8-K/A 1 c66373a3e8-ka.txt AMENDMENT TO CURRENT REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 2 TO 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): June 6, 2001 -------------- ACTIVE IQ TECHNOLOGIES, INC. -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Minnesota 0-27968 41-2004369 ---------------------------- ------------ ------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 5720 Smetana Drive, Suite 101 Minnetonka, Minnesota 55343 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (952) 449-5000 ---------------- (Former Name or Former Address, if Changed Since Last Report) ================================================================================ Item 2. Acquisition or Disposition of Assets On June 6, 2001, Active IQ Technologies, Inc. (Active IQ or the Company) entered into a stock purchase agreement with Red Wing Business Systems, Inc. and the shareholders of Red Wing Business Systems, Inc., whereby Active IQ would purchase 100% of the common stock of Red Wing Business Systems, Inc. (the Transaction). The aggregate consideration Active IQ paid for the common shares of Red Wing Business Systems Inc. was 400,000 shares of common stock of Active IQ and cash of $1,600,000 (Cash Consideration). The Cash Consideration is payable as follows: (a) $400,000 on June 6, 2001 (b) $400,000 six months from June 6, 2001 (c) $400,000 12 months from June 6, 2001 and (d) $400,000 18 months from June 6, 2001. The acquisition was made pursuant to a Stock Purchase Agreement dated June 6, 2001 between Red Wing Business Systems, Inc., all the shareholders of Red Wing Business Systems, Inc. and the Company. The Company filed a current report on Form 8-K on June 15, 2001 to announce the Stock Purchase Agreement. On August 13, 2001, the Company filed Amendment No. 1 to the Form 8-K to include financial statements and pro forma financial information required by Item 7 of Form 8-K. The Company is filing this Amendment to the Form 8-K in order to revise the financial statements and pro forma financial information previously filed. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired Report of Independent Public Accountants F-1 1. Balance Sheets as of December 31, 2000 and 1999 F-2 2. Statements of Operations for the years ended December 31, 2000 and 1999 F-3 3. Statements of Stockholders' Deficit for the years ended December 31, 2000 and 1999 F-4 4. Statements of Cash Flows for the years ended December 31, 2000 and 1999 F-5 5. Notes to Financial Statements F-6 to F-10 6. Balance Sheet as of March 31, 2001 (unaudited) F-11 7. Statements of Operations for the three months ended March 31, 2001 and 2000 (unaudited) F-12 8. Statements of Stockholders' Deficit for the three months ended March 31, 2001 (unaudited) F-13 9. Statements of Cash Flows for the three months ended March 31, 2001 and 2000 (unaudited) F-14 10. Notes to Financial Statements (unaudited) F-15 and F-16
(b) Pro Forma Financial Information 1. Unaudited Pro Forma Combined Financial Information F-17
2. Unaudited Pro Forma Combined Balance Sheet as of March 31, 2001 F-18 3. Unaudited Pro Forma Combined Statements of Operations For the year ended December 31, 2000 F-19 For the three months ended March 31, 2001 F-20 4. Notes to Unaudited Pro Forma Combined Financial Information F-21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Red Wing Business Systems, Inc.: We have audited the accompanying balance sheets of Red Wing Business Systems, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholders' 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 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 Red Wing Business Systems, Inc. as of December 31, 2000 and 1999, 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/ Virchow, Krause & Company, LLP Minneapolis, Minnesota July 26, 2001 F-1 RED WING BUSINESS SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ------------------- ------------------ ASSETS CURRENT ASSETS: Cash $ 0 $ 16,804 Accounts receivable, net 113,884 186,786 Inventories 61,854 93,409 Other current assets 18,880 15,760 ------------------ ------------------ Total current assets 194,618 312,759 ------------------ ------------------ PROPERTY AND EQUIPMENT, NET 58,379 71,454 ------------------ ------------------ OTHER ASSETS: Cash value of life insurance 34,570 30,652 Software development costs, net 409,280 509,401 ------------------ ------------------ Total other assets 443,850 540,053 ------------------ ------------------ $ 696,847 $ 924,266 ================== ================== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Checks written in excess of cash in bank $ 23,160 $ 0 Line of credit - bank 105,000 159,038 Current portion of long-term debt 34,713 0 Current portion of notes payable - stockholders 25,696 23,609 Accounts payable 186,422 190,417 Accrued payroll and related taxes 29,108 55,561 Accrued vacation 77,366 70,284 Deferred revenue 799,222 694,061 Other current liabilities 78,397 56,799 ------------------ ------------------ Total current liabilities 1,359,084 1,249,769 LONG-TERM DEBT, NET OF CURRENT PORTION 157,826 0 NOTES PAYABLE - STOCKHOLDERS, NET OF CURRENT PORTION 130,741 156,437 ------------------ ------------------ Total liabilities 1,647,651 1,406,206 ------------------ ------------------ STOCKHOLDERS' DEFICIT: Common stock, no par value, 1,000,000 shares authorized, 87,206 shares issued and outstanding 153,136 153,136 Accumulated deficit (1,103,940) (635,076) ------------------ ------------------ Total stockholders' deficit (950,804) (481,940) ------------------ ------------------ $ 696,847 $ 924,266 ================== ==================
