UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 5, 2004
UC HUB GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada 001-15665 88-0389393
- ---------------------------- ----------- -------------------
(State or other jurisdiction Commission (IRS Employer
of Incorporation) File Number Identification No.)
10390 Commerce Center Drive, Suite 250, Rancho Cucamonga, CA 91730
- ------------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (909) 945-8653
EXPERTISE TECHNOLOGY INNOVATION, INC.
9 Forest Road
Kirkland, Quebec H9J 3A2, Canada
(Former name or former address, if changed since last report.)
[ ]Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ]Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ]Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ]Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 9.01 Financial Statements and Exhibits. (old Item 7)
(a) Financial Statements of Business Acquired.
July 31, 2003 and 2002 Financial Statements with Audit Report of
Certified Public Accountants
Condensed Consolidated Interim Financial Information January 31, 2004
(Unaudited)
2
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 hereunto duly authorized.
UC HUB GROUP, INC.
/s/ Larry Wilcox
September 8, 2004 -------------------------------------
Larry Wilcox
President and Chief Executive Officer
3
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
JULY 31, 2003 AND 2002
FINANCIAL STATEMENTS WITH
AUDIT REPORT OF
CERTIFIED PUBLIC ACCOUNTANTS
F-1
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
Index to Financial Statements
Page
-----------
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets as of July 31, 2003 and 2002 F-4
Consolidated Statement of Losses
for the Years Ended July 31, 2003 and 2002 F-5
Consolidated Statement of Deficiency in Stockholders' Equity
for the Years Ended July 31, 2003 and 2002 F-6
Consolidated Statements of Cash Flows
for the Years Ended July 31, 2003 and 2002 F-7
Notes to Consolidated Financial Statements F-8 to F-22
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Condensed Consolidated Balance Sheet at January 31, 2004 F-23
Condensed Consolidated Statement of Losses
for the Six Months Ended January 31, 2004 and 2003 F-24
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended January 31, 2004 and 2003 F-25
Notes to Condensed Consolidated Financial Statements F-26 to F-30
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
United Communications Hub, Inc. and Subsidiary
Rancho Cucamonga, California
We have audited the accompanying consolidated balance sheet of United
Communications Hub, Inc. and Subsidiary as of July 31, 2003 and 2002 and the
related statements of losses, deficiency in stockholders' equity, and cash flows
for the period in the two years ended July 31, 2003. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on the financial statements based upon our audits.
We have 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 our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Communications Hub, Inc. and Subsidiary at July 31, 2003 and 2002 and the
consolidated results of its operations and its cash flows for the two years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As discussed in the Note F to the accompanying
financial statements, the Company has suffered recurring losses from operations.
This raises substantial doubt about the company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
November 29, 2003
F-3
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JULY 31, 2003 AND 2002
2003 2002
------------ ------------
ASSETS
Current Assets
Cash And Cash Equivalents $ 130,559 $ 139,388
Accounts Receivable, net of allowance of
$20,213 and $273,065 319,584 343,565
Other Current Assets -- 3,512
------------ ------------
Total Current Assets 450,143 486,465
Property and Equipment, net (Note D) 57,084 72,112
Other Assets - Deposits 7,025 7,025
------------ ------------
$ 514,252 $ 565,602
============ ============
LIABILITIES AND (DEFICIENCY) IN STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable and accrued expenses (Note G) $ 2,516,736 $ 2,536,137
Convertible Bridge Loan (Note H) 80,000 1,333,501
Notes Payable - Related Parties (Note I) 314,900 144,623
------------ ------------
Total Current Liabilities 2,911,636 4,014,261
Commitments and Contingencies (Note M) -- --
(Deficiency) in Stockholders' Equity (Note J)
Convertible Preferred stock, 5,000,000 shares
authorized, no par value per share;
2,561,864 issued and outstanding at
July 31, 2003 and 2002 820,000 820,000
Common Stock, 50,000,000 shares authorized,
no par value per share; 14,388,317 and
12,029,050 shares issued and outstanding at
July 31, 2003 and 2002, respectively 9,035,475 8,064,275
Stock Subscription Payable 2,205,172 199,900
Accumulated Deficit (14,458,031) (12,532,834)
------------ ------------
Total (Deficiency) in Stockholders' Equity (2,397,384) (3,448,659)
------------ ------------
$ 514,252 $ 565,602
============ ============
See accompanying notes to financial statements
F-4
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF LOSSES
FOR THE YEARS ENDED JULY 31, 2003 AND 2002
2003 2002
------------ ------------
Revenue $ 2,851,877 $ 3,145,410
Cost of Sales 1,920,615 2,235,738
------------ ------------
Gross Profit 931,262 909,672
Operating Expenses
Selling expenses 850,825 1,201,553
General and administrative expenses 1,373,253 1,954,464
Acquisition costs 399,600 3,750,000
Loss on sale of assets -- 407,230
Depreciation and amortization 15,028 10,281
------------ ------------
Total Operating Expenses 2,638,706 7,323,528
------------ ------------
Loss before other income and taxes (1,707,444) (6,413,856)
Other Income and Expenses
Interest expenses 217,753 91,831
Interest income -- (403)
------------ ------------
Total Other Income and Expenses 217,753 91,428
Income Taxes -- --
Net Loss $ (1,925,197) $ (6,505,284)
============ ============
Net Loss per share (basic and assuming dilution) $ (0.14) $ (0.56)
============ ============
Weighted Average Common Shares Outstanding 13,339,036 11,503,113
============ ============
See accompanying notes to financial statements
F-5
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 2003 AND 2002
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,925,197) $(6,505,284)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 15,028 10,281
Acquisition costs 399,600 3,750,000
Loss on disposal of long-lived assets -- 407,240
Common stock issued for services rendered 314,000 342,000
(Increase) decrease in assets
Accounts receivable 23,980 (324,081)
Other current assets -- 57,052
Other assets 3,512 (4,533)
Increase (decrease) in operating liabilities
Accounts payable (28,741) 447,005
Accrued expenses 68,249 68,500
Contract payable 79 686
Accrued interest 176,782 166,043
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (952,708) (1,585,091)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment -- (41,642)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES -- (41,642)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock subscription, net 21,000 199,900
Proceeds from sale of common stock, net 222,600 30,000
Proceeds from convertible loan, net 530,000 1,333,501
Proceeds from notes payable, net 170,277 144,623
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 943,877 1,708,024
Net Increase (Decrease) in Cash and Cash Equivalent (8,831) 81,291
Cash, beginning of period 139,388 58,097
----------- -----------
Cash, ending of period $ 130,557 $ 139,388
=========== ===========
Supplemental Disclosures:
Cash paid for interest $ -- $ --
=========== ===========
Cash paid for taxes $ -- $ --
=========== ===========
Non-Cash Investing and Financing Activities
Common stock issued for services $ 314,000 $ 342,000
=========== ===========
Common stock issued for interest payable $ 35,000 $ 20,000
=========== ===========
Notes payable and accrued interest converted to common stock $ 1,984,272 $ 820,000
=========== ===========
Loss on disposal of long-lived assets $ -- $ 407,240
=========== ===========
Acquisition:
Common stock issued $ 400,000 $ 3,750,000
Loss recognized on acquisition 399,600 3,750,000
----------- -----------
Net Assets acquired $ 400 $ --
=========== ===========
See accompanying notes to financial statements
F-6
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED JULY 31, 2003
COMMON STOCK PREFERRED STOCK SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAYABLE DEFICIT TOTAL
---------- ----------- --------- -------- ------------ ------------ -----------
Balance at July 31, 2001 11,145,850 $ 3,921,875 -- $ -- $ -- $ (6,027,550) $(2,105,675)
