U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1 TO
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _____________
Commission file number: 001-13749
COLUMBIA CAPITAL CORP.
(Name of small business issuer specified in its charter)
Delaware 11-3210792
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2701 West Oakland Boulevard, Fort Lauderdale,Florida 33311
(Address of principal executive offices, including zip code)
(954) 453-6575
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
(Title of Class)
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, as set forth in the pages attached
hereto:
1. Item 13. Exhibits and Reports on Form 8-K.
A. Financial Statements
Independent Auditor's Report and consolidated balance sheet of Columbia
Capital Corp. (a Delaware Corporation) as of December 31, 1997, and the related
consolidated income statements, changes in shareholders' equity, and cash flows
for the years ended December 31, 1997 and 1996.
Independent Auditor's Report and balance sheets of First Independent
Computers, Inc. (a Texas corporation) as of April 30, 1997 and December 31,
1996, and the related statements of income, changes in shareholders' equity, and
cash flows for the four months and year then ended.
C. Other Exhibits
16.1 Letter re Change in Certifying Accountant of David T.Thompson,
P.C. dated December 4, 1997*
23.1 Consent of David T. Thomson, P.C., dated March 30, 1998*
23.2 Consent of Davis Kinard & Co., P.C., dated March 27, 1998*
23.3 Consent of David T. Thomson, P.C., dated March 30, 1998
23.4 Consent of Davis, Kinard & Co., P.C., dated April 7, 1998
27 Financial Data Schedule
*Filed as part of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
A. Financial Statements
Independent Auditor's Report and consolidated balance sheet of Columbia
Capital Corp. (a Delaware Corporation) as of December 31, 1997, and the related
consolidated income statements, changes in shareholders' equity, and cash flows
for the years ended December 31, 1997 and 1996.
Independent Auditor's Report and balance sheets of First Independent
Computers, Inc. (a Texas corporation) as of April 30, 1997 and December 31,
1996, and the related statements of income, changes in shareholders' equity, and
cash flows for the four months and year then ended.
C. Other Exhibits
16.1 Letter re Change in Certifying Accountant of David T.Thompson,
P.C. dated December 4, 1997*
23.1 Consent of David T. Thomson, P.C., dated March 30, 1998*
23.2 Consent of Davis Kinard & Co., P.C., dated March 27, 1998*
23.3 Consent of David T. Thomson, P.C., dated March 30, 1998
23.4 Consent of Davis, Kinard & Co., P.C., dated April 7, 1998
27 Financial Data Schedule
*Filed as part of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COLUMBIA CAPITAL CORP.
Dated: April 7, 1998 By: /s/ Kenneth A. Klotz
--------------------
Kenneth A. Klotz, President
By: /s/ Charles La Montagne
-----------------------
Charles La Montagne,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
COLUMBIA CAPITAL CORP.
Dated: April 7, 1998 By: /s/ Kenneth A. Klotz
--------------------
Kenneth A. Klotz
President and Director
Dated: April 7, 1998 By: /s/ Douglas R. Baetz
--------------------
Douglas R. Baetz, Director
Dated: April 7, 1998 By: /s/ Glenn M. Gallant
--------------------
Glenn M. Gallant
Secretary and Chairman of
the Board of Directors
Dated: April 7, 1998 By: /s/ Charles La Montagne
-----------------------
Charles La Montagne
Chief Financial Officer
and Director
Dated: April 7, 1998 By: /s/ Olan Beard
--------------
Olan Beard
Vice President and Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Columbia Capital Corp.
We have audited the accompanying consolidated balance sheet of Columbia Capital
Corp. (a Delaware corporation) as of December 31, 1997, and the related
consolidated income statements, changes in shareholders' equity, and cash flows
for the year then ended. The consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audit. The financial statements
of Columbia Capital Corp. as of December 31, 1996, were audited by other
auditors whose report dated February 24, 1997, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides 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 Columbia Capital
Corp. as of December 31, 1997, and results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DAVIS, KINARD & CO., P.C.
January 21, 1998
Abilene, Texas
<PAGE>
Independent Auditor's Report
Board of Directors
COLUMBIA CAPITAL CORP.
Salt Lake City, Utah
I have audited the accompanying Columbia Capital Corp. statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provided a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, Columbia Capital Corp. results of its operations and its cash
flows for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
DAVID T. THOMSON, P.C.
Salt Lake City, Utah
November 18, 1996
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash and cash equivalents $ 17,861
Interest bearing deposits with banks 303,578
Accounts receivable, net 522,538
Prepaid expenses and other assets 349,160
Deferred tax asset 122,209
----------
Total current assets 1,315,346
Premises and equipment 562,598
Less accumulated depreciation 47,914
Net property and equipment 514,684
Other assets
Deferred tax asset 52,033
Goodwill, net of accumulated amortization of $32,466 941,458
----------
Total other assets 993,491
Total assets $ 2,823,521
==========
Liabilities and Shareholders' Equity
Liabilities
Accrued expenses and other liabilities $ 311,530
Notes payable - related party 1,300,000
----------
Total current liabilities 1,611,530
Shareholders' equity
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,500,000 issued and outstanding 12,500
Additional paid-in capital 1,681,230
Accumulated deficit (481,739)
----------
Total shareholders' equity 1,211,991
Total liabilities and shareholders' equity $ 2,823,521
==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Income Statements
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Operating revenue
Pride $ 451,600 $
Credit card 1,856,062
Banking 613,049
Mail operations 172,637
Courier 66,730
---------- -----------
Total operating revenue 3,160,078 -
Operating Expenses
Salaries and employee benefits 1,448,629
Auto maintenance 18,187
Travel and entertainment 95,998
Equipment lease 709,530
Equipment maintenance 276,348
Facilities rent 217,867
Facilities maintenance 21,072
Depreciation 43,404
Amortization of goodwill 32,655
Amortization of organizational costs - 379
Insurance 26,939
Computer and office supplies 167,912
Postage and delivery fees 25,627
Telephone 125,313
Professional and outside services 126,339 1,438
Taxes 25,197 176
Other operating expenses 106,780 1,365
---------- -----------
Total operating expenses 3,467,797 3,358
---------- -----------
Loss from operations (307,719) (3,358)
Other revenue (expenses)
Other revenue 18,000
Interest (57,019)
Costs related to acquisition (186,921)
Net loss related to discontinued operations (1,432) (3,124)
---------- -----------
Total other revenue (expenses) (227,372) (3,124)
---------- -----------
Loss before federal income tax (535,091) (6,482)
Deferred income tax benefit (110,723) -
---------- -----------
Net loss $ (424,368) $ (6,482)
========== ===========
Loss per share from operations $ (0.02) $ (0.00)
========== ===========
Net loss per share $ (0.03) $ (0.00)
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES - December 31, 1996 2,500,000 $ 2,500 $ 66,230 $ (50,889) $ 17,841
