EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements are based on the historical financial statements of ActiveCore and
Cratos after giving effect to the acquisition of Cratos using the purchase
method of accounting and the assumptions and adjustments described in the
accompanying notes to the unaudited pro forma condensed consolidated financial
statements. The acquisition of Cratos was completed on May 19, 2005.
The unaudited pro forma condensed consolidated balance sheet as of March
31, 2005 is presented to give effect to the acquisition of Cratos as if it had
occurred on March 31, 2005. The unaudited pro forma condensed consolidated
statement of operations of ActiveCore for the three months ended March 31, 2005
and the unaudited pro forma condensed consolidated statement of operations for
the twelve months ended December 31, 2004 are presented as if this acquisition
had taken place on January 1, 2004.
Under the purchase method of accounting, the total estimated purchase
price, calculated as described in Note 2 to these unaudited pro forma condensed
consolidated financial statements, is allocated to the net tangible and
intangible assets of Cratos in connection with the acquisition. A final
determination of these fair values will be based on the actual net tangible and
identifiable intangible assets of Cratos that existed as of the date of
completion of the acquisition.
As these unaudited pro forma condensed consolidated financial statements
have been prepared based on preliminary estimates of fair values relating to the
Cratos acquisition, the actual amounts recorded as of the completion of the
acquisition may differ from the information presented in these unaudited pro
forma condensed consolidated financial statements due to the impact of ongoing
integration activities and the finalization of Cratos' net assets as of the
completion date (May 19, 2005), and these differences may be material.
As of the completion date of this acquisition, management of ActiveCore
began to assess and formulate plans to exit certain activities of Cratos and to
terminate or relocate certain employees. These assessments are expected to be
completed shortly and additional costs may be incurred. Costs of $853,000 will
be incurred for severance or relocation costs related to Cratos employees, costs
of vacating certain facilities of Cratos, and other direct costs associated with
this transaction. Consequently, a pro forma adjustment of $853,000 was
recognized for these anticipated costs in ActiveCore's accounting for the
consummation of the Cratos acquisition. These estimates are preliminary and
subject to change based on ActiveCore's further assessments.
The pro forma condensed consolidated statements of operations do not
include any non-recurring charges or credits, such as those described in the
preceding paragraph, directly attributable to the acquisition. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the historical consolidated financial statements and accompanying notes
contained in ActiveCore's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 2004 and Quarterly Report on Form 10-QSB for its quarter ended
March 31, 2005. The unaudited pro forma condensed consolidated financial
statements are presented for illustrative purposes only and are not intended to
represent or be indicative of the consolidated results of operations or
financial condition of ActiveCore that would have been reported had the
acquisitions been completed as of the dates presented, and should not be taken
as representative of the future consolidated results of operations or financial
condition of ActiveCore.
ACTIVECORE TECHNOLOGIES, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2005
(In US Dollars)
Pro Forma
Activecore Cratos Adjustments Pro Forma
------------ ------------ ------------ ------------
(Note 3)
ASSETS
Current assets:
Cash $ 7,693 $ 438,175 $ (82,670)(A) $ 363,198
Accounts receivable, net 2,795,803 1,286,291 (30,030)(G) 4,052,064
Other receivables 21,441 -- -- 21,441
Taxes recoverable -- 123,050 -- 123,050
Prepaid expenses and other assets 177,631 43,296 -- 220,927
------------ ------------ ------------ ------------
Total current assets 3,002,568 1,890,812 (112,700) 4,780,680
Capital assets 280,216 185,445 (49,365)(F) 416,296
Goodwill and other intangible assets, net 1,926,066 827 4,159,697 (C) 6,086,590
Investments at cost 262,648 -- -- 262,648
Deferred consulting and financing expense 116,714 -- -- 116,714
------------ ------------ ------------ ------------
$ 5,588,212 $ 2,077,084 $ 3,997,632 $ 11,662,928
