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): August 12, 2002
EMTEC, INC.
(Exact name of Registrant as specified in Charter)
Delaware 2-54020 87-0273300
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation Identification
Number)
817 East Gate Drive, Mount Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 235-2121
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The financial statements required by Item 7(a) of this
Report.
(b) Pro Forma Financial Information
The pro forma financial information required by Item 7(b)
of this Report.
(c) Exhibits previously filed on August 26, 2002 and September 13,
2002.
10.1 Asset Acquisition Agreement dated August 12, 2002 by
and between Acentra Technologies, Inc. and the Registrant.
10.1 Asset Acquisition Agreement dated August 31, 2002 by and
between Turnkey Computer Systems, Inc. and the Registrant.
ACENTRA TECHNOLOGIES, INC.
I N D E X
PAGE
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS
JULY 31, 2002 AND SEPTEMBER 30, 2001 F-3
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
TEN MONTHS ENDED JULY 31, 2002 AND YEARS ENDED
SEPTEMBER 30, 2001 AND 2000 F-4
STATEMENTS OF CASH FLOWS
TEN MONTHS ENDED JULY 31, 2002 AND YEARS ENDED
SEPTEMBER 30, 2001 AND 2000 F-5
NOTES TO FINANCIAL STATEMENTS F-6/15
* * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Acentra Technologies, Inc.
We have audited the accompanying balance sheets of ACENTRA TECHNOLOGIES, INC.
(formerly Atlanticom Technologies, Inc.) as of July 31, 2002 and September 30,
2001, and the related statements of operations and retained earnings (deficit)
and cash flows for the ten months ended July 31, 2002 and the years ended
September 30, 2001 and 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acentra Technologies, Inc. as
of July 31, 2002 and September 30, 2001, and its results of operations and cash
flows for the ten months ended July 31, 2002 and the years ended September 30,
2001 and 2000, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and at July 31, 2002 has working capital and stockholders' deficiencies. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also discussed
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ J. H. Cohn LLP
Lawrenceville, New Jersey
October 10, 2002
F-2
ACENTRA TECHNOLOGIES, INC.
BALANCE SHEETS
JULY 31, 2002 AND SEPTEMBER 30, 2001
ASSETS 2002 2001
----------- ----------
Current assets:
Cash $ 144,871 $ 3,470
Accounts receivable:
Billed, net of allowance for doubtful accounts
of $95,124 and $130,000 1,501,524 4,963,066
Unbilled 29,603 194,922
Inventories 189,948 477,605
Cost of unbilled equipment under contract 91,424 993,313
Prepaid expenses and other current assets 30,641 39,787
Income tax refund receivable 492,055 285,663
----------- ----------
Total current assets 2,480,066 6,957,826
Equipment and improvements, net of accumulated
depreciation and amortization of $1,172,518 and $930,149 821,940 916,003
Deposits and other assets 77,798 49,598
----------- ----------
Totals $ 3,379,804 $7,923,427
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Note payable - bank $ 277,132 $2,445,270
Current portion of long-term debt 2,932,184 129,636
Current portion of capital lease obligations 7,154
Accounts payable 2,184,561 4,627,703
Accrued expenses and other current liabilities 709,177 737,472
Deferred revenue 116,518 153,388
----------- ----------
Total current liabilities 6,226,726 8,093,469
Long-term debt, net of current portion 114,352
Capital lease obligations, net of current portion 30,110
----------- ----------
Total liabilities 6,256,836 8,207,821
----------- ----------
Commitments and contingencies
Stockholders' deficiency:
Common stock, no par value; 2,500 shares authorized;
2,081 and 2,000 shares issued 428,800 428,800
Accumulated deficit (3,075,832) (483,194)
Less treasury stock, 1,840 shares, at cost (230,000) (230,000)
----------- ----------
Total stockholders' deficiency (2,877,032) (284,394)
----------- ----------
Totals $ 3,379,804 $7,923,427
=========== ==========
See Notes to Financial Statements.
F-3
ACENTRA TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
TEN MONTHS ENDED JULY 31, 2002 AND
YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Ten Months Years Ended
Ended September 30,
July 31, ---------------------------------
OPERATIONS 2002 2001 2000
------------ ------------- -------------
Revenue $18,208,825 $34,511,116 $52,026,691
Cost of revenue 18,129,159 32,116,401 48,547,558
----------- ----------- -----------
Gross profit 79,666 2,394,715 3,479,133
----------- ----------- -----------
Operating expenses:
Selling, general and administrative 2,722,712 3,219,807 4,244,408
Provision for impairment of equipment 116,000
----------- ----------- -----------
Totals 2,722,712 3,335,807 4,244,408
----------- ----------- -----------
Loss from operations (2,643,046) (941,092) (765,275)
Interest expense 154,799 289,742 593,627
----------- ----------- -----------
Loss before income taxes (2,797,845) (1,230,834) (1,358,902)
Credit for income taxes (205,207) (49,364) (526,699)
----------- ----------- -----------
Net loss (2,592,638) (1,181,470) (832,203)
RETAINED EARNINGS (DEFICIT)
Balance, beginning of period (483,194) 698,276 1,530,479
----------- ----------- -----------
Balance, end of period $(3,075,832) $ (483,194) $ 698,276
=========== =========== ===========
See Notes to Financial Statements.