Net loss - - - (6,482) (6,482)
----------- ---------- ---------- ---------- ----------
BALANCES - December 31, 1997 2,500,000 2,500 66,230 (57,371) 11,359
----------- ---------- ---------- --------- ----------
Effect of reverse stock split (1,250,000) (1,250) 1,250 - -
Equity acquired in stock exchange 11,250,000 11,250 1,588,750 - 1,600,000
Stock issued in exchange for services - - 25,000 - 25,000
Net loss - - - (424,368) (424,368)
----------- --------- ---------- --------- ----------
BALANCES - December 31, 1997 12,500,000 $ 12,500 $ 1,681,230 $ (481,739) $ 1,211,991
=========== ========= ========== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (424,368) $ (6,482)
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 76,059 379
Deferred income taxes (110,723)
Decrease in accounts receivable 54,010
Increase in deposits and prepaid expenses (181,901)
Increase in accruals and accounts payable 62,685
Other expenses - 551
------------ ------------
Total adjustments (99,870) 930
------------ ------------
Net cash used in operating activities (524,238) (5,552)
Cash flows from investing activities
Purchase of fixed assets (263,963)
Cash acquired in acquisition 34,304
Investment in interest bearing deposit (201,000)
------------
Net cash used in investing activities (430,659) -
Cash flows from financing activities
Proceeds from line of credit, net of payments 963,000
------------ ------------
Net cash provided by financing activities 963,000 -
------------ ------------
Net increase in cash and cash equivalents 8,103 (5,552)
Cash and cash equivalents at beginning of period 9,758 15,310
------------ ------------
Cash and cash equivalents at December 31, 1997 and 1996 $ 17,861 $ 9,758
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 57,019
Non cash investing and financing transactions:
Equity increase resulting from acquisition
Assets acquired $ 2,201,382
Liabilities assumed 601,382
------------
Net assets $ 1,600,000
============
Stock issued in exchange for services $ 25,000
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
Notes to Consolidated Financial Statements
NOTE 1: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Columbia Capital Corp. (the Company) and its wholly-owned subsidiary, First
Independent Computers, Inc. (the Subsidiary). Intercompany accounts and
transactions have been eliminated.
Organization
The Company was organized under the laws of the State of Delaware on February 5,
1993. The Company completed a private offering of its common stock in November
1993 (See Note 2).
Central Capital Corp. (a former Subsidiary) was organized under the laws of the
State of Delaware on February 5, 1993. Hudson Resources, Inc. (a former
Subsidiary) was organized under the laws of the State of Delaware on May 17,
1994. (See Note 3)
The Subsidiary was incorporated on October 21, 1983, pursuant to the provisions
of the Texas Business Corporation Act. The Subsidiary's business activities
include the processing of credit card purchases for numerous businesses in
various industries throughout the United States and data processing for various
banks. (See Note 5)
Cash and Cash Equivalents
The Company considers investments with an original maturity of three months or
less to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements
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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Accounts Receivable
The Company utilizes the allowance method for uncollectible accounts receivable.
Management estimates the uncollectible accounts and provides for them in the
allowance. The balance of the allowance for uncollectible accounts was $20,000
at December 31, 1997.
Revenue Recognition
The Company recognizes revenue when services have been provided to the customer.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Property, Plant and Equipment
Fixed assets of the Company are reported at historical cost. Depreciation and
amortization on assets purchased are computed by the following methods and
useful lives:
Furniture and fixtures Straight-line 5 years
Electronic equipment Straight-line 5-7 years
Automobiles Straight-line 3-5 years
Office equipment Straight-line 5 years
Computer software Straight-line 3 years
Depreciation is computed using the straight line method over the estimated
useful lives for financial statement purposes and an accelerated method of cost
recovery over statutory recovery periods for tax purposes. Repairs and
maintenance are expensed, whereas additions and improvements are capitalized.
Intangible Assets
Intangible assets are reported at historical cost and consist of goodwill.
Goodwill is amortized using the straight-line method over 20 years. The Company
has adopted the provisions of SFAS 121, under which the Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recovered. No
provision for impairment has been recognized with respect to the Company's long
lived assets.
Prepaid Assets
The Company has expenditures which benefit future periods which are recorded as
prepaid assets or deferred costs and are amortized on a straight-line basis over
the estimated or known period of benefit. Such prepaid assets and deferred costs
include prepaid insurance, maintenance contracts, certain software licenses and
supplies used in the normal operation of business.
Per Share Data
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS 128) was issued. Under SFAS 128, net earnings per share ("EPS")
are computed by dividing net earnings by the weighted average number of shares
of common stock outstanding during the period. SFAS 128 replaces fully diluted
EPS, which the Company was not previously required to report, with EPS, assuming
dilution. The Company adopted SFAS 128 effective December 31, 1997. There was no
effect on loss per share from the implementation of SFAS 128 for the current
period and the effect of this accounting change on previously reported EPS data
is not significant. The computation of loss per share of common stock is based
on the weighted average number of shares outstanding in 1997 and 1996 of
12,500,000, adjusted retroactively to reflect the one for two reverse split
effective September 1, 1997. No potential common shares existed at December 31,
1997 or 1996; therefore, basic loss per common share equals loss per common
share assuming dilution.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Federal Income Taxes
Deferred tax assets and liabilities are recognized for deductible and taxable
temporary differences respectively. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets may be reduced by a valuation allowance when and if, in the
opinion of management, the tax asset will, in part or in all, not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Preferred Stock
The Company, under its articles of incorporation, has the authority to issue up
to five million (5,000,000) shares of preferred stock with a par value of $.001
each, totaling five thousand dollars ($5,000). The Board of Directors is
authorized to provide for the issuance of the shares of preferred stock in
series by filing a certificate pursuant to the applicable law of the State of
Delaware, to establish the number of shares to be included in each such series,
and to fix the designations, powers, preferences rights and limitations of the
shares of each series.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and short-term
instruments approximate their fair value.