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 126,215 $ -- $ -- $ 126,215
Accounts payable 966,565 2,257,110 -- 3,223,675
Accrued liabilities 764,640 418,197 852,794 (D) 2,035,631
Taxes payable 1,003,193 57,201 -- 1,060,394
Leases payable, current portion 19,603 -- -- 19,603
Long-term debt, current portion 985,615 -- 82,670 (B) 1,068,285
Due to related parties 166,711 750,623 (750,623)(H) 166,711
Other liabilities 281,552 -- -- 281,552
------------ ------------ ------------ ------------
Total current liabilities 4,314,094 3,483,131 184,841 7,982,066
Long term liabilities:
Long-term debt 559,539 -- -- 559,539
Deferred tax liability -- -- 382,818 (K) 382,818
Leases payable, long-term portion 25,583 -- -- 25,583
------------ ------------ ------------ ------------
585,122 -- 382,818 967,940
Shareholders' equity:
Preferred stock, series A 8,333 -- -- 8,333
Preferred stock, series B 4,168 -- -- 4,168
Common stock 472,417 83 2,023,843 (E) 2,496,343
Common stock to be returned (68,783) -- -- (68,783)
Additional paid-in-capital 39,265,606 -- -- 39,265,606
Shares to be issued 176,000 -- -- 176,000
Accumulated deficit (38,846,184) (1,406,130) 1,406,130 (I) (38,846,184)
Accumulated other comprehensive loss (196,823) -- -- (196,823)
Deferred Compensation (125,738) -- -- (125,738)
------------ ------------ ------------ ------------
Total shareholders' equity 688,996 (1,406,047) 3,429,973 2,712,922
------------ ------------ ------------ ------------
$ 5,588,212 $ 2,077,084 $ 3,997,632 $ 11,662,928
============ ============ ============ ============
See accompanying notes to the proforma condensed consolidated financial statements
ACTIVECORE TECHNOLOGIES, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Month Period Ended March 31, 2005
(In US Dollars)
Pro Forma
Activecore Cratos Adjustments Pro Forma
------------ ------------ ------------ ------------
(Note 3)
Revenues 523,008 1,641,854 -- 2,164,862
Cost of revenues:
Direct Wages 141,262 1,103,601 -- 1,244,863
Amortization of licensing agreements and other costs 104,372 -- -- 104,372
------------ ------------ ------------ ------------
Total cost of revenues 245,634 1,103,601 -- 1,349,235
------------ ------------ ------------ ------------
Gross profit 277,374 538,253 -- 815,627
Operating expenses:
Salaries and wages 373,025 159,425 -- 532,450
Consulting fees 158,949 -- -- 158,949
Research and development 55,000 -- -- 55,000
Legal and accounting 78,575 16,187 -- 94,762
General and administrative 397,781 249,984 -- 647,765
Financial advisory fees 28,639 -- -- 28,639
Amortization and depreciation 31,232 -- 49,467 (J) 80,699
------------ ------------ ------------ ------------
Total operating expenses 1,123,201 425,596 49,467 1,598,264
Loss from operations (845,827) 112,657 (49,467) (782,637)
Other income (expense)
Interest income 460 -- -- 460
Interest expense (75,075) (901) -- (75,976)
Foreign exchange loss (33,740) -- -- (33,740)
------------ ------------ ------------ ------------
Total other expense (108,355) (901) -- (109,256)
Loss before taxes (954,182) 111,756 (49,467) (891,893)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss for the period $ (954,182) $ 111,756 $ (49,467) $ (891,893)
============ ============ ============ ============
Basic and diluted income per share $ (0.02) $ (0.02)
Weighted average number of Common
Shares outstanding - basic and diluted 46,299,267 55,320,297
See accompanying notes to the proforma condensed consolidated financial statements
ACTIVECORE TECHNOLOGIES, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Twelve Month Period Ended December 31, 2004
(In US Dollars)
Pro Forma
Activecore Cratos Adjustments Pro Forma
------------ ------------ ------------ ------------
(Note 3)
Revenues 3,954,881 2,572,147 -- 6,527,028
Cost of revenues:
Direct Wages 835,242 2,214,339 -- 3,049,581
Amortization of licensing agreements
and other costs 187,085 -- -- 187,085
------------ ------------ ------------ ------------
Total cost of revenues 1,022,327 2,214,339 -- 3,236,666
------------ ------------ ------------ ------------
Gross profit 2,932,554 357,808 -- 3,290,362
Operating expenses:
Salaries and wages 1,359,021 222,094 -- 1,581,115
Consulting fees 439,413 -- -- 439,413
Research and development 141,063 -- -- 141,063
Legal and accounting 465,152 40,519 -- 505,671
General and administrative 969,907 1,443,006 -- 2,412,913
Financial advisory fees 30,967 -- -- 30,967
Amortization and depreciation 192,450 44,848 197,867 (J) 435,165
------------ ------------ ------------ ------------
