<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 31, 1996
NETGUARD TECHNOLOGIES, INC.
--------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware 33-99084NY 22-3372522
- -------------------- ----------------------- -----------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
12465 Lewis Street
Suite 101
Garden Grove, California 92840
----------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 714/703-2880
Page 1 of 5
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Preliminary Note: Registrant was organized under the laws of the
State of Delaware on May 8, 1995 to operate as an independent artist and
repertoire firm dedicated to locating, signing, promoting, recording and
developing new musical entertainment artists. Registrant commenced operations in
or around July 1995 and obtained net proceeds in April of 1996 of approximately
$235,750 from the public offering of its securities. Registrant conducted its
operations largely in accordance with its business plan as set forth in a
prospectus dated February 12, 1996 and as set forth in registrant's Form 10-KSB
for its fiscal year ended March 30, 1996. Registrant incurred net losses from
inception through September 30, 1996 of $307,607 of which approximately a net
loss of $200,000 was incurred during the six-month period commencing from April
1, 1996 through September 30, 1996. As of September 30, 1996 registrant's total
current liabilities of $99,549 exceeded total current assets of $53,039 by
$46,510.
Partially as a result of all of the above and on or about October
21, 1996 certain then officers, directors and principal stockholders of
registrant (then operating under the name of "Rollo Entertainment Inc.") entered
into an "Asset and Stock Purchase Agreement" and related documents and
agreements which resulted in changes in (a) officers and directors of
registrant, (b) control of registrant and (c) registrant's business operations.
Set forth below is a summary of such transactions as previously
reported by registrant in its Form 10-QSB filed with respect to the quarterly
period ended September 30, 1996. All references and summaries to the terms and
conditions of the aforementioned agreement are qualified in their entirety by
reference to the agreement, a copy of which is on file with registrant's
Secretary.
The Agreement entered into between the registrant, John Rollo
("Rollo"), Scott Patterson ("Patterson"), and NetGuard Technologies, Inc.
("NetGuard") indicates that the registrant had been operating in accordance with
its Prospectus dated February 12, 1996 as well as in accordance with its Form
10-KSB for its fiscal year ended March 30, 1996 and its subsequent Form 10-QSB
for quarter ended June 30, 1996. The Agreement further indicates that the
registrant's current financial condition had deteriorated in that in order to
operate in the manner contemplated, further and significant capital
contributions would be required and (to the best of its knowledge) were not
likely to be forthcoming in any significant amounts, if at all. NetGuard then
requested Rollo and Patterson to reacquire, through an entity to be formed by
them, the assets and liabilities of the registrant in consideration of the sum
of $10,000 (subject to requisite approval by registrant's stockholders, since
obtained in accordance with Delaware Corporation Law and in particular Section
228 thereof entitled "Consent of Stockholders In Lieu of Meeting") and
concurrently therewith to sell all of their securities of registrant to NetGuard
and/or its designees for a like amount. Messrs. Rollo and Patterson agreed to
effectuate such transactions upon the hereinafter summarized terms, as follows:
1. The registrant agreed to sell to an entity to be formed by
Messrs. Rollo and Patterson, all of the registrant's assets, including without
limitation all of its right, title and interest in and to the name "ROLLO",
accounts receivable, inventories, equipment and
Page 2 of 5
<PAGE> 3
supplies, customer and distributor lists, contract rights, customer accounts,
office equipment and supplies, trade secrets, trademarks and/or trade names,
bank accounts and cash on hand. In addition, the registrant agreed to assign,
and the entity to be formed by Messrs. Rollo and Patterson agreed to assume, all
of the registrant's liabilities including, without limitation (excepting for
certain specific liabilities relating to outstanding obligations and monies due
to the registrant's accountants, attorneys, transfer agent and related matters),
all accounts payable, fees payable, accrued salary obligations, and all other
trade debts and payables of the registrant in exchange for the sum of $10,000.
2. As aforesaid and concurrently with the purchase and sale of the
registrant's assets and liabilities, NetGuard and/or its designees purchased
from Rollo and Patterson all of their common stock in the registrant for
$10,000, i.e., an aggregate of 810,000 shares owned of record and beneficially
by John Rollo. In addition thereto certain of the registrant's other principal
stockholders agreed to return for cancellation an aggregate of 2,890,000 shares
of Company common stock, leaving such persons with a balance of 800,000 shares
of Company common stock.
