<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 15, 1997
-----------------
Date of Report (Date of earliest event reported)
NHANCEMENT TECHNOLOGIES INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-21999 84-1360852
-------- ------- ----------
(State or Other Jurisdiction (S.E.C. File Number) (IRS Employer Identification
of Incorporation) No.)
39420 Liberty Street
Suite 250
Fremont, CA 94538
-----------------
(Address of principal executive offices, including zip code)
(510) 744-3333
--------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name or former address, if changed since last report)
This Amendment No. 1 to the Registrant's Current Report on Form 8-K dated
December 15, 1997 (the "Report"), relates to the Registrant's completion of the
acquisition (the "Acquisition") of one hundred percent (100%) of all the issued
and fully paid up shares of Advantis Network & System Sdn Bhd., a corporation
organized and existing under the laws of Malaysia ("Advantis"). The Report,
which was first filed with the Commission on December 30, 1997, has been amended
and restated in its entirely. As a result of the Acquisition, Advantis became a
wholly owned subsidiary of the Registrant on December 15, 1997, the effective
date of the Acquisition.
Total Number of Pages: 29
Exhibit Index on Sequentially Numbered Page: 4
Page 1
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) Pursuant to an Agreement for the Sale of Shares in Advantis Network
& System Sdn. Bhd. ("Advantis") between NHancement Technologies Inc., a Delaware
corporation ("NHancement"), and the six individuals ("Advantis Shareholders")
who owned one hundred percent (100%) of all of the issued and fully paid up
shares of Advantis, dated as of June 20, 1997 (the "Original Agreement"), as
amended by two Supplemental Agreements, each dated as of November 26, 1997
(individually "Supplement No. 1" and "Supplement No. 2" and collectively with
the Original Agreement referred to as the "Agreement"), NHancement purchased one
hundred percent (100%) of the shares of Advantis (the "Acquisition").
Consummation of the Acquisition, pursuant to the Agreement, occurred on December
15, 1997, the date the last Advantis Shareholder signed Supplement No. 2. As a
result of the Acquisition, Advantis has become a wholly owned subsidiary of
NHancement. Advantis is a telecommunications systems integrator formed to
address the growing telecommunications infrastructure needs of Malaysia.
The initial consideration payable to the Advantis Shareholders in
connection with the Acquisition is 300,000 shares of common stock of NHancement
("NHancement Shares"), to be paid to each Advantis Shareholder pro rata
proportional to his Advantis share ownership. The Advantis Shareholders also
have the opportunity to receive up to a maximum of 230,000 additional NHancement
Shares as contingent purchase consideration ("contingent Purchase
Consideration") as a consequence of the Acquisition if Advantis exceeds certain
minimum profit levels for its next two fiscal years ending March 31, 1998 and
1999. All NHancement Shares to be distributed to the Advantis Shareholders
pursuant to the Agreement will be issued by NHancement in reliance upon Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and will be
subject to the restrictions on transferability as imposed by the 1933 Act. In
addition, the first 300,000 NHancement Shares are subject to a lock-up provision
prohibiting transfer of fifty percent (50%) of the shares for one year following
the effective date, and prohibiting transfer of the remaining fifty percent
(50%) until February 4, 1999.
The consideration payable to the Advantis Shareholders was based upon
the value of NHancement's common stock on December 15, 1997, the effective date,
as determined by reference to the closing price quoted on the Nasdaq SmallCap
Market. At the effective date, 300,000 NHancement Shares were valued at
approximately US$660,000. (For accounting purposes, these shares have been
discounted by twenty percent (20%) to reflect the lock-up provisions restricting
transfer of the shares as described above.)
During the due diligence period provided for in the Original Agreement,
NHancement uncovered an account receivable in the amount of Ringgit Malaysia
640,174 (approximately US$183,000 at the exchange rate in effect as of December
30, 1997, the date of filing of the initial report on Form 8-K regarding the
Advantis acquisition), the collectability of which NHancement determined was in
doubt. Pursuant to Supplement No. 2, Advantis Shareholders have guaranteed the
collectability of this receivable. The Advantis Shareholders may utilize their
NHancement Share holdings in satisfaction of their guarantee obligations. A
total of 91,454 shares of the initial 300,000 NHancement Shares issued are being
held in escrow for this purpose.
The amount of consideration paid in connection with the purchase was
determined in arms-length negotiations between officers of NHancement and the
selling Advantis Shareholders.
In connection with the Acquisition, three of the Advantis Shareholders
who are directors or managers of Advantis reaffirmed their employment agreements
and agreed to continue to be employed by Advantis for not less than two (2)
years after the close of the transaction. Each of these individuals has also
agreed that if he resigns voluntarily or is terminated for cause after the close
of the Acquisition, and before the distribution (if any) of the 230,000
additional NHancement Shares, he will forfeit his right to receive his pro rata
portion of any such undistributed shares. These three Advantis Shareholders are
eligible to receive approximately thirty-three percent (33%) of the Contingent
Purchase Consideration.
(b) Not applicable.
Page 2
<PAGE> 3
ITEM 5. OTHER EVENTS
Effective as of November 12, 1997, BioFactors, Inc., a Delaware
corporation and a wholly owned subsidiary of NHancement ("BioFactors"), was
merged with and into Voice Plus, Inc., a California corporation, and a wholly
owned subsidiary of NHancement ("Voice Plus"), in a statutory merger intended to
qualify, for federal income tax purposes, as a reorganization under Section 368
of the Internal Revenue Code of 1986, as amended. Voice Plus is the surviving
corporation in the merger transaction with BioFactors. As of the effective date
of the merger, the operations of the combined entity are being conducted under
the name of "Voice Plus," which is headquartered in Fremont, California. Voice
Plus remains a wholly-owned subsidiary of Nhancement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
See Exhibit 99.01 attached hereto for Advantis'
financial statements.