F-4
ACENTRA TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
TEN MONTHS ENDED JULY 31, 2002 AND
YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Ten Months Years Ended
Ended September 30,
July 31, ----------------------------
2002 2001 2000
----------- ----------- -----------
Operating activities:
Net loss $(2,592,638) $(1,181,470) $ (832,203)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 242,369 249,860 196,246
Provision for doubtful accounts 135,669 56,676 37,925
Deferred income taxes 230,192 (155,856)
Provision for impairment of capitalized software
costs 116,000
Changes in operating assets and liabilities:
Accounts receivable 3,491,192 4,084,428 1,344,977
Inventories 287,657 187,132 (361,940)
Cost of unbilled equipment under contract 901,889 828,291 3,669,249
Prepaid expenses and other current assets 9,146 41,673 23,985
Deposits and other assets (28,200) 16,744 71,526
Income tax refund receivable (206,392) (285,663)
Accounts payable 356,858 (4,041,296) (1,210,132)
Accrued expenses and other current liabilities (28,295) 604,152 (555,466)
Deferred revenue (36,870) (26,383) 93,815
----------- ----------- -----------
Net cash provided by operating activities 2,532,385 880,336 2,322,126
----------- ----------- -----------
Investing activities - acquisition of equipment and
improvements (111,042) (266,542) (560,455)
----------- ----------- -----------
Financing activities:
Decrease in note payable - bank (2,168,138) (509,662) (1,884,104)
Proceeds of term loan - bank 200,000
Principal payments on long-term debt (111,804) (103,918) (76,107)
----------- ----------- -----------
Net cash used in financing activities (2,279,942) (613,580) (1,760,211)
----------- ----------- -----------
Net increase in cash 141,401 214 1,460
Cash, beginning of period 3,470 3,256 1,796
----------- ----------- -----------
Cash, end of period $ 144,871 $ 3,470 $ 3,256
=========== =========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 167,362 $ 321,170 $ 648,791
=========== =========== ===========
Income taxes paid (refunded) $ (1,083) $ (474,833) $ 87,000
=========== =========== ===========
Supplemental disclosure of noncash investing and financing activities:
In May 2002, the Company entered into an agreement with its major supplier
resulting in the reclassification of $2,800,000 of accounts payable as
long-term debt.
In July 2002, the Company acquired equipment at a cost of $37,264 through
capital lease financing.
See Notes to Financial Statements.
F-5
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of significant accounting policies:
Business:
Acentra Technologies, Inc., formerly Atlanticom Technologies, Inc.,
(the "Company") is a distributor and integrator of computer, voice,
data cabling and networking products that serves customers in state
and local government, education, healthcare and the private sector.
The Company's services include sales of computers, peripheral
supplies, network integration and applications development to a
variety of customers located throughout New Jersey, New York,
Pennsylvania and Delaware.
Such sales had been made primarily under the Company's contract
with the State of New Jersey. As discussed in Note 15, the Company
entered into an agreement on August 8, 2002 to sell certain assets,
including its contract with the State of New Jersey. The Company's
fiscal year has ended historically on September 30th. The
accompanying financial statements have been prepared in connection
with that sale and, accordingly, have been presented as of July 31,
2002 and for the ten months then ended and as of September 30, 2001
and for the years ended September 30, 2001 and 2000.
Use of estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
accounts receivable. The Company maintains its cash in bank deposit
accounts which at times may exceed Federally insured limits. During
the ten months ended July 31, 2002 and the years ended September
30, 2001 and 2000, the State of New Jersey and its political
subdivisions accounted for the majority of the Company's sales. As
of July 31, 2002, receivables from the Company's contract with the
State of New Jersey accounted for approximately 85% of total
accounts receivable. In addition, various local governments and
schools that purchase products and services under the Company's
contract with the State of New Jersey accounted for a significant
portion of the Company's remaining sales.
The Company places its deposits with major reputable banks and
closely monitors the extension of credit to its customers while
maintaining appropriate allowances for potential credit losses.
Accordingly, management does not believe that the Company was
exposed to significant credit risk at July 31, 2001.
Inventories:
Inventories consist primarily of miscellaneous parts and wiring and
are stated at the lower of cost or market using the first-in,
first-out method.
F-6
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of significant accounting policies (concluded):
Cost of unbilled equipment under contract:
Unbilled equipment under contract represents equipment and
accessories acquired per a customer's purchase order which have not
been delivered to the customer or have been delivered to the
customer but have not been completely installed and, accordingly,
cannot be operated by the customer.
Equipment and improvements:
Equipment and improvements are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful
lives of the assets.
Revenue recognition:
The Company's revenues are derived primarily from sales of
computers, peripheral supplies, network integration services and
applications development under the Company's contract with the
State of New Jersey and other contracts. The Company recognizes
revenues when all products have been delivered and all services
have been completed pursuant to the terms of the contracts and
collectibility of any remaining receivable is reasonably assured.
Impairment of assets:
Impairment losses on property and equipment and other long-lived
assets with definitive lives are recognized when events indicate
that the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and all or a portion of
such carrying value may not be recoverable. Impairment losses are
then measured by comparing the fair value of assets to their
carrying amounts. The Company recorded a provision of $116,000 for
impaired equipment during the year ended September 30, 2001
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred tax assets and liabilities
to be computed annually for temporary differences between the
financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
temporary differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The
income tax provision or credit is the tax payable or refundable for
the period plus or minus the change during the period in deferred
tax assets and liabilities.
F-7
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 2 - Basis of presentation:
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. However, as
shown in the financial statements, the Company has sustained
recurring losses from operations and at July 31, 2002 it had a
working capital deficiency of $3,746,660 and a stockholders'
deficiency of $2,877,032. In addition, as discussed in Notes 5 and
6, the Company had violated certain covenants under its loan
agreements, which created events of default. Management believes
that the Company will continue to incur operating losses and it
cannot determine when the Company will be able to meet all of its
obligations as they become due. Accordingly, the Company will need
to obtain additional financing, sell some of its assets and obtain
the continued forbearance of its creditors in order to continue to
operate through at least July 31, 2003. These matters raise
substantial doubt about the Company's ability to continue as a
going concern.
As discussed in Note 15, the Company entered into an agreement on
August 8, 2002 to sell certain assets, including a contract with
its largest customer, the State of New Jersey. The proceeds from
the sale were significantly less than the Company's remaining net
liabilities. During the period from August 9, 2002 through October
10, 2002, the Company has not been able to generate any other
significant revenues, retain its key employees, sustain any
significant operations and repay its obligations as they have
become due. Management is in the process of seeking accommodations
with the Company's remaining creditors. However, management cannot
assure that the Company will be able to reach any agreements with
its creditors and the Company may be forced to file for bankruptcy
or entirely cease its operations.
The accompanying financial statements do not include any
adjustments related to the recoverability and classification of
assets or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue its
operations as a going concern.
