U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A-3
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
CLEARWORKS.NET, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 76-057542
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2450 FONDREN, SUITE 200
HOUSTON, TEXAS 77063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (713) 334-2595
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT: NOT APPLICABLE
SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
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PART I
ClearWorks.net, Inc. (the " Company") is including the following
cautionary statement to make applicable, to the extent possible, the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), which do not apply to statements made in connection with an initial
public offering (and do not apply to statements made in this Form 10-SB to the
extent that this Form 10-SB constitutes an initial public offering of the
Company's common stock), for any forward-looking statements made by, or on
behalf of, the ClearWorks.net, Inc. (the "Company"). The provisions of the
Reform Act also do not apply to an entity that issues penny stock. The following
cautionary statement also is made for the purpose of taking advantage of any
defenses that may exist under other laws, including common law. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
expectations, future events or performance and underlying assumptions and other
statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will occur or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to maintain its rights in its intellectual property; the ability
of the Company to obtain acceptable forms and amounts of financing to fund
planned acquisitions and operations, technology development, marketing and other
expansion efforts; and the global market for technology. The Company has no
obligation to update or revise these forward-looking statements to reflect the
occurrence of future events or circumstances.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is a provider of voice, data and video services for both
commercial and residential customers. The Company operates and provides its
services in Houston, Texas and has a small office in Las Vegas, Nevada. The
Company's vision is to become an industry leader in integrated voice, data and
video solutions. The Company is pursuing this vision by integrating technology
and technology based companies into its organization focused on the delivery of
a suite of digital services to its clients. The Company is taking advantage of
the convergence of telephone, cable TV, satellite TV, telecommunications and
internet technology to accomplish its objectives. Additionally, the Company
intends to take advantage of the deregulation of the telecommunications industry
based on the passage by the US Congress of the Telecommunications Act in 1996.
The Company initially began developing its voice, data and video
integration capabilities to address business needs. During its early operations,
the Company recognized an opportunity to utilize its expertise to develop and
deliver "Bundled Digital Services sm" to residential customers directly. The
Company has developed a proprietary solution to deliver a digital services
package directly to consumers. Through research and development (R&D), the
Company possesses technology that can utilize a high speed internet connection
for the delivery of all services. The Company currently provides a wide array of
digital solutions to its commercial customers and it anticipates deploying its
technology to residential customers by the end of the third quarter of 1999.
RESEARCH & DEVELOPMENT. The Company has committed, and expects to continue
to commit in the future, substantial resources for the development of its
Bundled Digital Services [SM]. Research and development efforts are directed at
improving the performance and expanding on the capability of Bundled Digital
Services [SM]. The Company spent approximately $217,000 on R&D during the fiscal
year 1998 and no expenditures during the fiscal year 1997. The Company
anticipates spending approximately $175,000 on R&D for fiscal year 1999.
PRINCIPAL OPERATING COMPANIES. The Company presently has three wholly
owned subsidiaries which constitute its principal operating companies:
ClearWorks Structured Wiring Services, Inc., a Texas corporation (formerly known
as Millennium Integration Technologies, Inc.); ClearWorks Communications, Inc.,
a Texas corporation; and ClearWorks Integration Services, Inc. (formerly known
as Archer Mickelson Technologies, L.L.C., a Texas limited
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liability company). ClearWorks Communications, Inc. has a wholly owned
subsidiary named Northpointe Telecom Services, L.L.C. The Company anticipates
the advantages of operating these companies together based on delivering like
services to both sets of customers, much like the regional Bell operating
companies (RBOCs) do today. Additionally, the Company can utilize its
proprietary technology to deliver voice, data and video solutions to both sets
of customers via the Internet.
ClearWorks Structured Wiring Services, Inc. focuses primarily on
developing commercial accounts for deployment of structured wiring solutions.
These customers consist of companies that seek outside expertise to deploy fiber
optics and copper-based structured wiring solutions. ClearWorks Structured
Wiring Services, Inc. generates revenue through time and materials billings,
consulting contracts, service and support contracts as well as hardware and
software sales. The Company does not intend for ClearWorks Structured Wiring
Services to focus on product sales, but rather on acting as a provider of
structured wiring solutions.
ClearWorks Communications, Inc. focuses primarily on the delivery of
integrated voice, data and video services to the residential marketplace. The
Company has proprietary technology to enable it to proceed into the voice, data
and video market for bundled consumption. The Company foresees deploying
dialtone, multi-channel digital video services, dedicated internet connectivity,
on-demand video rental, voicemail, and a community intranet as a Bundled Digital
Service [SM] over one wire into the home. The market for these customers is just
beginning to develop and is benefited by a strategic business alliance with
other companies in the technology market. ClearWorks Communications is providing
solutions to consumers by implementing technology both within the community and
within the home. Within the residential community, ClearWorks Communications is
installing fiber optic backbones to deliver voice, data and video solutions
directly to consumers.
ClearWorks Integration Services, Inc. provides information technology
staffings, network engineering, vendor evaluation of network hardware,
implementation of network hardware, and support of private and enterprise
networks. Additional services include desktop rollouts, multi-platform supports
and Local Area Networks ("LAN"), and Wide Area Networks ("WAN") analysis and
server deployment.
The Company has developed a Remote Response Center ("RRC"). The RRC
consists of three primary components: the Network Support Center; the Remote
Network Management Center; and the Internet Support Center. The Network Support
Center is fully operational and provides existing clients with advanced
technical support and comprehensive network operational support. The Remote
Network Management Center enables the Company's Systems Engineers to monitor and
administer clients' LAN and WAN systems remotely from the Company's headquarters
by means of an established communication link. The Internet Support Center
offers a broad range of services including Internet access, security and
publishing services. The Company intends to leverage the services provided by
its RRC to enhance the Company's long-term client relationships and to expand
the scope of services offered to existing and potential clients.
The Company offers software and hardware products to enhance its ability
to provide complex technology solutions for enterprise wide networks. The
Company is an authorized nonexclusive reseller of networking products, which
enables it to deliver integration services. Generally, these products are
technically sophisticated and require a high level of integration services for
successful deployment. The Company has nonexclusive reseller relationships with
many industry-leading vendors of information technology products, including
Compaq, Computer Associates, Network Associates, IBM, Hewlett Packard, Alctel
Cabling Systems and 3Comm. The Company is a value added reseller ("VAR"). That
is, it purchases hardware and software directly from the manufacturer and
resells these products at a higher price (retail) directly to the Company's
customers. The Company's relationships with these leading aggregators of
computer hardware and software enable the Company to provide its clients with
competitive product pricing, ready product availability and services such as
electronic product ordering, product configuration and testing, and product
warehousing and delivery. The Company also purchases technology from Cisco
Systems, Netscape and General Instruments. Moreover, these relationships enable
the Company not to carry inventory normally associated with the delivery of
products.
The Company is also a nonexclusive VAR of fiber and copper for companies
such as Seicor Corporation, Lucent Technologies, Panduit, Leviton Telecom, AMP
Incorporated, Ortronics, Siemen Corporation and Belldon Wire
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& Cable. There are no binding long-term commitments with respect to any of the
business relationships referred to in this or the preceding paragraph of this
section. Each of these relationships can be terminated by either party at any
time.
REVENUES. The Company derives 51% of its revenues from network cabling and
wiring; 45% of its revenues from integration services; and 4% of its revenues
from software administration.
MARKETS, MARKETING AND ADVERTISING. The Company's core market for its
services is Houston, Texas, although its potential markets include most suburban
and urban areas in the United States and perhaps in other countries. Most of the
Company's marketing comes from direct sales by employees. The remainder of the
Company's marketing comes from referrals from suppliers together with a limited
amount of advertising in trade magazines and newsletters.
PRINCIPAL SUPPLIERS. ClearWorks Structured Wiring Services, Inc. purchases
all of its fiber, IBM Home Director boxes, switches, connectors, interducts, and
routers from several vendors, principally from G.E. Supply, Anixter, Accu-Tech
Supply, LiteComm Supply Company, TVC Communications, and Rexel/Summers.
ClearWorks Integration Services, Inc. purchases most of its software
products from Tech Data or directly from the respective manufacturers of these
products.
ClearWorks Communications, Inc. purchases most of its supplies and
equipment from TVN Entertainment Corp., B&H Commercial Services, TVC
Incorporated and Siecor Corporation. ClearWorks Communications also purchases
supplies and software from General Instruments, Cisco Systems, and Netscape,
either directly from the respective manufacturers of these products or through
distributors.
Neither the Company nor any of its subsidiaries has experienced shortages
or other difficulties in obtaining components, supplies or other materials. The
Company currently anticipates that components, supplies and other necessary
materials will remain readily available.
WEBSITE. The Company maintains an Internet website at
http://www.clearworks.net where information can be found on the Company's
services. The website provides customers with a mechanism to request additional
information on services and allows customers to obtain contact information for
particular services and support. The Company, however, does not earn any
revenues from the operation of its website, which is informational only.
Moreover, the Company's website is not a part of this Form 10-SB.
BACKGROUND
On September 18, 1997 Millennium Integration Technologies, L.L.C. (the
"LLC") was organized as a Texas limited liability company. At the time, the LLC
concentrated mainly on software administration and networking integration.
Shannon D. McLeroy was the founder of the LLC.
Early in 1998, Michael T. McClere joined the management of the LLC, and on
April 9, 1998 the LLC reorganized itself into Millennium Integration
Technologies, Inc., a Texas corporation ("Millennium Texas").
On April 27, 1998, Southeast Tire Recycling, Inc., a publicly traded
Florida corporation with no ongoing operations that previously had been engaged
in the tire recycling business, purchased the stock of Millennium Texas. As a
result, Millennium Texas became a wholly owned subsidiary of Southeast Tire
Recycling, Inc. The exchange of shares between Millennium Texas and Southeast
was accounted for as a recapitalization of the Millennium Texas operations into
the corporate shell of Southeast. At the time of this transaction, Southeast was
an empty corporate shell.
On May 12, 1998, Southeast Tire Recycling, Inc. merged with and into
ClearWorks Technologies, Inc. ("ClearWorks" or the "Company"), a Delaware
corporation with no stockholders, and the stockholders of Southeast Tire
Recycling, Inc. became stockholders of ClearWorks. The exchange of shares
between Southeast and ClearWorks was accounted for as a second recapitalization
of the Millennium Texas operations into the corporate shell of ClearWorks.
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The Company then proceeded to expand its high tech business by acquiring
InfraResources, L.L.C. ("InfraResources") through its wholly owned subsidiary,
Millennium Texas, on May 26, 1998. The Company paid $40,000 cash and 80,000
shares of its restricted common stock in exchange for all the outstanding
interests of InfraResources. The value recorded on the Company's books for the
restricted common stock issued by the Company was determined by the Company's
management to be $2.06 per share. The funding for this acquisition was derived
from the Company's revenues. InfraResources is a provider of high-end consulting
services with respect to integrated solutions for client/server based computing.
On May 29, 1998, the Company acquired all the outstanding shares of Team
Renaissance, Inc. ("TeamLink") in exchange for 156,250 shares of its restricted
common stock. TeamLink is a provider of network computing solutions that
specializes in delivering systems integration services, design services, and
structured wiring solutions. The value recorded on the Company's books for the
restricted common stock issued by the Company was determined by the Company's
management to be $2.06 per share.
On November 19, 1998, ClearWorks purchased all the assets of Vidatel
Communications ("Vidatel"), a sole proprietorship owned by Juan "John" Diaz,
which is engaged in the business of laying fiber optic and copper based cable.
The Company issued Mr. Diaz 98,039 shares of its restricted common stock as
consideration for the Vidatel assets. The value recorded on the Company's books
for the restricted common stock issued by the Company was determined by the
Company's management to be $1.53 per share. The Company incurred no liabilities
in this transaction other than assuming a note payable to Planet Ford bearing
interest at 13.46%, due $513.33 monthly until September 2002, in the principal
amount of $18,078.
On May 14, 1999, ClearWorks acquired all the membership interests of
Archer-Mickelson Technologies, L.L.C. ("Archer"), and Archer became a wholly
owned subsidiary of the Company. Archer provides a number of integration
services as described above in the description of the business of ClearWorks
Integration Services, Inc. As consideration for the purchase of Archer, the
Company paid $50,000 and 75,000 restricted shares of its common stock. In
addition, the Company agreed to pay certain note obligations of Archer in the
amount of $5,547. The value recorded on the Company's books for the restricted
common stock issued by the Company was determined by the Company's management to
be $1.00 per share. The funding for this acquisition was derived from the
Company's revenues. On June 3, 1999, Archer reorganized itself into ClearWorks
Integration Services, Inc., a Texas corporation.
On or about April 27, 1999, the Company began using the name
ClearWorks.net, Inc. By that time, ClearWorks had three wholly owned
subsidiaries:
(1) ClearWorks Integration Services, Inc. (formerly Archer-Mickelson
Technologies),
(2) ClearWorks Structured Wiring, Inc. (formerly Millennium Integration
Technologies, Inc.), and
(3) ClearWorks Communications, Inc. (which has a wholly owned subsidiary
called Northpointe Telecom Services, L.L.C).
The primary reason for the use of the new name, which refers to the
Internet, is that the Company utilizes Internet Protocol technology in providing
Bundled Digital Services [SM] to its customers. The Company's activities also
relate to the Internet because the Company's use of high-speed fiber optics
cable is anticipated to aid in reducing Internet bottlenecks.
BUSINESS DEVELOPMENTS
The Company has formed a strategic business alliance with Land Tejas
Development, L.L.C., a major real estate developer in Houston, Texas. The
Company is currently beginning the installation of a state-of-the-art
multi-channel video, telephone and internet communications network, referred to
by the Company as Bundled Digital Services [SM], in each of the Land Tejas
development projects in Houston, Texas. The first development project to receive
this network will be the development project Canyon Gate. The project is
underway and fiber optics cable will be installed in each of the Canyon Gate
communities beginning with the Canyon Gate at Northpointe subdivision in
Houston, Texas. On March 26, 1999, the Company entered into a service agreement
with Land Tejas Development at Northpointe, L.L.C. and the Canyon Gate at
Northpointe Home Owner's Association to begin installing the Bundled Digital
Services [SM] in the Northpointe subdivision. Moreover, ClearWorks
Communications, Inc. has formed a wholly owned subsidiary company, Northpointe
Telecom Services, L.L.C. on March 26, 1999, and it is anticipated that this
company will service the
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Northpointe area. It is further anticipated that the Bundled Digital Services
[SM] will provide many benefits to the homeowners in these communities, and the
Company believes its efforts will receive national attention based on the types
of services delivered and the innovation associated with its delivery. The
Bundled Digital Services [SM] installation at Canyon Gate communities is
anticipated to be completed over a span of three years ranging through mid-year
2002.
The Company believes that there is substantial demand from customers for
bundled telecommunications services provided on a single monthly bill and with a
single point of contact for all sales and services. Through its Bundled Digital
Services [SM] business, the Company will provide a broad array of
telecommunications services, including basic local exchange services (i.e. local
telephone services or dialtone), enhanced switch services (i.e. telephone
options such as call waiting, caller identification, voicemail, etc.), internet
services, and video channel transmission services, aimed at addressing
customers' needs. The customers of Bundled Digital Services [SM] receive video,
audio and data signals transmitted by nearby television and radio broadcast
stations, terrestrial microwave relay services and communications satellites.
Such signals are then amplified and distributed by optical fiber to the premises
of customers who pay a fee for the service. In many cases, video signals also
originate and distribute local programming. The Company's multi-channel video
systems generally will carry up to 1,000 digital channels. Compressed digital
video technology converts on average as many as 14 analog signals (which will
also be used to transmit video and voice) into a digital format and compresses
such signals (which is accomplished primarily by eliminating the redundancies in
television imagery) into the space normally occupied by one analog signal. The
digitally compressed signal is uplinked to a satellite, which retransmits the
signal to a satellite dish or to a head-end facility at the sub-division to be
distributed, via optical fiber to the customer's home. At the home, a set-top
video terminal converts the digital signal into analog channels that can be
viewed on a normal television set.
HIGH-SPEED INTERNET ACCESS
The use of computers, online services and the Internet has increased
significantly over the last few years. The Company believes in the revenue
opportunities of Internet related services and is taking advantage of these
opportunities by developing and providing high-speed Internet access via its
advanced network and point to point optical fiber. By using Bundled Digital
Services [SM] network technology that delivers multi-channel video and telephone
services, users can access the Internet at speeds up to hundreds of times faster
than existing telephone modems. In particular, the Company intends to offer
residential subscribers Internet services that deliver data to homes through a
fiber optic backbone infrastructure at speeds up to hundreds of times faster
than traditional telephone dial-up alternatives.