3. It was agreed that Messrs. Rollo and Patterson shall have the
right to use the name "ROLLO" and any similar derivatives thereof, and the
registrant agreed to do all such acts, including changing its name and executing
such consents and assignments as shall be necessary to give Messrs. Rollo and
Patterson the unrestricted right to use the name "ROLLO" and any similar
derivatives thereof.
Execution of the Agreement (and related documents) resulted in
certain changes in control of the registrant from its then principal
shareholders and further resulted in acceptance by the registrant of the
resignations of its then officers and directors and the nomination and election
of certain other persons to such positions.
Current officers and directors of the registrant are as follows:
William Van Liere Chairman of the Board, Director
E. Blaine Mansfield President, CEO, CFO, Director
Donald Ackerman Exec. Vice President, Secretary, Director
Oleg Batratchenko Director
Victor V. Vurpillat Director
Pursuant to the objectives contemplated in the aforesaid Asset and
Stock Purchase Agreement, the registrant entered into a Stock Acquisition
Agreement with the shareholders of NetGuard Technologies, Inc., a California
corporation, whereby, as a result of the reverse acquisition the surviving
corporation changed its name from Rollo Entertainment Inc. to Net/Guard
Technologies, Inc. in accordance with an amended Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on November 18, 1996
(which amended Certificate of Incorporation also increased the number of Company
authorized shares of common stock from 10,000,000 to 20,000,000 shares).
Based upon all of the above and certain related transactions and/or
sales of common stock, the total number of shares of common stock outstanding as
of December 31, 1996
Page 3 of 5
<PAGE> 4
amounted to 10,000,000 shares with the principal shareholders being those
persons and/or firms who exchanged shares then owned by them in the aforesaid
California corporation for 8,125,000 shares of the registrant; such former
California corporation shareholders owning approximately 81.25% of currently
issued and outstanding shares of the registrant and with the registrant's
current officers and directors owning 5,125,000 shares or 51% of all outstanding
Company common stock.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
a. In connection with the changes described above in Item 2,
effective March 31, 1997, registrant dismissed its prior certifying accountants,
Bederson & Company LLP ("Bederson") and retained as its new certifying
accountants Singer Lewak Greenbaum & Goldstein LLP ("SLGG"). Bederson's report
on registrant's financial statements during the most recently completed fiscal
year preceding the date hereof (March 31, 1996) contained no adverse opinion or
a disclaimer of opinion, and was not qualified as to audit scope or accounting
principles, but did contain a going concern qualification. The decision to
change accountants was approved by registrant's Board of Directors.
During the fiscal year noted above and the subsequent interim period
to date hereof, there were no disagreements between registrant and Bederson on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements, if not resolved
to the satisfaction of Bederson, would have caused it to make a reference to the
subject matter of the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to registrant within the last two fiscal
years, or the subsequent interim period to date hereof.
b. Effective March 31, 1997, registrant engaged SLGG as its
principal accountants. During the last fiscal year and the subsequent interim
period to date hereof, registrant did not consult SLGG regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
In connection with the transactions described in Item 2 above
registrant has filed the following as part of this report.
a. NetGuard Systems, Inc. financial statements for the years ended
March 31, 1996 and 1995.
b. NetGuard Technologies, Inc./Rollo Entertainment, Inc. pro forma
balance sheets as of September 30, 1996.
c. NetGuard Technologies, Inc./Rollo Entertainment, Inc. pro forma
statements of operations for the year ended March 31, 1996.
Page 4 of 5
<PAGE> 5
d. NetGuard Technologies, Inc./Rollo Entertainment, Inc. pro forma
statements of operations for the six months ended September 30, 1996.
e. NetGuard Technologies, Inc./Rollo Entertainment, Inc. notes to
pro forma financial statements as of September 30, 1996.
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.