Issuance of common stock
for services rendered in
Sep 2001 at $2.50 share 20,000 50,000 -- -- -- -- 50,000
Issuance of common stock
for debt at $1.00
per share in Oct 2001 20,000 20,000 -- -- -- -- 20,000
Issuance of common stock
for services rendered in
Jan 2002 at $5.00 share 24,000 120,000 -- -- -- -- 120,000
Issuance of common stock
for services rendered in
Jan 2002 at $1.00 share 4,000 4,000 -- -- -- -- 4,000
Issuance of common stock
for services rendered in
Feb 2002 at $1.00 share 14,000 14,000 -- -- -- -- 14,000
Issuance of common stock
for services rendered in
Feb 2002 at $5.00 share 30,800 154,000 -- -- -- -- 154,000
Issuance of common stock
for investment in asset
in Mar 2002 at
$5.00 per share 750,000 3,750,000 -- -- -- -- 3,750,000
Issuance of common stock
pursuant to private
placement in Jun 2002 at
$1.50 per share 20,000 30,000 -- -- -- -- 30,000
Common stock subscribed
to through July 2002
at $5.00 per share -- -- -- -- 199,900 -- 199,900
Issuance of preferred
stock in exchange for
debt through July 31,
2002 at approximately
$0.32 per share -- -- 2,561,864 820,000 -- -- 820,000
AllCom USA Common Stock
outstanding stock 400 400 -- -- -- -- 400
Net (Loss) -- -- -- -- -- (6,505,284) (6,505,284)
---------- ----------- --------- -------- ---------- ------------ -----------
Balance at July 31, 2002 12,029,050 8,064,275 2,561,864 820,000 199,900 (12,532,834) (3,448,659)
Common stock issued
pursuant to a private
placement in Aug 2002 at
$1.20 per share 16,667 20,000 -- -- -- -- 20,000
Common stock issued
pursuant to a private
placement in Aug 2002 at
$1.00 per share 25,000 25,000 -- -- -- -- 25,000
Common stock issued
pursuant to a private
placement in Sep 2002 at
$1.00 per share 16,000 16,000 -- -- -- -- 16,000
Common stock issued
pursuant to a private
placement in Oct 2002 at
$1.00 per share 2,000 2,000 -- -- -- -- 2,000
Common stock issued
pursuant to a private
placement in Nov 2002 at
$0.10 per share 300,000 30,000 -- -- -- -- 30,000
Common stock issued for
services rendered in
Nov 2002 at
$1.00 per share 4,000 4,000 -- -- -- -- 4,000
Common stock issued
pursuant to a private
placement in Nov 2002 at
$1.00 per share 5,000 5,000 -- -- -- -- 5,000
Common stock issued
pursuant to a private
placement in Dec 2002 at
$0.10 per share 1,076,000 107,600 -- -- -- -- 107,600
Common stock issued for
services rendered in
Dec 2002 at
$1.00 per share 160,000 160,000 -- -- -- -- 160,000
Common stock issued
pursuant to a private
placement in Jan 2003 at
$0.10 per share 100,000 10,000 -- -- -- -- 10,000
Common stock issuance to
present acquisition of
asset for March 2003 at
$1.00 per share 400,000 400,000 -- -- -- -- 400,000
Retired AllCom USA stock (400) (400) -- -- -- -- (400)
Common stock issued
pursuant to a private
placement in Mar 2003 at
$0.10 per share 70,000 7,000 -- -- -- -- 7,000
Common stock issued for
services rendered in
Jun 2003 at
$1.00 per share 150,000 150,000 -- -- -- -- 150,000
Common stock issued for
extinguishment of debt
in Jun 2003 at
$1.00 per share 35,000 35,000 -- -- -- -- 35,000
Common stock subscribed
to through July 2003 at
$5.00 per share -- -- -- -- 21,000 -- 21,000
Common stock subscribed
to in return for
accrued interest at
July 31, 2003 -- -- -- -- 200,771 -- 200,771
Common stock subscribed
to in return for
convertible notes at
July 31, 2003 -- -- -- -- 1,783,501 -- 1,783,501
Net (Loss) -- -- -- -- -- (1,925,197) (1,925,197)
---------- ----------- --------- -------- ---------- ------------ -----------
Balance at July 31, 2003 14,388,317 $ 9,035,475 2,561,864 $820,000 $2,205,172 $(14,458,031) $(2,397,384)
=========== =========== ========= ======== ========== ============ ===========
See accompanying notes to financial statements
F-7
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Business and Basis of Presentation
- ----------------------------------
United Communications Hub Inc. ("Company" or "UC Hub") was formed on February
22, 1999 under the laws of the State of California. The Company, through its
wholly-owned subsidiary, AllCom USA, Inc. ("AllCom") is a reseller of
telecommunications services (see Note C).
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary AllCom. Significant inter-company transactions have
been eliminated in consolidation.
Liquidity
- ---------
As shown in the accompanying financial statements, the Company incurred a net
loss of $ 1,925,197 and $ 6,505,284 during the years ended July 31, 2003 and
2002, respectively. The Company's current liabilities exceeded its current
assets by $ 2,461,493 as of July 31, 2003 (see Note B).
Estimates
- ---------
The preparation of the financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Revenue Recognition
- -------------------
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
requires that four basic criteria must be met before revenue can be recognized
:(1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered and the collectibility of those amounts. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
The Company engages as a reseller of telephony services whereby the Company
resells services by a telecommunications provider. Revenues are recognized when
the contracted minutes are activated by the customer. The provider collects the
billings and allots the Company's share onto a lock-box.
Cash Equivalents
- ----------------
The Company considers cash on hand, deposits in banks, and short-term
investments purchased with an original maturity date of three months or less to
be cash and cash equivalents. The carrying amounts reflected in the balance
sheets for cash and cash equivalents approximate the fair values due to short
maturities of these instruments.
Income Taxes
- ------------
The Company has adopted Financial Accounting Standard No. 109 (SFAS 109) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Temporary differences between
taxable income reported for financial reporting purposes and income tax purposes
are insignificant.
F-8
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
- ----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using straight-line
methods over the estimated useful lives of the assets, principally three to five
years, or the term of the lease, if shorter, for leasehold improvements.
Impairment of Long-Lived Assets
- -------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
In October 2002, the Company completed the Capital Stock Exchange whereby the
Company acquired 100% of the outstanding common stock of AllCom USA Inc. in
exchange for 400,000 shares of the Company's common stock. This stock was valued
at a total of $400,000 based upon the average price of the underlying shares of
common stock for the ten business days immediately preceding the acquisitions.
The difference between the book value of $400 and the $400,000 value assigned to
the common shares, or $399,600, was charged to operations during the year ended
July 31, 2003.
In March 2002, the Company completed three Asset Purchase Agreements whereby the
Company acquired the net assets of (1) Data Disc, (2) Pacific Tech Partners and
(3) Educational Entertainment Inc. which is valued aggregately at $3,750,000 for
750,000 shares of the Company's common stock. This stock was valued at a total
of $3,750,000 based upon the average price of the underlying shares of common
stock for the ten business days immediately preceding the acquisitions. The
difference between the book value of $0 and $3,750,000 value assigned to the
common shares, or $3,750,000, was charged to operations during the year ended
July 31, 2003.
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
F-9
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Segment Information
- -------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segment.
Net Loss Per Share
- ------------------
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information. Basic earnings per share have
been calculated based upon the weighted average number of common shares
outstanding. Stock options and warrants have been excluded as common stock
equivalents in the diluted earnings per share because they are either
anti-dilutive, or their effect is not material.
Stock Based Compensation
- ------------------------
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations, in accounting for its stock option
plans. As such, compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No.123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123 which are
included in Note 17. The Company has also adopted the annual disclosure
provisions of SFAS No. 148 in its financial reports for the year ended July 31,
2002 and for the subsequent periods.
