<PAGE> 1
EXHIBIT 99.1
Report of Independent Auditors
Board of Directors
QuickShip, Inc.
We have audited the accompanying balance sheets of QuickShip, Inc., as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 QuickShip, Inc. at December 31,
1999 and 1998 and the results of its operations and cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
Winston-Salem, North Carolina
November 16, 2000
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QuickShip, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,927 $ 27,700
Marketable securities, available-for-sale 25,368 --
Accounts receivable, less allowance of $10,000 for 1999
and 1998 15,559 105,872
Employee receivables 41,963 5,395
Prepaid expenses and other assets 76,882 13,249
----------- -----------
Total current assets 161,699 152,216
Property and equipment, net 1,125,925 744,152
Other assets 58,941 84,071
----------- -----------
Total assets $ 1,346,565 $ 980,439
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 207,986 $ 101,676
Accrued liabilities 35,360 1,218
Notes payable 2,823,747 1,474,799
Current portion of long-term debt 15,172 6,870
Deferred revenue 8,021 431,795
----------- -----------
Total current liabilities 3,090,286 2,016,358
Long-term debt, less current maturities 35,904 7,435
Accrued dividends on preferred stock 200,000 --
Redeemable Convertible Preferred stock, $100 par value,
20,000 shares authorized, issued and outstanding 2,000,000 2,000,000
----------- -----------
Total liabilities 5,326,190 4,023,793
Shareholders' Deficit:
Common stock, $1 par value, 200,000 shares authorized,
650 shares issued and outstanding 650 650
Unrealized holding loss on available-for-sale marketable
securities (15,981) --
Accumulated deficit (3,964,294) (3,044,004)
----------- -----------
Total shareholders' deficit (3,979,625) (3,043,354)
----------- -----------
Total liabilities and shareholders' deficit $ 1,346,565 $ 980,439
=========== ===========
</TABLE>
See accompanying notes.
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QuickShip, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 1,092,027 $ 1,478,649
Cost of sales 116,465 216,245
----------- -----------
975,562 1,262,404
Selling, general and administrative expenses 1,545,392 1,189,655
----------- -----------
Operating (loss) income (569,830) 72,749
Non-operating income (expense):
Interest income 5,908 623
Interest expense (158,078) (291,299)
Miscellaneous 1,710 --
----------- -----------
Net loss (720,290) (217,927)
----------- -----------
Preferred dividends (200,000) --
----------- -----------
Loss to common shareholders $ (920,290) $ (217,927)
=========== ===========
</TABLE>
See accompanying notes.
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QuickShip, Inc.
Statements of Shareholders' Deficit
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON ACCUMULATED COMPREHENSIVE
STOCK DEFICIT INCOME TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $650 $(2,826,077) $ -- $(2,825,427)
Net loss (217,927) (217,927)
--------------------------------------------------------------
Balance at December 31, 1998 650 (3,044,004) (3,043,354)
Net loss (720,290) (720,290)
Other comprehensive income:
Unrealized holding loss on
marketable securities -- (15,981) (15,981)
--------------------------------------------------------------
Comprehensive income (736,271)
---------
Accrued preferred stock dividends (200,000) (200,000)
--------------------------------------------------------------
Balance at December 31, 1999 $650 $(3,964,294) $(15,981) $(3,979,625)
============================================================
</TABLE>
See accompanying notes.
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QuickShip, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (720,290) $ (217,927)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 132,398 68,364
Changes in operating assets and liabilities:
Accounts receivable 90,313 (24,547)
Employee receivables (36,568) 2,670
Prepaid expenses and other assets (63,183) 6,634
Accounts payable 106,310 (90,931)
Accrued liabilities 34,142 (23,276)
Deferred revenue (423,774) (86,586)
----------- -----------
Net cash used in operating activities (880,652) (365,599)
INVESTING ACTIVITIES
Purchases of property and equipment (514,171) (638,693)
Purchase of marketable securities (41,349) --
Payments received on notes receivable 24,680 22,753
----------- -----------
Net cash used in investing activities (530,840) (615,940)
FINANCING ACTIVITIES
Proceeds from (payments on) line of credit, net 1,016,720 (124,354)
Proceeds from notes payable 334,657 --
Payments on notes payable (2,429) (861,113)
Proceeds from long-term debt 46,599 --
Payments on long-term debt (9,828) (7,172)
Proceeds from the issuance of preferred stock -- 2,000,000
----------- -----------
Net cash provided by financing activities 1,385,719 1,007,361
----------- -----------
(Decrease) increase in cash and cash equivalents (25,773) 25,822
Cash and cash equivalents at beginning of year 27,700 1,878
----------- -----------
Cash and cash equivalents at end of year $ 1,927 $ 27,700
=========== ===========
</TABLE>
See accompanying notes.