See accompanying notes to financial statements. F-2 RED WING BUSINESS SYSTEMS, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ------------------------------------ ------------------------------------- Amount Percent Amount Percent ------------------ -------------- -------------------- --------------- REVENUES: Software and license fees, net $ 751,001 31.3 $ 1,300,690 47.4 Maintenance, consulting and other 1,646,463 68.7 1,443,198 52.6 ------------------ -------------- -------------------- --------------- Total revenues, net 2,397,464 100.0 2,743,888 100.0 ------------------ -------------- -------------------- --------------- OPERATING EXPENSES: Selling, general and administrative 2,400,418 100.1 2,360,978 86.1 Research and development 208,682 8.7 41,446 1.5 Amortization of software development costs 192,524 8.1 282,228 10.3 Depreciation 33,613 1.4 39,429 1.4 ------------------ -------------- -------------------- --------------- Total operating expenses 2,835,237 118.3 2,724,081 99.3 ------------------ -------------- -------------------- --------------- INCOME (LOSS) FROM OPERATIONS (437,773) (18.3) 19,807 0.7 ------------------ -------------- -------------------- --------------- OTHER INCOME (EXPENSE): Interest expense (31,091) (1.3) (35,247) (1.3) ------------------ -------------- -------------------- --------------- Total other income (expense) (31,091) (1.3) (35,247) (1.3) ------------------ -------------- -------------------- --------------- NET LOSS BEFORE INCOME TAXES (468,864) (19.6) (15,440) (0.6) PROVISION FOR INCOME TAXES 0 0.0 0 0.0 ------------------ -------------- -------------------- --------------- NET LOSS $ (468,864) (19.6) $ (15,440) (0.6) ================== ============== ==================== ===============
See accompanying notes to financial statements. F-3 RED WING BUSINESS SYSTEMS, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Stock --------------------------------- Accumulated Shares Amount Deficit Total ------------- ------------------ ------------------- ----------------- BALANCE - DECEMBER 31, 1998 87,206 $ 153,136 $ (619,636) $ (466,500) Net loss -- -- (15,440) (15,440) ------------ ------------ -------------- ------------- BALANCE - DECEMBER 31, 1999 87,206 153,136 (635,076) (481,940) Net loss -- -- (468,864) (468,864) ------------ ------------ -------------- ------------- BALANCE - DECEMBER 31, 2000 87,206 $ 153,136 $ (1,103,940) $ (950,804) ============ ============ ============== =============
See accompanying notes to financial statements. F-4 RED WING BUSINESS SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ---------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (468,864) $ (15,440) Adjustments to reconcile net loss to cash flows from operating activities: Amortization of software development costs 192,524 282,228 Depreciation 33,613 39,429 Changes in operating assets and liabilities: Accounts receivable, net 72,902 (57,945) Inventories 31,555 (18,909) Other current assets (3,120) (15,760) Cash value of life insurance (3,918) (856) Checks written in excess of cash in bank 23,160 0 Accounts payable (3,995) (17,980) Accrued payroll and related taxes (26,453) (8,574) Accrued vacation 7,082 19,256 Deferred revenue 105,161 172,312 Other current liabilities 21,598 4,119 --------------- --------------- Cash flows from operating activities (18,755) 381,880 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (20,538) (15,709) Payments for software development costs (92,403) (172,683) --------------- --------------- Cash flows from investing activities (112,941) (188,392) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments on line of credit - bank (54,038) (377,429) Proceeds from long-term debt 205,500 0 Payments on long-term debt (12,961) 0 Proceeds from notes payable - stockholders 0 200,000 Payments on notes payable - stockholders (23,609) (38,854) --------------- --------------- Cash flows from financing activities 114,892 (216,283) --------------- --------------- DECREASE IN CASH (16,804) (22,795) CASH, BEGINNING OF YEAR 16,804 39,599 --------------- --------------- CASH, END OF YEAR $ 0 $ 16,804 =============== =============== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest $ 31,091 $ 35,247 Cash paid for income taxes $ 0 $ 0