SERVICE AND PROGRAMMING CHARGES
Subscribers to the Company's Bundled Digital Services [SM] generally will
be charged monthly fees based on the level of service selected, Basic Bundled
Services, Enhanced Bundled Services or Maximum Bundled Services. The monthly
prices for various levels of services (excluding services offered on a
per-channel or per-program basis) will range generally from $78 to $138 for
residential customers. Other services offered include equipment rentals, usually
for an additional monthly fee. Systems offering pay-per-view movies generally
charge between $4 and $6 per movie, and systems offering pay-per-view events
generally charge between $6 and $50, depending on the event. A one-time
installation fee is generally charged for connecting subscribers to the Bundled
Digital Services [SM], however, the installation fee has been waived for the
residents at Canyon Gate at Northpointe.
SALES FORCE
The Company's sales professionals are trained to provide customers with
sales and customer service relating to all of the Company's services. Once a
customer contracts with the Company for services, the Company assigns a single
account relations representative who has the responsibility of proactively
contacting the customer to confirm satisfaction with existing products and to
promote new services and programs. The Company's sales force includes
specialized professionals who focus on sales to commercial and residential
consumers. The Company's sales staff works to gain a better understanding of the
customer's operations in order to develop innovative, application-specific
solutions to each customer's needs. Sales personnel locate potential business
customers by several methods, including customer referral, market research, cold
calling and other networking alliances.
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SIGNIFICANT CUSTOMERS
The Company's customers include oil and gas companies, real estate
developers, home builders, multiple unit developers, and individuals. Enron
Corp. and Exxon Chemical Americas individually represented greater than ten
percent of revenues for fiscal year 1998. Specifically, for fiscal 1998, Enron
Corp. represented 20.36% of revenues and Exxon Chemical Americas represented
10.35% of revenues. It is anticipated that neither of these companies will
represent 10% or more of the Company's revenues for 1999.
COMPETITION
The Bundled Digital Services [SM] business faces strong competition with
cable, telephone and internet companies. The market for customers and related
products and services is intensely competitive and such competition is expected
to continue to increase. There are no substantial barriers to entry in the cable
television, telecommunications and internet market (see Regulations and
Legislation below) and the Company believes that its ability to compete depends
upon many factors within and beyond its control, including the timing and market
acceptance of new solutions and enhancements to existing solutions developed by
the Company and its competitors, customer service and support, sales and
marketing efforts, and the ease of use, performance, price and reliability of
the Company's solutions.
The Company also competes with many internet, telecommunications and cable
television companies that have longer operating histories, longer customer
relationships, and substantially greater financial, management, technical
development, sales, marketing, and other resources. Many nationally known
companies and regional local companies across the country are involved in
Internet and Intranet applications, the development and support of web sites and
Internet applications, cable television, and local telephone; and the number of
these companies is increasing. The companies that offer competitive products or
services, include, among others, the following: web site service boutique firms;
communications, telephone and telecommunication companies; computer hardware and
software companies; specialized integrated communications firms; internal
information technologies departments of prospective and current customers; and
cable television companies. The Company represents less than 1% of the cable,
telecommunications, and internet market.
The Company believes that its principal methods of competition in
attracting customers include referrals, sales and marketing efforts,
establishing strategic relationships within the residential and commercial real
estate markets, customer service, and the overall cost-effectiveness of the
services the Company offers. The Company believes that the number of customers
requiring that their telephone, video and internet be provided by a single
company will increase substantially in the future. In turn, the Company will
likely face increased competition, resulting in increased pricing pressures on
the Company's rates which could in turn have a material, adverse effect on the
Company's business, results of operations and financial condition.
RAPIDLY CHANGING INDUSTRY
Changes in the communication services industry are driven by providers of
telecommunication services that are entering, or trying to enter, new markets,
both domestically and internationally. Telecommunication service providers
previously offering services primarily in one segment of the communication
services market, are now offering, either directly or through alliances with
others, new services to complement their primary service offerings. The offering
of these new complementary services, facilitated by evolving technology and by
the regulatory developments is meant to meet the needs of customers who desire
to have most or all of their communication requirements fulfilled by one
supplier. The ability of companies, such as the Company, to be that single
supplier may result in the convergence of the international and local
telecommunication service markets into one global market. The Company expects
that competition from others that enter the telecommunication services market,
some of which have significant financial and other resources, will be intense.
Due to a number of factors, including the rapidly changing nature of these
markets and the advances being made in communications technology, the Company
cannot predict the level of its future success, but the Company believes that it
can and will compete effectively in providing its services. The Company
anticipates that continued substantial capital expenditures will be required to
compete effectively in the local telecommunication service markets.
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ANTICIPATED ACQUISITIONS
Given the size and highly fragmented composition of the industry, the
Company has identified the potential to carry out a market roll-up within the
systems integration marketplace. Initially, the Company intends to expand its
business through selective, strategic acquisitions of other companies with
complementary businesses in a revenue range of $1 million to $15 million.
Management believes that companies in this range of revenues may be receptive to
the Company's acquisition program since often they are too small to be
identified as acquisition targets of larger public companies or to independently
attempt their own public offering. In particular, the Company intends to focus
its acquisition strategy on candidates which have a proven record of delivering
high-quality technical services and a customer base of large and mid-sized
companies that could benefit from the Company's access to anticipated sources of
financing and long-term growth strategy.
Generally, acquisition candidates are introduced to the Company's
management through mutual colleagues; referrals from suppliers and vendors; or
companies that are seeking to be acquired present themselves to members of
management. Within the next twelve months, management will continue analyzing
geographic areas in which it would like to expand the business. The Company
anticipates using Company Common Stock as its primary source of funding future
acquisitions. The Company typically enters into stock-for-stock transactions or
asset purchase agreements.
The Company continues to seek out acquisition candidates that are
identified in the manner described above. It is currently exploring acquisition
possibilities on a preliminary basis with a number of possible candidates. The
Company also is considering whether to pursue preliminary acquisition
discussions with one company for which a previously signed acquisition letter of
intent expired in June 1999.
REGULATION AND LEGISLATION
The Company's services relating to the telecommunication industry and
cable industry are regulated in the United States, some states and local
governments. Regulatory approvals generally must be obtained by the Company in
connection with providing telephone services and cable television. For example,
in order to provide telephone services in the State of Texas, the Company
applied for a service provider certificate of operating authority from the
Public Utility Commission of Texas.
The cable television industry is regulated by the FCC, some states and
substantially all local governments. In addition, various legislative and
regulatory proposals under consideration from time to time by the Congress and
various federal agencies may in the future materially affect the cable
television industry. The following discussion summarizes certain federal, state
and local laws and regulations affecting cable television.
FEDERAL LAWS. The Cable Communications Policy Act of 1984 ("1984 Cable
Act"), the 1992 Cable Act and the 1996 Telecommunications Act are the principal
federal statutes governing the cable industry. These statutes regulate the cable
industry, among other things, with respect to: (i) cable system rates for both
basic and certain non basic services; (ii) programming access and exclusivity
arrangements; (iii) access to cable channels for public, educational and
governmental programming; (iv) leased access terms and conditions; (v)
horizontal and vertical ownership of cable systems; (vi) consumer protection and
customer service requirements; (vii) franchise renewals; (viii) television
broadcast signal carriage requirements and retransmission consent; (ix)technical
standards; and (x) privacy of customer information.
FEDERAL REGULATIONS. The FCC, the principal federal regulatory agency with
jurisdiction over cable television, has promulgated regulations implementing the
federal statutes.
RATE REGULATION. Under federal laws, nearly all cable television systems
are subject to local rate regulation of basic service pursuant to a formula
established by the FCC and enforced by local franchising authorities.
Additionally, the legislation required the FCC to review rates for non basic
service tiers, known as "cable programming service tiers" ("CPST"), other than
per-channel or per-program services, in response to complaints filed by
franchising authorities; prohibited cable television systems from requiring
subscribers to purchase service tiers above basic service in order to purchase
premium service if the system is technically capable of doing so; required the
FCC to adopt regulations to establish, on the basis of actual costs, the price
for installation of cable service and rental of cable equipment; and allowed the
FCC to impose restrictions on the retiering and rearrangement of basic and CPST
services under certain limited circumstances. Under the 1996 Telecommunications
Act, regulation of CPST rates is scheduled to terminate on
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March 31, 1999. Regulation of both basic and CPST rates also ceases for any
cable system subject to "effective competition." The 1996 Telecommunications Act
expanded the definition of "effective competition" to cover situations where a
local telephone company or its affiliate, or any multi channel video provider
using telephone company facilities, offers comparable video service by any means
except DTH. Cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The regulations also provide that future rate increases may not
exceed an inflation-indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and programming costs.
Cost-based adjustments to these capped rates can also be made in the event a
cable operator adds or deletes channels or significantly upgrades its system. In
addition, new product tiers consisting of services new to the cable system can
be created free of rate regulation as long as certain conditions are met, e.g.,
services may not be moved from existing tiers to the new product tier. The rules
also require that charges for cable-related equipment (e.g., converter boxes and
remote control devices) and installation be unbundled from the provision of
cable service and based upon actual costs plus a reasonable profit. Local
franchising authorities and/or the FCC are empowered to order a reduction of
existing rates which exceed the maximum permitted level for either basic and/or
CPST services and associated equipment, and refunds can be required.
PUBLIC UTILITY COMMISSION OF TEXAS. On August 26, 1999, the Company's
application to the Public Utility Commission of Texas was approved for a service
provider certificate of operating authority, also referred to as a CLEC or
Competitive Local Exchange.
The Telecommunications Act of 1996 mandated that the monopoly in local
exchange service be opened to competition. Incumbent providers must allow other
companies to interconnect with existing phone networks and buy facilities from
the owners of these networks. These steps are critical for competitors to
solicit customers with the assurance that they will receive quality service.
Becoming a CLEC gives the Company an instantaneous access to Southwestern Bell's
dial tone, thus saving the Company potentially tens or hundreds of millions of
dollars on infrastructure investments.
There can be no assurance that appropriate regulatory approvals will
continue to be obtained, or that approvals required with respect to the
telephone and cable services being developed for the Bundled Digital Service
[SM] market will be obtained. The enactment by Federal, state and local
governments of new laws or regulations or a change in the interpretation of
existing regulations could affect the market for the Company's services in a
material negative manner if these laws or regulations required significant
capital outlays or restrictions on the Company's business, or if the Company
were otherwise not in compliance with any newly enacted regulations.
EMPLOYEES
The Company had a total of 57 employees at August 31, 1999 in addition to
independent contractors. The Company currently outsources its human resources
functions for employment administration and benefits management services. None
of the Company's employees is represented by a labor union with respect to his
or her employment by the Company. The Company has experienced no organized work
stoppages and believes its relationship with its employees is good. The Company
believes that its future success will also depend to a significant extent upon
its ability to attract, train and retain highly skilled technical, management,
sales, marketing and consulting personnel. Competition for such personnel in the
industry in the United States is intense. There can be no assurance that the
Company will be successful in attracting or retaining such personnel, and the
failure to attract or retain such personnel could have a material adverse effect
on Company's business or results of operations.
OUTSTANDING LOAN
On August 4, 1999 the Company borrowed $801,512 from KMA Investments at an
interest rate of 12% per annum due on or before July 9, 2000, which loan is
evidenced by a promissory note. If the note and all accrued interest is not paid
when due, the delinquent amount automatically converts into shares of the
Company's common stock at the rate of one share for each $1.375 of principal
and/or interest. The Company may prepay principal and interest only after giving
the holder 30 days prior notice to effect conversion. The Company intends to
rely upon future debt and equity offerings to finance its operations.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
RESULTS OF OPERATIONS
The following table sets forth certain operating information regarding the
Company:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
Revenues .............................. $ 1,090,000 $ 114,000
Cost of Goods Sold .................... $ 1,054,000 $ 88,000
Net Earnings (Loss) ................... $ (252,000) $ 8,000
Net Earnings (Loss) Per Share ......... $ (.03) $ .01
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------- ----------------
Revenues ............................... $ 1,025,000 $ 315,000
Cost of Goods Sold ..................... $ 639,000 $ 255,000
Net Income (Loss) ...................... $ (300,000) $ (6,000)
Net Income (Loss) Per Share ............ $ (.02) NIL
The following summary table presents comparative cash flows of the Company for
the years ended December 31, 1998 and 1997:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
Net cash used in operating activities .. $ (90,000) $ (40,000)
Net cash used in investing activities .. $ (236,000) $ (2,000)
Net cash provided by financing
activities ............................. $ 484,000 $ 47,000
Cash used in operating activities for fiscal 1998 was $90,000 as compared
to $40,000 for fiscal 1997. The primary component of the increase in cash used
in operating activities was a net loss of $252,000 recorded for fiscal 1998.
This was partially offset by increases in accrued expenses and payroll and sales
taxes payable. Cash used by investing activities was $236,000 in fiscal 1998 as
compared to $2,000 for fiscal 1997. Capital expenditures during 1998 were the
primary use of cash for investing activities. The increase in cash provided by
financing activities in fiscal 1998 was primarily provided by sales of Company
common stock.
At December 31, 1998, the Company had cash balances totaling $162,000 and
net working capital of $91,000.
Fiscal 1998 Compared to Fiscal 1997.
The increase in the assets of the Company from $72,000 at December 31,
1997 to $1,190,000 (an increase of 1,553%) at December 31, 1998, resulted
primarily from (1) the acquisitions of Team Renaissance, Inc. and
InfraResources, L.L.C., and (2) the acquisition of the assets of Vidatel
Communications in November 1998.
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The increase in the liabilities of the Company from $62,000 at December
31, 1997 to $292,000 (an increase of 371%) resulted primarily from the increase
in its business operations, number of employees, and the purchase of equipment,
furniture and fixtures.
During fiscal 1998, shareholders' equity increased to $885,000 from $9,000
(an increase of 9,733%). This increase was primarily attributable to the
acquisition/merger with other companies and financing activities.
The total revenues of the Company increased from $114,000 during fiscal
1997 to $1,090,000 during fiscal 1998 (an increase of 856%), following the
change of its line of business to that of a high-tech provider of voice, data
and video services. As a result of the increased level of business and the
increased cost of goods sold and services related to such operations, the
Company's cost of goods sold increased from $88,000 during fiscal 1997 to
$1,054,000 (an increase of 1,098%) during fiscal 1998; and gross profit
increased to $36,000 during fiscal 1998 from $26,000 during fiscal 1997. The
primary components which increased cost of goods sold from fiscal 1997 to fiscal
1998 were an increase in the number of employees performing services for
customers, an increase in the amount of materials and supplies provided to
customers and an increase in other manufacturing costs. A majority of these
increases were a result of the acquisitions performed by the Company during the
year ended December 31, 1998.
Operating expenses increased from $16,000 in fiscal 1997 to $278,000 in
fiscal 1998 (an increase of 1,638%), arising primarily from its increased level
of operations and amortization of goodwill associated with its 1998
acquisitions. The Company increased its expenditures on advertising in order to
expand its market and increased its employees and consultants in order to
implement its business plan. Other support costs was $174,000 (an increase of
988%) over 1997 costs of $16,000. The primary components of this classification
are office rent, supplies, insurance, telephone, travel and entertainment and
investor relations.
During fiscal 1998, the Company realized a net loss of $252,000 compared
to net earnings of $8,000 during fiscal 1997. The primary contributing factors
to the net loss for fiscal 1998 were higher than anticipated cost of goods sold
coupled with an increase in operating expenses required to implement the
Company's business plan.
Six Months Ended June 30, 1999, Compared To Six Months Ended June 30, 1998.
The revenues of the Company increased from $315,000 in the first six
months of 1998 to $1,025,000 (an increase of 225%) in the first six months of
1999. The increase in revenue was directly attributable to the acquisitions made
by the Company during 1998 and the acquisition of Archer Mickelson Technologies,
L.L.C. in May 1999. Prior to its acquisitions, the Company derived its revenue
primarily from computer integration activities. With the addition of
InfraResources. Team Renaissance and Archer Mickelson, the Company greatly
enhanced its opportunities to increase its revenues in the area of systems
integration. The addition of Vitadel in November 1998 added the component of
structured wiring to its revenue source. In addition to the Company increasing
its revenues via acquisitions, the Company's business activities have increased,
also contributing to the increase in revenues over the 1998 period. Cost of
goods sold increased from $255,000 in the first six months of 1998 to $639,000
(an increase of 151%) in the first six months of 1999. Materials and supplies
increased by $235,000 as a result of the Company's becoming a value added
reseller of products. The Company purchases hardware and software directly from
the manufacturer and resells these products at a higher price (retail) directly
to the Company's customers. Direct labor and related costs increased by $78,000
as a result of increased staffing. Other manufacturing costs, which are composed
primarily of transportation related costs, increased by $50,000 due to the
increase in business activity. Gross profit increased from $60,000 in the first
six months of 1998 to $386,000 (an increase of 543%) in the first six months of
1999. This is a direct result of the increased business activity afforded the
Company in the 1999 period.
Selling, general and administrative expenses increased from $66,000 in the
first six months of 1998 to $686,000 (an increase of 939%) in the first six
months of 1999. The Company has added both sales and administrative personnel to
implement its business plan of increasing sales to all of its markets and
business segments, providing customer support and corporate administration.