Interest bearing deposits with banks. The carrying amounts of interest bearing
deposits with banks approximate their fair value.
Accounts receivable. For accounts which are not past due greater than 90 days
and have no significant change in credit risk, fair values are based on carrying
values.
Notes payable. The Company's notes payable arrangement bears a variable interest
rate and represents terms and conditions currently available for the same or
similar debt facility in the marketplace. Thus, the fair value of notes payable
approximates the carrying amount.
Accounting Standards Not Yet Adopted
In June 1997, Statements of Financial Accounting Standards (SFAS) No. 130,
"Reporting of Comprehensive Income," was issued. This statement requires that
comprehensive income be reported in the basic financial statements.
Comprehensive income refers to the change in equity during a period from
transactions and events other than investments by and distributions to owners.
This statement applies to fiscal years beginning after December 15, 1997. The
Company plans to adopt SFAS 130 on January 1, 1998.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Accounting Standards Not Yet Adopted - continued
In June 1997, Statements of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
issued. This Statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Financial information should include a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. Descriptive
information should include detail on how segments were determined, products and
services provided by each, and any differences in the measurements used in
reporting segment information vs. those used in the general-purpose financial
statements. This statement is effective for financial statements for periods
beginning after December 15, 1997. The Company plans to adopt SFAS 131 on
January 1, 1998.
NOTE 2: Private Offerings of Common Stock
The Company offered shares of its common stock, $.001 par value, to a limited
number of qualified investors in 1993. The company sold 325,000 shares of common
stock, at a price of $.20 per share for a total of $65,000. The investors
subscribed to a minimum of 1,000 shares. There was no minimum offering amount
and there was no escrow of any funds received from the offering and such funds
were utilized by the Company as they were received. Proceeds from the offering
were used to provide working capital to the Company.
NOTE 3: Disposition of Former Subsidiaries Central Capital Corp. and Hudson
Resources, Inc.
On February 28, 1997, the Company determined that its two subsidiary
corporations, Central Capital Corp. and Hudson Resources, Inc. had no value and
would hinder the Company in it's acquisition efforts. Therefore, the two
companies were sold to the Company's principal shareholder, Mr. Lynn Dixon for
nominal value. For accounting purposes the Company treated the sold subsidiaries
as discontinued operations, effective February 28, 1997. The results of the
subsidiaries have been reported separately as a component of discontinued
operations in the income statement. The Company's investment in subsidiaries was
sold for current book value of $1,361 recognizing no gain or loss. Details of
the net assets and operations for the subsidiaries are presented below.
Former Subsidiaries Assets and Liabilities:
February 28,
1997
-----------
Assets
Cash $ 1,109
Organization costs, net 252
Total Assets $ 1,361
===========
<PAGE>
NOTE 3: Disposition of Former Subsidiaries Central Capital Corp. and Hudson
Resources, Inc. - cont.
<TABLE>
<CAPTION>
February 28,
1997
-----------
Liabilities and Shareholders' Equity
<S> <C>
Common stock $ 5,000
Contributed capital 23,609
Retained earnings (27,248)
-----------
Total Liabilities and Stockholder's Equity $ 1,361
===========
Subsidiaries Operations:
Legal and professional expense $ 1,400
Amortization expense 32
-----------
Net loss related to discontinued operations $ (1,432)
===========
</TABLE>
NOTE 4: Amendment to the Company's Articles of Incorporation
In a September 19, 1997 Certificate of Amendment to Certificate of
Incorporation, pursuant to the terms of an agreement and plan of reorganization
dated August 29, 1997, the Company effectuated a 1 for 2 reverse stock split as
to its shares of common stock outstanding as of September 1, 1997, which
decreased the shares from 2,500,000 to 1,250,000. The Certificate of Amendment
also resolved that the Corporation shall, as amended, have the authority to
issue fifty million (50,000,000) shares of common stock with par value of $.001
each, totaling fifty thousand dollars ($50,000) and five million (5,000,000)
shares of preferred stock with par value of $.001 each, totaling five thousand
dollars ($5,000). The board of directors is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance of the shares of preferred stock in series by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish the number
of shares, to fix the designations, powers, preferences, rights, qualifications,
limitations and/or restrictions, to be included in each such series. At December
31, 1997, there were no preferred shares issued or outstanding.
NOTE 5: Acquisition of First Independent Computers, Inc.
On April 30, 1997, Mr. Glenn M. Gallant and Mr. Douglas R. Baetz purchased all
of the issued and outstanding stock of First Independent Computers, Inc. (FICI)
then owned by Security Shares, Inc., a bank holding company, for $1,600,000. The
transaction was accounted for utilizing "pushdown accounting", whereby all
assets and liabilities of FICI were restated at their estimated market value on
the purchase date. The excess of the total acquisition cost over the fair value
of net assets acquired was recorded as goodwill. Total restated assets at May 1,
1997 amounted to $2,174,670, which included $973,924 in goodwill to be amortized
over an estimated benefit period of twenty (20) years. Goodwill amortization
expense amounts to $4,058 monthly, with $32,466 (from May 1, 1997 to December
31, 1997) of amortization expense included in the year ending December 31, 1997
results of operation.
<PAGE>
NOTE 5: Acquisition of First Independent Computers, Inc. - continued
Effective September 22, 1997, under terms of the agreement and plan of
reorganization dated August 29, 1997, the Company acquired all of the common
stock of FICI from Mr. Glenn M. Gallant and Mr. Douglas R. Baetz in exchange for
11,250,000 restricted shares of the Company's common stock, of which 618,750
shares were to be issued to an unaffiliated third party in exchange for
services. The services, valued at $25,000, are included in costs related to
acquisition in the Consolidated Income Statement with corresponding recognition
in the Consolidated Statement of Changes in Shareholders' Equity for the year
ending December 31, 1997. The transaction gave Mr. Gallant and Mr. Baetz a
controlling interest in the Company. The transfer of FICI stock to the Company
represented a transaction between entities under common control. Mr. Gallant and
Mr. Baetz controlled the stock of FICI prior to the transaction and the stock of
the Company subsequent to the transaction. Accordingly, the business combination
was accounted for in a manner similar to a pooling of interests, whereby the
accounts of the entities involved were not revalued, rather they were combined
at their historical basis. The Company's consolidated financial statements were
restated to include the results of operations of FICI from May 1, 1997, the
acquisition date of FICI by Mr. Gallant and Mr. Baetz. There were no adjustments
to net assets of the combining companies necessary for either to adopt the same
accounting practices.
