESTING ACTIVITIES --
--------
FINANCING ACTIVITIES 32,475
Issuance of common stock
Net cash (used) by financing activities 32,475
INCREASE (DECREASE) IN CASH (45,669)
CASH:
Beginning of nine month period 57,977
End of nine month period 12,308
13
II. GMG Computer Consultants, Inc.
a. Audited Financial Statements for the Fiscal Year ended December 31, 1995
Independent Auditor's Report.............................................
Statement of Assets, Liabilities and Stockholder's Equity................
Statement of Revenues, Expenses and Retained Earnings....................
Statement of Changes in Stockholders' Equity.............................
Statement of Cash Flows..................................................
Notes to Financial Statements............................................
Supplementary Information General and Administrative Costs...............
b. Audited Financial Statements for the Fiscal Year ended December 31, 1996
Independent Auditor's Report.............................................
Statement of Assets, Liabilities and Stockholder's Equity................
Statement of Revenues, Expenses and Retained Earnings....................
Statement of Changes in Stockholders' Equity.............................
Statement of Cash Flows..................................................
Notes to Financial Statements............................................
Supplementary Information General and Administrative Costs...............
c. Unaudited Financial Statements for the nine months ended September 30, 1997
Balance Sheet - September 30, 1997
Statements of Income - nine months ended September 30, 1997 and 1996.....
Statement of Cash Flows - nine months ended September 30, 1997 and 1996..
14
JAY S. SHAPIRO, P.A.
Certified Public Accountant
1031 Ives Dairy Road Member: American Institute of
Suite 127 Certified Public Accountant
North Miami Beach, Florida 33179 and
Dade (305) 654-9989 Florida Institute of
Broward (954) 522-2915 Certified Public Accountants
Fax (305) 654-0055
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and
Stockholders of GMG Computer Consultants, Inc.
We have audited the accompanying Balance Sheet of GMG Computer Consultants, Inc.
as of December 31, 1995, and the related statements of income, changes in
stockholders' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An Audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GMG Computer Consultants, Inc.
as of December 31, 1995, and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as whole. The supplemental information is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ J.S. Shapiro, CPA, P.A.
North Miami Beach, Florida
November 12, 1997
15
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS:
Cash $ 392
Accounts receivable - trade, net of
allowance for doubtful accounts of $778 51,010
Shareholder loan receivable 7,026
-------
58,428
PROPERTY AND EQUIPMENT, NET 16,654
OTHER ASSETS:
Deposits 3,630
-------
3,630
-------
$78,712
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $18,305
Line of credit payable - bank 16,123
Payroll taxes payable 2,440
Sales tax payable 2,759
-------
39,627
-------
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value 200
shares authorized, issued and
outstanding 200
Additional Paid-in Capital 4,200
Retained earnings 34,685
-------
39,085
-------
$78,712
=======
The accompanying notes are an integral part of these Financial Statements
16
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF REVENUES, EXPENSES AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
SALES $406,227
COST OF SALES 79,351
--------
GROSS PROFIT 326,876
OPERATING EXPENSES 230,666
--------
INCOME FROM OPERATIONS 96,210
OTHER INCOME (EXPENSES)
Bad debt expense (778)
Interest expense (1,663)
---------
(2,441)
---------
NET INCOME $ 93,769
========
The accompanying notes are an integral part of these Financial Statements
17
GMG COMPUTER CONSULTANTS, INC
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
DECEMBER 31, 1995
COMMON SHARES ADDITIONAL RETAINED
SHARES AMOUNT PAIN-CAPITAL EARNINGS TOTAL
------ ------ --------------- -------- -----
BALANCE,
JANUARY 1, 1995 200 $200 $ 4,200 $ 4,400
NET INCOME FOR THE YEAR $93,769 93,769
LESS SHAREHOLDERS'
DIVIDEND DISTRIBUTIONS $59,084 59,084
BALANCE,
DECEMBER 31, l995 200 $200 $ 4,200 $34,685 39,085
The Accompanying notes are an integral part of these Financial Statements
18
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
OPERATING ACTIVITIES:
Net income $ 93,769
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,186
Provision for doubtful accounts 778
Changes in account balances
Accounts receivable (51,788)
Deposits 1,905
Accounts payable 18,305
Payroll taxes payable 3,789
Sales taxes payable (744)
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 78,200
INVESTING ACTIVITIES:
Purchase of property and equipment (691)
--------
NET CASH USED FOR INVESTING ACTIVITIES (691)
--------
FINANCING ACTIVITIES
Proceeds from line of credit payable - bank 763
Repayments on shareholders' note (8,084)
Repayments on short term debt (15,536)
Payments on shareholder's dividend distributions (59,084)
--------
Net cash (used) by financing activities (81,941)
--------
INCREASE (DECREASE) IN CASH (4,432)
CASH:
Beginning of year 4,824
--------
End of year $ 392
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest expense $ 1,663
The accompanying notes are an integral part of these Financial Statements
19
GMG COMPUTER CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1995
NOTE 1 - BACKGROUND INFORMATION
GMG Computer Consultants, Inc. was incorporated in the state of Florida on May
14, 1990. The Company is a professional digital pre-press and color services
firm servicing the magazine and advertising industry. Its customer base is
nationwide with a concentrated emphasis in South Florida.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from sales of digital pre-press and color services are
recognized upon delivery to the customer.
Trade Receivables
The Company provides an allowance for losses on trade receivables based on a
review of the current status of existing receivables and management's evaluation
of periodic aging of accounts.