Had compensation cost for the Plans been determined based on the fair value at
the grant dates consistent with the method of SFAS 123, the Company's net loss
and net loss per common and common equivalent share for the years ended July 31,
2003 and 2002 would have been increased to the pro forma amounts indicated
below:
JULY 31,
----------------------------
2003 2002
----------- -----------
Net loss, as reported $(1,925,197) $(6,505,284)
Add: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (128,100) (1,522,575)
----------- -----------
Pro forma net loss $(2,053,297) $(8,027,859)
=========== ===========
Earnings per share:
Basic and diluted loss per share:
As reported $ (0.14) $ (0.56)
=========== ===========
Pro forma $ (0.15) $ (0.69)
=========== ===========
F-10
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation (continued)
- ------------------------------------
In accordance with EITF 96-18 the measurement date to determine fair value was
the date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued for
consulting services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
Concentrations of Credit Risk
- -----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit. The Company periodically reviews
its trade receivables in determining its allowance for doubtful accounts. The
allowance for doubtful accounts was $ 20,213 and $ 273,065 as of July 31, 2003
and 2002, respectively.
Advertising
- -----------
The Company will follow a policy of charging the costs of advertising to
expenses incurred. The Company incurred advertising expenses of $11,781 and
$34,102 during the years ended July 31, 2003 and 2002.
New Accounting Pronouncements
- -----------------------------
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 will not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 will not have a material impact on the Company's
results of operations or financial position.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its financial statements. Previously, the
criteria were based on control through voting interest. Interpretation 46
requires a variable interest entity to be by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. A company that consolidates a variable interest entity is called the
primary beneficiary of that entity. The consolidation requirements of
Interpretation 46 apply immediately to variable interest entities created after
January 31, 2003. The consolidation requirements apply to older entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. The Company does not expect the adoption to have a material impact
to the Company's financial position or Results of operations.
F-11
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements (continued)
- -----------------------------------------
During October 2003, the FASB issued Staff Position No. FIN 46 deferring the
effective date for applying the provisions of FIN 46 until the end of the first
interim or annual period ending after December 31, 2003, if the variable
interest was created prior to February 1, 2003, and the public entity has not
issued financial statements reporting that variable interest entity in
accordance with FIN 46. The FASB also indicated it would be issuing a
modification to FIN 46 prior to the end of 2003. Accordingly, the Company has
deferred the adoption of FIN 46 with respect to View's created prior to February
1, 2003. Management is currently assessing the impact, if any, FIN 46 may have
on the Company; however, management does not believe there will be any material
impact on its financial statements, results of operations or liquidity resulting
from the adoption of this interpretation.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements during the years ended July 31, 2003 and 2002, the Company
incurred losses of $1,925,197 and $6,505,284, respectively. In addition, the
Company has a stockholder's deficiency of $2,397,384. These factors among others
may indicate that the Company will be unable to continue as a going concern for
a reasonable period of time.
The Company's existence is dependent upon management's ability to develop
profitable operations. Management is devoting substantially all of its efforts
to becoming a public entity so that capital financing may be achieved. The
accompanying statements do not include any adjustments that might result should
the Company be unable to continue as a going concern.
In order to improve the Company's liquidity, the Company's management is
actively pursing additional equity financing through discussions with investment
bankers and private investors. There can be no assurance the Company will be
successful in its effort to secure additional equity financing.
NOTE C - ACQUISITIONS
Capital Stock Exchange Agreement
- --------------------------------
On October 23, 2002, the Company entered into a Capital Stock Exchange Agreement
with AllCom USA Inc. ("AllCom"). The cost of the common shares for the
acquisition was $400,000 in exchange for all of the issued and outstanding
shares of AllCom common stock. The net asset of AllCom was $400. The effective
date of the Capital Stock Exchange Agreement was October 25, 2002. AllCom is a
reseller of telecommunication services to corporate customers.
F-12
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE C - ACQUISITIONS (CONTINUED)
Capital Stock Exchange Agreement (continued)
- --------------------------------------------
As a result of the Company's lack of resources, the Company is unable to promote
and fund the telecommunications services acquired in connection with AllCom. In
accordance to SOP 98-5, management conservatively recognized the acquisition
cost of $399,600 as an expense during the year ended July 31, 2003.
Asset Purchase Agreements
- -------------------------
Pursuant to three Asset Purchase Agreements executed in March 2002, the Company
issued 750,000 shares of common stock to purchase the net assets of (1) Data
Disc, (2) Pacific Tech Partners and (3) Educational Entertainment Inc. which is
valued aggregately at $3,750,000.
As a result of the Company's lack of resources, the Company is unable to promote
and fund the telecommunications services acquired in connection with the three
companies. In accordance to SOP 98-5, the Company conservatively recognized the
acquisition costs of $3,750,000 as an expense during the year ended July 31,
2002.
July 31,
--------------------------
2003 2002
---------- ----------
Stock issued for acquisition $ 400,000 $3,750,000
Net assets received (400) --
---------- ----------
Acquisiton costs $ 399,600 $3,750,000
========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment at July 31, 2003 and 2002 consisted of the following:
2003 2002
------- -------
Office equipment and related equipment $57,001 $57,001
Furniture and fixtures 25,392 25,392
------- -------
82,393 82,393
Less accumulated depreciation 25,309 10,281
------- -------
Property and equipment - net $57,084 $72,112
======= =======
The Company incurred depreciation expense of $15,028 and $10,281 for the years
ended July 31, 2003 and 2002.
NOTE E - INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
F-13
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE E - INCOME TAXES (CONTINUED)
At July 31, 2003, the Company has available for federal income tax purposes a
net operating loss carry-forward of $14,000,000, expiring the year 2019, that
may be used to offset future taxable income. The Company has provided a
valuation reserve against the full amount of the net operating loss benefit. In
the opinion of management, it is more likely than not that the benefits will not
be realized based upon the earnings history of the Company. Due to significant
changes in the Company's ownership, the future use of its existing net operating
losses may be limited.
Components of deferred tax assets as of July 31, 2003 are as follows:
Non current:
Net operating loss carry-forward $4,900,000
Less: Valuation allowance 4,900,000
----------
Net deferred tax asset $ --
==========
NOTE F - LOSSES PER SHARE
The following table presents the computation of basic and diluted losses per
share:
July 31, 2003 July 31, 2002
------------- -------------
Loss available for common shareholders $ (1,925,197) $ (6,505,284)
============ ============
Basic and fully diluted loss per share $ (0.14) $ (0.56)
============ ============
Weighted average common shares outstanding 13,339,036 11,503,113
============ ============
Net loss per share is based upon the weighted average of shares of common stock
outstanding
NOTE G - ACCOUNTS PAYABLE AND ACCURED LAIBILITIES
Accounts payable and accrued liabilities at July 31, 2003 and 2002 are as
follows:
2003 2002
---------- ----------
Other accrued expenses in connection
with litigation (Note M) $1,072,238 $1,072,159
Accounts payable 934,525 927,374
Accrued payroll, payroll expenses and taxes 465,118 396,869
Accrued interest 13,567 72,555
Accrued expenses 31,288 67,180
---------- ----------
Total $2,516,736 $2,536,137
========== ==========
F-14
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE H - CONVERTIBLE PROMISSORY NOTES PAYABLE
A summary of convertible promissory notes payable at July 31, 2003 and 2002 are
as follows:
2003 2002
----------- -----------
Convertible notes payable, in quarterly
installments of interest only at 10% per annum,
secured by all assets of the Company and due on
June 30, 2003; The Company, in its sole
discretion, may prepay principal at any time
without penalty. Note holder has the option to
convert unpaid note principal together with
accrued and unpaid interest to the Company's
common stock at a price equal to of $0.75 per
share; the Company is in default under the terms
of the note agreements at July 31, 2003. $ 80,000 $ 1,333,501
=========== ===========
During the year ended July 31, 2002, the Company issued 32 convertible 10% notes
payable aggregating to $1,333,501 to accredited investors. At the option of the
holder, the note principal and any unpaid interest was convertible into shares
of the Company's common stock at a price of $0.75 per share. During the year
ended July 31, 2002, the Company incurred interest expense of $72,555 and was
outstanding as of July 31, 2002.