Other support costs have increased from $38,000 in the first six months of 1998
to $296,000 (an increase of 679%) in the first six months of 1999. The primary
components of this classification are office rent, supplies, insurance,
telephone, travel and entertainment and investor relations. As the business
activity of the Company has increased dramatically over the same period last
year, administrative support costs have also increased.
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As part of the Company's compensation plan, the Company awarded shares of its
common stock to certain employees during the first six months of 1999. The value
associated with the issuance of the stock was $134,000 and has been reflected in
the statements of operations as incentive compensation. When the Company records
goodwill from its acquisitions, it amortizes the goodwill over a five-year
period. The Company amortized $65,000 of goodwill during the first six months of
1999 compared to $16,000 during the same period in 1998.
The Company recorded a net loss of $300,000 ($.02 per share) for the first
six months of 1999 compared to a net loss of $6,000 for the same period in 1998.
The increase in selling, general and administrative expenses discussed above,
which are required to build the infrastructure needed to fully implement the
Company's business plan, is the primary component of the net loss.
The following summary table presents comparative cash flows of the Company for
the six months ended June 30, 1999 and 1998.
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------- ----------------
Net cash provided by (used) in operating.. $ (534,000) $ 16,000
Activities
Net cash used in investing activities..... $ (1,374,000) $ (111,000)
Net cash provided by financing activities. $ 1,847,000 $ 164,000
Cash used in operating activities for the six months ended June 30, 1999
was $534,000, an increase of $550,00 over the same period in 1998. The primary
components of the increase were a net loss of $300,000, an increase in notes
receivable of $200,000, and a decrease in accrued expenses of $154,000. Cash
used by investing activities was $1,374,000, an increase of $1,263,000 over the
same period in 1998. The primary component of the increase was the construction
of the head-in facility at the Northpointe sub-division. Cash provided by
financing activities for the six month period ended June 30, 1999, was
$1,847,000 which was primarily provided by the sale of Company common stock.
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CAPITAL EXPENDITURES
The Company has incurred capital expenditures for construction of
operating facilities, equipment and office furniture used in its operations and
leasehold improvements for its executive offices. Capital expenditures during
the year ended December 31, 1998, totaled $210,000 and for the six months ended
June 30, 1999, totaled $1,215,000.
The Company is projecting a need of approximately $3,000,000 over the next
twelve months to construct communications facilities to deliver Bundled Digital
Services [SM] to its current list of customers. The company is currently in
negotiation or other discussion with certain financial institutions to provide
the capital necessary to construct the communications facilities.
CAPITAL RESOURCES
The Company's capital resources have been provided primarily by capital
contributions from its stockholders and through an offering of its Common Stock
under Rule 504 of Regulation D under the Securities Act of 1933 which realized
$1,000,000 and also a private placement of its restricted common stock to a
total of two entities which also realized $1,000,000. Additionally, the Company
entered into a promissory note on August 4, 1999 due July 9, 2000, in the
principal amount of $801,512 at an annual interest rate of twelve percent (12%).
If the note and all accrued interest is not paid when due, the delinquent amount
automatically converts into shares of the Company's common stock at the rate of
one share for each $1.375 of principal and/or interest. The Company may prepay
principal and interest only after giving the holder 30 days prior notice to
effect conversion. At maturity, the holder of the note has the right to convert
the principal and unpaid interest of the note into restricted Company Common
Stock.
LIQUIDITY
The ability of the Company to satisfy its obligations depends in part upon
its ability to reach a profitable level of operations and securing short and
long-term financing for its development of its commercial and residential
products. The Company is currently in negotiations with other financial
institutions to provide additional funding through a combination of debt and
equity to fund its business plan. There is no assurance that short and long-term
financing can be obtained to fulfill the Company's capital needs. Without the
short or long-term financing, the Company will attempt to sell additional common
stock to meet its current and future capital needs. If the Company is not able
to obtain either short or long-term funding or funding through the sale of its
common stock, the Company would have to change its business plan and fund its
operations with internally generated funds from its integration, structured
wiring and communications business units.
YEAR 2000 READINESS DISCLOSURE
Many computer systems and applications currently use two-digit date fields
to designate a year. Thus, as the turn-of-the-century approaches, date sensitive
systems may recognize the year 2000 as 1900 or not at all. The inability to
recognize or properly treat the year 2000 may cause computer systems to process
critical financial and operational information incorrectly. This situation is
referred to as the Year 2000 Issue.
The Company has assessed and continues to assess the impact of the Year
2000 Issue on its computer systems, software and other equipment (collectively,
the "Systems") and has initiated a program to eliminate or mitigate potential
effects of the Year 2000 Issue on its operations. The Company is utilizing both
internal and external resources in implementing its Year 2000 program, which
consists of the following phases:
o Assessment Phase. Structured evaluation, including a detailed
inventory outlining the impact that the Year 2000 Issue may have on
current operations.
o Detailed Planning Phase. Establishment of priorities, development of
specific action steps and allocation of resources to address the
issues identified in the Assessment Phase.
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o Conversion Phase. Implementation of the necessary system
modifications as outlined in the Detailed Planning Phase.
o Testing Phase. Verification that the modifications implemented in
the Conversion Phase will be successful in resolving the Year 2000
Issue so that all inventory items will function properly, both
individually and on an integrated basis.
o Implementation Phase. Final roll-out of fully tested components into
an operational unit.
As of October 6, 1999 the Company is in the Testing Phase so that the
Company has completed approximately 90 percent of its Year 2000 remediation
program. The Company anticipates that the Implementation Phase will be completed
before mid-November 1999.
Based on the Company's evaluations to date, the Company believes that its
Systems are Year 2000 compliant. Based on communications with its suppliers,
vendors and customers, the Company believes, but has not received written
confirmation, that its suppliers, vendors and customers are Year 2000 compliant.
However, there is no assurance that the Company's evaluations of Year 2000
compliance matters are correct.
A significant source of continuing revenue for the Company comes from
sales by the Company of cable television signals and access to telephone and
internet services (collectively, the "Communications Products"). The Company
obtains the Communications Products from third-party vendors. In the event that
any Communications Products provider is not Year 2000 compliant, the Company may
be materially adversely impacted because it would not be able to re-sell the
affected Communications Product to customers of the Company. As a contingency in
the event of such failure, the Company will attempt to obtain any affected
Communications Products from other third-parties vendors. However, noncompliance
by a Communications Products provider would also affect the Company's
competitors and the Company would then be in competition for the acquisition of
replacement Communications Products. There is no assurance that the Company
would be able to obtain adequate replacement Communications Products in a timely
manner or at a non-material cost.
The Company also has considered other potential effects on its operations
of non-compliant Systems, suppliers, vendors and customers. Except as described
above regarding Communications Products, the Company believes that the
non-compliance of any one supplier, vendor or customer would not have a material
adverse impact on its operations, although such an impact may occur if several
or all of its suppliers, vendors or customers are non-compliant. As a
contingency, the Company has maintained paper records of information contained
in its Systems regarding its suppliers, vendors and customers, and the Company
intends to update these paper records after the close of business on Friday,
December 31, 1999, which is the last business day prior to the
turn-of-the-century. The Company believes that these records regularly contain
information sufficient to allow the Company to continue its operations in the
ordinary course of business without incurring material costs or delays in excess
of those currently incurred in furtherance of its operations.
As of October 6, 1999, the Company has incurred approximately $7,500 in
costs related to its Year 2000 program. The Company believes that these costs
are not material and, based on the Company's previous actions in connection with
achieving Year 2000 compliance and with continued testing of its Systems, no
material additional costs are expected to be incurred in connection with ongoing
monitoring of the Year 2000 Issue. However, there can be no guarantee that the
estimate of future costs will be achieved and actual results could differ
materially from the estimate due to as yet unforeseen changes in circumstances.
If the Company's analyses and attempts to mitigate potential effects of
the impact of the Year 2000 Issue on its operations are erroneous or if the
Testing Phase and Implementation Phase are not successfully completed in a
timely manner, the Year 2000 Issue could significantly disrupt its ability to
transact business with its customers and suppliers and could have a material
impact on its operations. There can be no assurance that the systems of other
companies with which the Company's Systems interact are compliant, or that any
such non-compliance would not ultimately have an adverse effect on the Company's
business or operations.
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ITEM 3. DESCRIPTION OF PROPERTY.
OFFICES
The Company currently leases its corporate offices located at 2450
Fondren, Suite 200, Houston, Texas 77063. The lease agreement is for a four year
term commencing May 1, 1999 and covers approximately 5,845 square feet. The
initial monthly payments are $7,063, or $14.50 per square foot, which will
increase 3.45% during the second and fourth years of the lease. The lease was
amended beginning on September 1, 1999 to add an additional 3,231 square feet to
the Company's corporate offices. The additional 3,231 square feet is leased on
terms identical to the original lease.
The Company also leases an office warehouse located at 5250 Gulfton, Suite
2E, Houston, Texas 77081. The lease agreement is for a three year term
commencing October 1, 1998 and covers approximately 1,922 square feet. The
monthly payments are fixed at $985 per month.
The Company also leases an office in an executive suite located at 2921
North Tenaya Way, Suite 228, Las Vegas, Nevada 89128. The lease agreement is for
a six month term commencing August 16, 1999 through February 15, 2000.
The monthly payments are fixed at $586.72 per month.
TRADEMARKS AND SERVICEMARKS
The Company has filed an application with the U.S. Patent and Trademark
Office to register the Company's name and logo as a registered servicemark. The
filing date of the Trademark Application is May 14, 1998.
The Company has filed an application with the U.S. Patent and Trademark
Office to register the names and logos for "Bundled Digital Services" and "BDS"
as registered servicemarks. The filing date of the Trademark Application is
August 19, 1999.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of August 31, 1999 there were 16,958,159 shares of the Company's Common
Stock outstanding. The following table sets forth certain information as of
August 31, 1999, with respect to the beneficial ownership of the Company's
Common Stock by each director, by all executive officers and directors as a
group, and by each other person known by the Company to be the beneficial owner
of more than five percent of the Company's Common Stock:
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) SHARES OUTSTANDING
- ---------------- ---------------------- ------------------
Michael T. McClere 2,061,199 (2) 11.5%
2450 Fondren, Suite 200
Houston, Texas 77063
Howard Andrews -0- -0-%
2450 Fondren, Suite 200
Houston, Texas 77063
Shannon D. McLeroy 2,375,000 (3) 13.5%
2450 Fondren, Suite 200
Houston, Texas 77063
Carl A. Chase -0- -0-%
2450 Fondren, Suite 200
Houston, Texas 77063
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All Executive Officers and Directors
as a group (four persons) 4,436,199 (2)(3) 24%
Tech Technologies Services LLC
2450 Fondren, Suite 205
Houston, Texas 77063 1,980,000 (4) 11.4%
______________
(1) "Beneficial ownership" is defined in the regulations promulgated by the
U.S. Securities and Exchange Commission as having or sharing, directly or
indirectly (i) voting power, which includes the power to vote or to direct
the voting, or (ii) investment power, which includes the power to dispose
or to direct the disposition, of shares of the common stock of an issuer.
The definition of beneficial ownership includes shares underlying options
or warrants to purchase common stock, or other securities convertible into
common stock, that currently are exercisable or convertible or that will
become exercisable or convertible within 60 days. Unless otherwise
indicated, the beneficial owner has sole voting and investment power.
(2) Includes Class A warrants to purchase 210,000 shares of Common Stock of
the Company held by Mr. McClere and Class A warrants to purchase 250,000
shares of Common Stock held by the Rachel McClere 1998 Trust and the
McClere Family Trust. The Class A warrants are immediately exercisable at
an exercise price of $3.00 per share until the warrants expire on April
24, 2003. Also includes Class B warrants to purchase 210,000 shares of
Common Stock of the Company held by Mr. McClere and Class B warrants to
purchase 250,000 shares of Common Stock held by the Rachel McClere 1998
Trust and the McClere Family Trust. The Class B warrants are immediately
exercisable at an exercise price of $6.00 per share until the warrants
expire on April 24, 2008.
(3) Includes immediately exercisable Class A warrants to purchase 300,000
shares of the Common Stock of the Company at an exercise price of $3.00
per share until the warrants expire on April 24, 2003. Also includes
immediately exercisable Class B warrants to purchase 300,000 shares of the
Common Stock of the Company at an exercise price of $6.00 per share until
the warrants expire on April 24, 2008.
(4) Includes immediately exercisable Class A warrants to purchase 240,000
shares of Common Stock of the Company at an exercise price of $3.00 per
share until the warrants expire on April 24, 2003. Also includes
immediately exercisable Class B warrants to purchase 240,000 shares of
Common Stock of the Company at an exercise price of $6.00 per share until
the warrants expire on April 24, 2008.
WARRANTS
As part of the original transaction in which the outstanding stock of
Millennium Integration Technologies, Inc. was purchased by Southeast Tire
Recycling, Inc., a Stock Warrant Plan dated April 24, 1998 was executed by the
former management of Southeast Tire Recycling, Inc. The Stock Warrant Plan was
executed in conjunction with the Agreement for Purchase of Common Stock dated
April 1, 1998 and Addendum to Agreement for Purchase of Common Stock dated April
24, 1998. In the Addendum to Agreement for Purchase of Common Stock, the
management of Southeast Tire Recycling, Inc. agreed to issue warrants to each of
the sellers of stock named below:
NAME: WARRANT CLASS AMOUNT
----- ------------- ------
Shannon D. McLeroy A 300,000
B 300,000
Michael T. McClere A 210,000
B 210,000
Tech Technologies Services LLC* A 240,000
B 240,000
Rachel McClere 1998 Trust A 50,000
B 50,000
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McClere Family Trust A 200,000
B 200,000
- ---------------------------
* Celia Figueroa is the General Manager of Tech Technologies Services LLC and
therefore may be considered a beneficial owner of the warrants held in the name
of Tech Technologies Services LLC. At the time of the transaction described
above, Ms. Figueroa was Secretary and General Counsel of the Company.
For a description of the Class A and Class B warrants, see "Item 8.
Description of Securities - Warrants".
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The Company's directors, executive officers and their ages are as follows:
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
- ---- --- ------------------------- --------------
Michael T. McClere 39 Chairman of the Board and March 1998
Chief Executive Officer
Howard Andrews 38 Director May 1998
Shannon D. McLeroy 33 President and Secretary --
Carl A. Chase 50 Chief Financial Officer and Treasurer --
There is no family relationship between or among the above directors and
officers.
The Company's success will depend largely on the efforts and abilities of
the Company's senior management. In particular, the Company is dependent upon
Michael T. McClere, Chief Executive Officer, and Shannon D. McLeroy, President.
The loss of services of either of these members of senior management could have
a substantial adverse effect on the Company.
MICHAEL T. MCCLERE-- Mr. McClere is the Chairman of the Board, Chief
Executive Officer and a Director of the Company. Prior to joining the Company,
Mr. McClere had been involved in several businesses in the information
technology (IT) area, serving on the board of directors and as chief executive
officer. Mr. McClere has been involved in the purchasing of numerous businesses,
as well as selling businesses that he had assisted in the development. Mr.
McClere's business background includes all aspects of the development and
implementation of information technology businesses. Mr. McClere has also
assisted in the development and implementation of major technology deployments
for NASA in various space centers throughout the world. As a consultant on
information systems, Mr. McClere assisted Lockheed Engineering & Sciences
Company from May 1988 to October 1990, SAE, Inc. from May 1984 to May 1988, and
Baker Hughes from May 1979 to May 1984. Mr. McClere has over seventeen (17)
years experience in the information technology field. He has received a BS in
Computer Science from The University of Houston-University Park.
Mr. McClere is not a director of any other entity that has securities
registered under the Securities Exchange Act of 1934, as amended.
HOWARD ANDREWS--Mr. Andrews, a Director of the Company, is a co-founder
and developer of RBL, Ltd., which is the managing member of Royal Bancshares
Limited, LLC., an offshore bank holding company. Mr. Andrews is also co-founder
of an offshore bank in St. Vincent, W.I. Within the scope of business he has
helped lead companies in their expansions through acquisitions and mergers both
domestically and internationally. Mr. Andrews has presided, and currently
presides, as a director on numerous corporate boards. Mr. Andrews served as CEO
and Chairman for four (4) corporations. Mr. Andrews has been responsible for
overseeing the development of corporate strategies for marketing locally and
nationally, as well as, training and control measures. He has experience in many
facets of industry including retail and wholesale development of clients,
training, public speaking, product development, sales management, executive
management, public and private capital underwriting, investor relations
director, and corporate consultant. He was
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President and Principal Compliance Officer until March 1992 of Andrews, Hentges
& Associates, Inc., a Broker/Dealer with management of assets in excess of $200
million and 93 registered brokers in 17 states. During his direction he was
instrumental in building the 2nd largest Broker/Dealer domiciled in the State of
Oklahoma.
Since 1992, Mr. Andrews has concentrated his efforts in the development of
various project ventures by working in association with management groups,
merchant banking firms, banks, and developed funding sources in both the private
and public sector, including RBL, Ltd., AMAC, Royal Bancshares Limited, LLC, and
ACB Mortgage Fund.