The following unaudited pro-forma consolidated results of operations assume that
the above acquisitions occurred on January 1, 1997 and reflect the historical
operations of the acquired business adjusted for amortization of goodwill.
Net revenues $ 3,178,078
Net loss ( 397,212)
Net loss per share (.03)
The pro-forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the acquisition actually
occurred on January 1, 1997, or of results which may occur in the future.
NOTE 6: Financial Instruments
The estimated fair values of the Company's financial instruments at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------- ----------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits with banks $ 321,439 $ 321,439
Accounts receivable 522,538 522,538
Financial liabilities:
Notes payable $ 1,300,000 $ 1,300,000
The method(s) and assumptions used to estimate the fair value of
financial instruments are disclosed in Note 1 "Fair Values of
Financial Instruments".
</TABLE>
<PAGE>
NOTE 7: Income Taxes
The Company files a consolidated federal income tax return; however, federal
income taxes are allocated between the Company and Subsidiary based on statutory
rates. The consolidated income tax benefit, as a percentage of pretax earnings,
differs from the statutory federal income tax rate at December 31, as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Statutory federal income tax rate 34.00% 34.00%
Reduction in tax rate resulting
from non-deductible expenses (13.31) -
Valuation allowance - (34.00)
--------- ---------
Effective income tax rate 20.69% -
========= =========
</TABLE>
The tax effects of temporary differences that gave rise to deferred tax assets
as of December 31, 1997:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 122,209
Depreciation and amortization 52,033
----------
Total deferred tax assets $ 174,242
==========
</TABLE>
Activity related to deferred tax assets in the year ended December 31, 1997:
<TABLE>
<S> <C>
Balance at December 31, 1996 $ 4,501
Valuation allowance (4,501)
-----------
Net deferred tax assets at December 31, 1996 -
Deferred tax asset established on acquisition of Subsidiary 63,519
Deferred income tax benefit 110,723
-----------
Net deferred tax assets at December 31, 1997 $ 174,242
===========
</TABLE>
The Company had available consolidated net operating loss carryforwards for
federal income tax purposes of $359,438 and $30,005 for December 31, 1997 and
1996. A consolidated valuation allowance of $-0- and $4,501 was established. The
change in allowance for each year was $(4,501) and $504. The consolidated net
operating loss carryforwards at December 31, 1997 will expire as shown below.
Year Amount
-------------- -----------
2008 $ 804
2009 4,297
2010 21,545
2011 3,359
2012 329,433
<PAGE>
NOTE 7: Income Taxes - continued
The Company having realized significant revenue increases and earnings
performance in the last quarter of 1997 continuing into the first quarter of
1998, has determined that net operating loss carryforwards will be utilized in
the near term; therefore, no valuation allowance has been provided at December
31, 1997.
NOTE 8: Notes Payable
The Subsidiary, has an operating line of credit through Century Financial Group,
Inc., a company owned by the Company's primary shareholders. Century Financial
Group, Inc. provides the Subsidiary with a maximum operating line of credit of
two million dollars ($2,000,000). Advances on the line of credit, not to exceed
the maximum limit, are made at the discretion of the Subsidiary's management.
The line of credit is secured by all assets of the Subsidiary. The line of
credit carries an annual percentage rate of ten percent (10%). Under the terms
of the line of credit, the Subsidiary pays interest on a monthly basis with the
unpaid principal due at maturity, September 15, 1998. The outstanding balance on
the line of credit as of December 31, 1997 was $1,300,000.
NOTE 9: Lease Obligations
The Company has entered into various operating lease agreements. Under terms of
an operating lease with IBM Corporation, certificates of deposit with a carrying
value of $303,578 at December 31, 1997, were pledged as collateral against Bank
One letters of credit in favor of IBM.
The future minimum payments for leased property under these noncancellable lease
agreements for each of the next five years ending December 31, 2002, are as
follows:
1998 $ 1,126,187
1999 1,083,214
2000 881,033
2001 109,965
2002 109,965
-----------
Lease obligations $ 3,310,364
===========
No commitments for leased property extend more that five years.
NOTE 10: Market Risk and Concentrations
On June 30, 1997 the Subsidiary had a significant credit card portfolio
processing contract expire. This contract was not renewed. The contract
represented approximately one hundred thousand dollars ($100,000) or thirty
percent (30%) of the Subsidiary's monthly operating revenue, and its loss
substantially affected the Subsidiary's profitability. As a result, substantial
operating losses were recognized in the months July through October. For the
year ending December 31, 1997, revenue from Security State Bank (23%), Best Bank
(28%) and Pride (14%) accounted for approximately 68% of the Company's total
revenues. No other customers accounted for 10% or more of the Company's total
revenues.
<PAGE>
NOTE 10: Market Risk and Concentrations - continued
On October 1, 1997 the Subsidiary entered into a five year contract to process
credit card activity and produce account statements for Best Bank. This contract
represents in excess of $500,000 per month in additional operating revenue. In
December, 1997, the Subsidiary earned approximately five hundred thirty-five
thousand ($535,000) on the bank contract which represents seventy-two percent
(72%) of total revenue for the month.
NOTE 11: Related Party Transactions
The Subsidiary continues to provide data processing services to Security State
Bank its former parent company. Additionally, the Subsidiary continues to lease
its office space, 52,248 square feet, from Security State Bank at an annual cost
of approximately $390,000. Accounts receivable from Security State Bank amounted
to $134,403 at December 31, 1997. On December 1, 1997, the Subsidiary entered
into a lease agreement with The Century Group, Inc., (the "Landlord"), owned by
the Company's primary shareholders Glenn Gallant and Douglas Baetz, for office
space located at 2701 West Oakland Park Boulevard, Ft. Lauderdale, Florida
33311. The term of the lease is for one (1) year for the sum of thirty-one
thousand seven hundred forty-six dollars ($31,746), plus applicable sales and
use taxes. The Company also agrees to pay the Landlord, as additional rent for
its share of the operating expenses associated with the premises. The
Subsidiary's financing source, Century Financial Group, Inc., is owned by the
Company's primary shareholders, Glenn Gallant and Douglas Baetz. Interest
expense and accrued interest payable to Century Financial Group, Inc. amounted
to $53,561 and $-0- as of December 31, 1997 and 1996, respectively.