Property and Equipment
Property and equipment are stated at cost. Depreciation for both financial
accounting and income tax purposes is computed using combinations of the
straight line and accelerated methods over the estimated lives of the respective
assets. Maintenance and repairs are charged to expense when incurred.
Income Taxes
The Company is an S Corporation for federal income tax purposes. Consequently,
all income tax attributes are reported by the stockholders' individually.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying values of
short term debt approximate fair value based on discounting the projected cash
flows using market rates available for similar maturities. None of the financial
instruments are held for trading purposes.
NOTE 3 - NOTES RECEIVABLE
The Company holds note receivables from its stockholders' totaling $7,026. These
notes earn interest at 8% and are due upon demand.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Machinery and equipment $91,112
Less - accumulated depreciation 74,458
-------
Net property & equipment $16,654
Depreciation expense amounted to $12,186 in 1995.
20
NOTE 5 - LINE OF CREDIT PAYABLE - BANK
Equitable Bank
Line of credit payable on demand
Interest rate at 10.00%
Secured by corporate assets $16,123
NOTE 6 - LEASE COMMITMENTS
The Company leases office space which expires in December, 1998.
The lease requires the Company to pay monthly installments of $2,188.
Future minimum lease payments as of December 31, 1995 are as follows:
1996 $26,260
1997 42,235
1998 46,389
--------
$114,884
Rent expense for 1995 was $17,030.
The Company leases production and computer equipment under operating leases
which expire in 1997 and 1998. The leases require the Company to pay monthly
installments of $3,815.
Future minimum lease payments as of December 31, 1995 are as follows:
1996 $45,766
1997 45,766
1998 32,521
--------
$124,053
Equipment lease expense for 1995 was $30,889.
21
SUPPLEMENTARY INFORMATION
GMG COMPUTER CONSULTANTS, INC.
GENERAL AND ADMINISTRATIVE COSTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Advertising $ 3,750
Auto expense 13,306
Bank charges 639
Beeper charges 189
Delivery services 7,357
Depreciation and amortization 12,186
Dues & subscriptions 841
Equipment leases 30,889
Insurance 12,796
Legal fees 1,097
Licenses & taxes 2,653
Meals & entertainment 1,501
Office expenses 7,415
Office salaries 29,683
Officer's salaries 46,610
Outside services 9,701
Payroll taxes 14,415
Postage 916
Professional fees 3,075
Rent 17,030
Repairs & maintenance 144
Security 850
Seminars 325
Software 674
Supplies 865
Telephone 11,759
---------
$ 230,666
=========
The accompanying notes are an integral part of these Financial Statements
22
JAY S. SHAPIRO, P.A.
Certified Public Accountant
1031 Ives Dairy Road Member: American Institute of
Suite 127 Certified Public Accountant
North Miami Beach, Florida 33179 and
Dade (305) 654-9989 Florida Institute of
Broward (954) 522-2915 Certified Public Accountants
Fax (305) 654-0055
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and
Stockholders of GMG Computer Consultants, Inc.
We have audited the accompanying Balance Sheet of GMG Computer Consultants, Inc.
as of December 31, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An Audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GMG Computer Consultants, Inc.
as of December 31, 1996, and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as whole. The supplemental information is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ J.S. Shapiro, CPA, P.A.
North Miami Beach, Florida
November 12, 1997
23
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31, l996
ASSETS
CURRENT ASSETS:
Cash $ 2,309
Accounts receivable - trade, net of
allowance for doubtful accounts of $778 19,835
Notes receivable, shareholders' 46,665
-------
68,809
PROPERTY AND EQUIPMENT, NET 16,893
OTHER ASSETS:
Deposits 4,567
-------
4,567
-------
$90,269
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 6,905
Line of credit payable - bank 15,924
Payroll taxes payable 16,958
-------
39,787
-------
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value 200
shares authorized, issued and
outstanding 200
Additional Paid-in Capital 4,200
Retained earnings 46,082
-------
50,482
-------
$90,269
=======
The accompanying notes are an integral part of these Financial Statements
24
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF REVENUES, EXPENSES AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
REVENUES:
Sales $389,694
DIRECT COST OF REVENUES:
Purchases 51,931
--------
GROSS PROFIT 337,763
OPERATING EXPENSES 256,399
--------
INCOME FROM OPERATIONS 81,364
OTHER INCOME (EXPENSES)
Bad debt expense (302)
Interest expense (2,600)
---------
(2,902)
---------
NET INCOME $ 78,462
========
The accompanying notes are an integral part of these Financial Statements
25
GMG COMPUTER CONSULTANTS, INC
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
DECEMBER 31, 1996
COMMON SHARES ADDITIONAL RETAINED
SHARES AMOUNT PAIN-CAPITAL EARNINGS TOTAL
------ ------ --------------- -------- -----
BALANCE,
JANUARY 1, 1996 200 $200 $ 4,200 $34,685 $39,085
NET INCOME FOR THE YEAR $78,462 $78,462
LESS SHAREHOLDERS'
DIVIDEND DISTRIBUTIONS $67,065 $67,065
BALANCE,
DECEMBER 31, l995 200 $200 $ 4,200 $46,082 $50,482
The Accompanying notes are an integral part of these Financial Statements
26
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
OPERATING ACTIVITIES:
Net income $ 78,462
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,601
Provision for doubtful accounts 302
Changes in account balances
Accounts receivable 30,872
Deposits (937)
Accounts payable (11,400)
Payroll taxes payable 14,518
Sales taxes payable (2,759)
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 121,659
INVESTING ACTIVITIES:
Issuance of stockholders' note receivable (39,639)
Purchase of property and equipment (12,839)
--------
NET CASH USED FOR INVESTING ACTIVITIES (52,478)
--------
FINANCING ACTIVITIES
Repayments on line of credit payable - bank (199)
Payments on shareholder's dividend distributions (67,065)
--------
Net cash (used) by financing activities (67,264)
--------
INCREASE (DECREASE) IN CASH 1,917
CASH:
Beginning of year 392
--------
End of year $ 2,309
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest expense $ 2,600
The accompanying notes are an integral part of these Financial Statements
27
GMG COMPUTER CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BACKGROUND INFORMATION
GMG Computer Consultants, Inc. was incorporated in the state of Florida on May
14, 1990. The Company is a professional digital pre-press and color services
firm servicing the magazine and advertising industry. Its customer base is
nationwide with a concentrated emphasis in South Florida.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from sales of digital pre-press and color services are
recognized upon delivery to the customer.