Mr. Andrews is not a director of any other entity that has securities
registered under the Securities Exchange Act of 1934, as amended.
SHANNON D. MCLEROY--Mr. McLeroy serves as the President and Secretary of
the Company. Mr. McLeroy has been in the systems integration business for over
ten (10) years. He has worked beginning as a technician and has progressed
through various stages of management. Mr. McLeroy has managed teams of engineers
to deploy technical computer services with the last three companies with which
he has worked. Mr. McLeroy was solely responsible for managing and putting
together a team of computer professionals to run a major portion of Exxon USA's
network. This network was responsible for delivering key financial and business
data to enable Exxon to perform its business.
CARL A. CHASE--Mr. Chase is the Chief Financial Officer and the Treasurer
of the Company. Mr. Chase is responsible for managing the finance, accounting,
tax, treasury and risk management functions of the Company. Prior to joining the
Company, Mr. Chase was Vice President-Finance and Chief Financial Officer of
Bannon Energy Incorporated, a privately owned energy company involved in the
exploration for and production of oil, natural gas and natural gas liquids from
December 1992 to August 1999. At Bannon, Mr. Chase was responsible for the
financial and administrative functions including financial reporting, investor
relations, liaison with financial institutions, financing for capital programs,
product price hedging and risk management. Mr. Chase has twenty-four (24) years
experience in the areas of finance, accounting and administration, primarily in
the oil and gas industry. He has held various positions with both major and
independent oil and gas companies. In those positions, Mr. Chase was responsible
for SEC reporting and compliance, obtaining financing for capital programs,
mergers and acquisitions, budgeting and forecasting and policies, procedures and
internal controls. Mr. Chase received a Bachelor of Accountancy degree from the
University of Oklahoma in 1975.
ITEM 6. EXECUTIVE COMPENSATION.
No executive officer or director of the Company received compensation in
excess of $100,000 during its fiscal year ended December 31, 1998. Michael T.
McClere, the Chief Executive Officer of the Company, presently receives a salary
of $150,000 per year; Shannon D. McLeroy, the President of the Company,
presently receives a salary of $125,000 per year; and Carl A. Chase, Chief
Financial Officer of the Company, presently receives a salary of $108,000 per
year.
The Company does not presently have any pension plan, profit sharing plan,
or similar plans for the benefit of its officers, directors or employees.
However, the Company reserves the right to establish any such plans in the
future.
On May 12, 1999, the Board of Directors adopted the Company's Stock Option
Plan (the "Plan"), which provides for the granting to officers and key employees
of the Company options to acquire stock in the Company. Such Plan is intended to
qualify as "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"), and certain other
options to purchase shares of Common Stock which are not intended to receive
special income tax treatment under the Code. Adoption and approval of the Plan
by the stockholders is pending. Subject to approval by the shareholders of the
Company, the Board reserved for issuance upon the exercise of stock options
granted pursuant to the Plan 10,000,000 shares of Common Stock. Shannon D.
McLeroy and Michael
18
<PAGE>
T. McClere were appointed to act as the members of the Stock Option Committee of
the Board of Directors (the "Stock Option Committee") for the purpose of
administering the Plan and, commencing on the date of adoption by the Board of
the Plan and until otherwise provided by resolution of the Board of Directors
and subject to the approval by the shareholders of the Company of the Plan, such
Stock Option Committee shall have all the powers and exercise all the duties
conferred upon it by the Plan. As of June 30, 1999, there were 291,000 incentive
stock options issued to purchase Company Common Stock at exercise prices ranging
from $1.50 to $2.00 per share.
Directors of the Company who do not serve as officers thereof are not
currently compensated by the Company for meeting attendance or otherwise, but
are entitled to reimbursement for their travel expenses. The Company does not
pay additional amounts for committee participation or special assignments of the
Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal 1997, the Company borrowed $22,000 from Michael T.
McClere with a note due November 13, 1998; and borrowed an additional $30,000
with a note due March 31, 1999. These notes have been repaid during fiscal 1999.
During fiscal 1999, the Company made advances to Michael McClere in the
aggregate amount of $52,000. Mr. McClere has advised that the Company that he
believes that substantially all of this amount will be covered by actual
expenses previously incurred by Mr. McClere on behalf of the Company.
In connection with the transaction between Millennium Integration
Technologies, Inc. ("Millennium") and Southeast Tire Recycling, Inc., during
fiscal 1998 the Company issued 1,312,500 shares of its common stock to Michael
T. McClere and 1,875,000 shares of its common stock to Shannon D. McLeroy, the
principal stockholders of Millennium; and the Company also agreed to issue
warrants to purchase 920,000 shares of stock to Mr. McClere and his affiliates,
warrants to purchase 600,000 shares of stock to Mr. McLeroy and warrants to
purchase 480,000 shares of stock to Tech Technologies Services LLC. The General
Manager of Tech Technologies is Celia Figueroa who was, at the time of this
transaction, the General Counsel and Secretary of the Company. One-half of the
warrants received by each of Tech Technologies, Mr. McClere, and Mr. McLeroy and
his affiliates were Class A warrants and one-half were Class B warrants. For a
description of the Class A and Class B warrants, see "Item 8. Description Of
Securities - Warrants". See also, "Security Ownership of Certain Beneficial
Owners and Management - Warrants"
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.001 par value. At August 31, 1999, there were 16,958,159 shares of Common
Stock issued and outstanding.
There were 12,879 stockholders of record of the Common Stock of the
Company as of August 31, 1999.
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
$.001 par value. At August 31, 1999, there are no shares of Preferred Stock
issued and outstanding.
19
<PAGE>
COMMON STOCK
Holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors, out of funds legally available,
without any preference. Holders of Common Stock are entitled to one vote per
share. Cumulative voting is not allowed for purposes of the election of
directors. Thus, the holders of more than 50% of the shares voting for directors
can elect all directors. The holders of the Common Stock of the Company have no
preemptive rights to purchase new issues of the securities of the Company. There
are no redemption or conversion features attached to the Common Stock.
At the present time, the Company does not intend to pay any dividends on
its Common Stock.
Upon liquidation or dissolution of the Company, holders of Common Stock
are entitled to receive pro rata, either in cash or in kind, all of the assets
of the Company after payment of debts.
WARRANTS
As of August 31, 1999, there were outstanding Class A warrants to purchase
1,000,000 shares of Common Stock and Class B warrants to purchase 1,000,000
shares of Common Stock. The exercise prices of the Class A and Class B warrants
range from $3.00 to $6.00 per share.
Class A Warrants provide for an exercise price of $3.00 per common share
and shall expire five years from the date of issuance. Each Class A Warrant
provides that it shall be cancellable at the sole discretion of the Company on
or before 30 days after written notice upon payment of a cancellation price of
$1.00 per share. Each such Class A Warrant is subject to the terms, conditions
and provisions of the Stock Warrant Plan.
Class B Warrants provide for an exercise price of $6.00 per common share
and shall expire 10 years from the date of issuance. Each Class B Warrant
provides that it shall be cancellable at the sole discretion of the Company on
or before 30 days after written notice upon payment of a cancellation price of
$1.20 per share. Each such Class B Warrant is subject to the terms, conditions
and provisions of the Stock Warrant Plan.
DELAWARE CORPORATE LAW AND CERTAIN BY-LAW PROVISIONS
The Company is a Delaware corporation, and may become subject to the
anti-takeover provisions of the Delaware General Corporation Law (the "Delaware
Law"). In general, Delaware Law prevents take-over offers to acquire equity
securities of a Delaware corporation if the offeror would become a beneficial
owner of more than 20% of any class of outstanding equity securities, and other
similar provisions, subject to certain exceptions such as the written approval
of the board of directors. The existence of these provisions would be expected
to have an anti-takeover effect, including attempts that might result in a
premium over the market price for the shares of Common Stock held by
stockholders.
Article II, Section 5 of the Company's By-Laws provides that only
the Company's President, Secretary, a majority of the members of the Company's
Board of Directors or at the written request of the holders of at least 50% of
the outstanding voting power may call a special meeting of stockholders. These
provisions of the By-Laws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions also
may have the effect of preventing changes in the management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016;
telephone 1 (800) 456-0596.
20
<PAGE>
REPORTS TO STOCKHOLDERS
The Company will furnish its shareholders with annual reports containing
the financial statements of the Company examined by independent certified public
accountants. The Company presently intends to issue unaudited quarterly reports
and may distribute other reports to the stockholders as it deems appropriate.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
GENERAL
The Common Stock of the Company is traded on the Electronic Bulletin Board
over-the-counter market, and is quoted under the symbol CLWK.
MARKET PRICE
When the trading price of the Company's Common Stock is below $5.00 per
share, the Common Stock is considered to be a "penny stock" that is subject to
rules promulgated by the Securities and Exchange Commission (Rules 15g-1 through
15g-9) under the Securities Exchange Act of 1934. These rules impose significant
requirements on brokers under these circumstances, including: (a) delivering to
customers the Commission's standardized risk disclosure document; (b) providing
to customers current bid and offers; (c) disclosing to customers the
brokers-dealer and sales representatives compensation; and (d) providing to
customers monthly account statements.
The following table sets forth the range of high and low closing bid
prices per share of the Common Stock of the Company as reported by National
Quotation Bureau, L.L.C. for the periods indicated. The quotations set forth in
the table reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
YEAR ENDED DECEMBER 31, 1998 HIGH BID(1) LOW BID(1)
---------------------------- ----------- ----------
1st Quarter.... $0.5625 $0.375
2nd Quarter.... $3.625 $0.5625
3rd Quarter.... $3.3125 $1.03125
4th Quarter.... $2.15625 $0.3125
YEAR ENDING DECEMBER 31, 1999
-----------------------------
1st Quarter...... $1.25 $0.4375
2nd Quarter...... $3.875 $1.05
3rd Quarter...... $7.9844 $2.00
_______________
(1) The Company is unaware of the factors which resulted in the
significant fluctuations in the prices per share during the periods
being presented, although it is aware that there is a thin market
for the Common Stock, that there are frequently few shares being
traded and that any sales activity significantly impacts the market.
The closing bid and ask prices of the Common Stock of the Company on
October 18, 1999, were $2.875 and $3.00, respectively.
21
<PAGE>
DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
expect to do so in the foreseeable future. The Company intends to apply its
earnings, if any, in expanding its operations and related activities.
The payment of cash dividends in the future will be at the discretion of
the Board of Directors and will depend upon such factors as earnings levels,
capital requirements, the Company's financial condition and other factors deemed
relevant to the Board of Directors. In addition, the Company's ability to pay
dividends may become limited under future loan agreements of the Company which
may restrict or prohibit the payment of dividends.
ITEM 2. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. The Company's management does not expect that the
results in any of these legal proceedings will have a material adverse effect on
the Company's financial condition or results of operations.
The Company is currently a defendant and counter-plaintiff in MICHAEL
CALLIHAN AND LINDA CALLIHAN VS. CLEARWORKS TECHNOLOGIES, INC.; 80th Judicial
District Court of Harris County, Texas; Cause No. 98-39147. Suit was filed
August 29, 1998 alleging causes of action based on fraud. The facts underlying
the lawsuit are as follows: On or about May 21, 1998, the principal shareholder
of Team Renaissance, Inc. entered into a merger agreement with the Company.
Shortly thereafter, the principal shareholder, Michael Callihan, requested that
the Company pay in full certain promissory notes in which Callihan was the
payee. Such promissory notes were neither disclosed in the merger agreement nor
attached to the merger agreement as exhibits. A dispute arose between the
Company and Callihan regarding the validity of such promissory notes.
Additionally, a dispute arose regarding certain credit card accounts held in the
name of Callihan which Callihan claims are the obligation of the Company and the
Company claims are the personal debt of the Callihans. Lastly, a dispute arose
whether Callihan voluntarily quit his employment with the Company, as alleged by
the Company, or whether Callihan was constructively discharged, as alleged by
Callihan.
This suit is an uninsured claim in the amount of approximately $250,000
and an Answer and Counterclaim was filed on behalf of the Company on September
4, 1998 denying the claim, and presenting the Company's causes of action against
Michael and Linda Callihan which include but are not limited to fraud, negligent
misrepresentation, indemnification, breach of contract, breach of fiduciary
duty, and equitable entitlement to injunctive relief. Management is vigorously
contesting these claims by Michael and Linda Callihan on the basis they are
without merit, and the Company is vigorously pursuing its claims against the
Callihans. This lawsuit is currently in the discovery phase.
The Company is currently a defendant in the following interpleader action
in which it takes no position with respect to ownership of stock currently held
in the registry of the court: CAUSE NO. 98-34190; MARTIN R. NATHAN VS.
CLEARWORKS.NET, INC., JAMES W. WALTERS, JAMES STANFORD LIFSEY, JANET W. LIFSEY,
J. LIFSEY, LOYCE RODGERS, EARL STOVER, DEBRA SMITH, RONALD L. HAWKINS, SOUTHEAST
TIRE TRUST, TIM PENNINGTON; In the 269th Judicial District Court of Harris
County, Texas. The lawsuit was filed on July 20, 1998, The facts underlying this
lawsuit are as follows: At the time Company merged with Southeast Tire
Recycling, Inc., the management of Southeast Tire represented that Southeast
Tire was a debt free organization. After the transaction, it was discovered that
Southeast Tire was not debt free and had some outstanding debt. In order to pay
the debt, the management of Southeast Tire and the shareholders of Southeast
Tire agreed to deposit a certain number of shares that they received as
compensation in the merger into an escrow account, which was specifically
established to pay the Southeast Tire debt. A total of 86,366 shares of Company
Common Stock was deposited into the escrow account. Thomas Abate was named as
escrow agent. Thomas Abate resigned, without prior notice, and delivered all
stock to the Company. The Company and the prior management of Southeast Tire
failed to agree on an independent third party as a new escrow agent. As a
result, the escrow shares were deposited into the registry of the court.
A third party, Tim Pennington has filed a cross claim against the Company
and James Walters (former CEO of Southeast Tire) for shares of the Company's
Common Stock. Mr. Pennington claims that he had an employment agreement with
Southeast Tire and was issued stock in Southeast Tire. The former management of
Southeast Tire cancelled the stock certificate issued to Pennington due to lack
of consideration as asserted by Mr. Walters. Mr.
22
<PAGE>
Pennington's claim is vigorously contested by the former management of Southeast
Tire. The court has ordered mediation in this matter and the parties are
currently attempting to schedule same.
Also, the Company is currently a defendant in CAUSE NO. 1999-15281; ROBERT
HORN VS. CLEARWORKS TECHNOLOGIES, INC.; IN THE 333 JUDICIAL DISTRICT COURT OF
HARRIS COUNTY, TEXAS. Suit was filed March 25, 1999 alleging causes of action
based on breach of contract in the amount of approximately $200,000.00. The
facts underlying this lawsuit are as follows: Robert Horn entered into an
Employment Agreement with the Company effective April 1, 1998. The Employment
Agreement contained a condition precedent which stated: "The completion and
subsequent release of escrow money associated with the initial 504 offering of
the Company's securities on or before May 1, 1998, is a condition precedent to
the obligation of any party hereunder." The condition precedent was not met
since the Company did not have a 504 offering prior to May 1, 1998. On July 1,
1999, Mr. Horn tendered his notice of resignation effective July 31, 1998. On
March 25, 1999, Mr. Horn filed a lawsuit claiming that the Company had
terminated Mr. Horn's employment without cause. An Answer was filed on April 16,
1999 wherein the Company denied the claim and asserted its affirmative defenses.
Management is vigorously contesting these claims by Robert Horn on the basis
they are without merit.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the period from April 1, 1998 through September 20, 1999, the
Company issued shares of its common stock in the transactions described below
which were not registered under the Securities Act of 1933, as amended (the
"1933 Act"). These securities were issued in reliance on the exemption from
registration provided by Section 4(2) of the 1933 Act. The individuals/entities
receiving the shares are sophisticated investors who were knowledgeable about
the Company's operations and financial condition at the time of receipt of the
shares and were able to evaluate the risks and merits of receipt of the shares,
and, in the case of the persons receiving stock for services, each of them
agreed to accept the shares as compensation for the designated portions of the
services they had performed. These transactions included the following:
(a) The separate issuances to 17 persons or entities, none of whom
was a director or executive officer, of an aggregate of 3,430,510 shares as
compensation for services performed on behalf of the Company. The total amount
owed by the Company for these services was $ 498,000.
(b) Issuance of an aggregate of 409,289 shares in connection with
the acquisitions described under "Part I. Item 1. - Acquisitions".
(c) Issuances of 500,000 shares each to two entities, neither of
which is affiliated with a director or executive officer of the Company, for
cash consideration of $500,000 each or an aggregate of $1,000,000.
(d) Issuance of 272,550 shares as payment of $23,700 outstanding
principal and $3,555 accrued interest on a promissory note held by KMA
Investments.
(e) The issuance of a $801,512 convertible note to KMA Investments.
All principal and accrued and unpaid interest on this note is convertible into
shares of the Company's common stock at the rate of one share of common stock
for every $1.375 of principal or accrued interest converted.