(b) PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
See Exhibit 99.02 attached hereto
(c) Exhibits
Exhibit
Number Description
------ -----------
2.01 Agreement for the Sale of Shares in Advantis Network &
System Sdn. Bhd. Dated June 20, 1997, as amended by the
Supplemental Amendment to the Agreement dated November 26,
1997, and the Second Supplemental Amendment to the
Agreement dated November 26, 1997, is incorporated by
reference to Exhibit 2.01 included in Registrant's filing
on Form 8-K filed with the Securities and Exchange
Commission on December 30, 1997
4.01 Form of Lock-up Agreement
99.01 Advantis Network & System Sdn. Bhd. Audited Financial
Statements for the Years Ended March 31, 1996 and 1997
(with unaudited information as of September 30, 1997 and
for the six months ended September 30, 1996 and 1997)
99.02 Pro Forma Combined Condensed Financial Statements
(unaudited) of Advantis Network & System Sdn. Bhd. and
NHancement Technologies Inc. as of September 30, 1997, for
the nine months ended September 30, 1997 and for the year
ended December 31, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NHancement Technologies Inc.
Date: February 10, 1998 By: /s/ Douglas S. Zorn
----------------------------
Douglas S. Zorn, Executive
Vice President, and Chief Financial
Page 3
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
2.01 Agreement for the Sale of Shares in Advantis Network & System Sdn. Bhd. Dated
June 20, 1997, as amended by the Supplemental Amendment to the Agreement dated
November 26, 1997, and the Second Supplemental Amendment to the Agreement dated ---
November 26, 1997, is incorporated by reference to Exhibit 2.01 included in
Registrant's filing on Form 8-K filed with the Securities and Exchange Commission
on December 30, 1997
4.01 Form of Lock-up Agreement 5
99.01 Advantis Network & System Sdn. Bhd. Audited Financial Statements for the Years
Ended March 31, 1996 and 1997 (with unaudited information as of September 30, 6 - 22
1997 and for the six months ended September 30, 1996 and 1997)
99.02 Pro Forma Combined Condensed Financial Statements (unaudited) of Advantis
Network & System Sdn. Bhd. and NHancement Technologies Inc. as of September 30, 23 - 29
1997, for the nine months ended September 30, 1997 and for the year ended
December 31, 1996.
</TABLE>
Page 4
<PAGE> 1
EXHIBIT 4.01
LOCK-UP AGREEMENT
NHancement Technologies Inc.
39420 Liberty Street, Suite 250
Fremont, Ca 94538
USA
Gentlemen:
The undersigned is a former registered and beneficial owner of certain fully
paid-up ordinary shares of Advantis Network & System Sdn. Bhd. ("Advantis") a
company incorporated in Malaysia. Pursuant to the terms of that certain
Agreement for the Sale of Shares in Advantis Network & System Sdn. Bhd. dated as
of June 20, 1997, by and between NHancement Technologies Inc., a company
incorporated under the laws of the State of Delaware, the United States of
America ("NHAN"), and all of the shareholders of Advantis, as amended by two
Supplemental Agreements each dated as of November 26, 1997 (collectively the
"Sale Agreement"), the undersigned agreed to sell all of his ordinary shares of
Advantis in exchange for the issuance by NHAN of shares of its common stock,
$0.01 par value per share ("Common Stock"). The undersigned acknowledges that
the consummation of the Sale Agreement will be of benefit to the undersigned
and that NHAN is relying in part on the representations and agreements of the
undersigned contained herein in effecting the share issuance contemplated by
the Sale Agreement.
In consideration of the foregoing and in connection with the Common Stock to be
issued to the undersigned effective December 15, 1997 (the "Initial Shares"),
the undersigned hereby agrees that the undersigned will not, without the prior
written consent of NHAN (which consent may be withheld in NHAN's sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including, without limitation, any short sale), pledge, transfer or
otherwise dispose of any such Initial Shares, for a period commencing on
December 15, 1997, and continuing to February 4, 1999; provided, however, that
commencing one year from the issuance date of the Initial Shares the undersigned
may sell, offer, contract or grant an option to sell, pledge, transfer or
otherwise dispose of up to an aggregate of 50% of such Initial Shares
beneficially owned by the undersigned, so long as any such disposition is done
in compliance with Rule 144 promulgated by the United States. Securities and
Exchange Commission pursuant to the Securities Act of 1933 ("Rule 144"). The
undersigned also agrees that in connection with all Common Stock (if any) which
may subsequently be issued to the undersigned pursuant to the Sale Agreement,
the undersigned may sell, offer, contract or grant an option to sell, pledge,
transfer or otherwise dispose of such additional Common Stock only if any such
disposition is done in compliance with Rule 144. The undersigned agrees and
consents to the entry of stop transfer instructions with NHAN's registrar and
transfer agent prohibiting the transfer of the Common Stock except in
compliance with the foregoing restrictions.
Notwithstanding anything herein to the contrary, the undersigned may transfer
any of the Common Stock: (i) by will or the laws governing descent and
distribution; or (ii) by gift to members of the immediate family of the
undersigned; provided, that no such transfer shall be consummated or effective
unless and until each proposed transferee executes and delivers to NHAN a Lockup
Agreement providing for the same restrictions on transfer as set forth in this
Lockup Agreement.
This Lockup Agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and permissible
assigns of the undersigned. This Lockup Agreement shall be governed by the laws
of the State of Delaware without regard to the laws of other jurisdictions.