Total operating expenses 3,597,973 1,750,467 197,867 5,546,307
Loss from operations (665,419) (1,392,659) (197,867) (2,255,945)
Other income (expense)
Gain on early extinguishment of debt 2,000 -- -- 2,000
Interest income 37,470 -- -- 37,470
Interest expense (206,114) (2,948) -- (209,062)
Foreign exchange loss 174,326 (38,376) -- 135,950
------------ ------------ ------------ ------------
Total other income (expense) 7,682 (41,324) -- (33,642)
Loss from continuing operations before taxes (657,737) (1,433,983) (197,867) (2,289,587)
Provision for income taxes -- 184,105 -- 184,105
------------ ------------ ------------ ------------
Net loss from continuing operations $ (657,737) $ (1,249,878) $ (197,867) $ (2,105,482)
============ ============ ============ ============
Basic and diluted loss per share $ (0.02) $ (0.04)
Weighted average number of Common
Shares outstanding - basic and diluted 41,133,879 50,154,909
See accompanying notes to the proforma condensed consolidated financial statements
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(in US Dollars)
Note 1: Basis of Presentation
The unaudited pro forma condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission for the purposes of
inclusion in ActiveCore's Form 8-K/A prepared in connection with the acquisition
of Cratos. These unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Cratos.
The information concerning ActiveCore has been obtained from the audited
consolidated financial statements of ActiveCore for the year ended December 31,
2004 and the unaudited consolidated financial statements for the three months
ended March 31, 2005. The information concerning Cratos has been obtained from
the audited consolidated financial statements of Cratos for the year ended
October 31, 2004 and the unaudited consolidated financial statements for the
three months ended January 31, 2005. The pro forma information relating to
Cratos has been translated from Canadian dollars to US dollars at the rate of
..7583 for the 12 months ended October 31, 2004 and the rate of .8242 for the 3
months ended Janauary 31, 2005. The pro forma balance sheet information for
Cratos was translated at a rate of .8267.
ActiveCore plans to terminate a number of employees relating to this acquisition
subsequent to its closing. As such, ActiveCore expects the acquired entities to
have lower operating expenses than that reported in the unaudited pro forma
condensed consolidated statement of operations. However, in accordance with
Regulation S-X (Article 11), adjustments were not included in the unaudited pro
forma condensed consolidated statement of operations to reflect these
post-acquisition events, as any such adjustments would reflect judgmental
estimates of historical management practices.
The unaudited pro forma condensed consolidated financial statements are provided
for informational purposes only and do not purport to be indicative of the
Company's financial position or results of operations which would actually have
been obtained had such transactions been completed as of the date or for the
periods presented, or of the financial position or results of operations that
may be obtained in the future.
Note 2: Purchase Price Allocation
On May 19, 2005, ActiveCore completed the acquisition of all of the issued and
outstanding stock of Cratos for cash consideration of $82,670, share
consideration of $2,023,926, and the issuance of a promissory note payable in
August, 2005 of $82,670. The share consideration represents 9,021,030 common
shares of the Company. The share consideration was valued for the purpose of
determining the purchase price of Cratos using a simple average of the closing
price of the Company's common shares for two days both before and after this
transaction was announced.
The share consideration paid by the Company is subject to an adjustment based on
whether the Cratos achieves specified EBITDA targets for the 8 successive
quarters following the close of the transaction. If Cratos exceeds the targets,
then the former shareholders could earn up to an additional 400,000 common
shares of the Company. If Cratos fails to achieve these targets, then the
shareholders will be required to contribute up to 400,000 additional shares back
to the Company. Any adjustments required to the purchase price based on this
adjustment clause will be accounted for in the period in which such adjustment
is determined. Management is still assessing the accounting treatment of the
contingent consideration to determine the effect, if any, on future earnings.