During the period from November 30, 1998 through April 6, 1999, the Company
offered and sold 3,105,000 shares of the Company's Common Stock for an aggregate
of $1,000,000, including $981,250 in cash and $18,750 of services provided to
the Company, at prices ranging from $.25 per share to $1.50 per share. These
shares were issued in accordance with the transactional exemption from
registration afforded by Rule 504 of Regulation D, as promulgated under Section
3(b) of the Act. The proceeds were used by the Company for working capital,
marketing, recruitment of engineers, sales and administrative staff expansion,
and acquisitions.
23
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of the General Corporation Law of Delaware provide for the
indemnification of the directors and officers of the Company. These provisions
generally permit indemnification of directors and officers against certain
costs, liabilities and expenses of any threatened, pending or completed action,
suit or proceeding that any such person may incur by reason of serving in such
positions if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such persona had been adjudged to be liable
to the corporation, unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. Any determination that indemnification of a director or an
officer, unless ordered by the court, must be made by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum; or by a committee of such directors designated by majority
vote of such directors even though less than a quorum; or if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion; or by the stockholders.
The Eleventh Article of the Articles of Incorporation of the Company
provides that the Company shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 6.10 of the Bylaws of the Company provides that the Company shall
indemnify all of its officers and directors, past, present and future, against
any and all expenses incurred by them, including but not limited to legal fees,
judgments and penalties which may be incurred, rendered or levied in any legal
action brought against any or all of them for or on account of any act or
omission alleged to have been committed while acting within the scope of their
duties as officers or directors of the Company.
24
<PAGE>
MASTER TABLE OF CONTENTS
FOR
FINANCIAL STATEMENTS
AND
FINANCIAL SCHEDULES
CLEARWORKS.NET, INC. CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
CLEARWORKS.NET, INC. CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED)
CLEARWORKS.NET, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 (UNAUDITED)
CLEARWORKS.NET, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
INFRARESOURCES, LLC FINANCIAL STATEMENTS
DECEMBER 31, 1997
INFRARESOURCES, LLC FINANCIAL STATEMENTS
DECEMBER 31, 1996
INFRARESOURCES, LLC FINANCIAL STATEMENTS
APRIL 30, 1998 AND 1997 (UNAUDITED)
TEAM FINANCIAL STATEMENTS
RENAISSANCE, INC. DECEMBER 31, 1997
TEAM FINANCIAL STATEMENTS
RENAISSANCE, INC. DECEMBER 31, 1996 (UNAUDITED)
TEAM FINANCIAL STATEMENTS
RENAISSANCE, INC. APRIL 30, 1998 AND 1997 (UNAUDITED)
VIDATEL FINANCIAL STATEMENTS
COMMUNICATIONS DECEMBER 31, 1997
VIDATEL FINANCIAL STATEMENTS
COMMUNICATIONS OCTOBER 31, 1998 AND 1997 (UNAUDITED)
ARCHER MICKELSON FINANCIAL STATEMENTS
TECHNOLOGIES, LLC DECEMBER 31, 1998
ARCHER MICKELSON FINANCIAL STATEMENTS
TECHNOLOGIES, LLC DECEMBER 31, 1997
ARCHER MICKELSON FINANCIAL STATEMENTS
TECHNOLOGIES, LLC APRIL 30, 1999 AND 1998 (UNAUDITED)
<PAGE>
- --------------------------------------------------------------------------------
CLEARWORKS.NET, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
------
Independent Accountant's Report........................................... 1
Consolidated Balance Sheets............................................... 2
Consolidated Statements of Operations..................................... 3
Consolidated Statements of Changes in Stockholders' Equity................ 4
Consolidated Statements of Cash Flows..................................... 5
Notes to the Consolidated Financial Statements............................ 6
i
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF CLEARWORKS.NET, INC.:
We have audited the accompanying consolidated balance sheets of ClearWorks.net,
Inc. and Subsidiary as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 1998 and the period from September 18, 1997 (date of
inception) to December 31, 1997. These financial statements are the
responsibility of ClearWorks.net, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of ClearWorks.net, Inc. and Subsidiary as of December 31, 1998 and 1997
and the results of their operations, shareholders' equity, and their cash flows
for the year ended December 31, 1998 and the period ended December 31, 1997 are
in conformity with generally accepted accounting principles.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
May 18, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10SB Registration Statement of our
report dated May 18, 1999 on our audit of the financial statements of
Clearworks.net, Inc. and Subsidiary. We also consent to the reference to our
firm under the caption "Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
- --------------------------------------------------------------------------------
CLEARWORKS.NET, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) .................................................... $ 161,957 $ 4,184
Accounts Receivable - net (Note 2) .................................................... 200,867 62,260
Deferred Advertising Costs (Note 1) ................................................... 5,208 0
Other Receivable ...................................................................... 2,712 0
Inventories (Note 1) .................................................................. 12,000 0
----------- -----------
Total Current Assets ................................................................ 382,744 66,444
PROPERTY AND EQUIPMENT (NOTE 1):
Transportation Equipment .............................................................. 26,245 0
Operating Equipment ................................................................... 234,719 1,616
Furniture & Fixtures .................................................................. 5,663 587
Less: Accumulated Depreciation ........................................................ (13,240) (59)
----------- -----------
Total Property and Equipment ........................................................ 253,387 2,144
OTHER ASSETS:
Security Deposits ..................................................................... 0 1,746
Goodwill (Notes 1 & 7) ................................................................ 622,797 0
Intangible Assets (Note 7) ............................................................ 0 1,161
Less: Accumulated Amortization ........................................................ (70,569) (58)
Other Assets .......................................................................... 2,046 300
----------- -----------
Total Other Assets .................................................................. 554,274 3,149
----------- -----------
TOTAL ASSETS .......................................................................... $ 1,190,405 $ 71,737
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ...................................................................... $ 19,759 $ 4,486
Accrued Expenses ...................................................................... 146,117 2,934
Notes Payable (Note 4) ................................................................ 55,965 45,700
Deferred Revenues ..................................................................... 0 4,200
Payroll Taxes Payable ................................................................. 57,107 5,079
Sales Taxes Payable ................................................................... 12,751 0
----------- -----------
Total Current Liabilities ........................................................... 291,699 62,399
LONG - TERM LIABILITIES:
Notes Payable - net of current portion (Note 4) ..................................... 14,113 0
----------- -----------
Total Long - Term Liabilities ......................................................... 14,113 0
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 13)
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 par value
Authorized at 1998 and 1997
5,000,000 and 5,000,000 shares, respectively ........................................ 0 0
Common Stock - $.001 and $.001 par value
at 1998 and 1997, respectively
Authorized at 1998 and 1997
50,000,000 and 50,000,000 shares,
respectively Issued and Outstanding
at 1998 and 1997
11,460,249 and 6,250,000, respectively .............................................. 11,460 6,250
Paid in Capital ....................................................................... 1,152,631 (5,250)
Retained Earnings / (Deficit) ......................................................... (279,498) 8,338
----------- -----------
Total Shareholders' Equity .......................................................... 884,593 9,338
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................ $ 1,190,405 $ 71,737
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
- -------------------------------------------------------------------------------
CLEARWORKS.NET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
NET SALES
Integration Services ....................... $ 486,331 $ 113,520
Network Cabling and Wiring ............... 555,550 0
Software Administration .................... 48,334 0
--------------- ---------------
Total Revenues ........................... 1,090,215 113,520
COST OF GOODS SOLD
Materials and Supplies .................... 50,145 0
Direct Labor and Related Costs .......... 975,019 88,018
Depreciation and Amortization ............. 13,169 0
Other Manufacturing Costs ................. 15,783 0
--------------- ---------------
Total Cost of Goods Sold .............. 1,054,116 88,018
--------------- ---------------
GROSS PROFIT .................................. 36,099 25,502
--------------- ---------------
OPERATING EXPENSES
Salaries and Related Costs ............... 12,235 0
Advertising and Promotion ................. 21,421 0
Depreciation and Amortization ............. 70,523 117
Other Support Costs ....................... 174,176 16,116
--------------- ---------------
Total Operating Expenses ................ 278,355 16,233
--------------- ---------------
EARNINGS / (LOSS) FROM OPERATIONS BEFORE
OTHER EXPENSES AND INCOME TAXES ......... (242,256) 9,269
OTHER EXPENSES
Interest Expense ........................... (10,060) (931)
--------------- ---------------
Total Other Expenses .................... (10,060) (931)
--------------- ---------------
EARNINGS / (LOSS) BEFORE INCOME TAXES ........ (252,316) 8,338
Provision For Income Taxes ............... 0 0
--------------- ---------------
NET EARNINGS / (LOSS) ......................... $ (252,316) $ 8,338
=============== ===============
Earnings Per Share:
Basic (Notes 1 & 11) ...................... $ (0.03) $ NIL
Diluted (Notes 1 & 11) .................... $ (0.03) $ NIL
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
CLEARWORKS.NET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
SEPTEMBER 18, 1997 (DATE OF INCEPTION) COMMON COMMON PREFERRED PAID IN EARNINGS/ SHAREHOLDERS'
TO DECEMBER 31, 1998 STOCK (SHARES) STOCK STOCK CAPITAL (DEFICIT) EQUITY
- --------------------------------------------- --------------- ----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
September 18, 1997 (Date of Inception) ...... 0 $ 0 $ 0 $ 0 $ 0 $ 0
--------------- ----------- ----------- ----------- ------------ ---------------
Issuance of Common Stock as Restated
for Recapitalization ...................... 6,250,000 6,250 0 (5,250) 0 1,000
Net Income as of December 31, 1997 .......... 8,338 8,338
--------------- ----------- ----------- ----------- ------------ ---------------
Total Shareholders' Equity
As Of December 31, 1997 ..................... 6,250,000 6,250 0 (5,250) 8,338 9,338
Conversion From LLC to C-Corp ............... 0 0 0 35,520 (35,520) 0
Stock Issued for Merger With
Southeast Tire Recycling, Inc. (April) .... 1,543,960 1,544 0 (1,544) 0 0
Stock Issued for Acquisitions
Team Renaissance (May) .................... 156,250 156 0 321,758 0 321,914
InfraResources (May) ...................... 80,000 80 0 164,720 0 164,800
Conversion of Notes Payable (October) ....... 272,550 273 0 26,982 0 27,255
Common Shares Issued For
Syndication Costs (October) ............... 2,477,000 2,477 0 (2,477) 0 0
Stock Issued for Services Rendered (November) 50,000 50 0 6,200 0 6,250
Stock Issued for Acquisition of
Assets from Vidatel (November) ........... 98,039 98 0 149,902 0 150,000
New Stock Issued for Cash ................... 532,450 532 0 456,820 0 457,352
Net Loss 1998 ............................... (252,316) (252,316)
--------------- ----------- ----------- ----------- ------------ ---------------
Total Shareholders' Equity
As Of December 31, 1998 ..................... 11,460,249 $ 11,460 $ 0 $ 1,152,631 $ (279,498) $ 884,593
=============== =========== =========== =========== ============ ===============
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
CLEARWORKS.NET, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings / (Loss) ............................................ $ (252,316) $ 8,338
--------------- ---------------
Adjustments To Reconcile Net Earnings / (Loss) To Net Cash Used By
Operating Activities:
Depreciation and Amortization .................................. 83,692 117
Increase in Allowance For Doubtful Accounts .................... 2,029 0
Stock Issued For Services Rendered ............................. 6,250 0
(Increase) / Decrease in Accounts Receivable ................... (124,214) (62,260)
(Increase) / Decrease in Deferred Advertising Costs ............ (5,208) 0
(Increase) / Decrease in Other Receivable ...................... (2,712) 0
(Increase) / Decrease in Security Deposits ..................... 1,746 (1,746)
(Increase) / Decrease in Other Assets .......................... (1,746) (300)
Increase / (Decrease) in Accounts Payable ...................... 87 4,486
Increase / (Decrease) in Accrued Expenses ...................... 143,183 2,934
Increase / (Decrease) in Deferred Revenues ..................... (4,200) 4,200
Increase / (Decrease) in Payroll Taxes Payable ................. 52,028 5,079
Increase / (Decrease) in Sales Tax Payable ..................... 10,670 0
--------------- ---------------
Total Adjustments .............................................. 161,605 (47,490)
--------------- ---------------
Net Cash Used By Operating Activities ............................ (90,711) (39,152)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Received During Acquisition ............................... 13,463 0
Cash Used For Acquisition ...................................... (40,000) 0
Investment in Organization Costs ............................... 1,161 (1,161)
Purchase of Property and Equipment ............................. (209,755) (2,203)
--------------- ---------------
Net Cash Used By Investing Activities ............................ (235,131) (3,364)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase / (Decrease) in Notes Payable ......................... 30,000 45,700
Repayment of Notes Payable ..................................... (3,737) 0
Proceeds From Sale of Common Stock ............................. 457,352 1,000
--------------- ---------------
Net Cash Provided By Financing Activities ........................ 483,615 46,700
--------------- ---------------
Net Increase / (Decrease) in Cash ................................ 157,773 4,184
CASH AT THE BEGINNING OF THE YEAR ................................... 4,184 0
--------------- ---------------
CASH AT THE END OF THE YEAR ......................................... $ 161,957 $ 4,184
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest .................................................. $ 10,060 $ 931
Income Taxes .............................................. $ 0 $ 0
SUPPLEMENTAL SCHEDULE ON NON-CASH INVESTING ACTIVITIES:
Fair Value of Assets Acquired ........................... $ 715,797 $ 0
Fair Value of Capital Stock Issued ..................... 636,714 0
Liailities Assumed .......................................... $ 79,083 $ 0
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
ClearWorks.net, Inc. and Subsidiary (the Company), commenced operations on
September 18, 1997 when Millennium Integration Technologies, LLC (MIT) was
organized as a limited liability company in the state of Texas.
On March 5, 1998, Millennium Integration Technologies, Inc. (Millennium)
was formed under the rules and regulations of the State of Delaware.
On April 1, 1998, Southeast Tire Recycling, Inc. (Southeast), a publicly
traded Florida shell corporation, entered into an agreement to purchase
one hundred percent of the stock of MIT pending the conversion of its
organization from the status of a LLC to that of a C-corporation. MIT then
completed the conversion to that of a corporate status (MIT Corp.) under
the laws of the State of Texas effective April 9, 1998. The acquisition
was consummated effective April 27, 1998 and MIT Corp. became a wholly
owned subsidiary of Southeast.
Millennium initiated a name change to that of Clearworks Technologies,
Inc. effective May 8, 1998.
On May 12, 1998, Southeast merged with and into Clearworks Technologies,
Inc. whereby Clearworks Technologies, Inc. was the surviving entity and
the former shareholders of Southeast received one hundred percent (100%)
of the outstanding common stock of Clearworks Technologies, Inc. On April
27, 1999, Clearworks Technologies, Inc. began operating under the name
Clearworks.net.
In conclusion, the Company, which was originally named Millennium
Integration Technologies, LLC (MIT) for accounting purposes, was formed as
a result of Southeast's acquisition of MIT, followed by Southeast's merger
into the Company. MIT commenced operations on September 18, 1997 and the
former MIT is the continuing entity for accounting purposes.
The Company is a leading provider of business and information technology
solutions. Using both client/server and Web-based technologies, the
Company offers a variety of services designed to help clients achieve
their business objectives, including implementation and integration of
third-party packaged software solutions, custom software development,
implementation of enterprise resource planning (ERP) systems, production
support and business, and operational consulting.
A) Consolidation
At December 31, 1998, the Company has a wholly-owned subsidiary,
Millennium Integration Technologies, Inc.
6
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
A) Consolidation (continued)
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant inter-company transactions and
balances have been eliminated in consolidation.
B) Cash and Cash Equivalents
The Company has $161,957 and $4,184 invested at December 31, 1998 and
1997, respectively, most of which is in non-interest bearing accounts.
C) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting and accelerated methods for income tax purposes. The recovery
classifications for these assets are listed as follows:
YEARS
-----
MACHINERY AND EQUIPMENT..... 7
FURNITURE AND FIXTURES...... 7
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
D) Inventories
Inventories are valued at the lower of cost or market. The cost is
determined by using the FIFO method. Inventories consist of the following
items:
1998 1997
--------- -------
Raw Materials.............. $ 12,000 $ - 0 -
--------- -------
$ 12,000 $ - 0 -
========= =======
E) Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the dates of acquisition and is being
amortized using the straight-line method over five (5) years.
7
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
F) Accounting Pronouncements
During August of 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 98-5 "Reporting
on the Costs of Start-Up Activities". This statement requires all costs
related to a company's start-up activities be expensed during the period
incurred rather than capitalized and amortized over a period of time.
Although this pronouncement becomes effective for fiscal years beginning
after December 15, 1998, the Company has elected early application of this
pronouncement effective for the year ended December 31, 1998.