See accompanying notes to financial statements. F-5 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Red Wing Business Systems, Inc. (the Company) was incorporated in Minnesota in June 1979. The Company develops and services accounting and financial management software for agricultural and business customers throughout the United States. ACCOUNTS RECEIVABLE - Accounts receivable have been reduced by an allowance for uncollectible accounts of $42,000 and $45,000 at December 31, 2000 and 1999. The Company considers all accounts receivable in excess of the allowance to be fully collectible. If accounts receivable in excess of the provided allowance are determined uncollectible, they are charged to operations in the year that determination is made. The Company extends unsecured credit to customers in the normal course of business. INVENTORIES - Inventories consist principally of manuals for the various software modules, stocked software, brochures and marketing materials. Inventory is recorded at the lower of cost (first-in, first-out) or market. DEPRECIATION - Property and equipment are recorded at cost. Depreciation is provided for using accelerated methods over estimated useful lives of five to seven years. Maintenance, repairs and minor renewals are expensed when incurred. REVENUE RECOGNITION - Product revenues are recognized upon shipment of the software product only if no significant Company obligations remain, the fee is fixed or determinable and collection of the resulting receivable is deemed probable. Revenue from services is recognized when the service is provided. Maintenance revenue is recognized ratably over the contract period. Deferred revenue represents payment received for maintenance contracts. Provisions are recorded for returns. SOFTWARE DEVELOPMENT COSTS - Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" requires software development costs to be expensed as incurred until technological feasibility is established. Software development costs incurred subsequent to establishing technological feasibility are capitalized and amortized over their estimated useful lives. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. The Company capitalized $92,403 and $172,683 of software development costs during the years ended December 31, 2000 and 1999. In addition, the Company expensed certain software and development costs as research and development since such costs were incurred during the preliminary project stage. INCOME TAXES - The Company accounts for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the tax consequences of temporary differences between financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets are reduced by a valuation allowance to the extent that realization is not assured. ADVERTISING COSTS - Advertising costs are charged to expense as incurred. Advertising expense for the years ended December 31, 2000 and 1999 was $31,205 and $18,034. F-6 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2000 AND 1999 MANAGEMENT'S 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DERIVATIVES - On January 1, 1999, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards requiring that ever derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the balance sheet at fair value. As the Company does not currently engage or plan to engage in derivative or hedging activities, the adoption of SFAS No. 133 had no impact to the Company's results of operations, financial position or cash flows. (2) PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31:
2000 1999 ---------- ----------- Office furniture $ 74,852 $ 73,910 Office equipment 356,622 337,026 Automobile 21,758 21,758 ---------- ----------- Total 453,232 432,694 Less: Accumulated depreciation (394,853) (361,240) ---------- ----------- Property and equipment, net $ 58,379 $ 71,454 ========== ===========
(3) LINE OF CREDIT - BANK The Company has a $175,000 revolving line of credit with Signal Bank South National Association, which expires May 2002. Borrowings under the revolving line of credit bear interest at prime plus 1% (10.5% at December 31, 2000) and are secured by substantially all of the assets of the Company. Outstanding borrowings were $105,000 and $159,038 at December 31, 2000 and 1999. The revolving line of credit was paid in full on July 11, 2001 after the Company merged with Active IQ Technologies, Inc. (see Note 9). (4) NOTES PAYABLE - STOCKHOLDERS Three of the Company's stockholders, two of which are also officers of the Company, have advanced funds to the Company. The notes are unsecured, bear interest at 8.5%, are subordinated to bank debt and require monthly interest and principal payments of $3,167 through January 2006. Interest expense on these advances was $15,226 and $15,844 for the years ended December 31, 2000 and 1999. Notes outstanding were $156,437 and $180,046 at December 31, 2000 and 1999. Future maturities of notes payable - stockholders for the years ending December 31, 2001 through 2006 are $25,696, $27,968, $30,439, $33,110, $36,079 and $3,145. F-7 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2000 AND 1999 (5) LONG-TERM DEBT During 2000, the Company entered into a $205,500 note with Signal Bank National Association. The note requires monthly installments of $4,367, including interest at prime plus .5% (10% at December 31, 2000) and is due December 2005. The note is secured by substantially all of the assets of the Company and the personal guarantees of two stockholders. Outstanding borrowings were $192,539 at December 31, 2000. Future maturities of long-term debt are as follows for the years ending December 31: 2001 $ 34,713 2002 38,347 2003 42,363 2004 46,799 2005 30,317 ----------- Total $ 192,539 ===========