In accordance with Statement of Financial Accounting Standards No. 141, the
acquisition has been accounted for as a purchase of Cratos by ActiveCore. For
the purposes of these pro forma unaudited condensed consolidated financial
statements, the purchase price of Cratos has been allocated to the assets
acquired and liabilities assumed based on their fair values at March 31, 2005.
For certain assets and liabilities, the book values at the acquisition date have
been determined to reflect fair values. The following table summarizes the
components of the total purchase prices of Cratos and the pro forma allocation:
The purchase price and purchase price allocation are summarized as follows:
Cash consideration 82,670
Promissory note consideration 82,670
Share Consideration 2,023,926
---------
Total purchase consideration 2,189,266
Allocated to:
Historical book value of Cratos' assets and liabilities (1,406,047)
Adjustments to fair value tangible assets and liabilities:
Capital assets (49,365)
Due from related parties (30,030)
Due to related parties 750,623
------------
671,228
Acquisition accrual (852,794)
Identifiable intangible assets 1,063,384
Intangible asset tax shield (382,818)
------------
Total allocation (907,047)
------------
Excess purchase price over allocation to identifiable assets
and liabilities (goodwill) 3,096,313
============
The Company is currently undergoing a process to assign fair values to the
intangible assets acquired as part of its acquisition of Cratos. The above
purchase price allocation reflects a preliminary estimate of identifiable
intangible assets determined by management. The Company anticipates that once
this valuation process is finalized amounts assigned in this preliminary
purchase price allocation may change, and such changes may be material.
Note 3: Pro Forma Adjustments
The following adjustments have been reflected in the unaudited pro forma
condensed consolidated financial statements:
(A) Represents the cash consideration paid for Cratos by ActiveCore.
(B) Represents the promissory note consideration paid for Cratos by
ActiveCore. This note is non interest bearing and is due in August 2005.
(C) Represents total intangible assets acquired from Cratos as follows:
Customer contracts and relationships 1,063,384
Goodwill 3,096,313
------------
4,159,697
(D) To reflect the acquisition accrual which is comprised of the following:
Direct Acquisition costs (124,005)
Employee termination costs (74,403)
Excess facility costs (654,386)
------------
(852,794)
(E) To eliminate the capital stock of Cratos at the date of acquisition and to
record the share consideration paid for Cratos by ActiveCore as follows:
Elimination of Cratos historical capital stock balance (83)
Share consideration paid to Cratos by ActiveCore 2,023,926
------------
2,023,843
(F) To fair value capital assets to reflect assets acquired but not intended
to be utilized.
(G) To fair value amounts due from related parties which are not expected to
be recoverable.
(H) To remove amounts payable to related parties which were forgiven by the
former shareholders of Cratos as part of the share purchase agreement.
(I) To remove the historical retained earnings for Cratos as of the date of
acquisition.
(J) Reflects amortization relating to the specifically identifiable intangible
assets acquired from Cratos at the date of acquisition. Amortization
reflects a 5 years Straight-line amortization period. Also reflects lower
depreciation relating to the fair value adjustment of capital assets
recorded in (F).
(K) To record temporary tax difference related to the customer contracts and
relationships recorded in (C) above.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that are based on a
number of assumptions and estimates and that involve risks and uncertainties.
All statements other than statements of historical fact are forward-looking
statements. If any of these risks or uncertainties materializes or any of these
assumptions proves incorrect, the actual results or performance of ActiveCore
and its consolidated subsidiaries could differ materially from those expressed
or implied by such forward-looking statements.
The risks, uncertainties and assumptions referred to above include the
challenges of integration associated with the Cratos acquisition or other
planned acquisitions; the inability to achieve anticipated synergies; the costs
associated with the acquisition; the inability to maintain revenues on a
combined company basis; employee management issues; the timely development,
production and acceptance of products and services; the challenge of managing
asset levels and expenses; and the other risks that are described from time to
time in ActiveCore's Securities and Exchange Commission reports, including but
not limited to ActiveCore's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 2005 and ActiveCore's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2004.
ActiveCore assumes no obligation and does not intend to update these
forward-looking statements.