G) Income Taxes
For the year ended December 31, 1997, the company had elected to be taxed
under the provision of a Limited Liability Corporation of the Internal
Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income and is not allowed a net
operating loss carry-over or carry-back as a deduction. However, the
stockholders are liable for individual federal income taxes on their
respective shares of income and include their respective shares of the
Company's operating loss on their individual income tax returns.
During 1998, with the change in corporate status (see Note 1), the Company
adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", which requires a change
from the deferral method to assets and liability method of accounting for
income taxes.
H) Net Earnings Per Common Share
Net earnings per common share is shown as both primary and fully diluted.
Primary earnings per common share are computed by dividing net income less
any preferred stock dividends (if applicable) by the weighted average
number of shares of common stock outstanding. Fully diluted earnings per
common share are computed by dividing net income less any preferred stock
dividends (if applicable) by the weighted average number of shares of
common stock outstanding plus any dilutive common stock equivalents. The
components used for the computations are shown as follows:
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
Weighted Average Number of Common
Shares Outstanding Including:
Basic Common Stock Equivalents ....... 8,321,902 1,562,500
Diluted Common Stock Equivalents ..... 9,821,902 1,562,500
----------------- -----------------
8
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
I) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be deemed necessary when the estimated
non-discounted future cash flows are less than the carrying net amount of
the asset. If an asset were deemed to be impaired, the asset's recorded
value would be reduced to fair value. In determining the amount of the
charge to be recorded, the following methods would be utilized to
determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on valuation techniques.
As of December 31, 1998 and 1997, no impairment exists.
J) Advertising and Promotion
All advertising related costs are expensed as incurred. The Company does
not incur any cost for direct-response advertising. For the years ended
December 31, 1998 and 1997, the Company had expensed $21,421 and $0,
respectively.
K) Deferred Advertising Costs
The Company issued 50,000 shares of its common stock at the commencement
of its one-year contract with Investments 101 and is being carried as
deferred advertising costs. These costs will be expensed at a monthly rate
of $521 as services are rendered. At December 31, 1998, $1,042 has been
expensed. This contract was terminated in January 1999. (see Notes 13 and
14).
L) 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 asset 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.
M) Comprehensive Income
There were no items of other comprehensive income in 1998 and 1997, and,
thus, net income is equal to comprehensive income for each of those years.
9
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
N) Re-capitalization
On April 27, 1998, Southeast Tire Recycling, Inc., a shell corporation
having no assets at April 27, 1998 and no operations for the period
January 1, 1998 to April 27, 1998, acquired all outstanding shares
(10,000) of the common stock of Millennium Integration Technologies, Inc.
(a Texas corporation) in exchange for six and one-quarter million
(6,250,000) shares of its own common stock. For accounting purposes, this
transaction has been treated as a re-capitalization of Southeast with
Millennium Integration Technologies, Inc. as the acquirer (reverse
acquisition). The historical financial statements prior to April 9, 1998
are those of the Millennium Integration Technologies, Inc. whereby the
financial statements henceforth reflect the operations of Millennium
Integration Technologies, Inc. as re-capitalized into the empty corporate
shell of Southeast. Pro forma information giving effect to the acquisition
as if the acquisition occurred on January 1, 1997 is stated in Note 5.
O) Reclassification
The Company has reclassified certain costs and expenses for the year ended
December 31, 1997 to facilitate comparison to the year ended December 31,
1998.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
DECEMBER 31,
1998 1997
--------- ---------
Accounts Receivable ......................... $ 202,896 $ 62,260
Allowance for Doubtful Accounts ............. (2,029) - 0 -
--------- ---------
Net Accounts Receivable ..................... $ 200,867 $ 62,260
========= =========
NOTE 3 - FACTORING:
In August 1998, the Company entered into a factoring agreement with
Amerisource Funding, Inc. (ASF). Under this agreement, AFS may purchase
the Company's accounts receivable at the Company's discretion in
accordance with the terms.
ASF purchases acceptable accounts from the Company at a discount of 6.25%.
Under the agreement, ASF reserves the right to withhold 13.75% of any
account in a non-interest bearing reserve account until the account has
been fully paid and/or satisfied. If ASF deems any portion
10
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
of an account to be uncollectable, the Company must repurchase those
accounts and proceed with their own collections.
NOTE 3 - FACTORING: (continued)
Subsequent to December 31, 1998, the Company terminated this factoring
agreement. To satisfy certain of its current financing requirements, the
Company borrowed approximately $800,000 by issuing a convertible note to
KMA Investments. (see Note 14)
NOTE 4 - NOTES PAYABLE:
DECEMBER 31,
1998 1997
------- -------
Note payable to KMA Investments
bearing interest at 15%; payable upon
demand ............................................. $- 0 - $23,700
Note payable to M. McClere bearing
interest at 15%; payable upon demand ............... 22,000 22,000
Note payable to M. McClere bearing
interest at 18.5%; due on March 31, 1999 .......... 30,000 - 0 -
Note payable to Planet Ford bearing
Interest at 13.46%, due $513.33 monthly
until September 2002 .............................. $18,078 $- 0 -
------- -------
Total ........................................ 70,078 45,700
Less Current Portion of
Long - Term Debt .......................... 55,965 45,700
------- -------
Total Long - Term Debt ....................... $14,113 $- 0 -
======= =======
Future minimum payments are as follows:
1999 $ 55,965
2000 4,533
2001 5,183
2002 4,397
At October 31, 1998, the Company and KMA Investments opted to convert the
note payable and accrued interest into the Company's common stock at $0.10
per share. Included in this conversion was the principal of $23,700 and
accrued interest of $3,555 resulting in 272,550 shares.
11
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
The notes payable to M. McClere have been repaid during 1999.
NOTE 5 - BUSINESS COMBINATIONS:
As mentioned in Note 1(n), Southeast Tire Recycling, Inc. was involved in
a re-capitalization that was consummated on April 27, 1998.
On May 26, 1998, the Company acquired InfraResources LLC in a business
combination accounted for as a purchase. InfraResources is primarily
engaged in integration technology services. The results of operations for
InfraResources are included in the accompanying financial statements since
the date of acquisition. To culminate this transaction, the Company issued
80,000 shares of its common stock and paid no cash to InfraResources.
However, the Company assumed debt of $40,000 and immediately paid it off.
The total cost of the acquisition was $204,880, which exceeded the fair
value of the net assets of InfraResources by $204,880. The excess is being
amortized using the straight-line method over five (5) years.
Additionally, on May 29, 1998, the Company acquired Team Renaissance, Inc.
in a business combination accounted for as a purchase. Team Renaissance,
Inc. is primarily engaged in integration technology services. The results
of operations for Team Renaissance, Inc. is included in the accompanying
financial statements since the date of acquisition. The Company issued
156,250 shares of its common stock to Team Renaissance, Inc. in
culminating this transaction. The total cost of the acquisition was
$321,914, which exceeded the fair value of the net assets of Team
Renaissance, Inc. by $292,188. The excess is being amortized as goodwill
using the straight-line method over five (5) years.
Additionally, the Company purchased the assets of John Diaz DBA Vidatel
Communications (Vidatel), an individual residing in Texas, on November 19,
1998. In exchange for these assets, the Company issued 98,039 shares of
its common stock, valued at $150,000. The excess of cost over fair market
value is $125,809 of which is carried as goodwill and is being amortized
using the straight-line method over five (5) years.
Additionally, on April 30, 1999, the Company acquired Archer Mickelson
Technologies L.L.C. (Archer), a systems-integration firm located in
Houston, Texas, in a business transaction accounted for as a purchase. The
total cost of the transaction was $130,500, which exceeded fair market
value of the net assets of Archer by $76,183. The excess will be treated
as goodwill and amortized using the straight-line method over a period of
five (5) years. (see Note 14)
A) Pro Forma Results
The following summarized pro forma (unaudited) information assumes the
transactions related to Southeast Tire Recycling, Inc., InfraResources,
LLC, Team Renaissance, Inc., Vidatel, and Archer had occurred on January
1, 1997.
12
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - BUSINESS COMBINATIONS: (continued)
1998 PRO FORMA INFORMATION
<TABLE>
<CAPTION>
CLEARWORKS 1998
(FORMERLY) TEAM ARCHER PRO FORMA COMBINED
(MILLENNIUM) INFRARESOURCES RENAISSANCE VIDATEL MICKELSON ADJ. TOTALS
----------- ----------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues .......... $ 1,090,215 $ 333,288 $ 145,151 $ 200,243 $ 1,051,498 $- 0 - $ 2,820,395
Cost of Revenues ........ 1,054,116 248,768 129,293 139,432 718,505 - 0 - 2,290,114
----------- ----------- ----------- ----------- ----------- -------- -----------
Gross Profit ............ 36,099 84,520 15,858 60,811 332,993 - 0 - 530,281
----------- ----------- ----------- ----------- ----------- -------- -----------
Operating Expenses ...... 288,415 92,837 71,688 14,988 291,884 69,329 829,141
----------- ----------- ----------- ----------- ----------- -------- -----------
Net Income / (Loss) ..... $ (252,316) $ (8,317) $ (55,830) $ 45,823 $ 41,109 $(69,329) $ (298,860)
=========== =========== =========== =========== =========== ======== ===========
Earnings Per Share
Basic $ (0.03) $ (0.04)
=========== ===========
Diluted $ (0.03) $ (0.03)
=========== ===========
</TABLE>
B) Significant Acquisitions
As stated in the aforementioned, the Company consummated two acquisitions
and one asset purchase during the year ended December 31, 1998. Each of
these transactions represents a significant acquisition when compared to
the Company for the year ended December 31, 1997.
C) Company Conversion
As mentioned in Note 1, Millennium Integration Technologies, LLC converted
to a C-corporation effective April 9, 1998. As a result, the retained
earnings of the LLC at the effective date in the amount of $35,520 have
been reclassified to additional paid in capital.
NOTE 6 - WARRANTS:
The Company has the following warrants issued and outstanding which, at
December 31, 1998, have not yet been exercised:
1,000,000 Class A stock purchase warrants expiring April 24, 2003.
These warrants are subject to the marketability of the Company's
common stock. These warrants are to purchase fully paid and
non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $3.00 per share. Each Class A stock purchase
warrant provides that it shall be cancelable at the sole discretion
of the Company on or before 30 days after written notice upon
payment of a cancellation fee of $1.00 per share. Such transactions
may occur in whole or in part, but must never amount to less than
100 shares.
1,000,000 Class B stock purchase warrants expiring April 24, 2008.
These warrants are subject to
13
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
the marketability of the Company's common stock. These warrants are
to purchase fully paid and non-assessable shares of the common
stock, par value $.001 per share at a purchase price of $6.00 per
share. Each Class B stock purchase warrant provides that it shall be
cancelable at the sole discretion of the Company on or before 30
days after written notice upon payment of a cancellation fee of
$1.20 per share. Such transactions may occur in whole or in part,
but must never amount to less than 100 shares.
NOTE 7 - INTANGIBLE ASSETS:
Intangible assets consist of goodwill and organization costs. Organization
costs were created during the start-up phase of the Company whereas
goodwill was created during the acquisitions of Team Renaissance and
InfraResources and the purchase of the assets of Vidatel Communications.
Goodwill is amortized using the straight-line method over a period of five
(5) years. Accumulated amortization for goodwill for the years ended
December 31, 1998 and 1997 are $69,467 and $0, respectively.
Prior to the year ended December 31, 1998, organizational costs had been
amortized using the straight-line method over a period of sixty (60)
months. Accumulated amortization was $1,103 and $58 for the years ended
December 31, 1998 and 1997, respectively.
As a result of "SOP" 98-5 (Note 1), the remaining unamortized organization
costs of $1,103 have been expensed during 1998.
NOTE 8 - INCOME TAXES:
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Implementation of SFAS 109 did not have a material cumulative
effect on prior periods nor did it result in a change to the current
year's provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
DECEMBER 31,
1998 1997
----- -----
% %
U.S. Federal Statutory Tax Rate .................. 34 - 0 -
U.S. Valuation Difference ........................ (34) - 0 -
----- -----
Effective U.S. Tax Rate .......................... - 0 - - 0 -
----- -----
Effective Tax Rate ............................... - 0 - - 0 -
===== =====
14
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 8 - INCOME TAXES: (continued)
B) Items giving rise to deferred tax assets / liabilities are as follows:
DECEMBER 31,
1998 1997
------- ------
Deferred Tax Assets:
Tax Loss Carry-forward .......................... $72,381 $- 0 -
------- ------
Deferred Tax Liability
Depreciation .................................... 8,546 - 0 -
------- ------
Valuation Allowance ............................... 63,835 - 0 -
------- ------
Net Deferred Tax Assets / Liability ............. $- 0 - $- 0 -
======= ======
C) During 1997, the Company conducted its business under the umbrella of a
limited liability corporation. As such, the accompanying financial
statements do not include a provision or liability for federal income
taxes due to the fact that the members are taxed individually on their
share of company earnings.
NOTE 9 - RELATED PARTY TRANSACTIONS:
As stated in note 4, the Company has borrowed money from M. McClere (CEO
of the Company) in the form of two notes. The first note, in the amount of
$22,000, had been due November 13, 1998 and has since become payable upon
demand. The second note, in the amount of $30,000, is due on or before
March 31, 1999. These notes have been repaid during 1999. (see Note 4)
NOTE 10 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $1,090,215 and $113,520 for the years
ended December 31, 1998 and 1997, respectively. The following party
individually represents more than ten percent of these revenues.
15
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
December 31, 1998 December 31, 1997
CUSTOMER AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- -------- ---------- ---------- ----------
Enron Corp. ........... $213,813 19.61% $ - 0 - 0.00%
-------- ---------- ---------- ----------
NOTE 11 - EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------ ------------
<S> <C> <C> <C>
Net Loss .................................. $ (252,316)
Basic EPS:
Loss available to common stockholders ... (252,316) 8,321,902 $ (0.03)
============
Effect of Dilutive Securities:
Warrants ................................ - 0 - 1,500,000
------------ ------------
Diluted EPS:
Loss available to common stockholders
and assumed conversions ............... $ (252,316) 9,821,902 $ (0.03)
============ ============ ============
<CAPTION>
FOR THE PERIOD INCEPTION (SEPTEMBER 18, 1997)
TO DECEMBER 31, 1997
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------ ------------
Net Income ................................ $ 8,338
Basic EPS:
Income available to common stockholders . 8,338 6,250,000 $ NIL
============
Effect of Dilutive Securities: ............ - 0 - - 0 -
------------ ------------
Diluted EPS:
Income available to common stockholders
and assumed conversions ............... $ 8,338 6,250,000 $ NIL
============ ============ ============
</TABLE>
For the years ended December 31, 1998 and 1997, no anti-dilutive
securities existed.
For the period January 1, 1999 to May 18, 1999, there were no transactions
that would have materially changed the number of common shares or
potential common shares outstanding.
16
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 12 - STOCK OPTIONS:
The Company has adopted a stock option plan that provides for the granting
to officers and key employees of the Company options to acquire stock in
the Company. (see Note 14)
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES:
Coinciding with the reverse merger with Southeast Tire Recycling, Inc.
(Southeast), the former management of Southeast established a trust to
provide for the orderly liquidation of any alleged claims existing at the
date of acquisition. Certain shareholders of Southeast have contributed
36,366 free trading shares of the Company's common stock to the trust to
satisfy approximately $85,000 of alleged claims. Due to the resignation of
the trustee, the trust shares have been deposited in the registry of the
Harris County, Texas District Court, and the Company has been named a
nominal defendant in an Interpleader action. The Company intends to
vigorously defend its position by requesting that the court release the
stock for payment of all alleged claims as was originally intended.
Additionally, the Company's management does not expect that the results of
this legal proceeding will have a material adverse effect on the Company's
financial condition or results of operations.
The Company has entered into an employment contract with John Diaz, the
principal of the company involved in the asset purchase discussed in Note
5. The agreement provides that Mr. Diaz will be compensated with a gross
annual salary of $65,000. Additionally, Mr. Diaz will receive the
Company's restricted common stock valued at $150,000 in the event Mr. Diaz
brings to the Company $1,000,000 worth of new business within one year of
the date of execution of the Asset Purchase Agreement between the Company
and Vidatel. This incentive is subject to such new business being
generated by Mr. Diaz's sole sales efforts.
The Company had entered into a three-year employment contract with Michael
Callihan. The agreement provides that Mr. Callihan shall be compensated
with a gross annual salary of $70,000 for the initial year with raises of
not less than ten percent per year on the first and second anniversaries
of the effective date. In addition to the annual salary, the employee
shall be entitled to receive commissions equal to one percent for the
first year and one-half of one percent for the second year of the purchase
price of any acquisition brought to the Company's attention while Mr.
Callihan is employed by the Company. Mr. Callihan voluntarily resigned his
position with the Company thus negating the employment contract.
Subsequent to his resignation, Mr. Callihan has brought suit against the
Company alleging fraud. The Company intends to vigorously defend its
position and does not expect this proceeding to have a material adverse
effect on the Company's financial condition or results of operations.
17
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
During November 1998, the Company entered into a one-year
investor-relations contract with Investments 101, Ltd. (Investments).