Note 3 - Inventories:
Inventories consist of the following at July 31, 2002 and September
30, 2001:
2002 2001
-------- --------
Cabling materials $307,833
Other products $189,948 169,772
-------- --------
Totals $189,948 $477,605
======== ========
F-8
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 4 - Equipment and improvements:
Equipment and improvements consist of the following at July 31,
2002 and September 30, 2001:
2002 2001
---------- ----------
Machinery and equipment $1,443,124 $1,334,323
Furniture and fixtures 161,960 161,960
Delivery equipment 23,958 23,958
Leasehold improvements 328,152 325,911
Assets under capital lease 37,264
---------- ----------
1,994,458 1,846,152
Less accumulated depreciation and
amortization 1,172,518 930,149
---------- ----------
Totals $ 821,940 $ 916,003
========== ==========
Note 5 - Note payable - bank:
At July 31, 2002 and September 30, 2001, the balances of the note
payable - bank of $277,132 and $2,445,270 were attributable to
borrowings under a line of credit agreement with a bank that
allowed the Company to borrow up to (i) the lesser of $500,000 or
(ii) 80% of qualified accounts receivable, as defined, minus the
undrawn amount of all outstanding letters of credit and the
outstanding principal balance of borrowings under the term loan
provided by the same bank (see Note 6). The amount that could be
outstanding under all letters of credit at any time was limited to
$500,000. Borrowings were secured by accounts receivable and bore
interest at the bank's prime rate plus 2% (an effective rate of
6.75% at July 31, 2002). Pursuant to the line of credit agreement
with the bank, the line of credit was due to expire on September 6,
2002.
At July 31, 2002, the Company was in default under the provisions
of the line of credit agreement as a result of the Company's
noncompliance with certain loan covenants and the bank had the
right to demand immediate repayment of the outstanding balance and
increase the interest rate on any borrowings that remained
outstanding. The bank did not exercise those rights and the Company
repaid the outstanding balance on September 13, 2002.
F-9
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Long-term debt:
Long-term debt consists of the following at July 31, 2002 and
September 30, 2001:
2002 2001
---------- --------
Note payable - principal vendor (A) $2,773,968
Note payable - bank (B) 33,333 $ 88,889
Leasehold improvement obligation (C) 74,883 105,099
Loan payable to stockholder (D) 50,000 50,000
---------- --------
2,932,184 243,988
Less current portion 2,932,184 129,636
---------- --------
Long-term debt $ -- $114,352
========== ========
(A) The Company purchased substantially all of the computer
products that it resold from one vendor. On May 2, 2002,
the Company entered into an agreement to convert its
outstanding accounts payable to that vendor of
$2,800,000 into a note payable bearing interest at an
annual rate of 3%. Under the agreement, the Company
became obligated to make payments of principal and
interest in monthly installments of $20,000 through
March 2003, $40,000 through June 2003, $50,000 in July
2003, $85,000 through November 2003, $100,000 through
May 2005 and a final installment of $471,548 in June
2005. The note is secured by a second lien on
substantially all of the Company's accounts receivable,
inventories and equipment. At July 31, 2002, the Company
was in default under the provisions of the agreement
with the vendor as a result of the Company's
noncompliance with certain loan covenants and the vendor
had the right to demand immediate repayment of the
outstanding balance. Accordingly, the entire balance is
classified as a current liability at July 31, 2002.
(B) The note was payable to the bank that provided the
Company with its line of credit (see Note 5) in monthly
installments of $5,556 through January 2003 plus
interest at the bank's prime rate plus .25% (an
effective rate of 5% at July 31, 2002). The note was
secured by certain equipment. At July 31, 2002, the
Company was in default under the provisions of the loan
agreement as a result of the Company's noncompliance
with certain loan covenants and the bank had the right
to demand immediate repayment of the outstanding balance
and increase the interest rate on any borrowings that
remained outstanding. The bank did not exercise those
rights and the Company repaid the outstanding balance on
September 13, 2002.
F-10
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Long-term debt (concluded):
(C) The obligation is payable in monthly installments of
$4,046 including interest at an annual rate of 9%
through February 2004 and is secured by various
improvements. At July 31, 2002, the Company was in
default under the provisions of the loan agreement as a
result of the Company's noncompliance with certain loan
covenants and the lender had the right to demand
immediate repayment of the outstanding balance.
Accordingly, the entire balance is classified as a
current liability at July 31, 2002.
(D) The loan bears interest at an annual rate of 8.5% and
has no specific due date. The loan was subordinate to
the note payable - bank.
Note 7 - Accrued expenses and other current liabilities:
Accrued expenses and other current liabilities consist of the
following at July 31, 2002 and September 30, 2001:
2002 2001
-------- --------
Payroll, including related taxes $139,669 $358,707
Customer overpayments 320,409
Accrued commissions 33,000 143,046
Other 216,099 235,719
-------- --------
Totals $709,177 $737,472
======== ========
Note 8 - Capital lease obligations:
During July 2002, the Company acquired equipment at a cost of
$37,264 through capital lease financing. Future minimum lease
payments under capital lease obligations in each of the years
subsequent to July 31, 2002 are as follows:
Period Ending
July 31, Amount
------------- -------
2003 $ 8,213
2004 8,213
2005 8,213
2006 8,213
2007 7,529
-------
Total 40,381
Less amount representing interest at an effective rate of 3.1% 3,117
-------
Total $37,264
=======
F-11
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Employee benefit plan:
The Company maintained a 401(k) savings plan for the benefit of
eligible employees who elected to participate. The Company matched
25% of the employee's contribution up to 6% of the employee's total
compensation until March 2002. The Company's contribution amounted to
$11,597, $24,884 and $32,603 for the ten months ended July 31, 2002
and the years ended September 30, 2001 and 2000, respectively. The
Plan was terminated in August 2002.