(6) INCOME TAXES Deferred income tax assets and liabilities are recognized for the temporary differences between the financial statement and income tax reporting basis of assets and liabilities based on currently enacted rates and laws. These principal temporary differences include net capitalized software costs, allowance for doubtful accounts, accrued vacation and deferred revenue. As of December 31, 2000, the Company had federal and state net operating loss carryforwards of approximately $10,000 and $33,000, which if not used, will begin to expire in 2016 and research and development credit carryforwards of approximately $112,000, which if not used, will begin to expire in 2016. Future changes in the ownership of the Company may place limitations on the use of these net operating loss and credit carryforwards. The Company has recorded a valuation allowance against the net deferred tax asset of $265,000 and $195,000 at December 31, 2000 and 1999 due to the uncertainty of realizing the related benefit. (7) RETIREMENT PLAN The Company has a defined contribution plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers employees meeting certain eligibility requirements. The Company must make a matching contribution of 25% of the first 8% of employees' contributions. Company contributions were $13,603 and $15,215 for the years ended December 31, 2000 and 1999. (8) COMMITMENTS AND CONTINGENCIES RELATED PARTY LEASE - The Company leases space for its office facility from a company majority owned by two of the Company's stockholders under a lease expiring September 2008 with an option to extend for an additional five years. Base rents are $6,565 a month and the Company is required to pay its prorata share of real estate taxes and operating expenses. F-8 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2000 AND 1999 EQUIPMENT LEASE - The Company also leases certain office equipment for $175 per month under a lease expiring April 2006. Total rent expense was $80,180 and $78,780 for the years ended December 31, 2000 and 1999. Future minimum rental payments are as follows for the years ending December 31: 2001 $ 80,880 2002 80,880 2003 80,880 2004 80,880 2005 80,880 Thereafter 217,345 ---------- Total $ 621,745 ==========
LEGAL PROCEEDINGS - The Company is involved in legal actions in the ordinary course of its business. Although the outcome of any such legal actions cannot be predicted, management believes that there is no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon the Company's financial position or results of operations. CONCENTRATION OF CREDIT RISK - The Company maintains its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits. ROYALTY AGREEMENTS - The Company entered into an agreement with another company for an OEM license for its system manager, general ledger, accounts payable, accounts receivable and inventory modules. Under the agreement, which has no stated term, royalties are payable based on the greater of 25% of the invoice price (net of returns) or $50 per module on initial licenses and $25 per module on upgrades for all products distributed by the Company using the license. In addition, the agreement requires royalties based on various percentages for sales of product suites and 50% of all revenue generated from the sale of certain developer kits with a minimum royalty of $1,000 for each developer kit. The Company is also required to pay $5,000 annually for each of the five modules they are licensed to distribute. The Company may terminate the agreement at any time upon six months written notice. The Company entered into an agreement with another company for the distribution of certain cow/calf products. Under this agreement, royalties are payable based on 30% of the invoice price with a minimum monthly payment of $1,000. The agreement is renewable annually. Total royalty expense was $95,641 and $145,795 for the years ended December 31, 2000 and 1999. BUY-SELL AGREEMENT - The Company and its stockholders have entered into a buy-sell agreement that restricts the ability to dispose of or transfer their shares of stock. In the event of death, employment termination, insolvency or other event as outlined in the agreement, the Company may or must purchase the departed stockholder's shares of stock depending on provisions in the agreement. The purchase price of the stock and how it is paid will vary depending upon the agreement. During March 2001, the Company redeemed 22,222 shares of common stock for a total of $500,000 using life insurance proceeds. F-9 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2000 AND 1999 (9) SUBSEQUENT EVENT MERGER - On June 6, 2001, all of the Company's outstanding shares of capital stock were acquired by Active IQ Technologies, Inc. (Active IQ). Pursuant to the acquisition, the Company entered into eighteen-month employment agreements with three of its officers. The agreements require annual compensation as defined in the agreements. The agreements automatically renew for six-month terms unless either party terminates the agreement. The agreements require the Company to pay the officers' salaries as defined in the agreements if the Company terminates the agreements without cause. The agreements restrict the employees from competing with the Company as defined in the agreements. F-10 RED WING BUSINESS SYSTEMS, INC. BALANCE SHEET