DATED: June 13, 1997
NetGuard Technologies, Inc.,
(formerly Rollo Entertainment, Inc.)
a Delaware corporation
By /s/ E. Blaine Mansfield
------------------------------------
E. Blaine Mansfield
President, Chief Executive Officer
and Chief Financial Officer
Page 5 of 5
<PAGE> 1
NETGUARD SYSTEMS, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
MARCH 31, 1996 AND 1995
<PAGE> 2
NETGUARD SYSTEMS, INC.
CONTENTS
AS OF MARCH 31, 1996
================================================================================
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statement of Stockholders' Deficiency 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 11
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
NetGuard Systems, Inc.
We have audited the accompanying balance sheet of NetGuard Systems, Inc. as of
March 31, 1996, and the related statements of operations, stockholders'
deficiency, and cash flows for each of the two years in the period ended March
31, 1996. 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 generally accepted auditing
standards. 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 NetGuard Systems, Inc. as of
March 31, 1996, and the results of its operations and cash flows for each of the
two years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,420,323 for the year ended March 31, 1996,
had negative cash flows from operations, and as of March 31, 1996, the Company's
current liabilities exceeded its current assets by $2,523,633. These factors
among others, as discussed in Note 1 to the financial statements, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 6, 1997
<PAGE> 4
NETGUARD SYSTEMS, INC.
BALANCE SHEET
AS OF MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 2,168
Inventory (Note 1) 7,900
-------------
Total current assets 10,068
FURNITURE AND EQUIPMENT, net (Notes 1 and 2) 36,057
-------------
TOTAL ASSETS $ 46,125
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes payable - stockholder (Note 3) $ 1,410,568
Accounts payable 174,707
Accrued expenses 948,426
-------------
Total current liabilities 2,533,701
-------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' DEFICIENCY (Note 4)
Preferred stock, no par value
4,000,000 shares authorized
no shares issued and outstanding -
Common Stock, no par value
5,000,000 shares authorized
3,116,176 shares issued and outstanding 1,070,406
Accumulated deficit (3,557,982)
-------------
Total stockholders' deficiency (2,487,576)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 46,125
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
NETGUARD SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
NET SALES ................................... $ 132,900 $ 307,515
COST OF SALES ............................... 68,565 81,571
----------- -----------
GROSS PROFIT ................................ 64,335 225,944
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 1,400,223 1,429,466
----------- -----------
LOSS FROM OPERATIONS ........................ (1,335,888) (1,203,522)
----------- -----------
OTHER INCOME (EXPENSE)
Other income ............................ -- 5,028
Interest expense ........................ (102,529) (60,146)
Other expense ........................... (841) --
IRS forgiveness (Note 1) ................ 19,735 --
----------- -----------
Total other income (expense) ........ (83,635) (55,118)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES ...... (1,419,523) (1,258,640)
PROVISION FOR INCOME TAXES (Note 5) ......... 800 800
----------- -----------
NET LOSS .................................... $(1,420,323) $(1,259,440)
=========== ===========
NET LOSS PER SHARE .......................... $ (0.47) $ (0.40)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .. 3,045,072 3,116,176
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
NETGUARD SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, APRIL 1, 1994 ......... 2,986,176 $ 437,500 $ (878,219) $ (440,719)
SHARES ISSUED FOR CASH ......... 130,000 364,500 -- 364,500
NET LOSS ....................... (1,259,440) (1,259,440)
----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1995 ........ 3,116,176 802,000 (2,137,659) (1,335,659)
----------- ----------- ----------- -----------
ADDITIONAL CAPITAL CONTRIBUTIONS
(Note 1) ................... -- 268,406 -- 268,406
NET LOSS ....................... (1,420,323) (1,420,323)
----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1996 ........ 3,116,176 $ 1,070,406 $(3,557,982) $(2,487,576)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
NETGUARD SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
1996 1995
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (1,420,323) $ (1,259,440)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 13,379 12,450
(Increase) decrease in
Accounts receivable 8,875 19,632
Inventory 76,138 (80,824)
Employee advance 4,329 (1,793)
Prepaid expenses 365 9,635
Deposits 1,555 (1,555)
Increase (decrease) in
Accounts payable 81,012 30,758
Accrued expenses 435,910 310,122
------------- -------------
Net cash used in operating activities (798,760) (961,015)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment - (27,668)
------------- -------------
Net cash used in investing activities - (27,668)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of notes payable to stockholders 520,463 615,000
Proceeds from the sale of common stock and other capital
contributions 268,411 364,500
------------- -------------
Net cash provided by financing activities 788,974 979,500
------------- -------------
Net decrease in cash and cash equivalents (9,786) (9,183)
------------- -------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 11,954 21,137
------------- -------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,168 $ 11,954
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 4,192 $ 60,146
============= =============
TAXES PAID $ - $ 800
============= =============
</TABLE>
During 1996, the Company issued notes payable in the amount of $98,338 in lieu
of interest.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
NETGUARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
NetGuard Systems, Inc. ("NetGuard" or the "Company") designs,
manufactures, and sells fault-tolerant systems aimed at the Novell
NetWare and Microsoft Windows NT file server market. NetGuard's products
are combinations of both hardware and software that monitor the activity
of the file server. When a failure of the server occurs, NetGuard's
system automatically switches server operations to a standby server and
reboots the operating system. NetGuard's systems reduce network downtime
attributed to file server failure. NetGuard systems are sold through a
chain of both domestic and international network re-sellers.