During the following year ended July 31, 2003, the Company issued an additional
16 convertible 10% notes payable aggregating to $530,000 to accredited
investors. The note principal and any unpaid interest are convertible into
shares of UC Hub common stock at a price of $0.75 per share. For the period from
August 1, 2002 through June 30, 2003, the convertible notes incurred an
additional expense of $141,782, which increased the interest payable to
$214,337.
On June 30, 2003, all, except three (3) note holders, opted to convert
$1,783,501 of principal and $200,771 of accrued and unpaid interest to 2,640,186
shares of the Company's restricted common stock. As of July 31, 2003, the
Company has not issued the 2,640,186 shares of common stock and has accounted
for the obligation as a stock subscription payable. In anticipation of a reverse
merger whereby the UC Hub shareholders are to exchange the acquiring company's
shares in return for those of the registrant, the Company has withheld issuing
UC Hub shares and is awaiting the execution of the reverse merger to issue the
registrant's common shares.
As of July 31, 2003, the Company was in default of the three (3) remaining
$80,000 of convertible notes payable and $13,567 of accrued and unpaid interest
payable.
NOTE I - NOTES PAYABLE - RELATED PARTY
The Company's shareholders and officers have advanced funds to the Company for
working capital purposes since the Company's inception. No formal repayment
terms or arrangements exist. The amount of the advances due at July 31, 2003 and
2002 were $314,900 and $ 144,623, respectively, net of cash repayments.
Subsequent to the date of the financial statements, the Company issued 206,000
shares of common stock in exchange for $179,790 of the outstanding advances.
F-15
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE J - CAPITAL STOCK
Convertible Preferred Stock
- ---------------------------
The Company is authorized to issue 5,000,000 shares of cumulative preferred
stock, no par value per share. The preferred shares are convertible to common
stock at a current ratio of 1:1. Preferred share holders earn dividends on the
net assets of the Company at a rate of $0.032 per share for every $1,000,000
raised by the Company through financing activities.
On July 31, 2002, the Company settled outstanding debt of $820,000 by issuing
2,561,864 shares of preferred stock at approximately $0.32 per share.
Common Stock
- ------------
The Company is authorized to issue 50,000,000 shares of common stock, with no
par value per share.
In September 2001, the Company issued 20,000 shares of common stock at $2.50 per
common share for services rendered valued at $50,000.
In October 2001, the Company issued 20,000 shares of common stock at $1.00 per
common share for services rendered valued at $20,000.
In January 2002, the Company issued 24,000 shares of common stock at $5.00 per
common share for services rendered valued at $120,000.
In January 2002, the Company issued 4,000 shares of common stock at $1.00 per
common share for services rendered valued at $4,000.
In February 2002, the Company issued 14,000 shares of common stock at $1.00 per
common share for services rendered valued at $14,000.
In February 2002, the Company issued 30,800 shares of common stock at $5.00 per
common share for services rendered valued at $154,000.
Pursuant to three Asset Purchase Agreements executed in March 2002, the Company
issued 750,000 shares of common stock to purchase the net assets of (1) Data
Disc, (2) Pacific Tech Partners and (3) Educational Entertainment Inc. which is
valued aggregately at $3,750,000.
Pursuant to a private placement memorandum, the Company sold 20,000 shares of
common stock at $1.50 per share in June 2002 for gross proceeds of $30,000.
Pursuant to a private placement memorandum, the Company sold 16,667 shares of
common stock at $1.20 per share in August 2002 for gross proceeds of $20,000.
Pursuant to a private placement memorandum, the Company sold 25,000 shares of
common stock at $1.00 per share in August 2002 for gross proceeds of $25,000.
Pursuant to a private placement memorandum, the Company sold 16,000 shares of
common stock at $1.00 per share in September 2002 for gross proceeds of $16,000.
F-16
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE J - STOCKHOLDERS' DEFICIENCY (CONTINUED)
Common Stock (continued)
- ------------------------
Pursuant to a private placement memorandum, the Company sold 2,000 shares of
common stock at $1.00 per share in October 2002 for gross proceeds of $2,000.
Pursuant to a private placement memorandum, the Company sold 300,000 shares of
common stock at $0.10 per share in November 2002 for gross proceeds of $30,000.
In October 2001, the Company issued 4,000 shares of common stock at $1.00 per
common share for services rendered valued at $4,000.
Pursuant to a private placement memorandum, the Company sold 5,000 shares of
common stock at $1.00 per share in November 2002 for gross proceeds of $5,000.
Pursuant to a private placement memorandum, the Company sold 1,076,000 shares of
common stock at $0.10 per share in December 2002 for gross proceeds of $107,600.
In December 2002, the Company issued 160,000 shares of common stock at $1.00 per
common share for services rendered valued at $160,000.
Pursuant to a private placement memorandum, the Company sold 100,000 shares of
common stock at $0.10 per share in January 2003 for gross proceeds of $10,000.
Pursuant to a Capital Stock Exchange Agreement executed in October 2002, the
Company issued 400,000 shares of common stock valued at $400,000 in exchange for
all the outstanding stock of AllCom USA.
Pursuant to a private placement memorandum, the Company sold 70,000 shares of
common stock at $0.10 per share in March 2003 for gross proceeds of $7,000.
In June 2002, the Company issued 150,000 shares of common stock at $1.00 per
common share for services rendered valued at $150,000.
In June 2003, the Common stock settled debt of $35,000 by issuing 35,000 shares
of common stock at $1.00 per share
Stock subscription
- ------------------
In July 2002, the Common received cash proceeds of $199,900 for stock subscribed
at $5.00 per share. To date, the Company has not issued the subscribed stock.
In July 2003, the Common received cash proceeds of $21,000 for stock subscribed
at $5.00 per share. To date, the Company has not issued the subscribed stock.
On June 30, 2003, the Company transferred $1,783,501 of convertible note
principal and $200,771 of accrued and unpaid interest as a stock subscription
for 2,640,186 shares of the Company's restricted common stock. In anticipation
of a reverse merger whereby the UC Hub shareholders are to exchange the
acquiring company's shares in return for those of the registrant, the Company
has withheld issuing UC Hub shares and is awaiting the execution of the reverse
merger to issue the registrant's (ETI) common shares.
F-17
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE K - WARRANTS
Non- Employee warrants
- ----------------------
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These options were granted in lieu of cash
compensation in connection with issuance of the Company's debt.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted
Average Weighed Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
$ 0.01 3,000 3.42 $ 0.01 3,000 $ 0.01
1.00 332,775 1.79 0.98 332,775 0.98
5.00 3,080 8.42 0.05 3,080 0.05
------- ------- --------
338,855 338,855 $ 1.03
======= ======= ========
Transactions involving warrants issued to non-employees are summarized as
follows:
Weighted
Number of Average Price
Shares Per Share
------- --------
Outstanding at July 31, 2001 -- --
Granted 327,763 $ 1.03
Exercised -- --
Canceled or expired -- --
------- --------
Outstanding at July 31, 2002 327,763 1.03
Granted 11,092 1.00
Exercised -- --
Canceled or expired -- --
------- --------
Outstanding at July 31, 2003 338,855 $ 1.03
======= ========
All options granted to non-employees are non-compensatory and the exercise
prices of options are higher than the fair market value of the Company's common
stock. There were no expenses and fees charged to operations for the years ended
July 31, 2003 and 2002.