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QuickShip, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
QuickShip, Inc. ("QuickShip" or the "Company"), formerly known as Acctronix,
Inc., is a developer and licenser of retail shipping software. See Note 2.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment, including computer software, is carried at cost less
allowances for depreciation. Depreciation is computed using accelerated methods
over the estimated useful lives ranging from 3 to 10 years.
The Company capitalizes software development costs incurred subsequent to the
establishment of technological feasibility. Upon the general release of the
product to customers, development cost for that product are amortized over five
years, based on the estimated economic life of the product. Software
amortization charges for the year ended December 31, 1999 were $95,315.
The Company periodically assesses the realizability of its long-lived assets and
evaluates such assets for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Impairment is
determined to exist if estimated future cash flows, undiscounted and without
interest charges, are less than the carrying amount or if the estimated net
realizable value is less than the carrying amount.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of marketable securities and trade receivables.
REVENUE RECOGNITION
Revenue is recognized when earned. Revenue from products licensed to customers
is recognized when packages are shipped or ratably over the contract period.
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QuickShip, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company expenses advertising costs as incurred and these costs are included
as selling, general and administrative expenses. Advertising costs for the years
ended December 31, 1999 and 1998 were $76,543 and $36,763, respectively.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is recorded when it is more likely than not
that the deferred tax asset will not be realized.
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 at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
effective for fiscal years beginning after June 15, 1999. SFAS No. 133 was
amended by SFAS No. 138, "Accounting for Derivative Instruments and Hedging
Activities." The provisions of the statements require the recognition of all
derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. Changes in the
fair market value of derivatives are recorded each period in current earnings or
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and if so, the type of hedge transaction. The adoption of
SFAS No. 133 will not have a material impact on the Company's results of
operations or financial position.
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QuickShip, Inc.
Notes to Financial Statements (continued)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB No. 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. The Company does not expect the
application of SAB No. 101 to have any impact on its results of operations or
financial position.
2. SALE OF QUICKSHIP STOCK
On October 26, 2000, Blue Rhino Corporation acquired all the outstanding shares
of QuickShip common stock, for $972,000 in cash and deferred payments, a
five-year warrant to purchase 100,000 shares of Blue Rhino Common Stock at $6
per share, $1,946,000 in assumed liabilities and $6,800,000 in Blue Rhino Series
A Convertible Preferred Stock. The Company will be a wholly owned subsidiary of
Blue Rhino Corporation (see Note 9).
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------------
<S> <C> <C>
Office furniture and equipment $ 421,407 $ 451,989
Computer software 816,988 662,757
Computer equipment 590,777 259,257
Automobiles 76,038 29,439
Leasehold improvements 20,164 7,761
-------------------------------
1,925,374 1,411,203
Less accumulated depreciation and amortization (799,449) (667,051)
-------------------------------
$ 1,125,925 $ 744,152
===============================
</TABLE>
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QuickShip, Inc.
Notes to Financial Statements (continued)
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------
<S> <C> <C>
Line of credit with maximum borrowings up to $3,500,0000,
interest payable monthly at the prime rate plus 0.5% (9.0% at
December 31, 1999), expiring September 30, 2000 $2,491,519 $1,474,799
Term loan, payable $3,219 monthly, with interest at 10.0% 92,651 --
Term loan, payable $3,987 monthly, with interest at 10.0% 180,000 --
Term loan, payable $1,522 monthly, with interest at 10.0% 59,577 --
-------------------------
Total notes payable $2,823,747 $1,474,799
=========================
</TABLE>
All notes payable are payable upon demand. Subsequent to year-end, all amounts
were repaid as part of the acquisition of the Company by Blue Rhino Corporation
(See Note 2).
