-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vf+dNzfldqfBczS5tYmOwNZS6SYGyeIxJorJIMwAASZ+N+wP0n2odFuMKWycf/yg wxy/CRE/dO0x+QpWfoy9BA== 0001144204-05-023671.txt : 20050804 0001144204-05-023671.hdr.sgml : 20050804 20050803204645 ACCESSION NUMBER: 0001144204-05-023671 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050526 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050804 DATE AS OF CHANGE: 20050803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVECORE TECHNOLOGIES INC CENTRAL INDEX KEY: 0001011601 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30397 FILM NUMBER: 05997417 BUSINESS ADDRESS: STREET 1: 156 FRONT STREET WEST STREET 2: SUITE 210 CITY: TORONTO STATE: A6 ZIP: M5J 2L6 BUSINESS PHONE: 9053069343 MAIL ADDRESS: STREET 1: 156 FRONT STREET WEST STREET 2: SUITE 210 CITY: TORONTO STATE: A6 ZIP: M5J 2L6 FORMER COMPANY: FORMER CONFORMED NAME: IVP TECHNOLOGY CORP DATE OF NAME CHANGE: 20050106 FORMER COMPANY: FORMER CONFORMED NAME: ACTIVECORE TECHNOLOGIES, INC. DATE OF NAME CHANGE: 20050105 FORMER COMPANY: FORMER CONFORMED NAME: IVP TECHNOLOGY CORP DATE OF NAME CHANGE: 20000404 8-K/A 1 v022782_8-ka.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------- FORM 8-K/A AMENDMENT NO. 1 TO FORM 8-K FILED ON MAY 26, 2005 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 19, 2005 ActiveCore Technologies, Inc. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Nevada 000-30397 65-6998896 ------------------------------ ---------------------- ----------------- (State or Other Jurisdiction of (Commission File Number) (IRS Employer Incorporation) Identification No.) 156 Front Street West, Suite 210 Toronto, Ontario M5J-2L6 - -------------------------------------------------------------------------------- (Address of principal executive offices) (416) 252-6200 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code This Form 8-K/A amends the Current Report on Form 8-K/A is filed by ActivecoreK of ActiveCore Technologies, Inc., a Nevada corporation ("Activecore (the "Registrant" or the "Company"), as an amendment to that certain Current Report on Form 8-K"ActiveCore") filed with the Securities and Exchange Commission on May 26, 2005 to include the information required by Item 7.2005, regarding the Registrant's acquisition of all of the issued and outstanding capital stock of Cratos Technology Solutions Inc., an Ontario corporation ("Cratos"). The sole purpose of this amendment is to provide the audited historical financial statements of the business acquired as required by Item 9.01(a) and the unaudited pro forma financial information required by Item 9.01(b), which financial statements and information were not included in the original filing. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS The following financial statements and exhibits are filed as part of this Current Report on Form 8-K/A, where indicated: (a) Financial statements of the business acquired The following audited financial statements of Cratos are included as Exhibit 99.1 to this Current Report on Form 8-K/A: (i) Report of the Independent Auditors (ii) Balance Sheets as of October 31, 2004 and 2003 (iii) Statements of Operations and Deficit for the years ended October 31, 2004, and 2003 (iv) Statements of Cash Flows for the years ended October 31, 2004, and 2003 (v) Notes to the Financial Statements (b) Pro forma financial information The following unaudited pro forma financial information of ActiveCore and Cratos is included as Exhibit 99.2 to this Current Report on Form 8-K/A: (i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2005 (ii) Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three-month period ended March 31, 2005 (iii) Unaudited Pro Forma Condensed Consolidated Statement of Operations for the twelve-month period ended December 31, 2004 (iv) Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements (c) Exhibits Exhibit No. Description - ----------- -------------------------------------------------------------- 99.1 The following audited financial statements of Cratos: Report of the Independent Accountants Balance Sheets as of October 31, 2004 and 2003 Statements of Operations and Deficit for the years ended October 31, 2004 and 2003 Statements of Cash Flows for the years ended October 31, 2004 and 2003 Notes to the Financial Statements 99.2 The following unaudited pro forma financial information of Activecore and Cratos Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2005 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three-month period ended March 31, 2005 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the twelve-month period ended December 31, 2004 Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements The Exhibits that are filed with this Current Report on Form 8-K/A are set forth in the Exhibit Index to this Current Report on Form 8-K/A. 