NOTE 12: Condensed Financial Information - Parent Company
The following represents consolidated financial information of the parent
company as of December 31, 1997 presented utilizing the equity method of
accounting. Condensed financial information for the Parent company is not
presented for the year ended December 31, 1996 because there were no significant
subsidiary operations during that period.
Condensed Balance Sheet:
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash and cash equivalents $ 1,689
Prepaid expenses and other assets 15,024
Deferred tax asset 69,354
----------
Total current assets 86,067
Investment in subsidiary 1,367,288
Total assets $ 1,453,355
==========
</TABLE>
<PAGE>
NOTE 12: Condensed Financial Information - Parent Company - continued
<TABLE>
<CAPTION>
Condensed Balance Sheet:
Liabilities and Shareholders' Equity
<S> <C>
Liabilities
Accrued expenses and other liabilities $ 5,000
Due to subsidiary 192,975
----------
Total current liabilities 197,975
Shareholders' equity
Common stock, $.001 par value; 5,000,000 shares
authorized; 12,500,000 issued and outstanding 12,500
Capital surplus 1,681,230
Accumulated deficit (438,350)
Total shareholders' equity 1,255,380
Total liabilities and shareholders' equity $ 1,453,355
==========
Condensed Income Statement:
Revenues
Undistributed losses of subsidiary $ (232,712)
----------
Total revenues (232,712)
Expenses
Stockholder costs and fees 581
Professional and outside services 27,851
Amortization expense 189
Costs related to acquisition 186,921
Other operating 647
Total expenses 216,189
Net loss related to discontinued operations (1,432)
----------
Loss before federal income tax (450,333)
Income tax benefit (69,354)
Net loss $ (380,979)
==========
<PAGE>
NOTE 12: Condensed Financial Information - Parent Company -continued
Condensed Statement of Cash Flows:
Cash flows from operating activities
Net loss $ (380,979)
Adjustments to reconcile net loss to
net cash provided by operations
Undistributed earnings in subsidiary 232,712
Depreciation and amortization 189
Deferred income taxes (69,354)
Increase in deposits and prepaid expenses (13,436)
Decrease in accruals and accounts payable 222,799
----------
Total adjustments 372,910
Net cash used by operating activities (8,069)
Net decrease in cash and cash equivalents (8,069)
Cash and cash equivalents at beginning of year 9,758
----------
Cash and cash equivalents at December 31, 1997 $ 1,689
==========
</TABLE>
NOTE 13: Subsequent Event
On February 9, 1998, the Company entered into a financial consulting agreement
with Worldwide Corporate Finance (the "Consultant"). The Consultant will provide
the Company with consulting services including acting as liaison between the
Company and investors, engaging market makers for the Company's traded
securities, evaluating financial proposals, assisting the Company in stockholder
and investor relations, providing business and financial planning and providing
assistance to the Company in its future development. The agreement will expire
one year from the date first written above.
As the initial compensation for the services detailed above, the Company agreed
to pay the Consultant upon execution of this agreement the amount of three
hundred thousand (300,000) shares of the Company's common stock which will be
treated as a non-refundable retainer (the "Retainer").
The Consultant has elected to receive payment of the Retainer in a non-cash
transaction in which the fee will be considered paid in full by delivery to the
Consultant the Company's common stock which was placed in escrow within fifteen
(15) days from the date first mentioned above and distributed as follows:
One hundred fifty thousand (150,000) shares to be released to
the Consultant immediately.
Seventy-five thousand (75,000) shares to be released to the
Consultant ninety (90) days from the date of the first release.
Seventy-five thousand (75,000) shares to be released to the
Consultant one hundred eighty (180) from the date of the first
release.
<PAGE>
NOTE 13: Subsequent Event - continued
Additional compensation consists of four hundred thousand (400,000) options to
purchase additional shares consisting of the following:
One hundred thousand (100,000) options entitling the Consultant
to purchase one (1) share of the Company's common stock equal to
eighty-five percent (85%) of the closing bid price on the date
first written above expiring one hundred twenty (120) days from
that date.
One hundred thousand (100,000) options entitling the Consultant
to purchase one (1) share of the Company's common stock equal to
the closing bid price for the shares on the date first written
above expiring one hundred eighty (180) days from that date.
One hundred thousand (100,000) options entitling the Consultant
to purchase one (1) share of the Company's common stock equal to
eighty-five percent (85%) of the closing bid price for the
shares on the date exercised expiring one (1) year from the date
first written above.
One hundred thousand (100,000) options entitling the Consultant
to purchase one (1) share of the Company's common stock equal to
eighty-five percent (85%) of the closing bid price for the
shares on the date exercised expiring two (2) years from the
date first written above.
The effect of the above agreement on 1998 earnings will be the recognition of
contractual services expense based on the fair value of the Company's common
stock at the date the shares are released to the Consultant. The expense will be
reflected in earnings based on when the services are performed, however, all
expense will be recognized through the expiration date of the agreement.
Additional contractual services expense will be recognized when and if the
Consultant elects to exercise the options granted under the agreement. The
expense recognized on exercise of the options will be measured as the difference
in the price paid for shares under the option agreements and the fair value of
the shares at the date of exercise.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
First Independent Computers, Inc.
We have audited the accompanying balance sheets of First Independent Computers,
Inc. (a Texas corporation) as of April 30, 1997 and December 31, 1996, and the
related statements of income, changes in shareholders' equity, and cash flows
for the four months and year then ended. These financial statements are the
responsibility of 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 First Independent Computers,
Inc. as of April 30, 1997 and December 31, 1996, and results of its operations
and its cash flows for the periods then ended in conformity with generally
accepted accounting principles.
DAVIS, KINARD & CO., P.C.