MARCH 31, 2001 ------------ ASSETS (unaudited) CURRENT ASSETS: Cash $ 13,776 Accounts receivable, net 74,584 Inventories 67,843 Other current assets 14,641 ------------ Total current assets 170,844 ------------ PROPERTY AND EQUIPMENT, NET 56,307 ------------ OTHER ASSETS: Cash value of life insurance 18,441 Software development costs, net 371,530 ------------ Total other assets 389,971 ------------ $ 617,122 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Current portion of long-term debt $ 34,713 Current portion of notes payable - stockholders 25,696 Accounts payable 153,534 Accrued payroll and related taxes 28,706 Accrued vacation 77,366 Deferred revenue 901,246 Other current liabilities 73,351 ------------ Total current liabilities 1,294,612 LONG-TERM DEBT, NET OF CURRENT PORTION 150,346 NOTES PAYABLE - STOCKHOLDERS, NET OF CURRENT PORTION 124,519 ------------ Total liabilities 1,569,477 STOCKHOLDERS' DEFICIT: Common stock, no par value, 1,000,000 shares authorized, 64,984 shares issued and outstanding 140,924 Accumulated deficit (1,093,279) ------------ Total stockholders' deficit (952,355) ------------ $ 617,122 ============
See accompanying notes to condensed financial statements. F-11 RED WING BUSINESS SYSTEMS, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED ------------------------------------- MARCH 31, MARCH 31, 2001 2000 --------------- -------------- (UNAUDITED) (UNAUDITED) REVENUES: Software and license fees, net $ 203,900 $ 226,068 Maintenance, consulting and other 461,242 384,458 --------------- -------------- Total revenues, net 665,142 610,526 --------------- -------------- OPERATING EXPENSES: Selling, general and administrative 585,173 671,834 Research and development 26,196 32,557 Amortization of software development costs 37,750 39,581 Depreciation 8,611 10,680 --------------- -------------- Total operating expenses 657,730 754,652 --------------- -------------- INCOME (LOSS) FROM OPERATIONS 7,412 (144,126) --------------- -------------- OTHER INCOME (EXPENSE): Miscellaneous income 500,000 0 Interest expense (8,963) (5,897) --------------- -------------- Total other income (expense) 491,037 (5,897) --------------- -------------- NET INCOME (LOSS) BEFORE INCOME TAXES 498,449 (150,023) PROVISION FOR INCOME TAXES 0 0 --------------- -------------- NET INCOME (LOSS) $ 498,449 $ (150,023) =============== ==============
See accompanying notes to condensed financial statements. F-12 RED WING BUSINESS SYSTEMS, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2001
Common Stock ----------------------------- Accumulated Shares Amount Deficit Total ------------- -------------- ----------------- --------------- BALANCE - DECEMBER 31, 2000 87,206 $ 153,136 $ (1,103,940) $ (950,804) Redemption of common stock (unaudited) (22,222) (12,212) (487,788) (500,000) Net income (unaudited) -- -- 498,449 498,449 ------------ ------------- -------------- -------------- BALANCE - MARCH 31, 2001 (UNAUDITED) 64,984 $ 140,924 $ (1,093,279) $ (952,355) ============ ============= ============== ==============
See accompanying notes to condensed financial statements. F-13 RED WING BUSINESS SYSTEMS, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED ------------------------------------ MARCH 31, MARCH 31, 2001 2000 -------------- --------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 498,449 $ (150,023) Adjustments to reconcile net income (loss) to cash flows from operating activities: Amortization of software development costs 37,750 39,581 Depreciation 8,611 10,680 Changes in operating assets and liabilities: Accounts receivable, net 39,300 82,097 Inventories (5,989) 17,724 Other current assets 4,239 8,234 Cash value of life insurance 16,129 0 Checks written in excess of cash in bank (23,160) 0 Accounts payable (32,888) (75,588) Accrued payroll and related taxes (402) 52,806 Deferred revenue 102,024 177,949 Other current liabilities (5,046) 4,274 --------------- -------------- Cash flows from operating activities 639,017 167,734 --------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (6,539) (9,796) Payments for software development costs 0 (8,230) --------------- -------------- Cash flows from investing activities (6,539) (18,026) --------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments on line of credit - bank (105,000) (159,038) Payments on long-term debt (7,480) 0 Payments on notes payable - stockholders (6,222) (5,716) Redemption of common stock (500,000) 0 --------------- -------------- Cash flows from financing activities (618,702) (164,754) --------------- -------------- INCREASE (DECREASE) IN CASH 13,776 (15,046) CASH, BEGINNING OF PERIOD 0 16,804 --------------- -------------- CASH, END OF PERIOD $ 13,776 $ 1,758 =============== ============== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid for interest $ 8,963 $ 5,897 Cash paid for income taxes $ 0 $ 0