Trade Receivables
The Company provides an allowance for losses on trade receivables based on a
review of the current status of existing receivables and management's evaluation
of periodic aging of accounts.
Property and Equipment
Property and equipment are stated at cost. Depreciation for both financial
accounting and income tax purposes is computed using combinations of the
straight line and accelerated methods over the estimated lives of the respective
assets. Maintenance and repairs are charged to expense when incurred.
Income Taxes
The Company is an S Corporation for federal income tax purposes. Consequently,
all income tax attributes are reported by the stockholders' individually.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may 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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying values of
short term debt approximate fair value based on discounting the projected cash
flows using market rates available for similar maturities. None of the financial
instruments are held for trading purposes.
28
NOTE 3 - NOTES RECEIVABLE
The Company holds note receivables from its stockholders' totaling $46,665.
These notes earn interest at 8% and are due upon demand.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Machinery and equipment $102,768
Less - accumulated depreciation 85,875
-------
Net property & equipment $16,893
Depreciation expense amounted to $12,601 in 1996.
NOTE 5 - LINE OF CREDIT PAYABLE- BANK
Equitable Bank
Line of credit payable on demand
Interest rate at 10.00%
Secured by corporate assets $15,924
NOTE 6 - LEASE COMMITMENTS
The Company leases office space which expires in December, 1998.
The lease requires the Company to pay monthly installments of
$3,519.
Future minimum lease payments as of December 31, 1996 are as follows:
1997 $42,235
1998 46,389
-------
$88,624
Rent expense for 1996 was $26,708.
The Company leases production and computer equipment under operating leases
which expire in 1997 and 1998. The leases require the company to pay monthly
installments of $3,815.
Future minimum lease payments as of December 31, 1996 are as follows:
1997 $45,766
1998 32,521
-------
$78,287
Equipment lease expense for 1996 was $41,528.
29
SUPPLEMENTARY INFORMATION
GMG COMPUTER CONSULTANTS, INC.
GENERAL AND ADMINISTRATIVE COSTS
FOR THE YEAR ENDED DECEMBER 31, 1996
Advertising $ 5,851
Auto expenses 9,412
Bonuses 4,900
Delivery services 16,997
Depreciation and amortization 12,601
Equipment leases 41,528
Insurance 10,622
Miscellaneous 1,889
Office expenses 6,047
Office salaries 45,605
Officer's salaries 49,170
Outside services 1,905
Payroll taxes 7,708
Professional fees 2,136
Rent 26,708
Telephone 7,305
Utilities 6,015
--------
$256,399
========
The accompanying notes are an integral
part of these Financial Statements
30
UNAUDITED GMG FINANCIAL STATEMENTS
GMG COMPUTER CONSULTANTS, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash $ 4,424
Accounts receivable - trade, net of
allowance for doubtful accounts of $569 16,768
Notes receivable, shareholders' 70,653
-------
91,845
PROPERTY AND EQUIPMENT, NET 8,492
OTHER ASSETS:
Deposits 5,073
-------
5,073
-------
$105,410
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $11,195
Line of credit payable - bank 16,099
Payroll taxes payable 3,045
-------
30,339
-------
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value 200
shares authorized, issued and
outstanding 200
Additional Paid-in Capital 4,200
Retained earnings 70,671
-------
75,071
-------
$105,410
=======
31
GMG COMPUTER CONSULTANTS, INC.
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
REVENUES:
Sales $225,569 $223,199
DIRECT COSTS 29,359 39,096
-------- --------
GROSS PROFIT 226,210 184,103
-------- --------
OPERATING EXPENSES
Advertising 2,200 3,869
Auto expenses 3,244 8,674
Bad debt 255 314
Bank charges 544 376
Depreciations 8,401 8,124
Delivery services 13,157 6,963
Equipment leases 26,431 24,370
Insurance 9,395 8,508
Interest expense 1,079 1,081
Licenses & taxes 2,183 353
Office expenses 2,797 8,227
Office salaries 22,440 82,173
Payroll taxes 2,728 568
Professional fees 3,575 700
Rent 24,864 19,477
Repairs & maintenance 472 595
Telephone 5,365 5,751
Travel 1,015 4,366
Utilities 3,619 3,067
-------- --------
133,764 187,566
-------- --------
NET INCOME $ 92,446 $ (3,453)
======== ========
32
GMG COMPUTER CONSULTANTS, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
OPERATING ACTIVITIES:
Net income $ 92,446 (3,453)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,401 8,124
Provision for doubtful accounts 255 314
Changes in account balances
Accounts receivable 3,067 30,382
Deposits (506) 1,756
Accounts payable 4,290 (13,559)
Payroll taxes payable (13,913) 9,698
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 94,040 33,262
INVESTING ACTIVITIES:
Issuance of stockholders' note receivable (23,988) (1,670)
Purchase of property and equipment (255) (3,073)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (24,243) (4,743)
-------- --------
FINANCING ACTIVITIES
Repayments on line of credit payable - bank (175) (197)
Payments on shareholder's dividend distributions (67,857) (27,773)
------- --------
Net cash (used) by financing activities (67,682) (27,970)
-------- --------
INCREASE (DECREASE) IN CASH 2,115 549
CASH:
Beginning of period 2,309 392
-------- --------
End of period $ 4,424 $ 941
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest expense $ 1,079 $ 1,081
33
III. Total Micro Computers, Inc.
a. Audited Financial Statements for the Fiscal Year ended December 31, 1996
Independent Auditor's Report.............................................
Balance Sheet as of December 31, 1996....................................
Statement of Income for the fiscal year ended December 31, 1996..........
Statement of Changes in Stockholders' Equity.............................
Statement of Cash Flows..................................................
Notes....................................................................
b. Unaudited Financial Statements for the six months ended September 30, 1997
Balance Sheet - September 30, 1997
Statements of Income - nine months ended September 30, 1997 and 1996.....
Statement of Cash Flows - nine months ended September 30, 1997 and 1996..
34
Simmons LaPlant & Associates
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Total Micro Computers, Inc.
We were engaged to audit the accompanying balance sheet of Total MicroComputers,
Inc. (a Florida corporation) as of December 31, 1996, and the related statements
of income, retained earnings, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An Audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above fairly, in all
material respects, the financial position of Total Micro Computers, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Simmons, LaPlant & Associates, CPA, PA
July 8, 1997
Certified Public Accountants / a Professional Association
First of America Plaza - 201 East Kennedy Boulevard, Suite 715
Tampa, Florida 33602-5828 - 813-229-2090 - 223-7104 FAX
35
TOTAL MICRO COMPUTERS, INC.
BALANCE SHEET
As of December 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 25,533
Accounts receivable-trade
net of allowance for doubtful accounts of $5,000 202,180
Inventory 141,503
Notes receivable, stockholders 35,188
Prepaid expenses 2,494
--------
Total Current Assets 406,898
PROPERTY AND EQUIPMENT, NET 42,386
--------
TOTAL ASSETS $449,294
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $101,973
Accrued expenses 54,846
Accrued income taxes 67,446
Note payable, stockholder 8,000
Note payable, related party 7,000
Deferred income taxes 4,800
--------
Total Current Liabilities 244,065
--------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value; 10,000 shares
authorized, 500 shares issued and outstanding 500
Additional paid-in capital 65,033
Retained earnings 139,686
--------
Total Stockholders' Equity 205,219
--------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $449,284
========
Read accompanying notes to financial statements
36
TOTAL MICRO COMPUTERS, INC.
STATEMENT OF INCOME
Year Ended December 31, 1996
SALES $ 4,566,492
COSTS OF SALES 3,917,191
-----------
GROSS PROFIT 649,301
OPERATING EXPENSES 462,970
-----------
INCOME FROM OPERATIONS 186,331
-----------
OTHER INCOME (EXPENSES)
Other income 27,767
Interest expense (2,166)
-----------
25,601
-----------
INCOME BEFORE INCOME TAXES 211,932
Provision for income taxes 72,246
-----------
NET INCOME $ 139,686
===========
37
TOTAL MICRO COMPUTERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1996
Common Shares Additional Retained
Shares Amount Paid-In Capital Earnings Total
------ ------- --------------- -------- -----
ISSUANCE OF COMMON STOCK,
JANUARY 2, 1996 500 $500 $65,033 $65,533
NET INCOME FOR THE YEAR
$139,686 139,686
--- ---- ------- -------- --------
BALANCE,
DECEMBER 31, 1996 500 $500 $65,033 $139,686 $205,219
=== ==== ======= ======== ========
Read accompanying notes to financial statements.
38
TOTAL MICRO COMPUTERS, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 139,686
---------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 4,116
Provision for doubtful accounts 5,000
Changes in account balances:
Accounts receivable (207,180)
Inventory (92,238)
Prepaid expenses (275)
Accounts payable 101,973
Accrued income taxes 67,446
Deferred income taxes 4,800
Accrued expenses 54,846
---------
Total Adjustments (61,512)
---------
Net Cash Provided by Operating Activities 78,174
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of stockholders notes receivable (35,188)
Purchase of fixed assets (31,272)
---------
Net Cash Used by Investing Activities (66,460)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of stockholder note (3,674)
Repayment of related party note (1,000)
Proceeds from related party note 8,000
Issuance of common stock 10,493
---------
Net Cash Provided by Financing Activities 13,819
---------
NET INCREASE IN CASH 25,533
CASH, BEGINNING OF YEAR 0
---------
CASH, END OF YEAR $ 25,533
=========
SUPPLEMENTAL DISCLOSURES
- ------------------------
Cash paid during the year for interest $ 2,166
=========
Read accompanying notes to financial statements.
39
TOTAL MICRO COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1-BACKGROUND INFORMATION
Total Micro Computers, Inc. (the Company), was organized and incorporated under
the laws of Florida on October 23, 1995. The Company began business on January
2, 1996 and is in the sale and service of computer hardware and software.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The company used the accrual method of accounting which means that revenues
are recorded when earned. Revenue is considered earned at the point of sale
of the inventory.