Note 10- Income taxes:
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of July 31, 2002 and September 30, 2001 were related
to the following:
2002 2001
----------- --------
Deferred tax assets (liabilities):
Current:
Inventory valuation $ 189,200
Allowance for doubtful accounts $ 40,900 55,900
Accrued vacation 28,800 15,900
Deferred rent 4,700 7,300
Other 6,000
----------- ---------
Totals 74,400 274,300
----------- ---------
Noncurrent:
Net operating loss carryforwards 1,530,900 275,300
State deferred tax assets (172,600) (82,600)
Depreciation expense (47,900) (54,700)
----------- ---------
Totals 1,310,400 138,000
----------- ---------
Totals 1,384,800 412,300
Less valuation allowance (1,384,800) (412,300)
----------- ---------
Total deferred tax assets $ -- $ --
=========== =========
The net credits for income taxes consist of the following provisions
(credits) for the ten months ended July 31, 2002 and the years ended
September 30, 2001 and 2000:
2002 2001 2000
--------- --------- ---------
Federal:
Current $(206,392) $(285,663) $(373,121)
Deferred 99,692 (41,606)
--------- --------- ---------
Totals (206,392) (185,971) (414,727)
--------- --------- ---------
State:
Current 1,185 6,107 2,278
Deferred 130,500 (114,250)
--------- --------- ---------
Totals 1,185 136,607 (111,972)
--------- --------- ---------
Totals $(205,207) $ (49,364) $(526,699)
========= ========= =========
F-12
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 10- Income taxes (concluded):
The net credits for income taxes for the ten months ended July 31,
2002 and the years ended September 30, 2001 and 2000 differ from the
amounts computed using the Federal statutory rate of 34% as a result
of the following:
2002 2001 2000
---- ---- ----
Credit at Federal statutory rate (34)% (34)% (34)%
Increase (decrease) from effects of:
State income taxes, net of Federal
income tax benefit 7 (6)
Change in Federal tax law (7) (23)
Reversal of net deferred tax assets 8
Change in valuation allowance 35 34
Other (1) 4 1
--- --- ---
Totals (7)% (4)% (39)%
=== === ===
The Company had Federal net operating loss carryforwards of
approximately $3,023,700, $230,400 and $230,400 and state net
operating loss carryforwards of approximately $5,587,400,
$2,187,100 and $1,346,900 at July 31, 2002 and September 30, 2001
and 2000, respectively. Federal and state net operating loss
carryforwards available at July 31, 2002 expire at various dates
through 2022 and 2010, respectively.
At September 30, 2000, management believed that it was more
likely than not that the Company would generate sufficient
taxable income in subsequent periods to enable it to utilize the
potential benefits of its net operating loss carryforwards and
its other deferred tax assets of approximately $230,200.
Accordingly, it did not record a valuation allowance to offset
the carryforwards at September 30, 2000 or its tax credit for the
year ended September 30, 2000.
As a result of legislation related to the events of September 11,
2001, the Company obtained the right to carryback certain net
operating losses for Federal income tax purposes and realize tax
credits totaling approximately $492,000 ($206,400 and $285,600 in
the ten months ended July 31, 2002 and the year ended September
30, 2001, respectively. However, due to the uncertainties
relating to the Company's ability to realize benefits from the
utilization of its net operating loss carryforwards and its other
deferred tax assets arising from the continuation of its pre-tax
losses, the Company recorded valuation allowances of $1,384,800
and $412,300 to offset its net deferred tax assets at July 31,
2002 and September 30, 2001, respectively, and, effectively,
reduced its expected tax credits by $972,500 and $412,300 in the
ten months ended July 31, 2002 and the year ended September 30,
2001, respectively, through the increases in the valuation
allowance and by $99,700 in the year ended September 30, 2001
through the reversal of the net deferred tax assets recorded as
of September 30, 2000.
F-13
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 11- Lease commitments:
The Company leases its facilities under operating leases which expire
through 2004. The Company also leases certain equipment under an
operating lease agreement which expires in 2003. Rent expense
amounted to $149,300, $255,588 and $279,342 for the ten months ended
July 31, 2002 and the years ended September 30, 2001 and 2000,
respectively.
Minimum future rental payments under the noncancelable operating
leases subsequent to July 31, 2002 are $138,587 in 2003, $67,133 in
2004 and $9,097 in 2005.
Note 12- Related party transactions:
During the ten months ended July 31, 2002, the Company issued 81
shares of its common stock to one of its directors as consideration
for the director's agreement to personally guarantee new financing
the Company was negotiating. Management determined that the value of
the shares was not material and, accordingly, the Company did not
record any financing costs in connection with the issuance of the
shares.
A company in which a minority stockholder of the Company holds a 49%
interest provides the Company with consulting services. Charges for
such services totaled approximately $116,000, $303,000 and $299,000
for the ten months ended July 31, 2002 and the years ended September
30, 2001 and 2000, respectively.
Note 13- Compensation agreements:
As of July 31, 2002, the Company had employment agreements with two
of its officers which provide for aggregate base salaries at an
annual rate of approximately $400,000 through June 14, 2007 (see Note
15).
Note 14- Litigation:
The Company is involved in various claims and legal actions arising
in the ordinary course of business. Management believes that the
ultimate disposition of these matters will not have a material
adverse effect on the Company's financial position, results of
operations or cash flows in subsequent periods.
F-14
ACENTRA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 15- Subsequent events:
On August 8, 2002, the Company entered into an agreement to sell its
principal asset, the contract with its largest customer, the State of
New Jersey, and certain other related assets for approximately
$200,000 in cash, subject to certain adjustments, and the agreement
of the purchaser to assume certain obligations related to the
completion of contracts that were in process. The Company will record
a gain from the sale of approximately $100,000. During the period
from August 9, 2002 through October 10, 2002, the Company has not
been able to generate any other significant revenues, retain its key
employees, sustain any significant operations and repay its
obligations as they have become due. Accordingly, the Company will
record charges, including a charge for the impairment of its property
and equipment, totaling approximately $800,000 as an indirect result
of the sale.
During August 2002, one of the employment agreements with the
officers of the Company described in Note 13 was terminated and, as a
result, the Company's commitment for the payment of salaries through
June 14, 2007 was reduced to an annual rate of approximately
$150,000.