See accompanying notes to condensed financial statements. F-14 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 (1) BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been consolidated or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the unaudited financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or of the results for any future periods. In preparation of the Company's financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management. (2) REVENUE RECOGNITION Product revenues are recognized upon shipment of the software product only if no significant Company obligations remain, the fee is fixed or determinable and collection of the resulting receivable is deemed probable. Revenue from services is recognized when the service is provided. Maintenance revenue is recognized ratably over the contract period. Deferred revenue represents payment received for maintenance contracts. Provisions are recorded for returns. (3) SOFTWARE DEVELOPMENT COSTS Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" requires software development costs to be expensed as incurred until technological feasibility is established. Software development costs incurred subsequent to establishing technological feasibility are capitalized and amortized over their estimated useful lives. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. The Company did not capitalize any software development costs during the three months ended March 31, 2001 and 2000. The Company expensed software and development costs as research and development since such costs were incurred during the preliminary project stage. (4) MISCELLANEOUS INCOME The amount recorded as miscellaneous income represents the face value of life insurance the Company received on an insurance policy. The Company owned the insurance policy and the insured was a former shareholder. The proceeds of $500,000 are not be subject to regular income tax. F-15 RED WING BUSINESS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED MARCH 31, 2001 (5) SUBSEQUENT EVENT MERGER - On June 6, 2001, the Company merged with and into Active IQ Technologies, Inc. (Active IQ). Pursuant to the merger, the Company entered into eighteen-month employment agreements with three of its officers. The agreements require annual compensation as defined in the agreements. The agreements automatically renew for six-month terms unless either party terminates the agreement. The agreements require the Company to pay the officers' salaries as defined in the agreements if the Company terminates the agreements without cause. The agreements restrict the employees from competing with the Company as defined in the agreements. F-16 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION On June 6, 2001, Active IQ Technologies, Inc. (Active IQ or the Company) entered into a stock purchase agreement with Red Wing Business Systems, Inc. and the shareholders of Red Wing Business Systems, Inc., whereby Active IQ would purchase 100% of the common stock of Red Wing Business Systems, Inc. (the Transaction). The aggregate consideration Active IQ paid for the common shares of Red Wing Business Systems Inc. was 400,000 shares of common stock of Active IQ and cash of $1,600,000 (Cash Consideration). The Cash Consideration is payable as follows: (a) $400,000 on June 6, 2001 (b) $400,000 six months from June 6, 2001 (c) $400,000 12 months from June 6, 2001 and (d) $400,000 18 months from June 6, 2001. The unaudited pro forma balance sheet set forth below gives effect to the Transaction as if it had been consummated on March 31, 2001. The unaudited pro forma statements of operations give effect to the Transaction as if it occurred on January 1, 2000. The pro forma adjustments reflecting the consummation of the Transaction are based upon the purchase method of accounting and upon the assumptions set forth in the notes hereto. This pro forma information should be read in conjunction with the audited and unaudited financial statements and notes that are included in this document. The pro forma adjustments do not reflect any operating efficiencies and cost savings which may be achievable with respect to the combined companies. These pro forma financial statements do not purport to present results, which would actually have been obtained if the Transaction had been in effect during the period covered, or any future results which may in fact be realized. For purposes of preparing Active IQ's financial statements, Active IQ will establish a new basis for Red Wing Business Systems, Inc.'s assets and liabilities based upon the fair values thereof. A final determination of the fair value of assets and liabilities, has not been yet made. Accordingly, the purchase accounting adjustments made in connection with the development of the pro forma combined financial information are preliminary and have been made solely for purposes of developing such pro forma combined financial information. Active IQ will undertake a study to determine the fair values of assets and liabilities and will make appropriate purchase accounting adjustments upon completion of that study. In addition, a study on the effect of Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No, 142, "Goodwill and Other Intangible Assets" will be required. F-17 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET MARCH 31, 2001