January 21, 1998
Abilene, Texas
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Balance Sheets
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
April 30, December 31,
1997 1996
---------- ----------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 34,304 $ -
Interest bearing deposits with banks 102,578 100,000
Accounts receivable, net 576,548 715,618
Prepaid expenses and other assets 226,627 187,551
Deferred tax asset 42,939 -
---------- ----------
Total current assets 982,996 1,003,169
Premises and equipment 780,006 960,372
Less accumulated depreciation 492,334 615,168
---------- ----------
Net property and equipment 287,672 345,204
Other assets
Deposits 2,563 2,563
---------- ----------
Total other assets 2,563 2,563
---------- ----------
Total assets $ 1,273,231 $ 1,350,936
========== ==========
Liabilities and Shareholders' Equity
Liabilities
Bank overdraft $ - $ 31,557
Accrued expenses and other liabilities 271,924 440,300
Notes payable 337,000 131,420
---------- ----------
Total current liabilities 608,924 603,277
Shareholders's equity
Common stock , $1 par value; 1,000
shares authorized, issued and outstanding 1,000 1,000
Additional paid-in capital 497,500 497,500
Retained earnings 165,807 249,159
---------- ----------
Total shareholders' equity 664,307 747,659
---------- ----------
Total liabilities and shareholders' equity $ 1,273,231 $ 1,350,936
========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Income Statements
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
April 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Operating revenue
Pride $ 263,900 $ 804,000
Credit card 639,700 1,955,911
Banking 316,115 927,747
Mail operations 96,670 292,074
Courier 31,900 86,050
------------- ------------
Total operating revenue 1,348,285 4,065,782
Operating Expenses
Salaries and employee benefits 578,820 1,644,534
Auto maintenance 8,060 25,171
Equipment lease 288,683 855,156
Equipment maintenance 148,209 473,066
Facilities rent 48,400 138,200
Facilities maintenance 904 1,243
Depreciation 161,645 108,905
Amortization of non-compete agreement - 2,542
Travel and entertainment 22,589 46,580
Insurance 12,209 37,550
Computer and office supplies 92,971 279,157
Postage and delivery fees 20,687 28,473
Telephone 45,240 143,986
Professional and outside services 30,422 79,866
Taxes 12,515 30,683
Other operating expenses 10,867 25,902
------------- ------------
Total operating expenses 1,482,221 3,921,014
------------- ------------
Loss from operations (133,936) 144,768
Other revenue (expenses)
Other revenue 13,908 62,804
Interest (6,263) (15,684)
Nonrecurring - 23,971
------------- ------------
Total other revenue (expenses) 7,645 71,091
------------- ------------
Income (loss) before federal income tax (126,291) 215,859
Income tax expense (benefit) (42,939) 64,060
------------- ------------
Net income (loss) $ (83,352) $ 151,799
============= ============
Net income (loss) per share from operations $ (133.94) $ 144.77
============= ============
Net income (loss) per share $ (83.35) $ 151.80
============= ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Statements of Changes in Shareholders' Equity
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCES - December 31, 1995 $ 1,000 $ 497,500 $ 97,360 $ 595,860
Net income - - 151,799 151,799
------------- ----------- ------------- -------------
BALANCES - December 31, 1996 1,000 497,500 249,159 747,659
Net loss - - (83,352) (83,352)
------------- ----------- ------------- -------------
BALANCES - April 30, 1997 $ 1,000 $ 497,500 $ 165,807 $ 664,307
============= =========== ============= =============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Statements of Cash Flows
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
April 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (83,352) $ 151,799
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 161,645 111,447
(Increase) decrease in
Accounts receivable 139,070 (126,783)
Deposits and prepaid expenses (39,076) (29,362)
Deferred tax asset (42,939) -
Increase (decrease) in
Accruals and accounts payable (168,375) (23,771)
------------ ------------
Net cash provided (used) by operating activities (33,027) 83,330
Cash flows from investing activities
Purchase of fixed assets (104,114) (239,335)
Investment in interest bearing deposit (2,578) -
------------ ------------
Net cash used by investing activities (106,692) (239,335)
Cash flows from financing activities
Proceeds from line of credit, net of payments 205,580 87,681
Change in bank overdraft (31,557) 31,557
------------ ------------
Net cash provided by financing activities 174,023 119,238
------------ ------------
Net increase (decrease) in cash and cash equivalents 34,304 (36,767)
Cash and cash equivalents at beginning of period - 36,767
------------ ------------
Cash and cash equivalents at end of period $ 34,304 $ -
============ ============
OTHER DISCLOSURES
Interest paid $ 6,263 $ 15,684
Taxes paid 12,515 30,683
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Notes to Financial Statements
NOTE 1: Summary of Significant Accounting Policies
Organization
First Independent Computers, Inc. (The Company) was incorporated on October 21,
1983, pursuant to the provisions of the Texas Business Corporation Act. The
Corporation was authorized to issue 1,000 shares of no par value, Common Stock.
First Independent Computers Inc.'s business activity includes the processing of
credit card purchases for numerous businesses in various industries throughout
the United States and data processing for various banks.
The shareholders of First Independent Computers, Inc. entered into an agreement
with Security Shares, Inc. to exchange First Independent Computers, Inc. shares
for common shares of Security Shares, Inc. The exchange was effective with the
close of business on May 31, 1994. The exchange is for all of the issued and
outstanding shares of First Independent Computers, Inc.
Security Shares, Inc. entered into a purchase/sale agreement with Glenn M.
Gallant and Douglas R. Baetz for the purchase of all of First Independent
Computers, Inc.'s issued and outstanding stock currently owned by Security
Shares, Inc. The sale was to be effective with the close of business on April
30, 1997.
Cash and Cash Equivalents
The Company considers investments with an original maturity of three months or
less to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements
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. Actual results could differ from those
estimates.
Accounts Receivable
The Company utilizes the allowance method for uncollectible accounts receivable.
Management estimates the uncollectible accounts and provides for them in the
allowance. The balance of the allowance for uncollectible accounts was $20,000
at April 30, 1997.
Prepaid Assets
The Company has expenditures which benefit future periods which are recorded as
prepaid assets or deferred costs and are amortized on a straight-line basis over
the estimated or known period of benefit. Such prepaid assets and deferred costs
include prepaid insurance, maintenance contracts, certain software licenses and
supplies used in the normal operation of business.