Trade Receivables
- ----------------
The company provides an allowance for losses on trade receivables based on a
review of the current status of existing receivables and management's evaluation
of periodic aging of accounts.
Inventory
- ---------
Inventory consisting primarily of computer hardware components is stated at the
lower of cost or market. Cost is based on standard costs generated principally
by most recent purchase prices.
Property and Equipment
- ---------------------
Property and equipment are stated at cost. Depreciation for both financial
accounting and income tax purposes is computed using combinations of the
straight line and accelerated methods over the estimated lives of the respective
assets. Maintenance and repairs are charged to expense when incurred.
Income Taxes
- ------------
The Company uses Statement of Financial Accounting Standards No.109, "Accounting
for Income Taxes". Under Statement 109, deferred tax assets and liabilities are
recognized based on the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Use of Estimates
- ---------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may 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 of Financial Instruments
- --------------------------------
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying values of
short term debt approximate fair value based on discounting the projected cash
flows using market rates available for similar maturities. None of the financial
instruments are held for trading purposes.
NOTE 3 - NOTES RECEIVABLE
The Company holds a note receivable from each stockholder totaling $35,188.
These notes earn interest at 8.5% and are due upon demand.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Store equipment $ 2,860
Furniture and equipment 18,767
Office equipment 24,875
-------
46,502
Less accumulated depreciation 4,116
-------
Property and equipment, net $42,386
=======
Depreciation expense amounted to $4,116 in 1996.
NOTE 5 - NOTES PAYABLE
Notes payable consists of the following:
Note payable to related party with monthly
payments of $150, including interest
at 1.00%. Balloon payment due March 1997.
The note is unsecured $ 7,000
Note payable to a stockholder includes interest
at 18%. Note is due on demand. The note
is unsecured 8,000
-------
$15,000
=======
NOTE 6 - LEASE COMMITMENTS
The Company leases office space and a truck under operating leases which expire
in April 1997 and August 1998, respectively. The leases require the Company to
pay monthly installments of $1,073.
Future minimum lease payments as of December 31, 1996 are as follows:
1997 $5,862
1998 1,566
------
$7,428
======
Rent expense for all operating leases for 1996 was $15,652.
NOTE 7 - INCOME TAXES
The provision for income taxes for the year ended December 31, 1996 consist of:
Current Deferred Total
------- -------- -----
Federal $56,766 $ 4,000 $60,766
State 10,680 800 11,480
------- ------- -------
$67,446 $ 4,800 $72,246
======= ======= =======
Provision for income taxes is reconciled to the amount computed by applying the
federal corporate tax rate to earnings before income taxes as follows:
Income tax at statutory rate $63,579
State income taxes 8,667
-------
$72,246
=======
The significant portion of the deferred tax liability is due to the tax effects
of temporary differences on depreciation of fixed assets.
NOTE 8 - RELATED PARTY TRANSACTIONS
During the year, the Company sold inventory to companies affiliated through
common ownership. Revenues from these sales totaled $1,199,655 for the year
ended December 31, 1996.
NOTE 9 - NON-CASH FINANCING ACTIVITY
On January 2, 1996 , the stockholders contributed non-cash assets totaling
$66,714 in exchange for shares of common stock. The Company also assumed a note
payable to a stockholder totaling $11,674 at January 2, 1996.
40
UNAUDITED TOTAL MICRO COMPUTERS, INC
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS
Cash $ 6,748
Accounts Receivable - trade,
net of allowance for doubtful accounts of $4,000 246,572
Inventory 82,419
Notes receivable, stockholders 35,188
Prepaid expenses 2,494
--------
Total Current Assets 373,421
PROPERTY AND EQUIPMENT, NET 53,256
--------
TOTAL ASSETS $426,677
--------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade 75,192
Accrued expenses 66,740
Accrued income taxes 67,446
Notes payable, stockholder 14,750
Deferred income taxes 4,800
--------
Total Current Liabilities 228,928
--------
STOCKHOLDERS' EQUITY
Common Stock 500
Additional Paid In Capital 65,033
Retained Earnings 132,216
--------
Total Stockholders'Equity 197,749
--------
$426,677
--------
41
UNAUDITED TOTAL MICRO COMPUTERS, INC
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
------------------- ------------------
SALES $ 2,750,896 $ 1,976,432
COST OF SALES 2,282,713 1,613,543
----------- -----------
GROSS PROFIT 468,183 362,889
----------- -----------
OPERATING EXPENSES 475,653 379,034
NET INCOME $ (7,470) $ (16,145)
----------- -----------
42
UNAUDITED TOTAL MICRO COMPUTERS, INC
STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 and 1996
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (7,470) $ (16,145)
Adjustments to reconcile net income to net
cash provided by operating activities (195) 19,678
-------- --------
Net Cash Provided by Operating Activities (7,665) 3,533
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (10,870) (15,642)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of related party note (250) 0
Proceeds from related party note 0 8,000
Issuance of common stock 0 10,493
Net Cash Provided by Financing Activities (250) 18,493
NET INCREASE (DECREASE IN CASH) (18,785) 6,384
CASH, BEGINNING OF PERIOD 25,533 0
CASH, END OF PERIOD $ 6,748 $ 6,384
======== ========
43
(b) PRO FORMA FINANCIAL INFORMATION
Introductory Paragraph
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of August 31,
1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended November 30, 1996 and the nine months ended August 31, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
44
PRO FORMA FINANCIAL STATEMENTS
Introductory Paragraph
The accompanying pro forma condensed consolidated financial statements
give effect to the Merger in which Safe Aid acquired all of the outstanding
common stock of INI in exchange for an aggregate of 585,819,936 shares of Safe
Aid Common Stock. On February 9, 1998, INI was merged with and into Safe Aid and
its separate corporate existence ceased.