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. ACTIVECORE TECHNOLOGIES, INC. August 3, 2005 By: /s/ Peter Hamilton --------------------------- Peter Hamilton Chief Executive Officer EXHIBIT INDEX Exhibit No. Description - ----------- -------------------------------------------------------------- 99.1 The following audited financial statements of Cratos: Report of the Independent Accountants Balance Sheets as of October 31, 2004 and 2003 Statements of Operations and Deficit for the years ended October 31, 2004 and 2003 Statements of Cash Flows for the years ended October 31, 2004 and 2003 Notes to the Financial Statements 99.2 The following unaudited pro forma financial information of Activecore and Cratos Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2005 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three-month period ended March 31, 2005 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the twelve-month period ended December 31, 2004 Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements EX-99.1 2 v022782_ex99-1.txt EXHIBIT 99.1 CRATOS TECHNOLOGY SOLUTIONS INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003 CRATOS TECHNOLOGY SOLUTIONS INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003 CONTENTS ================================================================================ INDEPENDENT AUDITORS' REPORT 2 FINANCIAL STATEMENTS Balance Sheets 3 Statements of Operations and Deficit 4 Statements of Cash Flows 5 Summary of Significant Accounting Policies 6 Notes to Financial Statements 8 ================================================================================ INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- To the Shareholders of CRATOS Technology Solutions Inc. We have audited the accompanying balance sheets of CRATOS Technologies Solutions Inc. as of October 31, 2004 and 2003 and the statements of operations and deficit, and cash flows for the years 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 CRATOS Technologies Solutions Inc. at October 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ BDO Dunwoody LLP Chartered Accountants Toronto, Ontario July 15, 2005 2 ============================================================================= CRATOS TECHNOLOGY SOLUTIONS INC. BALANCE SHEETS OCTOBER 31 2004 2003 - ----------------------------------------------------------------------------- ASSETS CURRENT Cash $ 149,127 $ 154,124 Trade accounts receivable (net of allowance for doubtful accounts of $0 in 2004 and 2003) 803,700 876,086 Accrued receivables (note 2) -- 760,000 Income taxes recoverable 148,762 0 Prepaid expenses and other current assets 53,372 23,933 ----------------------- 1,154,961 1,814,143 CAPITAL ASSETS (Note 1) 213,860 244,312 ----------------------- $1,368,821 $2,058,455 ============================================================================= LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT Accounts payable and accrued liabilities (Note 3) $1,872,972 $1,328,219 Rebate accrual (Note 4) 757,161 297,275 Due to related parties (Note 5) 574,541 620,600 ----------------------- 3,204,674 2,246,094 ----------------------- SHAREHOLDERS' DEFICIT Common Stock, 100 shares authorized and outstanding 100 100 Deficit (1,835,953) (187,739) ----------------------- (1,835,853) (187,639) ----------------------- $1,368,821 $2,058,455 ============================================================================= The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 3 ============================================================================== CRATOS TECHNOLOGY SOLUTIONS INC. STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED OCTOBER 31 2004 2003 - ------------------------------------------------------------------------------ REVENUE $ 3,391,889 $ 7,840,534 COST OF REVENUE 2,920,033 5,099,147 -------------------------- GROSS PROFIT 471,856 2,741,387 EXPENSES Contractors 292,875 437,635 Travel 420,594 570,054 Management fees -- 595,339 Office and general 133,713 209,850 Loss on advance to related party (Note 5) 962,725 865,480 Bad Debt Recovery -- (194,044) Communications 70,834 91,085 Facilities 308,081 83,192 Depreciation 59,141 90,071 Professional fees 53,433 22,445 Marketing 10,847 35,406 Foreign exchange loss 50,606 99,278 -------------------------- 2,362,849 2,905,791 -------------------------- LOSS BEFORE INCOME TAXES (1,890,993) (164,404) PROVISION FOR (RECOVERY OF) INCOME TAXES (Note 7) (242,779) 194,532 -------------------------- NET LOSS FOR THE YEAR (1,648,214) (358,936) RETAINED EARNINGS (DEFICIT), beginning of year (187,739) 171,197 -------------------------- DEFICIT, end of year ($1,835,953) ($ 187,739) ============================================================================== The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 4