* * *
F-15
TURNKEY COMPUTER SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND AUGUST 31, 2002 (UNAUDITED)
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT.............................................1
FINANCIAL STATEMENTS
Balance Sheets.........................................................2
Statements of Operations...............................................3
Statement of Changes in Stockholders' Equity...........................4
Statements of Cash Flows...............................................5
Notes to the Financial Statements.................................6 - 11
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
TURNKEY COMPUTER SYSTEMS, INC.
We have audited the balance sheet of Turnkey Computer Systems, Inc. as of
December 31, 2001, and the related consolidated statement of operations, changes
in stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referenced above present fairly, in all
material respects, the financial position of Turnkey Computer Systems, Inc. as
of December 31, 2001 and the results of its operations and its cash flows for
the year then ended December 31, 2001 in conformity with generally accepted
accounting principles in the United States of America.
/s/ Schuhalter, Coughlin & Suozzo, LLC
--------------------------------------
Schuhalter, Coughlin & Suozzo, LLC
Certified Public Accountants
Raritan, New Jersey
October 31, 2002
1
TURNKEY COMPUTER SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, AUGUST 31,
2001 2002
------------ ---------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 50,530 $ 58,966
Accounts receivable net of allowance for doubtful
accounts of $8,800 and $8,800 479,634 418,024
Accounts receivable unbilled 12,419 -
Inventory 15,664 -
Prepaid expenses 8,686 1,809
Prepaid/refundable income taxes 4,600 4,518
-------- --------
Total Current Assets 571,533 483,317
-------- --------
Property and equipment, at cost, net of
accumulated depreciation of $161,759 and $178,198 85,738 34,299
-------- --------
Other Assets
Security deposits 7,170 5,400
-------- --------
Total Other Assets 7,170 5,400
-------- --------
Total Assets 664,441 523,016
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 118,646 121,439
Note payable bank 120,441 158,503
Corporate income taxes 900 800
Deferred taxes 29,400 22,800
-------- --------
Total Current Liabilities 269,387 303,542
Deferred taxes 4,800 1,500
-------- --------
Total Liabilities 274,187 305,042
-------- --------
Stockholders' Equity
Common stock, no par value, 200 shares authorized
and 120 shares issued and outstanding 18,648 18,648
Retained earnings 371,606 199,326
-------- --------
Total Stockholders' Equity 390,254 217,974
-------- --------
Total Liabilities and Stockholders' Equity $664,441 $523,016
======== ========
The accompanying notes are an integral part of these financial statements.
2
TURNKEY COMPUTER SYSTEMS, INC.
STATEMENTS OF OPERATIONS
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
2001 2002
------------ ------------
(Unaudited)
Revenues
Consulting services $1,591,292 $ 904,401
Sales of equipment, peripherals and software 500,795 457,023
Commissions 103,996 21,528
---------- ----------
Total Revenues 2,196,083 1,382,952
---------- ----------
Direct Costs
Consulting service expenses 927,458 558,185
Purchases equipment 311,350 274,883
Purchases supplies 18,202 15,542
Purchases other 108,492 110,008
---------- ----------
Total Direct Costs 1,365,502 958,618
---------- ----------
Gross Profit 830,581 424,334
Selling, General & Administrative Expenses 943,958 546,519
Depreciation 27,242 16,439
Impairment loss Property and Equipment - 35,000
---------- ----------
(Loss) From Operations (140,619) (173,624)
Other Income (Expenses)
Interest Expense (6,386) (6,655)
Interest Income 2,429 24
---------- ----------
Total Other Income (Expense) (3,957) (6,631)
(Loss) before taxes (144,576) (180,255)
Benefit for Local Taxes 11,695 9,518
---------- ----------
Net (Loss) $ (132,881) $ (170,737)
========== ==========
The accompanying notes are an integral part of these financial statements.
3
TURNKEY COMPUTER SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001 AND THE EIGHT MONTHS ENDED AUGUST 31,
2002 (UNAUDITED)
Common Retained
Stock Earnings Total
------ -------- -----
Balance at January 1, 2001 $18,648 $ 529,230 $ 547,878
Stockholder's Distributions 2001 - (24,743) (24,743)
Net (Loss) for the period 2001 - (132,881) (132,881)
------- --------- ---------
Balance at December 31, 2001 18,648 371,606 390,254
Stockholder's Distributions 2002 - (1,543) (1,543)
Net (Loss) for the period 2002 - (170,737) (170,737)
------- --------- ---------
Balance at August 31, 2002 $18,648 $ 199,326 $ 217,974
======= ========= =========
The accompanying notes are an integral part of these financial statements.
4
TURNKEY COMPUTER SYSTEMS, INC.
STATEMENT OF CASH FLOWS
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
2001 2002
----------- ------------
(Unaudited)
Cash Flows From Operating Activities:
Cash received from customers $ 2,304,304 $ 1,456,981
Cash paid to suppliers and employees (2,413,252) (1,478,414)
Interest income 2,429 24
Interest paid (6,386) (6,655)
Taxes paid (9,400) (18)
----------- -----------
Net Cash (Used In) Provided by
Operating Activities (122,305) (28,082)
----------- -----------
Cash Flows From Investing Activities:
Cash purchases of equipment (18,408) -
----------- -----------
Net Cash Used In Investing Activities (18,408) -
----------- -----------
Cash Flows From Financing Activities:
Repayment of capitalized leases (586) -
Stockholder distributions (24,743) (1,543)
Proceeds note payable 20,441 38,062
----------- -----------
Net Cash (Used In) Provided By
Financing Activities (4,888) 36,519
----------- -----------
Net (decrease) increase in cash and cash equivalents (145,601) 8,437
Cash and cash equivalents - beginning 196,131 50,530
----------- -----------
Cash and cash equivalents - ending $ 50,530 $ 58,967
=========== ===========
Reconciliation of net income to net cash used in operating activities:
Net (Loss) $ (132,881) $ (170,737)
Adjustments:
Depreciation 27,242 16,439
Deferred taxes (9,800) (9,900)
Bad debt expense 13,055 -
Impairment loss - 35,000
Changes in assets and liabilities:
(Increase) decrease in inventory (12,197) 15,664
(Increase) decrease in accounts receivable 88,546 61,610
(Increase) decrease in unbilled accounts
receivable 19,675 12,419
(Increase) decrease in prepaid expenses and taxes (13,286) 6,960
(Increase) decrease in security deposits (5,400) 1,770
Increase (decrease) in accounts payable (90,563) 2,793
Increase (decrease) in income taxes (6,696) (100)
----------- -----------
Net cash used in Provided by
operating activities $ (122,305) $ (28,082)
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
TURNKEY COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND AUGUST 31, 2002 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - The Company derives revenue from the design,
programming, customization and assistance with the implementation of computer
systems in addition to sales of computer hardware, software, and peripheral
equipment primarily within the New York Tristate area. The Company provides
credit in the normal course of business to its customers and performs ongoing
credit evaluations of those customers. It maintains allowances for doubtful
accounts based on factors surrounding the credit risk of specific customers,
historical trends, and other information, credit losses when realized, have
been within the range of the Company's expectations and historically, have
not been significant.