The accompanying pro forma condensed balance sheet as of August 31,
1997 has been prepared as if (i) the Merger of INI with and into Safe Aid and
(ii) INI's acquisitions of GMG Computer Consultants, Inc. d.b.a. Precision
Imaging ("GMG") and Total Micro Computers, Inc. ("TMC") had been completed as of
the balance sheet date. The accompanying pro forma condensed statement of
operations has been prepared as if (i) the Merger of INI with and into Safe Aid
had been completed as of December 1, 1995 and (ii) INI's acquisition of GMG and
TMC had been completed as of December 1, 1995.
The unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
financial position or operating results that would have occurred had the Merger
been consummated on the dates specified, nor is it indicative of future
operating results or financial position. In the opinion of the management of
Safe Aid and INI, all adjustments necessary to presently fairly the unaudited
pro forma financial information has been made.
The pro forma financial information should be read in conjunction with
the historical financial statements of INI, GMG and TMC included within this
Current Report on Form 8-K and Safe Aid's historical financial statements
included in Safe Aid's filings with the Securities and Exchange Commission (the
"SEC"). The SEC filings include Safe Aid's Annual Report on Form 10-KSB for the
fiscal year ended November 30, 1996 and its unaudited financial statements for
the quarters ended February 28, 1997, May 31, 1997 and August 31, 1997.
45
SAFE AID PRODUCTS INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
INTELLIGENCE NETWORK INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
at August 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
- ----------------------------------------------------------------------------- ----------------------------------
Safe Aid INI TMC + GMG Adjustments INI (1) Adjustments As Adjusted
-------- --- --------- ----------- ------ ----------- -----------
ASSETS
Currents assets
Cash...................... $ 2,119 $ 12,308 $ 15,610 $ 0 $ 27,918$ 0 $ 30,037
Notes receivable.......... 0 0 105,841 0 105,841 0 105,841
Accounts receivable, net.. 0 0 270,070 0 270,070 0 270,070
Inventories............... 0 0 99,721 0 99,721 0 99,721
Prepaid expenses & other
current assets........ 0 0 2,494 0 2,494 0 2,494
Total current assets......... 2,119 12,308 493,736 0 506,044 0 508,163
Property, plant and equipment net
of accumulated depreciation 0 0 61,748 0 61,748 0 61,748
Management agreements........ 0 0 0 50,000(3) 1,050,000 0 1,050,000
............................. 1,000,000(4)
Goodwill..................... 0 0 0 146,088(3) 471,017 0 471,017
............................. 324,929(4)
Other assets................. 0 0 5,073 0 5,073 5,073
............................. $ 2,119 $ 12,308 $ 560,557 $1,521,017 $ 2,093,882$ 0 $ 2,096,001
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable..........$ 0 $ 8,150 $ 86,195 $ 0 $ 94,345 $ 0 $ 94,345
Shareholders loans........ 19,000 0 0 0 0 0 19,000
Accrued expenses.......... 2,874 2,105 64,239 0 66,344 0 69,218
Notes payable............. 0 0 14,750 0 14,750 0 14,750
Other current liabilities. 0 0 91,390 0 91,390 0 91,390
Total current liabilities.... 21,874 10,255 256,574 0 266,829 0 288,703
Long-term debt and capital
lease obligations........ 0 0 0 0 0 0 0
Common stock issued with right of
of reversion............. 1,400,000(7) 1,400,000 1,400,000
Stockholders' equity (deficiency):
Par value of common stock. 7,055 0 700 12(2) 698 (700)(2) 7,053
............................. (14)(7)
Additional paid in capital 1,572,194 102,550 69,233 9,276(2) 536,140 378,843(2) 888,173
............................. 196,088(3) (1,599,004)(6)
............................. 1,324,929(4)
............................. 234,050(5)
............................. (1,399,986)(7)
Deficit accumulated during
development stage.......(1,599,004) 0 0 0 0 1,599,004(6) 0
Retained Earnings......... 0 (100,497) 234,050 (234,050)(5) (109,785) (378,143)(2) (487,928)
............................. (9,288)(2)
............................. $ 2,119 $ 12,308 $ 560,557 $1,521,017 $ 2,093,882 $ 0 $ 2,096,001
FOOTNOTES TO UNAUDITED PRO FORMA BALANCE SHEET AS OF AUGUST 31, 1997
(1) Pro forma Financials are recast and provided by INI at the request of the
Registrant on September 24, 1997. Represents the combined Balance Sheets of
INI, Total Micro Computers and GMG Computer Consultants.
46
(2) Pro forma adjustment to give effect to brokerage, finder and consultant
fees to be paid through the issuance of 50,315,700 shares at the closing of
the Merger and the acquisitions of GMG and TMC. For pro forma purposes, the
shares have been valued at $.0077 per share based on the fair market value
of Safe Aid's common stock as of the dates of the acquisition agreements.
The valuation of the INI shares being issued to the former shareholders of
GMG and TMC are based on the fair market value of Safe Aid common stock
because these shares will be exchanged on a one for one share basis for
Safe Aid common stock upon the consummation of the reverse merger.
Therefore, this adjustment reflects a total cost of $387,431 in brokerage,
finder and consultant fees. Included in the 50,315,700 shares are 1,100,000
shares that will be issued to Lockwood Realway for the GMG acquisition and
106,200 shares that will be issued to First Venture Realty for the TMC
acquisition. The remaining shares will be issued in connection with the INI
and Safe Aid reverse merger. Also, par value common stock has been adjusted
to reflect the amount of outstanding shares post-merger.