In September 1994, NetGuard entered into an Investment Agreement with an
investment banker in which the investment banker would invest $3,000,000
into NetGuard. The investment banker completed a technical and financial
audit during the subsequent few months. The investment banker disclosed
to NetGuard that there would be a short delay in the closing date of the
investment. In order to keep the sales, support, and engineering team on
track, NetGuard's management made a decision to delay payment of the
federal tax deposits until the time that the investment banker actually
made the investment. The delay from the investment banker continued much
longer than originally anticipated. On June 30, 1995, the Internal
Revenue Service ("IRS") visited NetGuard and placed a lien against the
Company. The Company worked closely with the IRS over the next few
months while the investment banker worked around the problem that caused
their investment delay. In October 1995, the IRS foreclosed on NetGuard.
An arrangement was struck with a NetGuard investor and stockholder to
acquire the assets of NetGuard at the IRS's auction. The stockholder
successfully bid in excess of $35,000 for the NetGuard assets at the IRS
auction held on October 28, 1995. This bid amount satisfied the
non-trust fund portion of the unpaid Internal Revenue taxes. The
stockholder subsequently contributed the assets back to NetGuard.
Certain officers of the Company personally assumed the financial
responsibility for the trust fund and penalty portion of the unpaid
Internal Revenue taxes which totaled $69,235, of which the IRS made an
agreement to accept $49,500, which was paid in full to the IRS on April
27, 1997 and forgave the remaining balance of $19,735. NetGuard
continued to operate until May 8, 1996 at which date the corporation was
dissolved.
Since the assets seized by the IRS were subsequently contributed back to
the Company by the stockholder, the amount paid for the assets by the
stockholder has been shown as a capital contribution in the accompanying
financial statements. In addition, the $49,500 liability assumed by
certain officers of the Company has also been shown as a capital
contribution. On May 9, 1996, NetGuard Technologies, Inc. was formed,
and it continued the business operations of NetGuard with the same
officers and directors as well as the same shareholder base.
6
<PAGE> 9
NETGUARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. During the year ended
March 31, 1996, the Company had a net loss of $1,420,323, had negative
cash flows from operations, and the Company's current liabilities
exceeded its current assets by $2,523,633. The Company's ability to
generate positive cash flows depends on its ability to maintain a level
of revenues sufficient to meet its obligations and sustain its
operations. The Company has had limited sales to date and has sustained
substantial operating losses since inception due to its inability to
generate a sufficient level of revenues. These factors, among others,
raise substantial doubt about the Company's ability to continue as a
going concern.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
continue to meet its financing requirements and to succeed in its future
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
As previously discussed, management of the Company decided to cease the
Company's operations on May 8, 1996 and formed a new company on May 9,
1997 that operates in substantially the same business as the Company.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Inventory
Inventories, which consist primarily of finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
7
<PAGE> 10
NETGUARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture and Equipment
Furniture and equipment are stated at cost. The Company provides for
depreciation and amortization using accelerated and straight-line
methods over the estimated useful lives of 5 years as follows:
<TABLE>
<CAPTION>
<S> <C>
Computers 5 years
Furniture and fixtures 5 years
Trade show equipment 5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized. Gains or losses
on the sale of furniture and equipment are reflected in the statement of
operations.