NOTE L - OPTIONS
At July 31, 2003, the Company has no formal stock option plans. The Board of
Director has granted options that have an exercise price equal to the fair
market price of the Common Stock on the grant date.
F-18
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE L - OPTIONS (CONTINUED)
A summary of these options as of July 31, 2003 and 2002, and the changes during
the years ended July 31, 2003 and 2002 is presented below:
Average
Exercise
Options Price
--------- ----
Outstanding at beginning of period 07/31/01 1,500,000 $ --
Granted 15,000 1.01
Exercised -- --
Canceled -- 0.00
--------- ----
Outstanding at end of year 07/31/02 1,515,000 1.01
Granted -- --
Exercised -- 0.00
Canceled -- 0.00
--------- ----
Outstanding at end of year 07/31/03 1,515,000 1.01
========= ====
Options exercisable at period end 07/31/02 1,515,000
=========
07/31/03 1,515,000
=========
Through 2001, the Company granted 1,500,000 options outside of any stock option
plans to certain officers and directors of the Company, which are exercisable
over a period of five (5) years from date of grant.
In 2002, options were granted to an individual as compensation for services
rendered to the Company. The options were exercisable upon issuance and expire
on August 31, 2004.
The following table summarizes information about stock options outstanding at
July 31, 2003:
Number Weighted- Number
Range Outstanding Average Exercisable
Of Exercise at Remaining at
Prices July 31, 2003 Life (Yrs.) July 31, 2004
-------- --------- ---------- ---------
$ 1.00 1,500,000 3 3/7 1,500,000
1.50 15,000 3 3/7 15,000
--------- ---------
1,515,000 1,515,000
========= =========
As provided by SFAS 148, the fair value of each option granted is estimated on
the date of grant using the minimum value method, and the fair value of each
option grant is estimated on the date of grant using the Black-Sholes option
pricing model. The following weighted-average assumptions were used for option
grants during 2003 with an expected life of five years: (1) dividend yield of
0.0%; (2) expected volatility of 98.76%; and (3) risk-free interest rate of
3.98%. The following weighted-average assumptions were used for option grants
during 2001 with an expected life of five years: (1) dividend yield of 0.0%; (2)
expected volatility of 191%; and (3) risk-free interest rate of 4.38%. There
were no new option grants in 2002.
F-19
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE L - OPTIONS (CONTINUED)
Had compensation cost for the Plans been determined based on the fair value at
the grant dates consistent with the method of SFAS 123, the Company's net loss
would have been increased to $(2,053,297) and $(7,937,859), respectively.
Accordingly, the Company net loss per common and common equivalent share for the
years ended July 31, 2003 and 2002 would have been increased $0.01 per share to
$ (0.08) and $ (0.10), respectively.
NOTE M - COMMITMENTS AND CONTINGENCIES
Lease Commitments
- -----------------
The Company leases office space in Southern California for its sales and
administrative offices. The lease is non-cancelable and expires in 2007.
Commitments under non-cancelable lease agreements as of July 31, 2003 are as
follows:
Year Amount
---- --------
2004 $ 76,636
2005 79,188
2006 81,824
2007 48,376
--------
Total $286,024
========
To secure each respective office space, the Company deposited $7,025 in
aggregate to the realtor for each respective lease.
Rent expense charged to operations was $92,373 and 110,311 for the years ended
July 31, 2003 and 2002, respectively.
Employment and Consulting Agreements
- ------------------------------------
The Company has an employment agreement with the former owners of AllCom. In
addition to salary and benefit provisions, the agreements include defined
commitments should the employees terminate the employment with or without cause.
Employment and Consulting Agreements (continued)
- ------------------------------------------------
The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. The Agreements are generally for a term of 12
months from inception and renewable automatically from year to year unless
either the Company or Consultant terminates such engagement by written notice.
Litigation
- ----------
In November, 2001 the Company was ordered to pay $31,288 in connection with a
breach of contract. The Company is in default under the order and the amount of
the judgment is included in accounts payable at July 31, 2003 and 2002.
F-20
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (continued)
- ----------------------
During the fiscal year ended July 31, 2000, the Company engaged Qwest
Communications ("Qwest" or "Vendor") as the Company's primary long distance
carrier. Significant disputes arose regarding, among others, the accuracy of
Vendor invoices. In recognition of certain inaccuracies, Qwest initially offered
to issue a credit of $495,000, which reflects a portion of the Company's
adjustments and damages incurred by the Company. The vendor never issued the
credit and both parties were not able to resolve their disputes. Around May 14,
2001, UC Hub filed a multi-count lawsuit against Qwest in the Federal District
Court of California. The Company claims that 1) Qwest breached the Wholesale
Services Agreement, 2) that Qwest engaged in fraudulent and negligent conduct,
3) that Qwest tortuously interfered with the Company's business and
relationships, 4) that Qwest violated various statutes, including the
Communications Act of 1934 and the California Business and Professional Code
(Unfair Trade Practices). Although the outcome of any litigation cannot be
predicted with certainty, the Company is confident that the Company will recover
a substantial net monetary recovery from Qwest.
In May, 2001, the Vendor filed a complaint against the Company in Federal
District Court of California. The Complainant alleges a breach of contract and
is seeking actual and punitive damages, amounting to $1,739,757. The Company has
accounted the full amount as accrued liabilities as of July 31, 2003 and 2002,
less off-setting credits of $667,519. However, the Company believes that it has
meritorious defenses to the plaintiff's claims and intends to vigorously defend
itself against the plaintiff's claims.
The Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity.
NOTE N - MAJOR VENDORS
Purchases from two (2) major suppliers of telecommunications services
approximated $1,715,000 and $1,890,000, or 61% and 58% of cost of sales for the
years ended July 31, 2003 and 2002, respectively. The two (2) major suppliers
are approximately 44% for all current liabilities for the years ended July 31,
2003 and 2002.
NOTE O - SUBSEQUENT EVENTS
Acquisition and Capital Restructure
- -----------------------------------
On March 5, 2004, the Company entered into an Agreement and Plan of Merger
("Merger") with Expertise Technology Innovation, Inc. ("ETI") an inactive
publicly registered shell corporation with no significant assets or operations.
For accounting purposes, the Company shall be the surviving entity. In
accordance with SFAS No. 141, the Company was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in
substance the Agreement is a recapitalization of the Company's capital
structure.
F-21
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002
NOTE O - SUBSEQUENT EVENTS (CONTINUED)
Acquisition and Capital Restructure (continued)
- -----------------------------------------------
For accounting purposes, the Company has accounted for the transaction as a
reverse acquisition and the Company shall be the surviving entity. The total
purchase price and carrying value of net assets acquired was $(45,764). From
March, 1998 until the date of the merger, ETI was an inactive corporation with
no significant assets and liabilities The Company did not recognize goodwill or
any intangible assets in connection with the transaction.
Effective with the Merger , all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders will be
exchanged for an aggregate of 4,188,375 shares newly issued ETI Series A
Preferred Stock. The value of the stock that will be issued will be the
historical cost of ETI's net tangible assets, which did not differ materially
from their fair value.
Effective with the Merger, ETI will change its name to UC Hub Group, Inc.