(3) Pro forma adjustment to give effect to the acquisition of TMC which has
been accounted for using the purchase method in accordance with APB Opinion
No. 16 with INI being the acquiring company. The management of INI and TMC
valued TMC at $425,000. Therefore, INI issued 1,062,500 shares of INI stock
to the former shareholders of TMC with a guaranteed price of $0.40 per
share. Upon the consummation of the INI and Safe Aid reverse merger the
shares would be exchanged for Safe Aid common stock on a one-for-one basis.
Therefore, the Company has guaranteed that the shares issued to the former
shareholders of TMC will be trading at a price of not lower than $0.40 per
share at the time of one year forward the date of closing of the
acquisition. If the shares are trading at a price of lower than $0.40 per
share, upon that date, the Company will upon evidence of stock sales by the
former shareholders of TMC either, at the discretion of those former
shareholders, make up any difference so as to equal the acquisition price
of $425,000 in cash or by issuing additional shares. As of August 31, 1997,
the fair value of the consideration given exceeded the net book value of
TMC by $196,088. Therefore, $50,000 of the excess was allocated to the
management agreements (one year contracts with option to renew for an
additional year) acquired and the remaining $146,088 was allocated to
goodwill.
(4) Pro forma adjustment to give effect to the acquisition of GMG which has
been accounted for using the purchase method in accordance with APB Opinion
No. 16 with INI being the acquiring company. The management of INI and GMG
valued GMG at $1,400,000. Therefore, INI issued 14,000,000 shares of INI
stock to the former shareholders of GMG with a guaranteed price of $0.10
per share. Upon the consummation of the INI and Safe Aid reverse merger the
shares would be exchanged for Safe Aid common stock on a one-for-one basis.
Therefore, the Company has guaranteed that the shares issued to the former
shareholders of GMG will be trading at a price of not lower than $0.10 per
share at the time of one year forward the date of closing of the
acquisition. If the shares are trading at a price of not lower than $0.10
per share, upon that date, the Company will permit GMG to invoke it's right
of reversion (See Note 7 regarding GMG's right of reversion). As of August
31, 1997, the fair value of the consideration given exceeded the net book
value of GMG by $1,324,929. Therefore, $1,000,000 was allocated to the
management agreements (one year contracts with option to renew for an
additional year) acquired and the remaining $324,929 was allocated to
goodwill.
(5) To eliminate the prior retained earnings of GMG and TMC as the acquired
companies in accordance with APB Opinion No. 16.
(6) To eliminate the deficit accumulated during development stage of Safe Aid
as the acquired company in accordance with APB Opinion No. 16.
(7) To reclassify the paid in capital and the par value of the stock issued to
the former stockholders of GMG from the stockholders' equity section in
order to give effect to its potentially temporary status as a result of
GMG's former stockholders right of reversion. Pursuant to the Acquisition
Agreement between INI and GMG, the former stockholders of GMG have the
right of reversion after a one year period and under a condition in which
the INI public stock is not trading, at a minimum of $.10 per share, at
that time. If the GMG's former stockholders elect to invoke this right of
reversion, at that time, one year forward from the closing date, the
Company must return to the former GMG shareholders all of their GMG stock,
contingent on the following terms: (1) GMG's former shareholders must
return all Safe Aid Common Stock held by them, a minimum of 10,000,000
shares, (2) any monies which Safe Aid might have advanced to GMG as working
capital must be repaid under the terms established (3) Safe Aid must be
released from any lease facility equipment guarantees which it made on
behalf of GMG.
47
SAFE AID PRODUCTS INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
INTELLIGENCE NETWORK INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
From Inception
Nine Months Ended (May 21, 1987)
August 31, 1997 to August 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
- ------------------------------------------------------------------------------ ------------------------------------------------
Safe Aid INI TMC + GMG Adjustments INI (1) Adjustments As Adjusted As Adjusted
-------- --- --------- ----------- ------ ----------- ----------- -----------
Revenue............... $ 9,801 $ 0 $ 2,914,867 $ 0 $ 2,914,867 $ 0 $ 2,924,668 $ 5,323,892
Costs and expenses
Cost of sales...... 7,569 0 2,234,213 0 2,234,213 0 2,241,782 4,172,585
Operating expenses. 30,478 88,399 564,515 216,000 (2) 897,034 90,000 (3) 1,017,512 3,017,538
...................... 28,120 (4)
Net Income (Loss) Before
Pro Forma Tax Provision (28,246) (88,399) 116,139 (244,120) (216,380) (90,000) (334,626) (1,866,231)
Pro Forma Tax Provision 0 0 0 19,682 (5) 19,682 0 19,682 19,682
Net Income (Loss)..... $(28,246) $(88,399) $ 116,139 $ (263,802) $ (236,062) $ (90,000) $ (354,308) $(1,885,913)
Net Loss per common share NIL NIL NIL NIL
Weighted Average common
shares outstanding 705,477,200 705,477,200 609,989,049
FOOTNOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED AUGUST 31, 1997
(1) Pro forma Financials are recast and provided by INI at the request of the
Registrant on September 24, 1997. Represents the combined Balance Sheets of
INI, Total Micro Computers and GMG Computer Consultants.
(2) Pro forma adjustment to give effect to management agreements with Gary Bart
and Dean Constantine of GMG effective November 1, 1997 and Anthony Diaz and
Gerardo Toquica of TMC effective October 2, 1997 as if the agreements were
effective at the beginning of the period.