Dated:
------------------- ---------------------------------------
signature
---------------------------------------
printed name
Page 5
<PAGE> 1
EXHIBIT 99.01
Advantis Network & System Sdn. Bhd. Audited Financial Statements for the Years
Ended March 31, 1996 and 1997 (with unaudited information as of September 30,
1997 and for the six months ended September 30, 1996 and 1997)
Page 6
<PAGE> 2
Advantis Network &
System Sdn Bhd
Consolidated Financial Statements
YEARS ENDED MARCH 31, 1996 AND 1997
(With Unaudited Information as of September 30, 1997 and
for the Six Months Ended September 30, 1996 and 1997)
Page 7
<PAGE> 3
ADVANTIS NETWORK & SYSTEM SDN BHD
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT 10
FINANCIAL STATEMENTS
Consolidated Balance Sheets 11 - 12
Consolidated Statements of Operations 13
Consolidated Statements of Shareholders' Equity 14
Consolidated Statements of Cash Flows 15 - 16
Summary of Accounting Policies 17 - 19
Notes to Financial Statements 20 - 23
Page 8
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and the Shareholders of Advantis Network & System Sdn Bhd and
NHancement Technologies Inc.
We have audited the accompanying consolidated balance sheets of Advantis Network
& System Sdn Bhd as of March 31, 1996 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended March 31, 1997. These consolidated financial
statements are the responsibility of Advantis' management. Our responsibility
is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States and Malaysia. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advantis Network &
System Sdn Bhd as of March 31, 1996 and 1997 and the results of its operations
and its cash flows for each of the two years in the period ended March 31, 1997,
in conformity with the accounting principles generally accepted in the United
States.
BDO Binder
Kuala Lumpur, Malaysia
October 29, 1997, except for
Note 9 which is as of December 15, 1997
Page 9
<PAGE> 5
ADVANTIS NETWORK & SYSTEM SDN BHD
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
September 30,
MARCH 31, MARCH 31, 1997
1996 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS (NOTE 9)
CURRENT
Cash $ 2,530 $ 421 $ 83
Accounts receivable, less allowance for doubtful 712,364 2,621,285 1,335,239
accounts of Nil and $212,060 at March 31,1996
and 1997 and $206,159 at September 30,1997
Inventories
Systems and system components 223,051 282,956 291,708
Work in process - - 35,380
- --------------------------------------------------------------------------------------------------------------------
Total inventories 223,051 282,956 327,088
- --------------------------------------------------------------------------------------------------------------------
Restricted cash (Note 2) - 40,225 31,104
Prepaid expenses and other 9,443 18,596 12,803
Current portion of amount due from shareholder (Notes 2 and
6) - - 16,641
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 947,388 2,963,483 1,722,958
- --------------------------------------------------------------------------------------------------------------------
DUE FROM SHAREHOLDER, NET OF CURRENT PORTION (NOTES 2
AND 6) - - 230,206
PROPERTY AND EQUIPMENT, NET (NOTE 1) 78,036 175,010 136,620
- --------------------------------------------------------------------------------------------------------------------
$ 1,025,424 $ 3,138,493 $ 2,089,784
====================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
Page 10
<PAGE> 6
ADVANTIS NETWORK & SYSTEM SDN BHD
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
September 30,
MARCH 31, MARCH 31, 1997
1996 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit (Note 2 ) $ 32,367 $ 56,044 $ 131,824
Accounts payable 364,644 1,933,877 714,053
Accrued expenses 47,916 248,972 182,788
Payable to affiliates (Note 6) 241,453 801,187 502,823
Payable to shareholders (Note 6) 103,100 102,494 60,636
Income taxes payable 42,531 39,829 32,316
Current portion of term loan (Note 2) - - 16,641
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 832,011 3,182,403 1,641,081
- --------------------------------------------------------------------------------------------------------------------
Due to NHancement Technologies Inc. (Note 9) - - 300,000
Term loan, net of current portion (Note 2) - - 230,206
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 832,011 3,182,403 2,171,287
- --------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 11,380 - -
COMMITMENTS AND CONTINGENCY (NOTES 4, 5 AND 9)
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTE 9)
Ordinary shares, at par 97,429 97,429 97,429
500,000 shares authorized;
250,000 shares issued and
outstanding
Retained earnings (accumulated deficit) 85,382 (153,991) (156,602)
Cumulative translation adjustment (778) 12,652 (22,330)
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 182,033 (43,910) (81,503)
- --------------------------------------------------------------------------------------------------------------------
$ 1,025,424 $ 3,138,493 $ 2,089,784
====================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
Page 11
<PAGE> 7
ADVANTIS NETWORK & SYSTEM SDN BHD
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Six Months
ended September 30,
YEARS ENDED MARCH 31, 1996 1997
1996 1997 (Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 1,670,868 $ 3,851,412 $ 696,683 $ 1,151,334
Cost of revenues 1,325,206 3,454,711 660,658 932,996
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 345,662 396,701 36,025 218,338
- --------------------------------------------------------------------------------------------------------------------
Marketing and selling 88,714 142,502 53,466 79,680
General and administrative 113,371 462,691 55,016 59,545
- --------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 202,085 605,193 108,482 139,225
- --------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) FROM OPERATIONS 143,577 (208,492) (72,457) 79,113
Other:
Loss on disposal of a subsidiary - (30,765) - -
company (Note 6)
Unrealised foreign exchange loss - - - (80,339)
Minority interest (4,856) - (7,987) -
- --------------------------------------------------------------------------------------------------------------------
INCOME(LOSS) BEFORE INCOME TAXES 138,721 (239,257) (80,444) (1,226)
INCOME TAXES (NOTE 3) 41,431 116 36 1,385
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
NET INCOME(LOSS) $ 97,290 $ (239,373) $ (80,480) $ (2,611)