Revenue Recognition
The Company recognizes revenue when services have been provided to the customer.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Property, Plant and Equipment
Fixed assets of the Company are reported at historical cost. Depreciation and
amortization on assets purchased are computed by the following methods and
useful lives:
Furniture and fixtures Straight-line 5 years
Electronic equipment Straight-line 5-7 years
Automobiles Straight-line 3-5 years
Office equipment Straight-line 5 years
Computer Software Straight-line 3 years
Depreciation is computed using the straight line method over the estimated
useful lives for financial statement purposes and an accelerated method of cost
recovery over statutory recovery periods for tax purposes. Repairs and
maintenance are expensed, whereas additions and improvements are capitalized.
Federal Income Taxes
Deferred tax assets and liabilities are recognized for deductible and taxable
temporary differences respectively. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets may be reduced by a valuation allowance when and if, in the
opinion of management, the tax asset will, in part or in all, not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and short-term
instruments approximate their fair value.
Interest bearing deposits with banks. The carrying amounts of interest bearing
deposits with banks approximate their fair value.
Accounts receivable. For accounts which are not past due greater that 90 days
and have no significant change in credit risk, fair values are based on carrying
values.
Long term debt. The Company's long term debt arrangement bears a variable
interest rate and represents terms and conditions currently available for the
same or similar debt facility in the marketplace. Thus, the fair value of long
term debt approximates the carrying amount.
Per Share Data
The computation of loss per share of common stock is based on the weighted
average number of shares outstanding in 1997 and 1996 of 12,500,000, adjusted
retroactively to reflect the one for two reverse stock split which occurred on
September 1, 1997.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Accounting Standards Not Yet Adopted
In June 1997, Statements of Financial Accounting Standards (SFAS) No. 130,
"Reporting of Comprehensive Income," was issued. This statement requires that
comprehensive income be reported in the basic financial statements.
Comprehensive income refers to the change in equity during a period from
transactions and events other than investments by and distributions to owners.
This statement applies to fiscal years beginning after December 15, 1997. This
statement, if applied to the December 31, 1997 financial statements, would not
affect the consolidated comprehensive net income. The Company plans to adopt
SFAS 130 on January 1, 1998.
In June 1997, Statements of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
issued. This Statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Financial information should include a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. Descriptive
information should include detail about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. This statement is
effective for financial statements for periods beginning after December 15,
1997. The Company plans to adopt SFAS 131 on January 1, 1998.
NOTE 2: Lease Obligations
The Company has entered into various operating lease agreements. Under terms of
an operating lease with IBM Corporation, certificates of deposit with a carrying
value of $102,578 at April 30, 1997, were pledged as collateral against Bank One
letters of credit in favor of IBM.
The future minimum payments for leased property under these noncancellable lease
agreements for each of the next five years ending December 31, 2001, are as
follows:
Remaining 1997 $ 377,460
1998 566,190
1999 270,690
2000 147,242
2001 -
----------
Lease Obligation $ 1,361,582
==========
No commitments for leased property extend more that five years.
<PAGE>
NOTE 3: Notes Payable
Notes payable consisted of the following at April 30, 1997, December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
The company purchased software under a capital lease and recorded the
liability as a note payable dated 12/13/91 to IBM in the original
amount of $157,783.52 at 16.29%, principal and interest due in 60
monthly installments
starting 2/01/92. $ - $ 1,420
A revolving line of credit dated 5/24/96 to The Peoples State Bank,
commitment of $250,000 at 9.25%, due on demand with final maturity at
5/24/97. The note is secured
by accounts receivable. 70,000 130,000
A note payable dated 3/31/97 to The Peoples State Bank
in the original amount of $267,000 at 8.5%, principal and
interest due on demand with final maturity at 6/30/97. The
note is guaranteed by Security State Bank. 267,000
--------- ----------
Total notes payable $ 337,000 $ 131,420
========= ==========
All notes payable balances were paid as of May 31, 1997.
</TABLE>
NOTE 4: Related Party Transactions
During the period January 1 through December 31, 1996, the Company recorded
revenues of $1,245,119 billed to Security State Bank (balance due at December
31, 1996 of $128,629), a related party.
During the period January 1 through April 30, 1997, the Company recorded
revenues of $405,619 billed to Security State Bank (balance due at April 30,
1997 of $104,296), a related party.
In addition, the Company leases its office space from Security State Bank.
Facilities Rent expense was $11,517 per month ($138,200 for the period of
January 1 to December 31, 1996), and $12,100 per month ($48,400 for the period
of January 1 to April 30, 1997).
NOTE 5: Income Taxes
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets (liabilities) as of April 30, 1997 and December 31,
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Depreciation and amortization $ (9,287) $ (821)
Net operating loss carryforward 53,047 -
------------ ------------
$ 43,760 $ (821)
============ ============
</TABLE>
<PAGE>
NOTE 5: Income Taxes - continued
Federal income taxes are based on statutory rates. The income tax
benefit/liability, as a percentage of pretax earnings, differs from the
statutory federal income tax rate at April 30 and December 31, as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Statutory federal income tax rate 34.00% 34.00%
Reduction in tax rate resulting
from non-deductible expenses - (4.32)
---------- --------
Effective income tax rate 34.00% 29.68%
========== ========
</TABLE>
The Company had available as of April 30, 1997, a net operating loss
carryforward for federal income tax purposes of $83,352. The net operating loss
carryforward will expire as shown below.
Year Amount
---- -------------
2012 $ 83,352
Federal income tax expense at April 30 and December 31 is composed of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current expense $ - $ 65,880
Deferred benefit (42,939) (1,820)
---------- ---------
Total income tax expense (benefit) $ (42,939) $ 64 060
========== =========
</TABLE>
NOTE 6: Financial Instruments
The estimated fair values of the Company's financial instruments were as follows
at:
<TABLE>
<CAPTION>
April 30, 1997
--------------------------
Carrying Fair
Amount Value
----------- ----------
Financial assets:
<S> <C> <C>
Cash and interest bearing deposits with banks $ 136,882 $ 136,882
Accounts receivable $ 576,548 $ 576,548
Financial liabilities:
Notes payable $ 337,000 $ 337,000
</TABLE>
<PAGE>
NOTE 6: Financial Instruments - continued
The estimated fair values of the Company's financial instruments were as follows
at:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------
Carrying Fair
Amount Value
----------- ----------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits with banks $ 100,000 $ 100,000
Accounts receivable $ 715,618 $ 715,618
Financial liabilities:
Notes payable $ 337,000 $ 131,420
</TABLE>
The method(s) and assumptions used to estimate the fair value of financial
instruments are disclosed in Note 1 "Fair Values of Financial Instruments".