(3) Pro forma adjustment to give effect to Barbara Tolley's employment
agreement with Safe Aid that will be effective upon the closing of the
reverse merger.
(4) Pro forma adjustment to give effect to the amortization of goodwill in GMG
and TMC over a ten year period.
(5) To reflect the pro forma tax provision of GMG which was an S corporation
during this period as if it were a C corporation.
48
SAFE AID PRODUCTS INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
INTELLIGENCE NETWORK INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
From Inception
Year Ended (May 21, 1987)
November 30, 1996 to Nov 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
--------------------------------------------------------- ------------------------------------
Safe Aid INI TMC + GMG Adjustments INI (1) Adjustments As Adjusted As Adjusted
-------- --- --------- ----------- ------- ----------- ----------- -----------
Revenue............... $ 19,647 $ 0 $ 4,956,186 $ 0 $ 4,956,186 $ 0 $4,975,833 $ 5,323,892
Costs and expenses
Cost of sales.......... 15,187 0 3,969,122 0 3,969,122 0 3,984,309 4,172,585
Operating expenses..... 9,469 20,023 719,369 288,000(2) 2,114,885 120,000(3) 2,244,354 3,969,886
.......................... 37,493(4)
......................... 1,050,000(5)
Net Income (Loss) Before
Pro Forma Tax Provision (5,009) (20,023) 267,695 (1,375,493) (1,127,821) (120,000) (1,252,830) $(2,818,579)
Pro Forma Tax Provision 14,297(6) 14,297 0 14,297 14,297
Net Income (Loss)......... $ (5,009)$(20,023) $ 267,695 $(1,389,790) $(1,142,118) $ (120,000) $(1,267,127) $(2,832,876)
Net Loss per common share NIL NIL NIL NIL
Weighted Average common
shares outstanding...... 702,977,200 702,977,200 654,257,057
FOOTNOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1996
(1) Pro forma Financials are recast and provided by INI at the request of the
Registrant on September 24, 1997. Represents the combined Balance Sheets of
INI, Total Micro Computers and GMG Computer Consultants.
(2) Pro forma adjustment to give effect to management agreements with Gary Bart
and Dean Constantine of GMG effective November 1, 1997 and Anthony Diaz and
Gerardo Toquica of TMC effective October 2, 1997 as if the agreements were
effective as of the beginning of the period.
(3) Pro forma adjustment to give effect to Barbara Tolley's employment
agreement with Safe Aid that will be effective upon the closing of the
reverse merger.
(4) Pro forma adjustment to give effect to the amortization of goodwill in GMG
and TMC over a ten year period.
(5) Pro forma adjustment to give effect to the amortization of the management
agreements over a one year period. The management agreements are all one
year contracts with an option to renew for an additional year.
(6) To reflect the pro forma tax provision of GMG which was an S corporation
during this period as if it were a C corporation.
49
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited pro forma information includes the historical financial
statements of Safe Aid for its fiscal year ended November 30, 1996 and for the
nine month period ended August 31, 1997, the historical financial statements of
INI for its fiscal year ended December 31, 1996 and the nine month period ended
September 30, 1997, the historical financial statements of GMG for its fiscal
year ended December 31, 1996 and the nine month period ended September 30, 1997
and the historical financial statements of TMC for its fiscal year ended
December 31, 1996 and the nine month period ended September 30, 1997. See the
financial statements attached as Annexes B-E of this Proxy Statement.
NOTE 2 - CAPITAL TRANSACTIONS
In anticipation of the Reverse Merger, the following capital
transaction occurred: On August 27 1997, INI amended its Articles of
Incorporation to increase its authorized common stock from 30,000,000 Shares to
600,000,000 in anticipation of the reverse merger so that INI shareholders could
exchange one share of INI Common Stock for one share of Safe Aid Common Stock.
As of November 20, 1997, INI had 327,617,550 shares of its common stock issued
and outstanding. Immediately prior to the Merger, INI will issue and additional
258,202,386 shares of its common stock for capital contributions and services
rendered to INI in connection with the Merger. In aggregate, immediately prior
to the Merger, INI will have 585,819,936 shares of its common stock issued and
outstanding. In order to effectuate the Merger, each INI shareholder will
exchange one share of INI Common Stock for one share of Safe Aid Common Stock.
50
(c) EXHIBITS
2.0 Merger Agreement dated August 29, 1997, as amended between Safe
Aid and INI
2.1 Extension Agreement dated October 31, 1997 between Safe Aid and
INI
3.0 Certificate of Amendment to Safe Aid's Certificate of
Incorporation (effectuating the Reverse Stock Split, Name Change
Amendment and Common Stock Amendment)
4.0 Certificate of Merger filed with the Delaware Secretary of State
4.1 Articles of Merger filed with the Florida Secretary of State
99.0 List of Principal Stockholders of Safe Aid after the Merger
Item 8. Change in Fiscal Year End
On February 9, 1998, the new management of Safe Aid decided to change
Safe Aid's fiscal year end from November 30, 1997 to December 31, 1997. Safe Aid
will file a transitional report for the one month period between November 30,
1997 (its previous fiscal year end) and December 31, 1997 (its new fiscal year
end) on its Form 10-QSB for the quarter ended March 31, 1998.
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
SAFE TECHNOLOGIES INTERNATIONAL, INC.
Date: February 23, 1998 By: /S/ Barbara L. Tolley
----------------- ------------------------------------
Barbara L. Tolley
Chief Executive Officer and Chairman
52