The Company purchases microcomputers and related products directly from
suppliers as either an authorized dealer or a value-added reseller. The
Company has entered into an authorization agreement with a major supplier
which can be terminated by the supplier, with or without cause, upon 30 days
notice, or immediately upon the occurrence of certain events. Equipment
purchased from the Company's largest supplier amounted to approximately 91%
of equipment sales in 2001. The Company believes that it has an excellent
relationship with its major supplier, and does not see any difficulty in
obtaining a new supplier if the current relationship expires.
Use Of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents - For the purposes of the statement of cash flows
cash equivalents include deposits, certificate of deposit and all highly
liquid debt instruments with original maturities of three months or less.
Inventories - Inventories comprised principally of computer hardware,
software, and supplies are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment - Property and equipment are stated at cost and are
depreciated using the straight line method over three to seven years.
Advertising - The Company expenses advertising costs as they are incurred.
Advertising expense for the year ended December 31, 2001 was $6,679.
Deferred Income Taxes - Local income taxes are provided for the tax effects
of transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of property and equipment, accounts receivable, accounts payable
and deferred charges for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of those
timing differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled.
6
TURNKEY COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND AUGUST 31, 2002 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
"S" Corporation and Income Taxes - The Company's shareholders elected oSo
Corporation status in 1987. In lieu of federal and state corporate income
taxes, the shareholders of an "S" Corporation are taxed on their
proportionate share of the Company's taxable income. The Company is subject
to certain local income taxes.
Impairment of Long-Lived Assets - Long-lived assets, are reviewed for
impairment and written down to fair value whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. At December 31, 2001, no such impairment existed. At August 31,
2002, based upon subsequent sales it was determined that the value of certain
property and equipment was impaired by approximately $35,000 The Company
measures the potential impairment of long-lived assets, by the undiscounted
value of expected operating cash flow in relation to the assets to which it
applies.
Revenue Recognition - The Company recognizes revenue upon the shipment of
ordered merchandise and as technical services are rendered.
Comprehensive Income - There were no items of other comprehensive income in
2001 and thus net income is equal to comprehensive income for the year
presented.
Concentrations of Credit Risk - Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash and equivalents and trade accounts receivable. The
Company places its cash with a high credit quality institution. At times,
such amounts may be in excess of the FDIC insurance limits. On December 31,
2001, $0 of cash exceeded FDIC insured limits.
The Company's customers are primarily mid to small size corporations in
diversified industries located in the New York tri-state area. Receivables
from the Company's largest customers approximated 52% of the trade
receivables at December 31, 2001. These customers accounted for 65% of the
Company's revenue for the year ended December 31, 2001. The loss of a
principal customer would be expected to have a material adverse effect on the
Company's operations during the short term until the Company is able to
generate replacement business, although there can be no assurance of
obtaining such business.
Credit is extended to customers based on an evaluation of their financial
condition, and collateral is generally not required. The evaluation of
financial condition is performed to reduce the risk of loss. The Company has
not historically experienced many material losses due to uncollectible
accounts receivable.
2. RELATED PARTY TRANSACTIONS
Advances to Stockholders - From time to time the Company has made loans to
the company stockholders. These are non interest-bearing loans and have no
specific repayment terms. During 2001 these loans were reclassified to
stockholders' distributions. As of December 31, 2001, amounts due from
stockholders was $0.
7
TURNKEY COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND AUGUST 31, 2002 (UNAUDITED)
2. RELATED PARTY TRANSACTIONS - (Continued)
Rent Expense - The Company leases additional office space from its
shareholders. The leases are on a month to month basis for $400 per month.
Lease payments of $4,800 are included in rent expense for the year ended
December 31, 2001.
3. RETIREMENT PLAN
The Company adopted a SARSEP Plan effective January 1, 1996. Under the plan,
all employees who are at least 21 years of age and have completed one year of
service are eligible to defer up to 15% of their pre-tax compensation, but
not more than $10,500 per calender year. The Company can make discretionary
contributions to the plan. To date the company has not made any discretionary
contributions to the plan.
As of October 1, 2000 the Company terminated the SARSEP Plan and replaced it
with a simple pension. Under the plan, all employees who are at least 21
years of age and have completed one year of service are eligible to defer
their pre-tax compensation, up to $6,500 per calender year. The Company must
match the elective contribution of an employee in the amount not exceeding 3%
of the employee's compensation or 2% of compensation for each eligible
employee. Included in pension expense is $25,195 for the year ended December
31, 2001.
4. COMMITMENTS AND CONTINGENCIES
Operating Lease - The Company leased office space in Staten Island, New York
through February 2002 and has terminated this lease. The Company also leases
office space in Clifton, New Jersey for a period of four years with an option
to renew for another five years and includes a provision for escalating
annual rentals based upon the fair market rental value of the premises.
Total rent charged to operations for office space for the year ended December
31, 2001 was $91,268.
The total future minimum rental payments required are as follows:
2002 2003 2004 2005
$64,800 $64,800 $64,800 $ 0
======= ======= ======= =======
The Company subleased office space to a third party on a month to month
basis. Total Rent expense charged to operations is net of any sublease rent
received for the period. This sublease ended October 2001.
