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.