ACTIVE IQ RED WING TECHNOLOGIES, BUSINESS INC. SYSTEMS, INC. HISTORICAL HISTORICAL PURCHASE PRO FORMA MARCH 31, 2001 MARCH 31, 2001 ADJUSTMENTS COMBINED -------------- -------------- -------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,132,084 $ 13,776 $ (400,000)(A) $ 745,860 Accounts receivable - trade, net 7,134 74,584 81,718 Inventories 0 67,843 67,843 Other current assets 73,193 14,641 87,834 ------------ ------------- ------------ ------------ Total current assets 1,212,411 170,844 (400,000) 983,255 ------------ ------------- ------------ ------------ PROPERTY AND EQUIPMENT, NET 582,274 56,307 0 638,581 ------------ ------------- ------------ ------------ OTHER ASSETS: Cash value of life insurance 0 18,441 18,441 Software development costs, net 0 371,530 371,530 Prepaid royalties 500,001 0 500,001 Other assets, net 233,001 0 233,001 Goodwill, net 1,166,752 0 4,430,355 (A) 5,597,107 ------------ ------------- ------------ ------------ Total other assets 1,899,754 389,971 4,430,355 6,720,080 ------------ ------------- ------------ ------------ $ 3,694,439 $ 617,122 $ 4,030,355 $ 8,341,916 ============ ============= ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Line of credit - bank $ 95,350 $ 0 $ $ 95,350 Current portion of long-term debt 0 34,713 34,713 Current portion of notes payable - stockholders 0 25,696 25,696 Current portion of capital lease obligations 24,154 0 24,154 Current portion of note payable - 0 Red Wing Business Systems, Inc. stockholders 0 800,000 (A) 800,000 Accounts payable 320,616 153,534 474,150 Accrued payroll and related taxes 0 28,706 28,706 Accrued vacation 0 77,366 77,366 Deferred revenue 306,000 901,246 1,207,246 Other current liabilities 62,596 73,351 100,000 (B) 235,947 ------------ ------------- ------------ ------------ Total current liabilities 808,716 1,294,612 900,000 3,003,328 LONG-TERM DEBT, NET OF CURRENT PORTION 0 150,346 150,346 NOTES PAYABLE - STOCKHOLDERS, NET OF CURRENT PORTION 0 124,519 124,519 CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 54,822 0 54,822 NOTE PAYABLE - RED WING BUSINESS SYSTEMS, INC. STOCKHOLDERS 0 400,000 (A) 400,000 ------------ ------------- ------------ ------------ Total liabilities 863,538 1,569,477 1,300,000 3,733,015 ------------ ------------- ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT): Common stock 49,609 140,924 (140,924)(A) 53,609 4,000 (A) Additional paid-in capital 7,654,989 0 1,774,000 (A) 9,428,989 Stock subscription receivable (312,500) 0 (312,500) Deferred compensation (140,913) 0 (140,913) Warrants 170,881 0 170,881 Accumulated deficit (4,591,165) (1,093,279) 1,093,279 (A) (4,591,165) ------------ ------------- ------------ ------------ Total stockholders' equity (deficit) 2,830,901 (952,355) 2,730,355 4,608,901 ------------ ------------- ------------ ------------ $ 3,694,439 $ 617,122 $ 4,030,355 $ 8,341,916 ============ ============= ============ ============
See accompanying notes to combined pro forma financial statements. F-18 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
ACTIVE IQ RED WING TECHNOLOGIES, BUSINESS INC. SYSTEMS, INC. PRO FORMA HISTORICAL HISTORICAL PURCHASE PRO FORMA DECEMBER 31, 2000 DECEMBER 31, 2000 ADJUSTMENTS COMBINED ----------------- ----------------- ------------- --------------- REVENUES: Software and license fees, net $ $ 751,001 $ 0 $ 751,001 Maintenance, consulting and other 0 1,646,463 0 1,646,463 --------------- --------------- ------------- -------------- Total revenues, net 0 2,397,464 0 2,397,464 --------------- --------------- ------------- -------------- OPERATING EXPENSES: Selling, general and administrative 1,978,697 2,400,418 0 4,379,115 Depreciation and amortization 112,544 226,137 2,215,178(C) 2,553,859 Product development 609,344 208,682 0 818,026 Loss on disposal of assets 105,360 0 0 105,360 --------------- --------------- ------------- -------------- Total operating expenses 2,805,945 2,835,237 2,215,178 7,856,360 --------------- --------------- ------------- -------------- INCOME (LOSS) FROM OPERATIONS (2,805,945) (437,773) (2,215,178) (5,458,896) --------------- --------------- ------------- -------------- OTHER INCOME (EXPENSE): Other income 7,500 0 0 7,500 Interest expense (41,974) (31,091) 0 (73,065) --------------- --------------- ------------- -------------- Total other expense (34,474) (31,091) 0 (65,565) --------------- --------------- ------------- -------------- NET LOSS BEFORE INCOME TAXES (2,840,419) (468,864) (2,215,178) (5,524,461) PROVISION FOR INCOME TAXES 0 0 0 0 --------------- --------------- ------------- -------------- NET LOSS $ (2,840,419) $ (468,864) $ (2,215,178) $ (5,524,461) =============== =============== ============= ============== BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.65) $ (2.61) =============== ============== BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 1,717,731 400,000(D) 2,117,731 =============== ============= ==============