====================================================================================== CRATOS TECHNOLOGY SOLUTIONS INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31 2004 2003 - -------------------------------------------------------------------------------------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss for the year ($1,648,214) (358,936) Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation 59,141 90,071 Loss on advance from related party 962,725 865,480 Changes in non-cash working capital balances Accounts receivable 72,386 325,322 Accrued receivables 760,000 (760,000) Taxes recoverable (148,762) -- Prepaid expenses and other current assets (29,439) 11,146 Accounts payable and accrued liabilities 544,753 (111,540) Rebate payable 459,886 343,973 Related parties (46,059) 592,780 -------------------------- 986,417 998,296 -------------------------- INVESTING ACTIVITIES Acquisition of capital assets (28,689) (211,541) Payment to related parties (962,725) (865,480) -------------------------- (991,414) (1,077,021) -------------------------- DECREASE IN CASH DURING THE YEAR (4,997) (78,725) CASH, beginning of year 154,124 232,849 -------------------------- CASH, end of year $ 149,127 $ 154,124 ====================================================================================== The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.
5 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- NATURE OF BUSINESS CRATOS Technology Solutions Inc. (the "Company"), a company incorporated under the laws of Ontario, is a solutions-oriented organization specializing in international banking and financial transaction processing. The majority of the Company's customers specialize in card products such as Visa(R), MasterCard(R), Eurocard, Smart cards, Debit cards, Credit cards, Store cards, Private label cards, and Loyalty-based products. BASIS OF PRESENTATION These financial statements are expressed in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Certain prior year amounts have been reclassified to conform to current year presentation. USE OF ESTIMATES The Company's financial statements are prepared in accordance with U.S. GAAP. The preparation of the financial statements in accordance with U.S. GAAP necessarily requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenues, bad debts, income taxes, rebates and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed at the time to be reasonable under the circumstances. Under different assumptions or conditions, the actual results will differ, potentially materially, from those previously estimated. Many of the conditions impacting these assumptions and estimates are outside of the Company's control. CAPITAL ASSETS Capital assets are stated at cost and are depreciated on a straight-line basis over the estimated useful lives of the related assets. Gains and losses upon asset disposals are taken into income in the year of disposition. The following represents the estimated lives of the capital assets: Furniture and equipment - 5 years Computer hardware - 3 years Computer software - 3 years Vehicles - 5 years Leasehold improvements - Shorter of term of lease and estimated life 6 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- REVENUE RECOGNITION Revenues consist of services revenues from consulting contracts and integration services contracts. Service revenues from fixed contracts are recognized under the percentage of completion method, using a methodology that accounts for costs incurred under the contract in relation to the total estimated costs under the contract, after providing for any anticipated losses under the contract. All other service revenue is earned on a time and materials basis, and therefore is recognized in the period in which the services are performed. INCOME TAXES The Company accounts for income taxes under the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. Effects of changes in tax rates are recognized in the period that includes the enactment date. The Company provides a valuation allowance on net deferred tax assets when it is more likely than not that such assets will be realized. SIGNIFICANT CUSTOMER AND VENDOR The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral. The Company maintains allowances for potential losses, and to date, such actual losses have been within management's expectations. A single customer accounted for 94% of the Company's revenue during the year ended October 31, 2004 and 79% during the year ended October 31, 2003. This same customer accounted for 96% of the Company's accounts receivable balance at October 31, 2004 and 85% of the Company's accounts receivable balance as at October 31, 2003. In addition, the Company uses consultants to deliver service contracts for its customers. These consultants are procured primarily through one significant consulting agency. Amounts recorded in the Company's Statements of Operations as cost of revenues almost exclusively represent consulting services incurred through this significant vendor. FINANCIAL INSTRUMENTS Carrying amounts of certain of the Company's financial instruments including cash, accounts receivable, accounts payable, amounts due to related parties, and accrued liabilities and rebates payable approximate fair value due to their short maturities. IMPAIRMENT OF LONG-LIVED ASSETS Impairment losses are recorded on assets to be held and used by the Company when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of the assets. When an impairment loss is required for assets to be held and used by the Company, the related assets are adjusted to their estimated fair value. Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties that is other than a forced or liquidation sale. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of current market yields as well as future events and conditions. Such future events and conditions include economic and market conditions, as well as availability of suitable financing to find acquisitions and development activities. The realization of the Company's revenue producing assets is dependent upon future uncertain events and conditions, and accordingly, the actual timing and amounts realized by the Company may be materially different from their estimated value. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company evaluates its need for an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. An allowance is maintained for 100% of all accounts deemed to be uncollectible. The Company has not historically required an allowance for doubtful accounts as its customers are large corporations where credit concerns are not an issue. The Company does not have a history of non-collection of accounts receivable. 7 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- 1. CAPITAL ASSETS 2004 2003 --------------------------------------------------- ACCUMULATED Accumulated COST DEPRECIATION Cost Depreciation Furniture and equipment $192,160 $ 57,062 $189,528 $ 23,616 Computer hardware 133,585 98,237 133,585 80,589 Computer software 129,983 103,926 103,926 103,147 Vehicles 27,569 11,165 27,569 4,136 Leasehold improvements 1,862 909 1,862 670 --------------------------------------------------- 485,159 271,299 456,470 212,158 --------------------------------------------------- Net book value $213,860 $244,312 ========================================= - -------------------------------------------------------------------------------- 2. ACCRUED RECEIVABLES Accrued receivables represent amounts due from customers for work performed which has not yet been invoiced. - -------------------------------------------------------------------------------- 3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2004 2003 -------------------------- Accounts payable $1,843,330 $1,213,265 Accrued liabilities 29,642 6,993 Income taxes payable -- 107,961 -------------------------- $1,872,972 $1,328,219 ========================== - -------------------------------------------------------------------------------- 4. REBATE ACCRUAL The Company has instituted a rebate program for its major customer which entitles the customer to earn credits which can be used to offset fees relating to future work performed by the Company. The customer earns rebates provided they remit payment to the Company for work performed within a specified timeframe. These rebates can be applied to work performed in the following calendar year, at a prescribed rate. If the rebates are not utilized within the following calendar year, they expire with no value to the customer. The accrual recorded by the Company as of October 31, 2004 and 2003 represents management's best estimates of these future liabilities, using all available information including the Company's historical redemption rate for this program. - -------------------------------------------------------------------------------- 5. RELATED PARTY TRANSACTIONS During fiscal 2004 and fiscal 2003, the Company received services from companies controlled by the Company's shareholders in amounts totaling $521,000 and $1,414,000 respectively. As of October 31, 2004 and 2003, amounts due to these companies in respect of these services, along with services provided in prior years, amounted to $574,541 and $620,600 respectively. The Company has loaned amounts to Cratos Integrated Inc. ("Integrated") Integrated is a company controlled by the shareholders of the Company. These amounts were repayable on demand and carried no fixed repayment terms or interest. Due to the financial condition of Integrated, these amounts have been deemed not to be recoverable, and as a result amounts totaling $962,725 and $865,480 in 2004 and 2003 respectively have been charged to the Statement of Operations as loss on advance to related party. 8 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- 6. COMMITMENTS AND CONTINGENCIES The Company has entered into operating leases for premises with minimum annual payments as follows. 2005 $ 272,004 2006 273,337 2007 288,000 2008 289,333 Thereafter 582,659 ---------- $1,705,333 ========== The Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. - -------------------------------------------------------------------------------- 7. INCOME TAXES The Company operates in Canada and consequently its taxable income is subject to tax at a statutory rate of approximately 36%. A reconciliation of the combined Canadian federal and provincial income tax rate with the Company's effective income tax rate is as follows: 2004 2003 ------------------------- Expected statutory rate 36.00% 36.00% Expected provision for income taxes $ (680,757) $ (59,185) Loss on loan foregiveness to related party 173,290 155,786 Change in valuation allowance 173,291 155,786 Impact of small business tax rate 91,397 (57,855) ------------------------- Income taxes $ (242,779) $ 194,532 ========================= The Company's entire provision for income taxes in both the years ended October 31, 2004 and 2003 were current taxes payable. 