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
----------------------
<S> <C> <C>
Installment loan, payable $744 monthly with interest at 9.8%,
collateralized by vehicles having a net book value of $5,037
as of December 31, 1999 $ 7,435 $ 14,305
Installment loan, payable $1,014 monthly with interest at
11.0%, collateralized by automobiles having a net book value
of $37,279 as of December 31, 1999 43,641 --
----------------------
51,076 14,305
Current portion (15,172) (6,870)
----------------------
$ 35,904 $ 7,435
======================
</TABLE>
The aggregate amounts of long-term debt maturing in each of the next five fiscal
years are as follows: 2000 - $15,172, 2001 - $8,636, 2002 - $9,640, 2003 -
$10,760 and 2004 - $6,868.
Interest paid for the years ended December 31, 1999 and 1998, was $123,457 and
$312,522, respectively.
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QuickShip, Inc.
Notes to Financial Statements (continued)
5. LEASES
The Company has an operating lease related to the office and warehouse facility.
The lease of the facility is for a period of five years beginning April 1, 1998,
with an option to extend the agreement an additional five years. Rent expense
for the years ended December 31, 1999 and 1998, was $99,547 and $88,882,
respectively.
Future minimum commitments under the operating lease as of December 31, 1999 are
summarized as follows:
<TABLE>
<S> <C>
2000 $ 84,057
2001 84,057
2002 84,057
2003 21,014
----------
Total minimum lease payments $ 273,185
==========
</TABLE>
The lease provides for the Company to pay minor maintenance, insurance and other
costs applicable to the leased premises.
6. INCOME TAXES
Due to the Company's operating losses, there was no current or deferred tax
expense for the years ended December 31, 1999 and 1998.
A reconciliation of the differences between the statutory federal income tax
rate of 34% and the effective tax rate for the years ended December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------
<S> <C> <C>
Federal statutory tax rate (34.0)% (34.0)%
Change in valuation allowance 31.1 25.2
Permanent differences and other 2.9 8.8
----------------------
Effective tax rate --% --%
======================
</TABLE>
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QuickShip, Inc.
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liability are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------
<S> <C> <C>
Assets:
Net operating loss carryforward $ 1,385,700 $ 685,800
Allowance for doubtful accounts 23,400 31,200
Other 1,300 1,200
--------------------------
Total gross deferred tax assets 1,410,400 718,200
Valuation allowance (901,300) (297,300)
--------------------------
Net deferred tax assets 509,100 420,900
Liabilities:
Software development 467,000 418,900
Depreciation and amortization 42,100 2,000
--------------------------
Net deferred tax liabilities 509,100 420,900
--------------------------
Net deferred taxes $ -- $ --
==========================
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $3,550,000, which are available to
offset future federal taxable income, if any, and will expire in varying amounts
from 2010 through 2019. However, the utilization of the net operating losses
will be subject to certain limitations as prescribed by Section 382 of the
Internal Revenue Code.
7. RELATED PARTY TRANSACTIONS
The Company's investment in marketable securities is common stock in Gold Banc
Corporation, the parent company of Gold Bank, the Company's primary lender and
sole preferred stockholder (See Note 9).
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in a legal proceeding encountered in the normal course
of business, seeking damages of up to $45,000. Based upon the advice from
counsel, it is management's opinion that the resolution of this matter will not
have a material adverse effect on the Company's financial position or results of
operations.
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QuickShip, Inc.
Notes to Financial Statements (continued)
9. SALE OF PREFERRED STOCK
On December 31, 1998, the Company issued $2,000,000 of non-voting, preferred
stock to Gold Bank Corporation ("Gold Bank") Dividends on the preferred stock
are cumulative and accrue at an annual rate of 10%. In connection with the
issuance of the redeemable preferred stock, all proceeds were to be used to
reduce debt obligations to Gold Bank. The preferred stock is convertible into
25% of the outstanding common stock of the Company at Gold Bank's option. Gold
Bank also has the right, but not the obligation to put the preferred stock to
the Company at any time after December 31, 2000. The Company has the right to
call all preferred shares at par value plus accrued, unpaid dividends.
Cumulative, accrued preferred dividends in arrears totaled $200,000, or $10 per
share at December 31, 1999.
During 2000, Gold Bank exercised its right to convert the preferred stock into
25% of the outstanding common shares of the Company.
12