F-19 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
ACTIVE IQ RED WING TECHNOLOGIES, BUSINESS INC. SYSTEMS, INC. PRO FORMA HISTORICAL HISTORICAL PURCHASE PRO FORMA MARCH 31, 2001 MARCH 31, 2001 ADJUSTMENTS COMBINED ---------------- ---------------- ----------- -------------- REVENUES: Software and license fees, net $ 0 $ 203,900 $ 0 $ 203,900 Maintenance, consulting and other 35,311 461,242 0 496,553 ---------------- --------------- ---------- -------------- Total revenues, net 35,311 665,142 0 700,453 ---------------- --------------- ---------- -------------- OPERATING EXPENSES: Selling, general and administrative 782,311 585,174 0 1,367,485 Depreciation and amortization 188,984 46,360 553,794(C) 789,138 Product development 198,195 26,196 0 224,391 ---------------- --------------- ----------- -------------- Total operating expenses 1,169,490 657,730 553,794 2,381,014 ---------------- --------------- ----------- -------------- INCOME (LOSS) FROM OPERATIONS (1,134,179) 7,412 (553,794) (1,680,561) ---------------- --------------- ----------- -------------- OTHER INCOME (EXPENSE): Miscellaneous income 23,858 500,000 0 523,858 Interest expense (5,413) (8,963) 0 (14,376) ---------------- --------------- ----------- -------------- Total other income 18,445 491,037 0 509,482 ---------------- --------------- ----------- -------------- NET INCOME (LOSS) BEFORE INCOME TAXES (1,115,734) 498,449 (553,794) (1,171,079) PROVISION FOR INCOME TAXES 0 0 0 0 ---------------- --------------- ----------- -------------- NET INCOME (LOSS) $ (1,115,734) $ 498,449 $ (553,794) $ (1,171,079) ================ =============== =========== ============== BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.25) $ (0.24) ================ ============== BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 4,472,300 400,000(D) 4,872,300 ================ ============ ==============
F-20 ACTIVE IQ TECHNOLOGIES, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION MARCH 31, 2001 (1) DESCRIPTION OF THE TRANSACTION On June 6, 2001, Active IQ Technologies, Inc. (Active IQ or the Company) entered into a stock purchase agreement with Red Wing Business Systems, Inc. and the shareholders of Red Wing Business Systems, Inc., whereby Active IQ would purchase 100% of the common stock of Red Wing Business Systems, Inc. (the Transaction). The aggregate consideration Active IQ paid for the common shares of Red Wing Business Systems Inc. was 400,000 shares of common stock of Active IQ and cash of $1,600,000 (Cash Consideration). The Cash Consideration is payable as follows: (a) $400,000 on June 6, 2001 (b) $400,000 six months from June 6, 2001 (c) $400,000 12 months from June 6, 2001 and (d) $400,000 18 months from June 6, 2001. The following unaudited combined balance sheet as of March 31, 2001 gives effect to the Transaction as if it occurred on March 31, 2001. The unaudited pro forma statements of operations give effect to the Transaction as if it occurred on January 1, 2000. (2) DESCRIPTION OF PRO FORMA ADJUSTMENTS (A) The carrying value assigned to goodwill and other intangibles is based on the purchase price over the amounts assigned to the identifiable assets acquired and liabilities of Red Wing Business Systems, Inc. The allocation of the purchase price is as follows:
Cash consideration $1,600,000 Common stock (1) $1,778,000 Add: transaction costs 100,000 ---------- Total consideration $3,478,000 Less: Net tangible assets acquired (952,355) ---------- Goodwill and other intangibles $4,430,355 ----------
(1) The 400,000 shares of common stock of Active IQ issued in connection with the Transaction is valued using the average market price of Active IQ common stock for the five days before and five days after the terms of the Transaction were agreed to and announced ($4.445 per share). Therefore, the allocation of the common stock issued of $1,778,000 is $4,000 to common stock for the par value of shares issued and the balance to additional paid-in capital. Reflects the elimination of Red Wing Business Systems, Inc. common stock and accumulated deficit in the amount of ($140,924) and $1,093,279, respectively. (B) The other accrued expenses adjustment represents the accrued estimated transaction costs to be incurred as a result of the Transaction. The costs are primarily the Company's legal, accounting, printing and similar expenses. (C) Reflects goodwill and other intangibles arising from the Transaction amortized on a straight-line basis over two years. Amortization of goodwill and other intangibles of $4,430,355 for the year ended December 31, 2000 and the three months ended March 31, 2001 is $2,212,178 and $553,794, respectively. (D) Reflects additional shares issued to Red Wing Business Systems, Inc. shareholders. F-21 (c) Exhibits 23.1 Consent of Virchow, Krause & Company, LLP SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ACTIVE IQ TECHNOLOGIES, INC. Date: April 17, 2002 By: /s/ D Bradly Olah -------------------------------------- D. Bradly Olah President, Chief Executive Officer and Chief Financial Officer EXHIBIT INDEX 23.1 Consent of Virchow, Krause & Company, LLP