9 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- The primary temporary differences which gave rise to the net deferred tax assets at October 31, 2004 and 2003 are: 2004 2003 ------------------------- DEFERRED TAX ASSETS Capital losses 329,077 155,786 ------------------------- Less, valuation allowance (329,077) (155,786) ------------------------- Net deferred tax asset $ -- $ -- ========================= The Company believes that sufficient uncertainty exists regarding the realization of its deferred tax assets such that a full valuation allowance is required. 10 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- 8. SUPPLEMENTAL CASH FLOW DISCLOSURES 2004 2003 ------------------------- Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 6,415 $ 129 Cash paid during the period for taxes $ 25,981 $ 90,824 - -------------------------------------------------------------------------------- 9. SUBSEQUENT EVENT Purchase by ActiveCore Technologies Inc. Subsequent to October 31, 2004, the shareholders of Cratos (the "Shareholders") signed a share purchase agreement (the "Share Purchase Agreement") with Activecore Technologies Inc. ("Activecore") a public company whose shares trade on the Nasdaq OTC Bulletin Board, pursuant to which Activecore acquired all of the stock of Cratos in exchange for approximately $2.7 million in cash and common stock of Activecore. This consideration is comprised of cash consideration of $100,000, the issuance of a $100,000 promissory note due in August 2005, and 9,021,030 common shares of Activecore. The per share stock consideration was valued for the purpose of determining the purchase price of the acquisition by using a simple average of the closing trading price of the Company's common shares for two days both before and after this transaction was announced. The share consideration paid by ActiveCore is subject to an adjustment based on whether the Company achieves specified EBITDA targets for the 8 successive quarters following the close of the transaction. If the Company exceeds the targets, then the shareholders could earn up to an additional 400,000 common shares of ActiveCore. If the Company fails to achieve these targets, then the shareholders will be required to contribute up to 400,000 additional shares back to ActiveCore. The purchase price is subject to an adjustment mechanism which will require (i) Activecore to issue additional shares to the Shareholders in the event Cratos' exceeds certain specified financial targets, and (ii) the Shareholders to contribute back to the Activecore's treasury shares in the event Cratos' fails to achieve certain specified financial targets. In addition to the foregoing, Activecore made a cash payment on behalf of Cratos to its primary supplier which equaled all amounts due to such supplier. This supplier will also receive a specified number of bonus shares of Activecore's common stock in consideration for its agreement to (i) enter into renewed agreements which Cratos, and (ii) terminate any existing security agreements between such party and Cratos as well as discharge any registered security and agree to subordinate any future security to that of any senior lender of Activecore. Pursuant to the terms of the Share Purchase Agreement, each of the Shareholders agreed to a contractual lock-up and voting restrictions in respect of the Shares. Specifically, the Shares will be subject to a lock-up in accordance with the following release conditions: (i) 20% of the Shares shall be released on the seventh business day following the closing date; (ii) 40% of the Shares will be released on the first anniversary of the closing date; and (iii) 40% of the Shares will be 11 released on the second anniversary of the Closing Date. Each of the Shareholders have also agreed for a period of two years from the closing date to vote the Shares in support of any recommendation made by the directors and/or management of Activecore at any of its annual or special meetings. Prior to the execution of the Share Purchase Agreement, the Shareholders agreed to forgive all amounts receivable by them from the Company. 12 ================================================================================ CRATOS TECHNOLOGY SOLUTIONS INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- Credit Facility On April 30, 2005, Cratos secured a $1.75 million credit facility with a major Canadian bank. Amounts drawn on this facility bear interest at the prime rate plus 1.00% per annum. The facility is secured by a general security agreement against Cratos and by personal guarantees of two principals of Activecore. The margin requirements of the facility restrict borrowing to 85% of effectively assigned and domestic unencumbered trade accounts receivables and insured non-domestic unencumbered trade account receivables. 13 EX-99.2 3 v022782_ex99-2.txt 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. -----END PRIVACY-ENHANCED MESSAGE-----