F-22
UNITED COMMUNICATIONS HUB, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 31, 2004
(UNAUDITED)
ASSETS
Current Assets
Cash And Cash Equivalents $ 52,350
Accounts Receivable, net 319,584
------------
Total Current Assets 371,934
Property and Equipment, net 49,770
Other Assets 7,025
------------
Total Assets $ 428,729
============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS EQUITY
Liabilities
Current Liabilities
Accounts Payable and Accrued Expenses (Note D) $ 2,688,609
Notes Payable - Others 339,900
------------
Total Current Liabilities 3,028,509
Commitments and Contingencies --
Deficiency in Stockholders Equity
Convertible Preferred Stock,
5,000,000 shares authorized,
no par value per share;
none issued and outstanding --
Common Stock, 50,000,000 shares
authorized, no par value per share;
19,714,219 shares issued and outstanding 11,933,314
Stock Subscription Payable 220,900
Accumulated Deficit (14,753,994)
------------
Total Deficiency in Stockholders Equity (2,599,780)
------------
Total Liabilities and Deficiency in
Stockholders Equity $ 428,729
============
See accompanying footnotes to the unaudited condensed
consolidated financial information
F-23
UNITED COMMUNICATIONS HUB, INC.
CONDENSED CONSOLIDATED STATEMENT OF LOSSES
FOR THE SIX MONTHS ENDED
JANUARY 31, 2004 AND 2003
(UNAUDITED)
2004 2003
------------ ------------
Revenue $ 1,228,290 $ 2,359,348
Cost of Sales 965,384 2,387,247
------------ ------------
Gross Profit 262,906 (27,899)
Operating Expenses
Selling 175,949 366,640
General and Administrative 363,351 644,590
Loss On Sale Of Assets -- 56,024
Depreciation And Amortization 7,514 8,117
------------ ------------
Total Operating Expenses 546,814 1,075,371
------------ ------------
Loss from Operations (283,908) (1,103,270)
Interest Expenses 12,055 22,312
------------ ------------
Net Loss $ (295,963) $ (1,125,582)
============ ============
Net Loss per share (basic and assuming dilution) $ (0.02) $ (0.09)
============ ============
Weighted Average Common Shares Outstanding 17,156,444 12,519,778
============ ============
See accompanying footnotes to the unaudited condensed
consolidated financial information
F-24
UNITED COMMUNICATIONS HUB, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2004 AND 2003
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (295,963) $(1,125,582)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and Amortization 7,514 8,117
Common stock issued for services rendered -- 164,000
(Increase) decrease in assets
Accounts receivable -- 343,565
Other assets -- 134
Increase (decrease) in Operating Liabilities
Accounts payable (102,913) 82,733
Accrued expenses 288,353 35,032
Contingent liabilities -- 79
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (103,009) (491,922)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments of security deposit -- (26,477)
Payments for asset purchases (200) --
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (200) (26,477)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock subscription -- 21,000
Proceeds from sale of common stock -- 215,600
Proceeds from convertible loan proceeds -- 122,000
Proceeds from notes payable 25,000 45,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,000 403,600
Net decrease in cash (78,209) (114,799)
Cash, beginning of period 130,559 139,389
----------- -----------
Cash, ending of period $ 52,350 $ 24,590
=========== ===========
Supplemental Disclosures:
Cash paid for interest $ -- $ --
=========== ===========
Cash paid for taxes $ -- $ --
=========== ===========
Non-Cash Investing and Financing Activities
Common stock issued for services $ -- $ 164,000
=========== ===========
Notes payable converted to Common Stock $ 93,567 $ --
=========== ===========
Preferred Stock converted to Common Stock $ 820,000 $ --
=========== ===========
Stock issuance for subscription $ 1,984,272 $ --
=========== ===========
See accompanying footnotes to the unaudited condensed
consolidated financial information
F-25
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JANUARY 31, 2004
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- -------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Item 310 of SEC Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the six-month period ended January
31, 2004 are not necessarily indicative of the results that may be expected for
the year ended July 31, 2004.
Business and Basis of Presentation
- ----------------------------------
United Communications Hub Inc. ("Company" or "UC Hub") was formed on February
22, 1999 under the laws of the State of California. The Company, through its
wholly-owned subsidiary, AllCom USA, Inc. ("AllCom") is a reseller of
telecommunications services.
The condensed consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiary AllCom. Significant inter-company
transactions have been eliminated in consolidation.
Liquidity
- ---------
As shown in the accompanying financial statements, the Company incurred a net
loss of $295,963 and $1,125,582 during the six months ended January 31, 2004 and
2003, respectively. The Company's current liabilities exceeded its current
assets by $2,656,575 as of January 31, 2004.
Reclassification
- ----------------
Certain prior period amounts have been reclassified for comparative purposes.
Stock Based Compensation
- ------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended July 31, 2002 and for the
subsequent periods.
In accordance with EITF 96-18 the measurement date to determine fair value was
the date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued for
consulting services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
F-26
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JANUARY 31, 2004
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation (continued)
- ------------------------
Had compensation cost for the Plans been determined based on the fair value at
the grant dates consistent with the method of SFAS 123, the Company's net loss
and net loss per common and common equivalent share for the six months ended
January 31, 2004 and 2003 would have been increased to the pro forma amounts
indicated below:
2003 2002
--------- -----------
Net loss, as reported $(295,963) $(1,125,582)
Add: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects -- --
--------- -----------
Pro forma net loss $(295,963) $(1,125,582)
========= ===========
Earnings per share:
Basic and diluted loss per share:
As reported $ (0.02) $ (0.09)
========= ===========
Pro forma $ (0.02) $ (0.09)
========= ===========
New Accounting Pronouncements
- -----------------------------
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement amends Statement 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to Statement
133, (2) in connection with other Board projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net investment that is smaller than would be required for other
types of contracts that would be expected to have a similar response to changes
in market factors, the meaning of underlying, and the characteristics of a
derivative that contains financing components. The Company does not anticipate
that the adoption of this pronouncement will have a material effect on the
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Some of the provisions of this Statement
are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions of
this Statement are consistent with the Board's proposal to revise that
definition to encompass certain obligations that a reporting entity can or must
settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment until it has concluded its
deliberations on the next phase of this project. That next phase will deal with
certain compound financial instruments including puttable shares, convertible
bonds, and dual-indexed financial instruments. The Company does not anticipate
that the adoption of this pronouncement will have a material effect on the
financial statements.
F-27
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JANUARY 31, 2004
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements (continued)
- -----------------------------
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
NOTE B - ACQUISTION AND CAPITAL RESTRUCTURE
On March 5, 2004, the Company entered into an Agreement and Plan of Merger
("Merger") with UCH an inactive publicly registered shell corporation with no
significant assets or operations. For accounting purposes, the Company shall be
the surviving entity. In accordance with SFAS No. 141, the Company was the
acquiring entity. While the transaction is accounted for using the purchase
method of accounting, in substance the Agreement is a recapitalization of the
Company's capital structure
For accounting purposes, the Company has accounted for the transaction as a
reverse acquisition and the Company shall be the surviving entity. The total
purchase price and carrying value of net assets acquired was $(45,764). From
March, 1998 until the date of the merger, UCH was an inactive corporation with
no significant assets and liabilities The Company did not recognize goodwill or
any intangible assets in connection with the transaction.
Effective with the Merger , all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders will be
exchanged for an aggregate of 4,188,375 shares newly issued UCH Series-A
Preferred Stock. The value of the stock that will be issued will be the
historical cost of ETI's net tangible assets, which did not differ materially
from their fair value.
Effective with the Merger, the name of Expertise Technology Innovations, Inc.
was changed to UC Hub Group, Inc. ("UCH"). The total purchase price and carrying
value of net assets acquired of UCH was $(45,764). The net assets acquired were
as follows:
Common stock retained by ETI shareholders $ 1,988
Assets acquired --
Liabilities assumed 43,776
-------
Total consideration paid $45,764
=======
In accordance with SOP 98-5, the Company expensed $45,764 as organization costs.