Investments was to provide a variety of services including but not limited
to advertising, public relations, and the normal maintenance of the
Company's web page in exchange for 50,000 shares of the Company's
restricted common stock. The contract was terminated in January 1999.
(see Note 14).
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES: (continued)
The Company now leases its primary office space for $1,259 per month under
a month to month lease. For the years ended December 31, 1998 and 1997,
rental expenses of $15,108 and $4,792 were incurred, respectively. As a
result, there are no future obligations under this lease agreement.
Subsequent to December 31, 1998, the Company has entered into a long-term
lease agreement with 2000 North Loop, L.P. for its office space. (see Note
14)
Future minimum payments under this subsequent lease agreement are as
follows:
DECEMBER 31, AMOUNT
------------ ---------------
1999 $ 56,504
2000 86,708
2001 87,684
2002 89,628
2003 30,200
---------------
Totals $ 350,724
===============
As a result of the acquisition of Archer Mickelson Technologies, LLC (see
Note 14), the Company now leases an office warehouse located at 5250
Gulfton, Suite 2E, Houston Texas 77081. The lease is a three-year lease
ending September 30, 2001 with fixed monthly payments of $985.
Future minimum payments under this lease agreement are as follows:
DECEMBER 31, AMOUNT
------------ ---------------
1999 $ 7,880
2000 11,820
2001 8,865
---------------
Totals $ 28,565
===============
NOTE 14 - SUBSEQUENT EVENTS:
In April 1999, the Company completed a private placement of its common
stock in accordance with Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended. This
18
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
private placement was completed with the Company having issued 3,105,000
shares of common stock for $981,250 cash and $18,750 in services
performed.
Subsequent to December 31, 1998, the Company has entered into a
non-cancelable lease for its office space with 2000 North Loop, L.P. This
forty-eight(48) month lease will commence May 1, 1999 and expire April 30,
2003. The initial monthly payment under this agreement will be in the
amount of $7,063 which will be increased by 3.45% over the base year
during the second and forth years annually.
NOTE 14 - SUBSEQUENT EVENTS: (continued)
The Company has formed two wholly owned subsidiaries; ClearWorks
Residential Services, Inc. and ClearWorks Commercial Services, Inc. These
two newly created entities will service the operations of the residential
and commercial markets, respectively, for their parent, ClearWorks.net,
Inc.
In April 1999, the Company sold an additional one million restricted
shares of the Company's common stock through a private placement. In
exchange for these shares, the Company received one million dollars.
As stated in Note 13, the Company terminated its contract with Investments
(a public relations firm) because the Company believed Investments was not
performing according to the contract. As a result, Investments returned
the initial 50,000 shares of the Company's restricted common stock in
exchange for 12,500 shares of the Company's restricted common stock and
$3,580 in cash.
On April 30, 1999, the Company acquired Archer Mickelson Technologies
L.L.C. (Archer), a systems-integration firm located in Houston, Texas, in
a business transaction accounted for as a purchase. In exchange for one
hundred percent ownership of Archer, the Company paid $50,000 in cash and
issued 75,000 shares of its restricted common stock to the sole member.
The total cost of the transaction was $130,500, which exceeded fair market
value of the net assets of Archer by $76,183. The excess will be treated
as goodwill and amortized using the straight-line method over a period of
five (5) years.
The Company has been named as a defendant in a lawsuit involving a former
employee of the Company. The suit alleges breach of contract. The Company
intends to vigorously defend its position.
The Company has entered into an agreement with Merger Communications
(Merger), a public relations consultant, whereby Merger will develop,
implement, and maintain an ongoing program to increase the investment
community's awareness of the Company's activities and to stimulate
19
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
the investment community's interest in the Company. As compensation for
these services, Merger will be paid in cash and common stock as outlined
in the agreement.
The Company has entered into an agreement with Castle Developments, Ltd.
(Castle), a management-consulting firm, whereby Castle will provide
management consulting and advisory services. As compensation for these
services, Castle will be paid in cash and common stock as outlined in the
agreement.
NOTE 14 - SUBSEQUENT EVENTS: (continued)
Subsequent to December 31, 1998, the Company signed a letter of intent to
acquire Link Two Communications, Inc. Link Two Communications, Inc. is a
leading provider of two-way paging systems. The terms and conditions of
the letter have not yet been disclosed and are subject to expiration on
June 30, 1999 if not executed.
Subsequent to December 31, 1998, the Company was in negotiation to borrow
funds through the issuance of a convertible note payable to KMA
Investments. The initial note is anticipated to be in the amount of
$801,512, to carry interest at the rate of twelve percent per annum, and
to be payable on or before July 9, 2000. It also is anticipated that for
the thirty day period beginning July 9, 2000, the note will be
convertible, at the note-holder's option, into the Company's common stock
at the rate of one share of common stock for every $1.375 of principal and
accrued interest.
On May 12, 1999, the Company adopted a stock option plan (Plan) which
provides for the granting to officers and key employees of the Company
options to acquire stock in the Company. Such plan is intended to qualify
as "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986 as well as certain other options to purchase
shares of Common Stock which are not intended to receive special income
tax treatment under the Code. Adoption and approval of the plan by the
stockholders is currently pending and will be voted on at a stockholders
meeting to be held in late 1999. Subject to approval by the shareholders
of the Company, the Board reserved for issuance upon the exercise of stock
options granted pursuant to the Plan ten million (10,000,000) shares of
common stock. Shannon McLeroy and Michael McClere were appointed to act as
the members of the Stock Option Committee of the Board of Directors for
the purpose of administering the Plan and, commencing on the date of
adoption by the Board of the Plan and until otherwise provided by
resolutions of the Board of Directors and subject to the approval by the
shareholders of the Company of the Plan, such Stock Option Committee shall
have all the powers and exercise all the duties conferred upon it by the
Plan.
20
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS JUNE 30, 1999 JUNE 30, 1998
------------- -------------
Current assets:
Cash ........................................ $ 101,000 $ 73,000
Accounts receivable:
Trade, net ............................... 760,000 52,000
Other .................................... 66,000 3,000
Note receivable ............................. 200,000 0
Inventories ................................. 34,000 0
Prepaid expenses ............................ 4,000 0
------------- -------------
1,165,000 128,000
------------- -------------
Property and equipment:
Operating equipment ...................... 1,520,000 97,000
Furniture, fixtures and equipment ........ 87,000 6,000
------------- -------------
1,607,000 103,000
Accumulated depreciation .................... (34,000) 0
------------- -------------
1,573,000 103,000
------------- -------------
Other assets:
Goodwill ................................. 699,000 497,000
Less accumulated amortization ............ (136,000) (16,000)
Other .................................... 27,000 2,000
------------- -------------
590,000 483,000
------------- -------------
$ 3,328,000 $ 714,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ..................... $ 587,000 $ 1,000
Accrued expenses ............................ 62,000 14,000
Current maturities of long-term debt ........ 14,000 157,000
Note payable, shareholder ................... 0 52,000
------------- -------------
663,000 224,000
------------- -------------
Long-term debt, net of current
maturities ................................... 48,000 0
------------- -------------
Shareholders' equity:
Common stock, $.001 par value;
50,000,000 shares authorized;
16,958,159 and 8,030,210 shares
issued and outstanding at
June 30, 1999 and 1998, respectively ..... 17,000 8,000
Paid-in capital ............................. 3,179,000 515,000
Retained deficit ............................ (579,000) (33,000)
------------- -------------
2,617,000 490,000
------------- -------------
$ 3,328,000 $ 714,000
============= =============
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ........................... $ 594,000 $ 1,025,000 $ 179,000 $ 315,000
Cost of goods sold:
Materials and supplies ........... 232,000 270,000 2,000 35,000
Direct labor and related costs ... 240,000 293,000 178,000 215,000
Depreciation ..................... 10,000 21,000 0 0
Other manufacturing costs ........ 16,000 55,000 2,000 5,000
------------ ------------ ------------ ------------
498,000 639,000 182,000 255,000
------------ ------------ ------------ ------------
Gross profit (loss) ................ 96,000 386,000 (3,000) 60,000
------------ ------------ ------------ ------------
Selling, general and administrative:
Salaries and related expenses .... 106,000 163,000 3,000 6,000
Advertising and promotion ........ 9,000 15,000 1,000 6,000
Interest and other ............... 8,000 13,000 0 0
Incentive compensation ........... 134,000 134,000 0 0
Other support costs .............. 262,000 296,000 27,000 38,000
Depreciation and amortization .... 34,000 65,000 16,000 16,000
------------ ------------ ------------ ------------
553,000 686,000 47,000 66,000
------------ ------------ ------------ ------------
Income (loss) from operations before
income taxes ..................... (457,000) (300,000) (50,000) (6,000)
Provision for income taxes ......... 0 0 0 0
------------ ------------ ------------ ------------
Net income (loss) .................. $ (457,000) $ (300,000) $ (50,000) $ (6,000)
============ ============ ============ ============
Earnings per share:
Basic (Note 2) ................... $ (.03) $ (.02) $ (.01) $ NIL
Diluted (Note 2) ................. $ (.03) $ (.02) $ (.01) $ NIL
</TABLE>
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $ (457,000) $ (300,000) $ (50,000) $ (6,000)
------------ ------------ ------------ ------------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ..................... 44,000 86,000 16,000 16,000
Stock issued for compensation and services ........ 104,000 104,000 0 0
(Increase) decrease in accounts receivable ........ (301,000) (601,000) 36,000 23,000
Increase in notes receivable ...................... (200,000) (200,000) 0 0
Decrease in deferred advertising .................. 0 5,000 0 0
(Increase) decrease in prepaid expenses ........... 40,000 (4,000) 0 0
Increase in inventories ........................... 0 (22,000) 0 0
(Increase) decrease in deposits ................... (27,000) (25,000) 0 (1,000)
Increase (decrease) in accounts payable ........... 498,000 577,000 1,000 (16,000)
Increase (decrease) in accrued expenses ........... (25,000) (154,000) 4,000 0
------------ ------------ ------------ ------------
Total adjustments .................................... 133,000 (234,000) 57,000 22,000
------------ ------------ ------------ ------------
Net cash provided (used) by operating activities ....... (324,000) (534,000) 7,000 16,000
Cash flows from investing activities:
Cash received during acquisition .................. 15,000 15,000 14,000 14,000
Acquisitions ...................................... (50,000) (50,000) (40,000) (40,000)
Capital expenditures .............................. (805,000) (1,215,000) (81,000) (80,000)
Purchase of property and equipment ................ (121,000) (124,000) (3,000) (5,000)
------------ ------------ ------------ ------------
Net cash used by investing activities .................. (961,000) (1,374,000) (110,000) (111,000)
Cash flows from financing activities:
Borrowings against notes payable .................. 41,000 51,000 169,000 169,000
Repayments of notes payable ....................... (52,000) (57,000) (5,000) (5,000)
Proceeds from common stock sales, net ............. 944,000 1,853,000 0 0
------------ ------------ ------------ ------------
Net cash provided by financing activities .............. 933,000 1,847,000 164,000 164,000
Net increase (decrease) in cash ........................ (352,000) (61,000) 61,000 69,000
Cash at the beginning of the period ...................... 453,000 162,000 12,000 4,000
------------ ------------ ------------ ------------
Cash at the end of the period ............................ $ 101,000 $ 101,000 $ 73,000 $ 73,000
============ ============ ============ ============
Supplemental disclosures of cash flow Information:
Interest paid .................................... $ 9,000 $ 14,000 $ 0 $ 0
Taxes paid ....................................... $ 0 $ 0 $ 0 $ 0
Supplemental disclosures of non-cash investing activities:
Fair value of assets acquired ..................... $ 95,000 $ 95,000 $ 462,000 $ 462,000
Fair value of capital stock issued ................ $ 60,000 $ 60,000 $ 454,000 $ 454,000
Liabilities assumed ............................... $ 35,000 $ 35,000 $ 17,000 $ 17,000
</TABLE>
<PAGE>
CLEARWORKS.NET, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OF RETAINED TOTAL
COMMON COMMON PREFERRED PAID-IN EARNINGS SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) EQUITY
------------ ------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 ............... $ 6,250,000 $ 6,000 $ 0 $ (5,000) $ 8,000 $ 9,000
------------ ------- --------- ----------- --------- -------------
Conversion from LLC to C-Corp ... 35,000 (35,000) 0
Stock issued for merger with
Southeast Tire Recycling, Inc. . 1,543,960 2,000 (2,000) 0
Stock issued for acquisitions:
InfraResources, L.L.C ......... 80,000 165,000 165,000
Team Renaissance, Inc. ........ 156,250 322,000 322,000
Net income as of June 30,1998 ... (6,000) (6,000)
------------ ------- --------- ----------- --------- -------------
Total shareholders' equity
as of June 30, 1998 ............ 8,030,210 $ 8,000 $ 0 $ 515,000 $ (19,000) $ 76,000
============ ======= ========= =========== ========= =============
December 31, 1998 ............... 11,460,249 $11,000 $ 0 $ 1,153,000 $(279,000) $ 885,000
------------ ------- --------- ----------- --------- -------------
Stock issued for acquisition
of Archer-Mickelson Tech.,L.L.C 75,000 75,000 75,000
Stock issued for cash ........... 4,132,500 4,000 1,849,000 1,853,000
Stock issued for incentive
compensation ................... 375,000 1,000 93,000 94,000
Stock issued for syndication
costs at $.25 per share ......... 945,410 1,000 (1,000) 0
Stock issued for services ....... 30,000 (10,000) (10,000)
Stock cancelled ................. (60,000) --
Net loss as of June 30, 1999 .... (300,000) (300,000)
------------ ------- --------- ----------- --------- -------------
Total shareholders' equity
as of June 30, 1999 ....... 16,958,159 $17,000 $ 0 $ 3,179,000 $(579,000) $ 2,617,000
============ ======= ========= =========== ========= =============
</TABLE>
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1. General
The unaudited financial statements included herein for the Company for
the three month and six month periods ended June 30, 1999 and 1998 have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission and include all adjustments which are, in the opinion of
management, necessary for a fair presentation. Certain information and footnote
disclosures required by generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These financial
statements should be read in conjunction with the audited financial statements
and related notes thereto included with this filing for the annual periods ended
December 31, 1998 and 1997.
The results for interim periods are not necessarily indicative of
trends or of results to be expected for the full year.
Note 2. Net Earnings Per Common Share
Net earnings per common share is shown as both primary and fully
diluted. Primary earnings per common share are computed by dividing net income
less any preferred stock dividends (if applicable) by the weighted average
number of shares of common stock outstanding. Fully diluted earnings per common
share are computed by dividing net income less any preferred stock dividends (if
applicable) by the weighted average number of shares of common stock outstanding
plus any dilutive common stock equivalents.
The following table sets for the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------------------- ----------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) ......... $ (300,000) $ (300,000) $ (6,000) $ (6,000)
Denominator:
Weighted average shares 14,473,856 16,522,356 7,100,730 8,100,730
Earnings per share ........ $ (.02) $ (.02) NIL NIL
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
---------------------------- ----------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------ ------------
Numerator:
Net loss .............. $ (457,000) $ (457,000) $ (50,000) $ (50,000)
Denominator:
Weighted average shares 14,473,856 16,522,356 7,100,730 8,100,730
Earnings per share ....... $ (.03) $ (.03) $ (.01) $ (.01)
</TABLE>
For the periods ended June 30, 1999 and 1998, no anti-dilutive
securities existed.
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
Note 3. Issuance of Common Stock
During the six month period ended June 30, 1999, the Company issued
5,497,910 shares of common stock. The following table summarizes the shares of
common stock issued:
Shares outstanding December 31, 1998 ............. 11,460,249
-----------
Shares issued for cash ....................... 4,132,500
Shares issued for acquisitions ............... 75,000
Shares issued for services ................... 975,410
Shares issued for incentive compensation ..... 375,000
Shares cancelled ............................. (60,000)
-----------
Shares outstanding June 30, 1999 ................. 16,958,159
The Company issued 4,132,500 shares of its common in two separate
issuances. The first issuance was in accordance with the transactional exemption
from registration afforded by Rule 504 of Regulation D, as promulgated under
Section 3(b) of the Act. The second issuance was to two entities, neither of
which is a director or executive officer of the Company, for cash consideration
of $500,000 each or an aggregate of $1,000,000.
The Company issued 75,000 shares of its restricted common stock for the
acquisition of Archer Mickelson Technologies, Inc.
The Company issued 975,410 shares of its common stock to certain
persons or entities as compensation for services performed on behalf of the
Company.
The Company issued 375,000 shares of its restricted common stock to
certain employees of the Company as incentive compensation for services under
the Company's incentive compensation plan.
There were 60,000 shares of common stock returned to the Company, which
were cancelled.
Note 4. Business Combinations
On May 14, 1999, the Company acquired Archer Mickelson Technologies,
LLC ("Archer") a systems integration firm located in Houston, Texas. In exchange
for one hundred percent (100%) of the membership interests of Archer, the
Company paid $50,000 in cash and issued 75,000 shares of its restricted common
stock to the sole member. The total purchase price paid for this acquisition was
$130,500. Additionally, goodwill in the approximate amount of $76,000 resulted
from this transaction. The Company amortizes goodwill using the straight-line
method over a five (5) year period.