====================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
Page 12
<PAGE> 8
ADVANTIS NETWORK & SYSTEM SDN BHD
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Retained Total
Earnings Cumulative Shareholders'
Ordinary shares (Accumulated Translation Equity
Shares Amount Deficit) Adjustment (Deficit)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1995 100,000 $ 37,091 $ (11,908) $ 1,842 $ 27,025
Issuance of ordinary shares 150,000 60,338 60,338
Net income 97,290 97,290
Translation adjustment (2,620) (2,620)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1996 250,000 97,429 85,382 (778) 182,033
Net loss (239,373) (239,373)
Translation adjustment 13,430 13,430
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, March 31, 1997 250,000 97,429 (153,991) 12,652 (43,910)
Net loss (unaudited) (2,611) (2,611)
Translation adjustment (unaudited) (34,982) (34,982)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1997
(unaudited) 250,000 $ 97,429 $ (156,602) $ (22,330) $ (81,503)
=======================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
Page 13
<PAGE> 9
ADVANTIS NETWORK & SYSTEM SDN BHD
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Six Months
ended September 30,
YEARS ENDED MARCH 31, 1996 1997
1996 1997 (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $ 97,290 $ (239,373) $ (80,480) $ (2,611)
Adjustments to reconcile net income(loss)
to net cash provided by (used in)
operating activities:
Provision for doubtful accounts - 212,361 2,167 6,159
Loss on disposal of assets 459 2,593 - -
Depreciation 20,612 58,470 14,240 16,840
Income taxes 42,531 525 70 1,518
Translation exchange differences (2,641) 16,888 2,983 (16,170)
Minority interest 3,256 - 7,953 -
Changes in assets and liabilities:
Accounts receivable (214,259) (2,135,440) (283,222) 1,279,887
Inventories (114,658) (59,905) (26,861) (44,132)
Prepaid expenses and other (5,869) (25,517) (3,202) 5,793
Accounts payable and accrued
expenses (161,129) 1,757,656 380,383 (1,277,755)
Payable to shareholders 7,656 4,901 (22,250) (41,858)
Payable to affiliates 241,453 561,103 (8,935) (298,364)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATIONS (85,299) 154,262 (17,154) (370,693)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (46,652) (141,003) - (18,133)
Proceeds from sales of assets 9,466 1,987 - -
Restricted cash - (40,225) (23,477) -
Due from shareholder - - - (246,848)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (37,186) $ (179,241) $ (23,477) $ (264,981)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
Page 14
<PAGE> 10
ADVANTIS NETWORK & SYSTEM SDN BHD
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Six Months
ended September 30,
YEARS ENDED MARCH 31, 1996 1997
1996 1997 (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under lines of credit $ 32,367 $ 22,870 $ 38,209 $ 88,488
Proceeds from issuance of ordinary shares 60,338 - - -
Proceeds from term loan - - - 248,834
Payment of term loan - - - (1,986)
Borrowings from NHancement
Technologies Inc. - - - 300,000
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 92,705 22,870 38,209 635,336
=====================================================================================================================
NET DECREASE IN CASH (29,780) (2,109) (2,422) (338)
CASH, beginning of period 32,310 2,530 2,530 421
- ---------------------------------------------------------------------------------------------------------------------
CASH, end of period $ 2,530 $ 421 $ 108 $ 83
=====================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
Page 15
<PAGE> 11
ADVANTIS NETWORK & SYSTEM SDN BHD
SUMMARY OF ACCOUNTING POLICIES
BUSINESS Advantis Network & System Sdn Bhd (the Company),
is a data networking systems integrator located
and incorporated in Kuala Lumpur, Malaysia.
Operations of the Company commenced in 1994. Its
revenues are derived principally from the sale
of equipment to support local area and wide area
networks. The Company also provides associated
services related to system design, cable
installation and project management.
Substantially all customers are located in
Malaysia.
PRINCIPLES OF The consolidated financial statements include
CONSOLIDATION the accounts of the Company, its 51% owned
subsidiary, Advantis Structures System Sdn
Bhd, and the accounts of Advantis Integration
Sdn Bhd, a 51% owned subsidiary, through the
date of its sale, January 10, 1997. All
significant inter company transactions and
accounts are eliminated on consolidation.
INVENTORIES Inventories consist primarily of systems and
system components and are valued at the lower of
cost (first-in, first-out method) or market.
PROPERTY, Property and equipment is stated at cost.
EQUIPMENT AND Depreciation is provided using the straight-line
DEPRECIATION method over the estimated useful lives of the
respective assets, which range from three to
five years. Maintenance and repairs are expensed
as incurred and improvements are capitalized.
REVENUE RECOGNITION The Company recognizes revenue under several
methods as dictated by the nature of the service
or product provided and the terms of the sales
agreement. Generally, equipment sales are
recognized when all significant uncertainties
about customer acceptance of the equipment have
been resolved. Once equipment installation is
complete, seller obligations, including
estimated future technical support costs, are
immaterial. The cost of these obligations,
including estimated warranty costs, are provided
as a charge in the period revenue is earned and
the estimated future obligation is included in
other accrued liabilities. Cabling services,
design and project management revenues are
recognized when the services are provided.
INCOME TAXES The Company uses the liability method of
accounting for income taxes in accordance with
Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Deferred
income tax assets and liabilities are recognized
based on the temporary differences between the
carrying amounts of assets and liabilities for
financial reporting purposes and the amounts
used for income tax purposes.
Page 16
<PAGE> 12
ADVANTIS NETWORK & SYSTEM SDN BHD
SUMMARY OF ACCOUNTING POLICIES
NEW ACCOUNTING In June 1997, the Financial Accounting Standards
PRONOUNCEMENTS Board issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive
Income (SFAS 130), which establishes standards
for reporting and display of comprehensive
income, its components and accumulated balances.