Following is a summary of rental expense under all operating leases:
2001
-------
Office space $89,718
Office space 4,800
Sublease rental (3,250)
-------
Total Rent Expense $91,268
=======
8
TURNKEY COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND AUGUST 31, 2002 (UNAUDITED)
5. CREDIT FACILITY
The Company has entered into a financing agreement for the purchase of
inventory. This agreement is for $200,000 (Approximately $158,708 unused) at
December 31, 2001, and generally provides for thirty day repayment terms.
Current borrowing under this agreement are included in accounts payable and
accrued liabilities. These agreements are secured by the related inventory
and/or accounts receivable. In addition this agreement provides for personal
guarantees of the Company's stockholders. This agreement will remain in
effect until terminated by either party.
6. LOCAL INCOME TAXES
The liability method is used in accounting for local income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
The provision (benefit) for local income taxes consists of the following:
2001
--------
Local taxes
Current $ (1,895)
Deferred (9,800)
--------
$(11,695)
========
The income tax provision differs from the expense that would result from
applying local statutory rates to income before income taxes because certain
expenses are not deductible for tax purposes.
7. PROPERTY AND EQUIPMENT
Equipment and Fixtures consist of the following:
2001
---------
Furniture and fixtures $ 30,585
Computer equipment 179,349
Office equipment 28,183
Software 8,162
---------
246,279
Less: Accumulated depreciation (161,759)
---------
$ 84,520
=========
Depreciation expense charged to operations was $27,242 for the year ended
December 31, 2001.
8. NOTE PAYABLE
The Company has a $165,000 line of credit bearing interest at 2.0 percent
above prime (5.75 percent at December 31, 2001). Which is secured by
substantially all assets and personal guarantees of the stockholders. Amount
outstanding on the line was $120,441 at December 31, 2001.
9
TURNKEY COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND AUGUST 31, 2002 (UNAUDITED)
9. SUBSEQUENT EVENT
On August 31, 2002, the Company agreed to sell its business customer lists,
customer contracts and goodwill to Emtec Inc., a systems integration company.
The purchase price will be a contingent payment based upon future operating
results of this business payable over the next two years. As of August 31,
2002, the Company's operations are limited to managing and liquidating its
remaining assets.
10
EMTEC, INC.
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
The Company's pro forma statements of operations give effect to the August 12,
2002 and August 31, 2002 acquisitions by Emtec, Inc. of Acentra Technologies,
Inc. and Turnkey Computer Systems, Inc., respectively as set forth in Note (1),
as if such transactions had occurred at the beginning of the periods presented.
The annual pro forma statement of operations combines the year ended March 31,
2002 for Emtec, Inc., 12 months ended March 31, 2002 for Acentra Technologies,
Inc., and year ended December 31, 2001 for Turnkey Computer Systems, Inc. The
interim pro forma statement of operations combines the six months ended
September 30, 2002 for Emtec, Inc., the period from April 1, 2002 to August 12,
2002 for Acentra Technologies, Inc., and six months ended June 30, 2002 for
Turnkey Computer Systems, Inc. Acentra revenues and expenses for the remainder
of the six month period after acquisition (August 13, 2002 to September 30,
2002) are consolidated into Emtec's historical statement of operations for the
six month period.
The pro forma financial statements and accompanying Notes should be read in
conjunction with a reading of the financial statements of Emtec, Inc., Acentra
Technologies, Inc., and Turnkey Computer Systems, Inc.
EMTEC, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Historical
---------- Turnkey
Acentra Computer Pro Forma Pro Forma
Emtec, Inc. Technologies, Inc. Systems,Inc. Adjustments (2) Totals
----------- ----------------- ------------ --------------- ---------
Year Ended: March 31, 2002 March 31, 2002 December 31, 2001
----------- -------------- -------------- -----------------
Total Revenues $69,601,406 $32,833,916 $2,196,084 $ (417,881)(a) $104,213,525
Total Cost of Revenues 59,534,276 29,567,313 1,364,572 (1,559,941)(b) 88,906,220
----------- ----------- ---------- ----------- ------------
Total Gross Profit 10,067,130 3,266,603 831,512 1,142,060 15,307,305
----------- ----------- ---------- ----------- ------------
Operating Expenses
Sales, general & administrative
expenses 8,995,255 3,943,706 972,130 (872,450)(c) 13,038,641
Termination costs 21,746 - - - 21,746
Interest expense 210,305 263,070 3,959 - 477,334
Startup costs; E-Business 617,220 - - - 617,220
----------- ----------- ---------- ----------- ------------
Total Operating Expenses 9,844,526 4,206,776 976,089 (872,450) 14,154,941
----------- ----------- ---------- ----------- ------------
Income(Loss) From
Operations Before Income
Tax Expense(Benefit) 222,604 (940,173) (144,577) 2,014,510 1,152,364
Income tax expense (benefit) 5,632 (255,756) (11,696) 425,456(d) 163,636
----------- ----------- ---------- ----------- ------------
Net Income (Loss) $ 216,972 $ ( 684,417) $ (132,881) $ 1,589,054 $ 988,728
----------- ----------- ---------- ----------- ------------
Net Income per share $ 0.03 $ 0.14
(basic and diluted)
EMTEC, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Historical
----------
Turnkey
Acentra Computer Pro Forma Pro Forma
Emtec, Inc. Technologies, Inc. Systems,Inc. Adjustments (2) Totals
----------- ------------------ ------------ --------------- ------
April 1, 2002 to April 1, 2002 to January 1, 2002 to
Periods: September 30, 2002 August 12, 2002 June 30, 2002
-------- ------------------ --------------- -------------
Total Revenues $49,757,826 $ 4,110,687 $1,116,420 $(103,690)(e) $54,758,788
(122,455)(i)
Total Cost of Revenues 43,458,765 4,543,241 810,344 (152,343)(f) 48,582,149
----------- ----------- ---------- -----------
(77,858)(i)
---------
Total Gross Profit 6,299,061 (432,554) 306,076 4,056 6,176,639
----------- ----------- ---------- --------- -----------
Operating Expenses
Sales, general & administrative
expenses 6,004,798 1,738,766 343,078 (426,648)(g) 7,628,124
(31,870)(i)
Termination costs - - - - -
Interest expense 47,567 46,737 4,322 - 98,626
Startup costs; E-Business - - - - -
----------- ----------- ---------- --------- -----------
Total Operating Expenses 6,052,365 1,785,503 347,400 (458,518) 7,726,750
----------- ----------- ---------- --------- -----------
Income(Loss) From
Operations Before Income
Tax Expense(Benefit) 246,696 (2,218,057) (41,324) 462,574 (1,550,111)
Income tax expense (benefit) 9,870 905 (382) (78,959)(h) ( 68,566)
----------- ----------- ---------- --------- -----------
Net Income (Loss) $ 236,826 $(2,218,962) $ (40,942) $ 541,533 $(1,481,545)
----------- ----------- ---------- --------- -----------
Net Income (Loss) per share $ 0.03 $ (0.21)
EMTEC, INC.