Revenue Recognition
Revenue is recognized upon the shipment of products to the customer.
Concentrations of Credit Risk
The Company sells its products to customers throughout the United
States. The Company's sales are not materially dependent on a single
customer or small group of customers. The Company performs ongoing
credit evaluations of its customers. The Company maintains reserves for
potential credit losses based on historical credit write-offs.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
Net Loss Per Share
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during each year.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts payable, and
accrued expenses, the carrying amounts approximate fair value due to
their short maturities. The amounts shown for notes payable also
approximate fair value because current interest rates offered to the
Company for notes payable of similar maturities are substantially the
same.
8
<PAGE> 11
NETGUARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Previously Issued Accounting Pronouncements
In November 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," effective for fiscal
years beginning after December 15, 1995. SFAS 123 establishes and
encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined
as of the date of grant, and is recognized over the periods in which the
related services are rendered. SFAS 123 also permits companies to elect
to continue using the current implicit value accounting method specified
in Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," to account for stock-based compensation.
The Company has elected to use the implicit value based method and will
disclose the pro forma effect of using the fair value based method to
account for its stock-based compensation, if and when, any stock options
are granted under the Company's stock option plan.
NOTE 2 - FURNITURE AND EQUIPMENT
Furniture and equipment at March 31, 1996 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Computers $ 55,155
Furniture and fixtures 5,577
Trade show equipment 6,148
-------------
66,880
Less accumulated depreciation 30,823
-------------
TOTAL $ 36,057
=============
</TABLE>
9
<PAGE> 12
NETGUARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 3 - NOTES PAYABLE - STOCKHOLDER
Notes payable - stockholder represents monies borrowed from one
stockholder. The monies were borrowed at various dates, accrue interest
ranging from 10% to 12% per annum, are due on demand, and are unsecured.
As of March 31, 1996, the outstanding balance was $1,410,568.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities for its corporate and operations
office on a month-to-month basis. For the years ended March 31, 1996 and
1995, total rent expense was $45,428 and $35,319, respectively.
The following is a schedule by years of future minimum rental payments
required under these long-term lease agreements:
<TABLE>
<CAPTION>
Year ending
March 31,
-----------
<S> <C>
1997 $ 24,252
1998 48,504
-------------
TOTAL $ 72,756
=============
</TABLE>
NOTE 5 - INCOME TAXES
Income tax expense was $800 for both the years ended March 31, 1996 and
1995 and consists of the minimum State of California franchise taxes.
10
<PAGE> 13
NETGUARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 5 - INCOME TAXES (CONTINUED)
Income tax expense for the years ended March 31, 1996 and 1995 differs
from the amounts computed by applying a United States Federal income tax
rate of 34% to pretax loss as a result of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Computed "expected" tax benefit $ (469,310) $ (440,250)
Reduction in income taxes resulting from:
Change in the valuation allowance
for deferred tax assets allocated to
income tax expense 469,310 440,250
State income taxes 800 800
------------- -------------
TOTAL $ 800 $ 800
============= =============
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 1996 and 1995 are
presented below. Deferred tax liabilities at March 31, 1996 and 1995 are
not significant:
<TABLE>
<CAPTION>
1996 1995
------------- ----------
<S> <C> <C>
Deferred tax assets
Inventories, principally due to
allowance for inventory
obsolescence $ 10,825 $ 10,825
Net operating loss carryforwards 1,365,967 832,472
------------- -------------
Total gross deferred tax assets 1,376,792 843,297
Less valuation allowance 1,376,792 843,297
------------- -------------
NET DEFERRED TAX ASSETS $ - $ -
============= =============
</TABLE>
At March 31, 1996, the Company had net operating loss carryforwards of
approximately $3,500,000 and $1,800,000 for federal and state tax
reporting purposes, respectively, which if not utilized to offset future
taxable income, will expire through 2011. The Tax Reform Act of 1986
includes provisions which may limit the net operating loss carryforwards
available for use in any given year if certain events, including changes
in stock ownership, should occur.