Comprehensive income is defined to include all
changes in equity except those resulting from
investments by owners and distributions to
owners. Among other disclosures, SFAS 130
requires that all items that are required to be
recognized under current accounting standards as
components of comprehensive income be reported
in a financial statement that is displayed with
the same prominence as other financial
statements.
SFAS 130 is effective for financial statements
for periods beginning after December 15, 1997
and requires comparative information for earlier
years to be restated. Because of the recent
issuance of this standard, management has been
unable to fully evaluate the impact, if any, the
standard may have on future financial statement
disclosures. Results of operations and financial
position, however, will be unaffected by
implementation of this standard.
In June 1997, the Financial Accounting Standards
Board issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related
Information, (SFAS 131) which supersedes SFAS
No. 14, Financial reporting for Segments of a
Business Enterprise. SFAS 131 establishes
standards for the way that public companies
report information about operating segments in
annual financial statements and requires
reporting of selected information about
operating segments in interim financial
statements issued to the public. It also
establishes standards for disclosures regarding
products and services, geographic areas and
major customers. SFAS 131 defines operating
segments as components of a company about which
separate financial information is available that
is evaluated regularly by the chief operating
decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 131 is effective for financial statements
for period beginning after December 15, 1997 and
requires comparative information for earlier
years to be restated. Because of the recent
issuance of this standard, management has been
unable to fully evaluate the impact, if any, it
may have on future financial statement
disclosures. Results of operations and financial
position, however, will be unaffected by
implementation of this standard.
CURRENCY TRANSLATION The Company's functional currency is the
Malaysian ringgit. Balance sheet accounts have
been translated into United States dollars at
the rate of exchange in effect at the balance
sheet dates and revenue and expense accounts are
translated using average rates during the
periods. Translation adjustments are recorded as
a separate component of shareholders' equity.
Page 17
<PAGE> 13
ADVANTIS NETWORK & SYSTEM SDN BHD
SUMMARY OF ACCOUNTING POLICIES
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
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.
UNAUDITED INFORMATION The accompanying consolidated balance sheet as
of September 30, 1997 and the consolidated
statements of operations and cash flows for
the six months ended September 30, 1996 and
1997 have not been audited. However, in the
opinion of management, they include all
adjustments necessary for a fair presentation
of the financial position and the results of
operations for the periods presented. The
results of operations for the six months
ended September 30, 1997 are not necessarily
indicative of results to be expected for any
future period.
FINANCIAL INSTRUMENTS The Company's financial instruments consist of
cash, accounts receivable and debt. The carrying
value of cash and accounts receivable
approximate fair value based upon the liquidity
and short-term nature of the assets. The
carrying value of short-term and long-term debt
approximates the fair value based upon
short-term and long-term borrowings at market
rate interest.
Page 18
<PAGE> 14
ADVANTIS NETWORK & SYSTEM SDN BHD
NOTES TO FINANCIAL STATEMENTS
(Information for September 30, 1996 and 1997 is Unaudited)
1. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
MARCH 31, MARCH 31, 1997
1996 1997 (Unaudited)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobiles $ 45,300 $ 62,362 $ 48,221
Furniture, fixtures
and office equipment
32,657 130,631 104,712
Computers 25,103 62,521 62,777
-----------------------------------------------------------------
103,060 255,514 215,710
Accumulated
depreciation (25,024) (80,504) (79,090)
-----------------------------------------------------------------------------------------
$ 78,036 $ 175,010 $ 136,620
=========================================================================================
</TABLE>
2. CREDIT AGREEMENTS At March 31, 1997, the Company had the
AND TERM LOAN following types of credit and term loan
facilities:
o A $100,563 overdraft facility for working
capital purposes from a financial
institution. Interest rate is at 2.00%
plus the base lending rate (BLR). The BLR
at March 31, 1997 was 9.6%. Borrowings are
payable upon demand. At March 31, 1997 the
amount utilised under the facility was
$56,044 and subject to an annual renewal
on June 20, 1998. Certain cash deposits
are pledged as collateral and restricted
for the repayment of this overdraft
facility.
o A $603,379 facility collaterized by
eligible accounts receivable, for document
advances, letters of credit and trust
receipts. Borrowings are short term,
limited to 80% of accounts receivable and
bear interest at 2.25% plus the BLR. No
borrowings were outstanding at March 31,
1996 and 1997. The facility is subject to
an annual renewal on February 28, 1998.
o A $301,689 facility for overdraft,
letters of credit and trust receipts, and
$321,802 for a term loan from another
financial institution. The term loan
requires 180 monthly payments of $3,759
including interest, through April 2012.
Borrowings under the term loan and the
$301,689 short term facility bear interest
at 2.25% plus BLR. No borrowings were
outstanding at March 31, 1996 and 1997.
This facility is subject to an annual
renewal on February 28, 1998.
Page 19
<PAGE> 15
ADVANTIS NETWORK & SYSTEM SDN BHD
NOTES TO FINANCIAL STATEMENTS
(Information for September 30, 1996 and 1997 is Unaudited)
Borrowings under these facilities are
guaranteed by the shareholders, and a majority
shareholder has pledged certain owned real
property as collateral. In addition, a sinking
fund amounting to 10% of the cash collections
received must be established and reserved for
loan repayments. In April 1997, all the
proceeds from the term loan were advanced by
the Company to the majority shareholder. The
Company has recorded a receivable from the
majority shareholder and a related loan payable
under the credit facility. Under the terms of
the shareholder loan agreement, repayments
including interest, will match the Company's
payments due under the term loan.