F-28
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JANUARY 31, 2004
(UNAUDITED)
NOTE C - CAPITAL STOCK
Convertible Preferred Stock
- ---------------------------
The Company is authorized to issue 5,000,000 shares of cumulative preferred
stock, no par value per share. The preferred shares are convertible to common
stock at a current ratio of 1:1. Preferred share holders earn dividends on the
net assets of the Company at a rate of $0.032 per share for every $1,000,000
raised by the Company through financing activities.
On October 31, 2003, the Company converted 2,561,864 shares of preferred stock
to 2,561,864 shares of common stock.
Common Stock
- ------------
The Company is authorized to issue 50,000,000 shares of common stock, with no
par value per share. As of January 31, 2004, the Company has issued and
outstanding 19,714,219 shares of common stock.
On October 31, 2003, the Company converted 2,561,864 shares of preferred stock
to 2,561,864 shares of common stock.
On October 25, 2003, the Company issued 2,764,038 shares of common stock to
complete the conversion of $2,073,011.84 of Note Payable principal and accrued
interest. The Company valued the shares issued at approximately $0.75 per share,
which represents the fair value of the services received which did not differ
materially from the value of the stock issued.
In accordance with EITF 96-18 the measurement date to determine fair value was
the date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued for
consulting services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
NOTE D - ACCOUNTS PAYABLE AND ACCURED LAIBILITIES
Accounts payable and accrued liabilities at January 31, 2004 are as follows:
Other accrued expenses in connection with
litigation (Note E) $1,072,238
Accrued payroll, payroll expenses and taxes 763,284
Accounts payable 821,799
Accrued expenses 31,288
----------
Total $2,688,609
==========
NOTE E - COMMITMENTS AND CONTINGENCIES
Lease Commitments
- -----------------
The Company leases office space in Southern California for its sales and
administrative offices. The lease is non-cancelable and expires in 2007.
Commitments under non-cancelable lease agreements as of July 31, 2003 are as
follows:
Year Amount
---- --------
2004 $ 76,636
2005 79,188
2006 81,824
2007 48,376
--------
Total $286,024
F-29
UNITED COMMUNICATIONS HUB, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JANUARY 31, 2004
(UNAUDITED)
NOTE E - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease Commitments (continued)
- -----------------
To secure each respective office space, the Company deposited $7,025 in
aggregate to the realtor for each respective lease.
Rent expense charged to operations was $92,373 and 110,311 for the years ended
July 31, 2003 and 2002, respectively.
Employment and Consulting Agreements
- ------------------------------------
The Company has an employment agreement with the former owners of AllCom. In
addition to salary and benefit provisions, the agreements include defined
commitments should the employees terminate the employment with or without cause.
The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. The Agreements are generally for a term of 12
months from inception and renewable automatically from year to year unless
either the Company or Consultant terminates such engagement by written notice.
Litigation
- ----------
In November, 2001 the Company was ordered to pay $31,288 in connection with a
breach of contract. The Company is in default under the order and the amount of
the judgment is included in accounts payable at July 31, 2003 and 2002.
During the fiscal year ended July 31, 2000, the Company engaged Qwest
Communications ("Qwest" or "Vendor") as the Company's primary long distance
carrier. Significant disputes arose regarding, among others, the accuracy of
Vendor invoices. In recognition of certain inaccuracies, Qwest initially offered
to issue a credit of $495,000, which reflects a portion of the Company's
adjustments and damages incurred by the Company. The vendor never issued the
credit and both parties were not able to resolve their disputes. Around May 14,
2001, UC Hub filed a multi-count lawsuit against Qwest in the Federal District
Court of California. The Company claims that 1) Qwest breached the Wholesale
Services Agreement, 2) that Qwest engaged in fraudulent and negligent conduct,
3) that Qwest tortuously interfered with the Company's business and
relationships, 4) that Qwest violated various statutes, including the
Communications Act of 1934 and the California Business and Professional Code
(Unfair Trade Practices). Although the outcome of any litigation cannot be
predicted with certainty, the Company is confident that the Company will recover
a substantial net monetary recovery from Qwest.
In May, 2001, the Vendor filed a complaint against the Company in Federal
District Court of California. The Complainant alleges a breach of contract and
is seeking actual and punitive damages, amounting to $1,739,757. The Company has
accounted the full amount as accrued liabilities as of July 31, 2003 and 2002,
less off-setting credits of $667,519 . However, the Company believes that it has
meritorious defenses to the plaintiff's claims and intends to vigorously defend
itself against the plaintiff's claims.
The Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity.
F-30
(b) Pro Forma Financial Information.
Condensed Consolidated Pro Forma Unaudited
Balance Sheet as of January 31, 2004 F-32
Condensed Consolidated Pro Forma Unaudited
Statement of Losses for the Year Ended July 31, 2003 F-33
Condensed Consolidated Pro Forma Unaudited
Statement of Losses for the Six Months Ended
January 31, 2004 F-34
Notes to Condensed Consolidated Pro Forma Unaudited F-35
Financial Statements
Unaudited Pro Forma Condensed Financial Information
On March 5, 2004, UC Hub completed an Agreement and Plan of Reorganization
("Agreement") with Expertise Technology Innovation, Inc., now known as UC Hub
Group, Inc. ("UCH") an inactive publicly registered shell corporation with no
significant assets or operations. For accounting purposes, UC Hub shall be the
surviving entity. The transaction is accounted for using the purchase method of
accounting. The total purchase price and carrying value of net assets acquired
of UCH was approximately $(45,764). From March, 1998 until the date of the
merger, UCH was an inactive corporation with no significant assets and
liabilities.
The Proforma Unaudited Financial Statements have been prepared by management of
UC Hub in order to present consolidated financial position and results of
operations of UCH and UC Hub as if the acquisition had occurred as of January
31, 2004 for the pro forma condensed balance sheet and to give effect to the
acquisition of UCH , as if the transaction had taken place at August 1, 2002 for
the pro forma condensed consolidated statement of losses for the year ended July
31, 2003, and at August 1, 2003 for the proforma condensed consolidated
statement of losses for the six months ended January 31, 2004.
The pro forma information is based on historical financial statements giving
effect to the proposed transactions using the purchase method of accounting and
the assumptions and adjustments in the accompanying notes to the pro forma
financial statements. The unaudited pro forma financial information is not
necessarily indicative of the actual results of operations or the financial
position which would have been attained had the acquisitions been consummated at
either of the foregoing dates or which may be attained in the future. The pro
forma financial information should be read in conjunction with the historical
consolidated financial statements of UC Hub (including notes thereto) included
in this Form.
Effective with the Agreement, all previously outstanding common stock, preferred
stock, options and warrants owned by UC Hub stockholders were exchanged for an
aggregate of 4,188,375 shares of UCH Series-A Preferred Stock. The value of the
stock that was issued was the historical cost of UC Hub's net tangible assets,
which did not differ materially from their fair value. In accordance with
Statement of Financial Accounting Standards No. 141, UC Hub is the acquiring
entity.