NOTE 7: Concentration Risk
During the period January 1 through December 31, 1996, the Company recorded
revenues of $804,000 billed to Pride Refining, Inc. (balance due at December 31,
1996 of $61,469), a non-related party, and $1,396,244 billed to Clark Refining,
Inc. (balance due at December 31, 1996 of $98,705), a non-related party.
During the period January 1 through April 30, 1997, the Company recorded
revenues of $263,900 billed to Pride Refining, Inc. (balance due at April 30,
1997 of $62,310), a non-related party, and $408,831 billed to Clark Refining,
Inc. (balance due at April 30, 1997 of $515), a non-related party.
NOTE 8: Subsequent Events
As of May 1, 1997, 100% of the Company's issued and outstanding stock was
purchased by Glenn M. Gallant and Douglas R. Baetz from Security Shares, Inc.
On May 5, 1997, the Company's note payable of $267,000 with accrued interest to
date was paid in full.
On May 24, 1997, the Company's outstanding note payable balance of $30,000 with
accrued interest to date was paid in full.
On May 31, 1997, the Company recorded additional paid in capital of $250,000
resulting from a cash deposit made by Glenn M. Gallant and Douglas R. Baetz.
At June 30, 1997 the Company's contract, to provide credit card processing for
Clark Refining, Inc., expired. Clark has indicated that the contract will not be
renewed.
<PAGE>
NOTE 8: Subsequent Events - continued
The Company has renewed it's lease agreement with Security State Bank effective
August 1, 1997. The new lease agreement is for a period of two (2) years
consisting of 52,248 square foot of office and parking space under lease. Total
monthly rent, due in advance on the first day of each month, beginning August 1,
1997, will be $33,447. The total annual facilities rent expense under the new
lease agreement will be $401,364.
The Subsidiary, has extended to it an operating line of credit through Century
Financial Group, Inc., a company owned by the Company's primary shareholders.
Century Financial Group, Inc. provides the Subsidiary with a maximum operating
line of credit of two million dollars ($2,000,000). Advances on the line of
credit, not to exceed the maximum limit, are made at the discretion of the
Subsidiary's management. The line of credit is secured by all assets of the
Subsidiary. The line of credit carries an annual percentage rate of ten percent
(10%). Under the terms of the line of credit the Subsidiary will pay interest on
a monthly basis with the unpaid principal due at maturity, September 15, 1998.
The outstanding balance on the line of credit as of December 31, 1997 was
$1,300,000.
The Company continues to provide data processing services to a subsidiary of its
former parent company, Security State Bank. Additionally, the Subsidiary
continues to lease its office space, 52,248 square feet, from Security State
Bank at an annual cost of approximately $390,000. Accounts receivable from
Security State Bank amounted to $134,403 at December 31, 1997.
On December 1, 1997 the Subsidiary entered into a lease agreement with The
Century Group, Inc., (the "Landlord"), owned by the Company's primary
shareholders Glenn Gallant and Douglas Baetz, for office space located at 2701
West Oakland Park Boulevard, Ft. Lauderdale, Florida 33311. The term of the
lease is for one (1) year for the sum of thirty-one thousand seven hundred
forty-six dollars ($31,746), plus applicable sales and use taxes. The Company
also agrees to pay the Landlord, as additional rent ("Additional Rent") for its
share of the operating expenses associated with the premises. The Subsidiary's
financing source, Century Financial Group, Inc., is owned by the Company's
primary shareholders, Glenn Gallant and Douglas Baetz. Interest expense and
accrued interest payable to Century Financial Group, Inc. amounted to $53,561
and $-0- as of December 31, 1997.
On June 30, 1997 the Subsidiary had a significant credit card portfolio
processing contract expire. This contract was not renewed. The contract
represented approximately one hundred thousand dollars ($100,000) or thirty
percent (30%) of the Subsidiary's monthly operating revenue, and its loss
substantially affected the Subsidiary's profitability. As a result, substantial
operating losses were recognized the months July through October.
On October 1, 1997 the Subsidiary entered into a five year contract to process
credit card activity and produce account statements for a bank. This contract
represents more than $500,000 per month in additional operating revenue. In
December, 1997, the Subsidiary earned approximately five hundred thirty-five
thousand ($535,000) on the bank contract which represents seventy-two percent
(72%) of total revenue for the month.
<PAGE>
Columbia Capital Corp.
2701 West Oakland Boulevard
Ft. Lauderdale, Florida 33311
I hereby consent to the inclusion by reference of my audit report on the
financial statements of Columbia Capital Corp. as of and for the year ended
December 31, 1996 as included in Amendment #1 to Form 10KSB.
DAVID T. THOMSON, P.C.
Salt Lake City, Utah
March 30, 1998
<PAGE>
Columbia Capital Corp.
2701 West Oakland Boulevard
Ft. Lauderdale, Florida 33311
We hereby consent to inclusion of our audit report on the financial statements
of Columbia Capital Corp. as of and for the year ended December 31, 1997, in
Amendment #1 to Form 10KSB.
Further, we hereby consent to inclusion of our audit report on the financial
statements of First Independent Computers, Inc. as of and for the four months
ended April 30, 1997 and the year ended December 31, 1997, in Amendment #1 to
Form 10KSB.
DAVIS, KINARD & CO., P.C.
Abilene, Texas
April 7, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18
<SECURITIES> 304
<RECEIVABLES> 542
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 1,315
<PP&E> 563
<DEPRECIATION> 48
<TOTAL-ASSETS> 2,824
<CURRENT-LIABILITIES> 1,612
<BONDS> 0
<COMMON> 12
0
0
<OTHER-SE> 1,200
<TOTAL-LIABILITY-AND-EQUITY> 2,824
<SALES> 3,160
<TOTAL-REVENUES> 3,178
<CGS> 0
<TOTAL-COSTS> 3,713
<OTHER-EXPENSES> 188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (535)
<INCOME-TAX> (111)
<INCOME-CONTINUING> (424)
<DISCONTINUED> (1)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (424)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