3. INCOME TAXES The provision for income tax consists of :
<TABLE>
<CAPTION>
Six Months
YEARS ENDED ended September 30,
MARCH 31 1996 1997
1996 1997 (Unaudited) (Unaudited)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current $ 41,431 116 36 25,487
Deferred - - - (24,102)
----------------------------------------------------------------------------------------
Provision for
income tax $ 41,431 116 36 1,385
========================================================================================
</TABLE>
The income taxes for March 31, 1997 and
September 30, 1996 is in respect of taxes on
the profit of a subsidiary. The effective tax
rate is higher than the statutory tax rate for
September 30, 1997 due to certain expenses
which are not deductible for tax purposes.
4. LEASE COMMITMENTS The Company leases its corporate and sales
office facilities and office equipment under
operating leases that expire at various times
in 1999 and 2000. The lease for the corporate
office facility is with an entity that is
partially owned by a minority shareholder of
the Company (See Note 6). Certain facility
leases require the Company to pay maintenance
and utilities.
The Company's future minimum lease commitments
for operating leases are as follows:
<TABLE>
<CAPTION>
Year ending March 31
----------------------------------------------------------------------------------------
<S> <C>
1998 $ 55,350
----------------------------------------------------------------------------------------
1999 52,132
----------------------------------------------------------------------------------------
2000 24,779
$ 132,261
========================================================================================
</TABLE>
Rent expense under operating leases was $17,062
and $25,892 for the years ended March 31, 1996
and 1997 respectively.
Page 20
<PAGE> 16
ADVANTIS NETWORK & SYSTEM SDN BHD
NOTES TO FINANCIAL STATEMENTS
(Information for September 30, 1996 and 1997 is Unaudited)
5. EMPLOYEES' The Company as a Malaysian corporation, is
RETIREMENT FUND obligated to pay a minimum contribution
equivalent to 12% of employee salaries to a
fund administered by the government.
Contributions in excess of 12% are
discretionary. Contribution expense for the
years ended March 31, 1996 and 1997 totaled
$22,712 and $39,311.
6. RELATED PARTY During the years ended March 31, 1996 and 1997,
TRANSACTIONS the Company has entered into various sales and
purchase transactions with certain companies
whose directors and/or shareholders are also
shareholders of the Company. During 1996 and
1997, sales to these companies were $134,541
and $219,832, respectively, and purchases from
these companies were $144,740 and $609,311,
respectively. At March 31, 1996 and 1997, the
amount payable to these companies was $241,453
and $801,187, respectively.
During the year ended March 31, 1997, a
subsidiary of the Company was sold to the
spouse of one of the Company's minority
shareholders and a third party for $8,122
resulting in a $30,765 loss on disposal.
At March 31, 1996 and 1997, the Company owed
certain shareholders of the Company $103,100
and $102,494 for expenses paid by these
shareholders on behalf of the Company.
The Company leases its corporate facility from
an entity partially owned by a minority
shareholder. The lease commenced in November
1996, and its terms provide for annual payments
of $42,480 through October 1999. Rents paid
under this lease totaled $11,959 for 1997.
7. CONCENTRATION RISK Trade accounts receivable are due primarily
from numerous customers located in various
geographic regions throughout Malaysia. The
Company performs ongoing credit evaluations of
its customers' financial conditions and
establishes an allowance for doubtful accounts
based upon the credit risk of specific customers
historical trends and other information. The
Company does not require collateral from its
customers.
Revenues from two customers accounted for
approximately 59% and 12%, or 71% in the
aggregate, of 1997 net revenues. Included in
accounts receivable at March 31, 1997 is
$664,769 and $171,347 due from these two
customers. Revenue from four customers accounted
for 26%, 17%, 17% and 15%, or 75% in the
aggregate, of 1996 net revenues.
Page 21
<PAGE> 17
ADVANTIS NETWORK & SYSTEM SDN BHD
NOTES TO FINANCIAL STATEMENTS
(Information for September 30, 1996 and 1997 is Unaudited)
8. STATEMENT OF Supplemental disclosures of cash flow
CASH FLOWS information:- Cash paid for:
<TABLE>
<CAPTION>
Six Months
YEARS ENDED ended September 30,
MARCH 31 1996 1997
1996 1997 (Unaudited) (Unaudited)
-----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Interest $ 3 $ 29 - $ 4,103
=========================================================================================
</TABLE>
There were no income taxes paid during any of
the above periods.
9. STOCK SALE AGREEMENT On December 15, 1997, the shareholders of the
AND SUBSEQUENT EVENTS Company consumated an Agreement for the sale of
the shares in the Company (the Sale Shares)
with NHancement Technologies Inc.
(NHancement) whereby NHancement acquired the
entire issued and fully paid up ordinary shares
of the Company. The consideration for the Sale
Shares is a maximum of an aggregate of 530,000
fully paid and non-assessable shares of
NHancement's common stock, of which 230,000
shares are being withheld subject to meeting
profit targets over the next two fiscal years.
During the six months ended September 30, 1997,
the Company borrowed $300,000 from NHancement
for its operations subject to a promissory note
and secured by the assets of the Company and
certain personal guarantees.