11
<PAGE> 14
NETGUARD TECHNOLOGIES, INC./
ROLLO ENTERTAINMENT, INC.
PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
ASSETS
Rollo NetGuard Combined
Entertainment Technologies Adjustments Total
--------------- --------------- --------------- ----------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 53,039 $ 40,244 $ - $ 93,283
Accounts receivable - 82,471 - 82,471
Inventory - 40,508 - 40,508
--------------- --------------- --------------- ----------------
Total current assets 53,039 163,223 - 216,262
NET FIXED ASSETS 77,374 54,464 - 131,838
OTHER ASSETS 3,966 30,910 - 34,876
--------------- --------------- --------------- ----------------
TOTAL ASSETS $ 134,379 $ 248,597 $ - $ 382,976
=============== =============== =============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 7,950 $ 33,832 $ - $ 41,782
Accrued expenses 9,099 73,996 - 83,095
Loan payable 50,000 75,000 - 125,000
Note payable - stockholder 32,500 65,139 - 97,639
--------------- --------------- --------------- ----------------
Total current liabilities 99,549 247,967 - 347,516
NOTE PAYABLE - STOCKHOLDER, net
of current portion above 70,000 453,861 - 523,861
--------------- --------------- --------------- ----------------
Total liabilities 169,549 701,828 - 871,377
--------------- --------------- --------------- ----------------
STOCKHOLDERS' DEFICIENCY
Common stock 465 97,471 (35,635) 62,301
Additional paid-in capital 271,972 - (271,972) -
Accumulated deficit (307,607) (550,702) 307,607 (550,702)
--------------- --------------- --------------- ----------------
Total stockholders' deficiency (35,170) (453,231) - (488,401)
--------------- --------------- --------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS'
DEFICIENCY $ 134,379 $ 248,597 $ - $ 382,976
=============== =============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 15
NETGUARD TECHNOLOGIES, INC./
ROLLO ENTERTAINMENT, INC.
PRO FORMA STATMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
NetGuard
Rollo Systems Combined
Entertainment (Predecessor) Adjustments Total
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SALES $ - $ 132,900 $ - $ 132,900
COST OF SALES - 68,565 - 68,565
--------------- --------------- --------------- ----------------
GROSS PROFIT - 64,335 - 64,335
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 110,339 1,400,223 - 1,510,562
--------------- --------------- --------------- ----------------
LOSS FROM OPERATIONS (110,339) (1,335,888) - (1,446,227)
OTHER EXPENSE (19) (83,635) - (83,654)
--------------- --------------- --------------- ----------------
NET LOSS $ (110,358) $ (1,419,523) $ - $ (1,529,881)
=============== ================ =============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 16
NETGUARD TECHNOLOGIES, INC./
ROLLO ENTERTAINMENT, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Rollo NetGuard Combined
Entertainment Technologies Adjustments Total
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
SALES $ 540 $ 71,722 $ - $ 72,262
COST OF SALES - 15,317 - 15,317
--------------- --------------- --------------- ----------------
GROSS PROFIT 540 56,405 - 56,945
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 195,503 607,107 - 802,610
--------------- --------------- --------------- ----------------
LOSS FROM OPERATIONS (194,963) (550,702) - (745,665)
OTHER EXPENSE (2,286) - - (2,286)
--------------- --------------- --------------- ----------------
NET LOSS $ (197,249) $ (550,702) $ - $ (747,951)
=============== =============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 17
NETGUARD TECHNOLOGIES, INC./
ROLLO ENTERTAINMENT, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
================================================================================
NOTE 1 - BASIS OF PRESENTATION
The accompany balance sheet at September 30, 1996 assumes the merger
between NetGuard Technologies, Inc. ("NetGuard") and Rollo
Entertainment, Inc. ("Rollo") took place on September 30, 1996. The pro
forma statements of operations for the year ended March 31, 1996 and
the six months ended September 30, 1996 assumes the merger between
NetGuard and Rollo took place on April 1, 1995 and April 1, 1996,
respectively.
4