(FORMERLY AMERICAN GEOLOGICAL ENTERPRISES, INC.)
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. Acquisitions
On August 12, 2002, the Company acquired certain assets of Acentra
Technologies, Inc., including the assumption of the State of New Jersey computer
supply and services contract for a net purchase price of $165,607 in cash. The
net purchase price of $165,607 in cash to be allocated as follows:
$ 100,000 Assignment of State Contract and $4.5 million estimated value of open PO's
319,438 Inventory
22,715 Equipment
2,500 Cable Parts
(279,046) Advance Payment Amount from Customers, and net deferred revenue
---------
$ 165,607 Net purchase price
=========
On August 31, 2002, the Company acquired all of the customer
contracts of Turnkey Computer Systems, Inc. of Clifton, NJ. The Company
paid no consideration for these contracts. Emtec has hired 16 former
Turkey Computer Systems' employees including 2 former executives.
2. Pro Forma Adjustments to Statement of Operations.
Year ended March 31, 2002 for Emtec, Inc.,12 months ended March 31, 2002 for
Acentra Technologies, Inc. and the year ended December 31, 2001 for Turnkey
Computer Systems, Inc..
a) Pro Forma adjustment of $(417,881) to Total revenues is mainly due to the
Company not purchasing Lanier line of business from Acentra Technologies,
Inc.. Lanier is a manufacturer that produces office copiers. Acentra sold
various types of Liner copiers to its customers along with service
contracts agreements.
b) Pro Forma adjustment of $(1,559,941)to Total cost of revenues is due to
elimination of compensation paid to certain engineers of Acentra
Technologies, Inc. who were not retained by the Company. This amounts to
$(1,483,135), which includes total compensation paid to these positions.
The remaining $(76,807) included elimination of cost of copiers and
freight charges associated with Liner line of business.
c) Pro Forma adjustment of $(872,450) to Sales, general and administrative
expense is due to elimination of compensation paid to executive,
accounting, administrative and certain sales personnel of Acentra
Technologies, Inc. and Turnkey Computer Systems, Inc. who were not
retained by the Company. This amounts to $(200,523), which includes total
compensation paid to these positions. The remaining $(671,927) is broken
out into following categories:
Building Rent and maintenance $(328,906)
Payroll taxes and benefit expense $(267,473)
Auto and Travel expense $ (63,235)
Depreciation expense $ (14,742)
Interest income $ 2,429
---------
Total $(671,927)
---------
d) Pro Forma adjustment of $425,456 to Income tax expense (benefit) is
presented to show the pro forma tax effect of combining the operating
results of the companies and to tax effect the aforementioned pro forma
adjustments.
Six months ended September 30, 2002 for Emtec, Inc. and Acentra Technologies,
Inc. and June 30, 2002 for Turnkey Computer Systems, Inc..
e) Pro Forma adjustment of $(103,690) to Total revenues is mainly due to the
Company not purchasing Lanier line of business from Acentra Technologies,
Inc.. Lanier is a manufacturer that produces office copiers. Acentra sold
various types of Liner copiers to its customers along with service
contracts agreements.
f) Pro Forma adjustment of $(152,343)to Total cost of revenues is due to
elimination of compensation paid to certain engineers of Acentra
Technologies, Inc. who were not retained by the Company. This amounts to
$(132,960) which includes total compensation paid to these positions. The
remaining $(19,383) included elimination of cost of copiers and freight
charges associated with Liner line of business.
g) Pro Forma adjustment of $(426,648) to Sales, general and administrative
expense is due to elimination of compensation paid to executive,
accounting, administrative and certain sales personnel of Acentra
Technologies, Inc. and Turnkey Computer Systems, Inc. who were not
retained by the Company. This amounts to $(46,017) which includes total
compensation paid to these positions. The remaining $(380,631) is broken
out into following categories:
Building Rent and maintenance $(124,175)
Payroll taxes and benefit expense $ (36,042)
Auto and Travel expense $ (20,680)
Depreciation expense $ (6,080)
Adverting expense $ (10,462)
Legal expense $(182,964)
Interest income $ 229
---------
Total $(380,631)
---------
h) Pro Forma adjustment of $(78,959) to Income tax expense (benefit) is
presented to show the pro forma tax effect of combining the operating
results of the companies and to tax effect the aforementioned pro forma
adjustments.
i) Net Pro Forma adjustment of $(12,727) is comprised of following;
Total Revenues $(122,455)
Total Cost of Revenue (77,858)
---------
Total Gross Profit $ (44,597)
Sales, general and
Administrative expense $ (31,870)
---------
Income(Loss) From
Operations Before Income
Tax Benefit(Expense) $ (12,727)
---------
This Pro Forma adjustment is to eliminate income from operations before
income taxes for month of September 2002 for Turnkey Computer Systems, Inc.
which is included in the consolidated statements of operations for the six
months ended September 30, 2002 for Emtec, Inc.
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 thereunto duly authorized.
Dated: December 12, 2002
EMTEC, INC.
(Registrant)
By: /s/ John Howlett
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John Howlett
Chairman and Chief Executive Officer