F-31
EXPERTISE TECHNOLOGY INNOVATION, INC,
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED BALANCE SHEET
January 31, 2004
Proforma Proforma
UC Hub ETI Total Eliminations Consolidation
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current Assets
Cash And Cash Equivalents $ 52,350 $ -- $ 52,350 $ -- $ 52,350
Accounts Receivable 319,584 -- 319,584 -- 319,584
Other Current Assets -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Current Assets 371,934 -- 371,934 -- 371,934
Property and Equipment - net 49,770 -- 49,770 -- 49,770
Other Assets 7,025 -- 7,025 -- 7,025
------------ ------------ ------------ ------------ ------------
Total Assets $ 428,729 $ -- $ 428,729 $ -- $ 428,729
============ ============ ============ ============ ============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS EQUITY
Liabilities
Current Liabilities
Accounts payable and accrued expenses $ 2,688,609 $ 43,776 $ 2,732,385 $ -- $ 2, 732,385
Notes Payable - Others 339,900 -- 339,900 -- 339,900
------------ ------------ ------------ ------------ ------------
Total Current Liabilities 3,028,509 43,776 3,072,285 -- 3,072,285
Commitments and Contingencies -- -- -- -- --
Deficiency in Stockholders Equity
Convertible deferred stock, 5,000,000 shares
authorized, no par value per share; -0- issued
and outstanding -- -- -- -- --
Preferred stock, par value $.001 per share;
authorized 5,000,000 shares; 4,188,375 issued and
outstanding shares -- -- -- 4,188 4,188
Common Stock, 50,000,000 shares authorized, no
par value per share; 19,714,219 shares issued and
outstanding 11,933,314 -- 11,933,314 (11,933,314) --
Common stock, par value $.001 per share;
authorized 100,000,000 shares; 1,987,734 issued
and outstanding shares -- 1,988 1,988 -- 1,988
Stock Subscription Payable 220,900 -- 220,900 (220,900) --
Additional Paid In Capital -- 626,512 626,512 11,477,750 12,104,262
Accumulated Deficit (14,753,994) (672,276) (15,426,270) 672,276 (14,753,994)
------------ ------------ ------------ ------------ ------------
Total Deficiency in Stockholders Equity (2,599,780) (43,776) (2,643,556) -- (2,643,556)
------------ ------------ ------------ ------------ ------------
Total Liabilities and Deficiency in Stockholders
Equity $ 428,729 $ -- $ 428,729 $ -- $ 428,729
============ ============ ============ ============ ============
See accompanying notes to proforma unaudited consolidated financial statements
F-32
EXPERTISE TECHNOLOGY INNOVATION, INC,
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED STATEMENT OF LOSSES
For The Six Months Ended
January 31, 2004
Proforma Proforma
UC Hub ETI Total Adjustments Consolidation
----------- ----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
Revenue $ 1,053,117 $ -- $ 1,053,117 $ -- $ 1,053,117
Cost of Sales 1,081,017 -- 1,081,017 -- 1,081,017
----------- ----------- ----------- -------- -----------
Gross Profit (27,899) -- (27,899) -- (27,899)
Operating Expenses
Selling Expenses 366,640 -- 366,640 -- 366,640
General and Administrative
Expenses 644,591 2,066 646,657 -- 646,657
Loss On Sale Of Investments
& Assets -- -- -- -- --
Loss / (Gain) On Sale Of Assets 56,024 -- 56,024 -- 56,024
Depreciation And Amortization 8,117 -- 8,117 -- 8,117
----------- ----------- ----------- -------- -----------
Total Operating Expenses 1,075,372 2,066 1,077,438 -- 1,077,438
----------- ----------- ----------- -------- -----------
Loss Before Other Income and
Taxes (1,103,271) (2,066) (1,105,337) -- (1,105,337)
Other Income and Expenses
Interest Expenses - Others 22,378 -- 22,378 -- 22,378
Interest Income (66) -- (66) -- (66)
----------- ----------- ----------- -------- -----------
Total Other Income and Expenses 22,312 -- 22,312 -- 22,312
----------- ----------- ----------- -------- -----------
Net Loss $(1,125,583) $ (2,066) $(1,127,649) $ -- $(1,127,649)
=========== =========== =========== ======== ===========
See accompanying notes to proforma unaudited consolidated financial statements
F-33
EXPERTISE TECHNOLOGY INNOVATION, INC,
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED STATEMENT OF LOSSES
For The Year Ended
July 31, 2003
Proforma Proforma
UC Hub ETI Total Adjustments Consolidation
----------- ----------- ----------- ---------- -------------
(Unaudited) (Unaudited)
Revenue $ 2,851,877 $ -- $ 2,851,877 $ -- $ 2,851,877
Cost of Sales 1,920,615 -- 965,384 -- 965,384
----------- ----------- ----------- ---------- -----------
Gross Profit 931,262 -- 931,262 -- 931,262
Operating Expenses
Selling 850,825 -- 850,825 -- 850,825
General and Administrative 1,373,253 62,066 1,435,319 -- 1,435,319
Acquisition costs 399,600 -- 399,600 -- 399,600
Depreciation And Amortization 15,028 -- 15,028 -- 15,028
----------- ----------- ----------- ---------- -----------
Total Operating Expenses 2,638,706 62,066 2,700,772 -- 2,700,772
----------- ----------- ----------- ---------- -----------
(Income) Loss Before Other Income and Taxes (1,707,444) (62,066) (1,769,510) -- (1,769,510)
Interest Expense 217,753 -- 217,753 -- 217,753
----------- ----------- ----------- ---------- -----------
Net Loss $(1,925,197) $ (62,066) $(1,987,263) $ -- $(1,987,263)
=========== =========== =========== ========== ===========
See accompanying notes to proforma unaudited consolidated financial statements
F-34
EXPERTISE TECHNOLOGY INNOVATION, INC.
NOTES TO CONDENSED PRO FORMA UNAUDITED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Financial Information
The Proforma Unaudited Condensed Financial Statements have been prepared in
order to present consolidated financial position and results of operations of
UCH and UCHub as if the acquisition had occurred as of January 31, 2004 for the
pro forma condensed balance sheet and to give effect to the acquisition of UCH,
as if the transaction had taken place at August 1, 2002 for the pro forma
condensed consolidated statement of losses for the year ended July 31, 2003
The following pro forma adjustments are incorporated into the pro forma
condensed consolidated balance sheet as of January 31, 2004 and the pro forma
condensed consolidated statement of losses for the year ended July 31, 2003
(1) To record the issuance of 4,188,375 shares of UCH Series-A Preferred Stock
common stock in exchange for 19,758,399 shares of issued and outstanding shares
of UC Hub.
(2) To record the acquisition of UCH for stock. The significant components of
this transaction are:
Common stock retained by UCH shareholders $ 1,988
Liabilities assumed 43,776
-------
Total consideration paid $45,764
=======
In accordance with SOP 98-5, the Company will expense as organization costs the
$45,764.
UCH was originally incorporated in Nevada on March 23, 1998 under the name of
Make it Happen Management. In 2000, it changed its name to e-Channels
Corporation. In 2001, it changed its name to ETI Corporation and again in 2003
it changed its name to Expertise Technology Innovation, Inc. UCH currently has
no operations and is actively seeking an on-going business to acquire.
On January 21, 2004 UCH signed an amendment agreement to the merger with UC Hub.
Under this amendment, for each eight UC Hub's common shares will be converted
into one and two-thirds shares of the UCH's Series-A preferred stock and the
Company will receive all of the non-dissenting shares of UC Hub. Fractional
shares of preferred stock will be issued in one-third share increments.
Following the merger, all of the outstanding common stock of New ETI, Inc. will
be cancelled. All issued and outstanding options and warrants of UC Hub will be
converted into options and warrants of UCH. The conversion will be a
five-for-eight reduction in the number of shares and an eight-for-five increase
in the exercise price except for 1,500,000 options granted under UC Hub's stock
option plan that will be issued under UCH's stock option plan as 1,500,000
options exercisable at $.16 per share.
On March 5, 2004, UC Hub completed an Agreement and Plan of Reorganization
("Agreement") with UCH, an inactive publicly registered shell corporation with
no significant assets or operations. For accounting purposes, UC Hub was the
surviving entity. The transaction is accounted for using the purchase method of
accounting. The total purchase price and carrying value of net assets acquired
of UCH was approximately $45,764.
F-35