Page 22
<PAGE> 1
EXHIBIT 99.02
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
OF ADVANTIS NETWORK & SYSTEM SDN BHD AND
NHANCEMENT TECHNOLOGIES INC., AS OF SEPTEMBER 30, 1997
The following unaudited pro forma combined condensed financial statements assume
a business combination between NHancement Technologies Inc.("NHancement")
including its wholly owned subsidiary, Voice Plus ("Voice Plus"), which was
acquired in February 1997 immediately prior to the Nhancement Initial Public
Offering, and Advantis Network & Systems Sdn. Bhd. ("Advantis") accounted for as
a purchase (the "Acquisition"). The pro forma combined condensed financial
statements are based on the historical financial statements and the notes
thereto of NHancement included in the quarterly report on Form 10-QSB for the
nine months ended September 30, 1997, the Nhancement annual report on Form
10-KSB for the year ended December 31, 1996, the historical financial
statements of Voice Plus for the year ended December 31, 1996 and the
historical financial statements and the notes thereto of Advantis. The
NHancement and Voice Plus historical financial statement data for the nine
months ended September 30, 1997 and the Advantis historical financial statement
data for the nine months ended September 30, 1997 have been prepared on the
same basis as the audited financial statements of NHancement and, in the
opinion of management, contain all adjustments necessary for the fair
presentation of the results of operations for such periods.
The pro forma combined condensed balance sheet combines NHancement's and Voice
Plus' unaudited September 30, 1997 condensed balance sheet with Advantis'
unaudited September 30, 1997 condensed balance sheet, giving effect to the
Acquisition as if it had occurred on September 30, 1997. The pro forma combined
condensed statements of operations combine NHancement's pro forma and Voice
Plus' pro forma condensed statements of operations for the year ended December
31, 1996 and the unaudited nine months ended September 30, 1997 with the
corresponding Advantis condensed statements of operations for the year ended
March 31, 1997, and the unaudited nine months ended September 30, 1997, giving
effect to the acquisitions of Advantis and Voice Plus as if they occurred as of
the beginning of each period presented.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the acquisitions of Advantis and Voice Plus had been
consummated at the beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position. The unaudited pro
forma combined condensed financial statements do not incorporate any benefits
from potential cost savings or synergies of operations of the combined company.
NHancement estimates that it will incur direct transaction costs of
approximately $52,400 associated with the Acquisition which has been reflected
as a component of the purchase consideration for Advantis. There can be no
assurance that NHancement will not incur additional direct transaction costs
associated with this Acquisition in subsequent periods or that management will
be successful in their efforts to integrate the operations of the two companies.
These pro forma combined condensed financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of NHancement and the financial statements and the notes thereto of
Advantis included herein.
Page 23
<PAGE> 2
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Pro Forma
NHancement Advantis Adjustments Combined
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $2,326,300 $100 $2,326,400
Accounts receivable, net 1,866,700 1,335,200 3,201,900
Notes receivable from Advantis 306,200 --- (1) (306,200) ---
Notes receivable, stockholder 61,900 --- 61,900
Inventory 438,100 327,100 765,200
Prepaid expenses and other 255,700 60,600 316,300
Prepaid acquisition costs 52,400 --- (2) ($52,400) ---
Deferred tax asset 119,500 119,500
---
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 5,426,800 1,723,000 6,791,200
- -----------------------------------------------------------------------------------------------------------------------
Due from Shareholder --- 230,200 230,200
Furniture and equipment, net 579,200 136,600 715,800
Excess of cost over net assets acquired
5,619,600 --- (2) 793,900 6,413,500
Other assets 112,100 112,100
---
- -----------------------------------------------------------------------------------------------------------------------
$11,737,700 $2,089,800 $14,262,800
=======================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Page 24
<PAGE> 3
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pro Forma
NHancement Advantis Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $259,800 $694,000 $ 953,800
Accounts payable, directors --- 60,600 60,600
Accounts payable, affiliated companies --- 502,800 502,800
Accrued liabilities 941,100 182,800 (1) (6,200) 1,117,700
Payroll related liabilities 178,100 20,100 198,200
Accrued income taxes --- 32,300 32,300
Deferred revenues 1,084,500 --- 1,084,500
Current portion of long-term obligations 375,000 148,500 523,500
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,838,500 1,641,100 4,473,400
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt, stockholder 62,500 62,500
Long-term debt, due to NHancement --- 300,000 (1) (300,000) ---
Long-term debt, net of
current portion --- 230,200 230,200
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,901,000 2,171,300 4,766,100
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 2,000,000 shares
authorized, no shares outstanding --- --- ---
Common stock, $0.01 par value, 20,000,000
shares authorized, 4,528,500 shares issued
and outstanding after Advantis acquisition 42,300 97,400 (2) (94,400) 45,300
Additional paid-in capital 17,574,400 --- (2) 657,000 18,231,400
Accumulated deficit (8,780,000) (178,900) (2) 178,900 (8,780,000)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 8,836,700 (81,500) 9,496,700
- ----------------------------------------------------------------------------------------------------------------------
$11,737,700 $2,089,800 $14,262,800
======================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Page 25
<PAGE> 4
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Pro Forma
NHancement Voice Plus Advantis Adjustments Combined
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $22,100 $7,549,900 $3,842,300 $11,414,300
Cost of goods sold 58,300 4,047,400 3,250,600 7,356,300
------------------------------------------------------------------------------------------------------------------
Gross profit (36,200) 3,502,500 591,700 4,058,000
------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 62,200 --- --- 62,200
Sales, marketing, general and
administrative 426,200 2,270,900 316,500 3,013,600
Amortization of excess of cost
over assets acquired -- 452,500 -- (1) 59,500 512,000
------------------------------------------------------------------------------------------------------------------
Total operating expenses 488,400 2,723,400 316,500 3,587,800
------------------------------------------------------------------------------------------------------------------
Operating income (loss) (524,600) 779,100 275,200 470,200
Other income (expense) 51,300 (15,700) (106,300) (2) 31,000 (39,700)
------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (473,300) 763,400 168,900 430,500
Income taxes -- 91,500 2,200 93,700
------------------------------------------------------------------------------------------------------------------
Net income (loss) $(473,300) $ 671,900 $166,700 $336,800
==================================================================================================================
==================================================================================================================
Net income per common share $0.08
==================================================================================================================
Weighted average shares used in computing net
income per common share (3) 4,265,153
==================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Page 26
<PAGE> 5
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Pro Forma
NHancement Voice Plus Advantis (4) Adjustments Combined
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $796,400 $8,764,100 $3,851,400 $13,411,900
Cost of goods sold 129,200 5,137,400 3,454,700 8,721,300
--------------------------------------------------------------------------------------------------------------------
Gross profit 667,200 3,626,700 396,700 4,690,600
--------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 98,400 --- --- 98,400
Sales, marketing, general and
administrative 1,812,800 2,755,700 605,200 5,173,700
Amortization of excess of cost
over assets acquired --- 543,800 --- (1) 79,400 623,200
--------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,911,200 3,299,500 605,200 5,895,300
--------------------------------------------------------------------------------------------------------------------
Operating income (loss) (1,244,000) 327,200 (208,500) (1,204,700)
Other income (expense) (584,000) 32,300 (30,800) (2) 30,800 (551,700)
--------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,828,000) 359,500 (239,300) (1,756,400)
Income taxes --- --- 100 100
--------------------------------------------------------------------------------------------------------------------
Net income (loss) $(1,828,000) $359,500 $(239,400) $(1,756,500)
====================================================================================================================
====================================================================================================================
Net loss per common share $(0.74)
====================================================================================================================
Weighted average shares used in computing
net loss per common share (3) 2,374,615
====================================================================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Page 27
<PAGE> 6
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
PERIODS COMBINED
The NHancement unaudited pro forma combined condensed statements of operations
for the year ended December 31, 1996 and the nine months ended September 30,
1997 have been combined with the Advantis condensed statements of operations for
the year ended March 31, 1997 and the nine months ended September 30, 1997
giving effect to the acquisitions of Advantis and Voice Plus as if they had
occurred at the beginning of each period presented.
The NHancement unaudited pro forma combined condensed balance sheet as of
September 30, 1997 has been combined with the Advantis condensed balance sheet
as of the same date giving effect to the Acquisition as if it had occurred on
September 30, 1997.
BASIS OF PRESENTATION
Pro Forma Basis of Presentation
The pro forma combined condensed financial statements reflected the issuance of
300,000 shares of NHancement Common Stock for all of the outstanding shares of
Advantis Common Stock in connection with the Acquisition.
Pro Forma Combined Condensed Balance Sheet Adjustments:
(1) Adjustment to reflect the elimination of a $300,000 working capital loan
made to Advantis by NHancement and the corresponding interest of $6,200
thereon.
(2) To reflect an adjustment, under the terms of purchase accounting, for the
conversion of all the shares of Advantis' Common Stock into 300,000 shares
of NHancement Common Stock and the recording of the excess of cost over net
assets acquired of $793,900 including estimated transaction costs of
approximately $52,400 associated with the Acquisition.
Pro Forma Combined Condensed Statement of Operations Adjustments - September 30,
1997:
(1) Adjustment to record the amortization of the excess of cost over net assets
acquired of $59,500 for the nine months ended September 30, 1997, based on
a ten-year amortization period.
(2) To reflect an adjustment to eliminate the loss on disposal of an Advantis
subsidiary which was not acquired by Nhancement.
(3) The weighted average outstanding based is based on the estimated number of
shares of common stock and common stock equivalents of the NHancement,
Voice Plus and Advantis outstanding during the period calculated as
follows:
<TABLE>
<S> <C> <C>
Shares outstanding at beginning of period 612,800
Shares issued in connection with the Voice Plus acquisition 1,312,500
Shares issued in IPO, including over allotment 1,770,963
Shares issued to effect the conversion and repayment of debt 224,730
Shares issued in connection with the Advantis acquisition 300,000
Common stock equivalent shares related to stock options 44,160 3,652,353
------ ---------
Total for combined companies, as adjusted 4,265,153
=========
</TABLE>
Page 28
<PAGE> 7
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
continued
Pro Forma Combined Condensed Statement of Operations Adjustments - December 31,
1996:
(1) Adjustment to record the amortization of the excess of cost over net
assets acquired of $79,400 for the year ended December 31, 1996, based on
a ten-year amortization period.
(2) To reflect an adjustment to eliminate the loss on disposal of an Advantis
subsidiary which was not acquired by NHancement.
(3) The weighted average outstanding based is based on the estimated number of
shares of common stock and common stock equivalents of the NHancement,
Voice Plus and Advantis outstanding during the period calculated as
follows:
<TABLE>
<S> <C> <C>
Shares outstanding at beginning of period 93,225 Cheap stock:
Shares issued to note holders and management in 1996 519,575 Shares
of common stock equivalents related to stock options 534,375 Less
shares assumed to be repurchased pursuant to the Treasury
Stock method (385,060) 668,890
---------
Weighted average shares:
Shares issued in connection with the Voice Plus acquisition 1,312,500
Shares issued in connection with the Advantis acquisition 300,000 1,612,500
------- ---------
Total for combined companies, as adjusted 2,374,615
=========
</TABLE>
(4) Advantis' fiscal year end is March 31st.
Acquisition Transaction Costs
As of September 30, 1997, NHancement and Advantis direct transaction costs of
approximately $52,400 associated with the Acquisition were recorded in excess of
cost over net assets acquired, consisting of attorney fees, accountant fees and
other related charges.
CONFORMING ADJUSTMENTS AND RECLASSIFICATIONS
There were no adjustments required to conform the accounting policies of
NHancement and Advantis. Certain amounts for Advantis have been reclassified to
conform with NHancement's financial statement presentation. There have been no
significant intercompany transactions other than those described herein.
Page 29