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
The following pro forma (unaudited) information assumes the
transactions related to InfraResources, LLC; Team Renaissance, Inc.; Vitadel
Communications and Archer Mickelson Technologies, LLC had occurred on January 1,
1998:
1998 Pro Forma Information
<TABLE>
<CAPTION>
TEAM ARCHER PRO FORMA 6/30/98
CLEARWORKS.NET INFRARESOURCES RENAISSANCE VIDATEL MICKELSON ADJUSTMENT COMBINED
-------------- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .......... $ 315,000 $ 333,000 $ 145,000 $ 165,000 $ 285,000 $ 1,243,000
Cost of sales ..... 255,000 249,000 129,000 120,000 185,000 938,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit ...... 60,000 84,000 16,000 45,000 100,000 -- 305,000
Operating expenses 66,000 92,000 71,000 5,000 74,000 53,000 361,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) . $ (6,000) $ (8,000) $ (55,000) $ 40,000 $ 26,000 $ (53,000) $ (56,000)
=========== =========== =========== =========== =========== =========== ===========
Earnings per share:
Basic $ (0.01)
Diluted $ (0.01)
</TABLE>
1999 Pro Forma Information
ARCHER PRO FORMA 6/30/99
CLEARWORKS.NET MICKELSON ADJUSTMENT COMBINED
-------------- --------- ----------- ----------
Revenues ................ $ 1,025,000 $ 209,000 $1,234,000
Cost of sales ........... 639,000 144,000 783,000
----------- --------- ----------- ----------
Gross profit ............ 386,000 65,000 451,000
Operating expenses ...... 686,000 84,000 5,000 775,000
----------- --------- ----------- ----------
Net income (loss) ....... $ (300,000) $ (19,000) $ (5,000) $ (324,000)
=========== ========= =========== ==========
Earnings per share:
Basic ................. $ (0.02) $ (0.02)
Diluted ............... $ (0.02) $ (0.02)
Note 5. Subsequent Events
The Company entered into a letter of intent to acquire Link Two
Communications, Inc., a leading provider of two-way paging systems. The letter
of intent expired under its own terms on June 30, 1999.
On August 4, 1999, the Company borrowed $801,512 from KMA Investments
and issued a convertible note payable to KMA Investments. The note carries a
twelve percent (12%) rate per annum and is payable on or before July 9, 2000. At
maturity, the holder of the note has the right to convert the principal and
unpaid interest of the note into restricted Company common stock.
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARY
PRO FORMA FINANCIAL STATEMENTS - DECEMBER 31, 1998
During the fiscal year ended December 31, 1998 the Company acquired
InfraResources LLC, and Team Renaissance, Inc. in transactions accounted for as
purchases. These transactions occurred on May 26, 1998 and May 29, 1998,
respectively. Additionally, the Company acquired the assets of Vidatel
Communications on November 19, 1998.
Additionally, on April 30, 1999, The Company acquired Archer Mickelson
Technologies LLC in a transaction accounted for as a purchase.
The following summarized pro forma (unaudited) information assumes the
aforementioned transactions occurred on January 1, 1998. The information below
presents operations for InfraResources, Team Renaissance, Vidatel
Communications, and Archer Mickelson prior to acquisition; April 30, 1998; April
30, 1998; October 31, 1998; and December 31, 1998, respectively. Operations
subsequent to acquisition are included in the Clearworks column.
<TABLE>
<CAPTION>
1998
INFRA TEAM VIDATEL ARCHER PRO FORMA COMBINED
CLEARWORKS RESOURCES RENAISSANCE COMM. MICKELSON ADJUSTMENTS TOTALS
----------- --------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
Integration Services .............. $ 486,331 $ 257,653 $ 11,334 $ 200,243 $ 1,051,498 $ 0 $ 2,007,059
Network Cabling and Wiring ........ 555,550 75,635 133,817 0 0 0 765,002
Software Administration ........... 48,334 0 0 0 0 0 48,334
----------- --------- ----------- --------- ----------- ----------- -----------
Total Revenues ................ 1,090,215 333,288 145,151 200,243 1,051,498 0 2,820,395
COST OF GOODS SOLD
Materials and Supplies ............ 50,145 0 53,466 88,269 718,505 0 910,385
Direct Labor and Related Costs .... 975,019 248,768 75,827 51,163 0 0 1,350,777
Depreciation and Amortization ..... 13,169 0 0 0 0 0 13,169
Other Manufacturing Costs ......... 15,783 0 0 0 0 0 15,783
----------- --------- ----------- --------- ----------- ----------- -----------
Total Cost of Goods Sold ...... 1,054,116 248,768 129,293 139,432 718,505 0 2,290,114
----------- --------- ----------- --------- ----------- ----------- -----------
GROSS PROFIT ........................... 36,099 84,520 15,858 60,811 332,993 0 530,281
----------- --------- ----------- --------- ----------- ----------- -----------
OPERATING EXPENSES
Salaries and Related Costs ....... 12,235 41,554 42,138 0 198,721 0 294,648
Advertising and Promotion ......... 21,421 8,508 1,341 0 0 0 31,270
Depreciation and Amortization ..... 70,523 1,673 3,126 2,796 4,767 69,329 * 152,214
Other Support Costs ............... 174,176 37,469 20,791 11,184 80,006 0 323,626
----------- --------- ----------- --------- ----------- ----------- -----------
Total Operating Expenses ...... 278,355 89,204 67,396 13,980 283,494 69,329 801,758
----------- --------- ----------- --------- ----------- ----------- -----------
EARNINGS / (LOSS) FROM OPERATIONS BEFORE
OTHER EXPENSES AND INCOME TAXES ... (242,256) (4,684) (51,538) 46,831 49,499 (69,329) (271,477)
OTHER INCOME / (EXPENSES)
Interest Income / (Expense) - net . (10,060) (3,633) (4,292) (1,008) (1,136) 0 (20,129)
----------- --------- ----------- --------- ----------- ----------- -----------
Total Other Expenses .......... (10,060) (3,633) (4,292) (1,008) (1,136) 0 (20,129)
----------- --------- ----------- --------- ----------- ----------- -----------
EARNINGS / (LOSS) BEFORE INCOME TAXES .. (252,316) (8,317) (55,830) 45,823 48,363 (69,329) (291,606)
Provision For Income Taxes ........ 0 0 0 0 (7,254) 0 (7,254)
----------- --------- ----------- --------- ----------- ----------- -----------
NET EARNINGS / (LOSS) .................. $ (252,316) $ (8,317) $ (55,830) $ 45,823 $ 41,109 $ (69,329) $ (298,860)
=========== ========= =========== ========= =========== =========== ===========
Earnings Per Share:
Basic ........................... $ (0.03) $ (0.04)
Diluted ......................... $ (0.03) $ (0.03)
</TABLE>
* The pro forma adjustment in the amount of $69,329 is attributable to
goodwill created during each of the acquisitions. This number adjusts the
overall pro forma information for amortization expense of goodwill as if
the goodwill were in existance at January 1, 1998. Individual adjustments
of $13,659; $19,479; $20,953; and $15,238 respectively represents
amortization expense for InfraResources, Team Renaissance, Vidatel
Communications, and Archer Mickelson as per the aforementioned time
periods.
<PAGE>
CLEARWORKS.NET, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS - JUNE 30, 1999
During May 1999, the Company acquired Archer Mickelson Technologies, LLC a
systems integration firm located in Houston, Texas. The following summarized pro
forma (unaudited) information assumes this transaction occurred on January 1,
1999. The information below presents operations for Archer Mickelson prior to
the acquisition date of May 1999.
<TABLE>
<CAPTION>
ARCHER PRO FORMA JUNE 30, 1999
CLEARWORKS.NET MICKELSON ADJUSTMENT COMBINED
-------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues ........................... $ 1,025,000 $ 209,000 -- $ 1,234,000
Cost of goods sold:
Materials and supplies ........... 270,000 134,000 -- 404,000
Direct labor and related costs ... 293,000 10,000 -- 303,000
Depreciation ..................... 21,000 -- -- 21,000
Other manufacturing costs ........ 55,000 -- -- 55,000
-------------- --------- ---------- -------------
639,000 144,000 -- 783,000
-------------- --------- ---------- -------------
Gross profit ....................... 386,000 65,000 -- 451,000
Selling, general and administrative:
Salaries and related expenses .... 163,000 53,000 -- 216,000
Advertising and promotion ........ 15,000 -- -- 15,000
Interest and other ............... 13,000 -- -- 13,000
Incentive compensation ........... 134,000 -- -- 134,000
Other support costs .............. 296,000 30,000 -- 326,000
Depreciation and amortization .... 65,000 1,000 5,067 (1) 71,067
-------------- --------- ---------- -------------
686,000 84,000 5,067 775,067
-------------- --------- ---------- -------------
Loss from operations before
income taxes ..................... (300,000) (19,000) (5,067) (324,067)
Provision for income taxes ......... -- -- -- --
-------------- --------- ---------- -------------
Net loss ........................... $ (300,000) $ (19,000) $ (5,067) $ (324,067)
============== ========= ========== =============
Earnings per share:
Basic ............................ $ (0.02) -- -- $ (0.02)
Diluted .......................... $ (0.02) -- -- $ (0.02)
</TABLE>
(1) The pro forma adjustment in the amount of $5,067 is attributable to
goodwill created during the acquisition. This number adjusts the overall
pro forma information for amortization expense of goodwill as if the
goodwill were in existance at January 1, 1999.
<PAGE>
- --------------------------------------------------------------------------------
INFRARESOURCES, LLC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
------
Independent Accountant's Report.......................................... 1
Balance Sheet............................................................ 2
Statement of Operations Members' Equity.................................. 3
Statement of Cash Flows.................................................. 4
Notes to the Financial Statements........................................ 5 - 7
i
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF INFRARESOURCES, LLC.:
We have audited the accompanying balance sheet of InfraResources, LLC. as of
December 31, 1997 and the related statements of operations, members' equity, and
cash flows for the year ended December 31, 1997. These financial statements are
the responsibility of InfraResources, LLC.'s management. Our responsibility is
to express an opinion on these financial statements based on our audit.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of
InfraResources, LLC. as of December 31, 1997 and the results of their
operations, members' equity, and their cash flows for the year ended December
31, 1997 are in conformity with generally accepted accounting principles.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
September 1, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10SB Registration Statement of our
report dated September 1, 1999 on our audit of the financial statements of
InfraResources, LLC. We also consent to the reference to our firm under the
caption "Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
- --------------------------------------------------------------------------------
INFRARESOURCES, LLC
BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash .......................................................... $ 5,439
Accounts Receivable - net (Note 2) ............................ 128,010
Prepaid Expenses .............................................. 13,606
-----------
Total Current Assets ....................................... 147,055
-----------
PROPERTY AND EQUIPMENT: (NOTE 1)
Computers and Equipment ....................................... 15,061
Less: Accumulated Depreciation ............................. (837)
-----------
Total Property and Equipment ............................... 14,224
-----------
OTHER ASSETS:
Employee Advances ............................................. 3,500
-----------
Total Other Assets ......................................... 3,500
-----------
TOTAL ASSETS .................................................. $ 164,779
===========
- --------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ......................... $ 4,818
Line of Credit Payable (Note 3) ............................... 40,000
Advance From Member (Note 5) .................................. 105,000
-----------
Total Current Liabilities .................................. 149,818
-----------
Total Liabilities ............................................. 149,818
-----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 6)
MEMBERS' EQUITY
Members' Equity ............................................... 14,961
-----------
Total Members' Equity ...................................... 14,961
-----------
TOTAL LIABILITIES AND MEMBERS' EQUITY ......................... $ 164,779
===========
See Accompanying notes to the financial statements.
2
<PAGE>
- --------------------------------------------------------------------------------
INFRARESOURCES, LLC
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INCOME:
Revenues ................................................. $ 1,013,700
Less: Cost of Goods Sold ................................. 740,206
-----------
Gross Profit ........................................... 273,494
-----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Advertising .............................................. 18,327
Commissions .............................................. 3,108
Data Processing .......................................... 4,891
Dues & Subscriptions ..................................... 1,500
Insurance Expense ........................................ 34,865
Interest Expense ......................................... 6,208
Miscellaneous ............................................ 2,574
Office Expenses .......................................... 13,728
Outside Services ......................................... 3,691
Payroll and Associated Costs ............................. 149,482
Postage and Delivery ..................................... 407
Professional Fees ........................................ 7,918
Rent Expense ............................................. 13,500
Repairs and Maintenance .................................. 117
Telephone and Utilities .................................. 3,863
Travel and Entertainment ................................. 6,919
Bad Debt Expense ......................................... 4,323
Depreciation and Amortization ............................ 837
-----------
Total General and Administrative Expenses .............. 276,258
-----------
NET LOSS ................................................... (2,764)
MEMBERS' EQUITY BEGINNING OF YEAR .......................... 17,725
-----------
MEMBERS' EQUITY END OF YEAR ................................ $ 14,961
===========
See Accompanying notes to the financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
INFRARESOURCES, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Operating Activities:
Net Loss ....................................................... $ (2,764)
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities:
Depreciation ................................................. 837
Increase in Accounts Receivable .............................. (76,744)
Increase in Prepaid Expenses ................................. (12,674)
Increase in Employee Advances ................................ (3,500)
Decrease in Accounts Payable and Accrued Expenses ............ (10,105)
---------
Net Cash Provided by Operating Activities ................. (104,950)
---------
Investing Activities:
Purchase of Property and Equipment ........................... (15,061)
---------
Net Cash Used for Investing Activities .................... (15,061)
---------
Financing Activities:
Increase in Advance From Member .............................. 80,000
Increase in Line of Credit ................................... 40,000
---------
Net Cash Provided by Financing Activities ................. 120,000
---------
Net Increase In Cash ........................................... (11)
Cash Beginning of Year ......................................... 5,450
---------
Cash End of Year ............................................... $ 5,439
=========
Additional Disclosure of Operating Cash Flow
Cash paid during the year ended December 31, 1997
Interest Expense ...... $ 6,208
Income Taxes .......... $ 0
See Accompanying notes to the financial statements.
4
<PAGE>
INFRARESOURCES, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
InfraResources, LLC. (the Company), was organized as a limited liability
company under the Texas Limited Liability Company Act on October 1, 1996.
The Company is a leading provider of business and information technology
solutions.
A) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting and accelerated methods for income tax purposes. The recovery
classifications for these assets are listed as follows:
YEARS
-----
COMPUTERS AND EQUIPMENT 3
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
B) Income Taxes
The Company was organized as a limited liability corporation. Under the
corresponding provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a net operating loss
carryover or carry-back as a deduction. Rather, the members are liable for
individual federal income taxes on their respective interests of income
and include their respective interests of the Company's net operating loss
on their individual income tax returns.
C) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be recognized when the estimated
non-discounted future cash flows are less than the carrying amount of the
asset. If an asset deemed to be impaired, the asset's recorded value would
be reduced to fair value. In determining the amount of the charge to be
recorded, the following methods would be utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on variation techniques.
At December 31, 1997, no impairment existed.
D) 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 asset 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.
5
<PAGE>
INFRARESOURCES, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
December 31,
1997
------------
Accounts Receivable .............. $ 132,333
Allowance for Doubtful Accounts .. (4,323)
------------
Net Accounts Receivable .......... $ 128,010
============
NOTE 3 - LINE OF CREDIT:
The Company has a revolving line of credit with Sterling Bank in the
amount of $500,000. The line of credit originated on December 29, 1997 and
bears interest at Sterling Bank's base rate. The rate at December 31, 1997
was 9.5% with an outstanding balance of $40,000.
NOTE 4 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $1,013,700 for the year ended December
31, 1997. The following parties individually represent a greater than ten
percent of these revenues.
DECEMBER 31, 1997
------------------------
CUSTOMER AMOUNT PERCENTAGE
-------- ----------
Enron Corp. .................. $915,608 90.0 %
NOTE 5 - RELATED PARTY TRANSACTIONS:
On December 13, 1996, Bannon Energy Incorporated, a Member of the Company,
advanced the Company $10,000. Subsequent to the initial advancement,
Bannon has advanced additional monies as needed. The advancement bears
interest at eight percent and is payable upon demand. At December 31,
1997, an outstanding balance of $105,000 existed.
The Company maintains a service agreement with Bannon Energy Incorporated
in regards to its office lease. (see Note 6)
6
<PAGE>
INFRARESOURCES, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company rents its office space under a three-year service agreement
with Bannon Energy Incorporated. The lease, commencing on October 1, 1996,
may be terminated upon a thirty day written notice from either party. The
Company is responsible for its allocated share of the lessors office lease
expense and various administrative expenses. The rent expense was $1,000
per month.
Future minimum payments under this lease service agreement are as follows:
DECEMBER 31, AMOUNT
------------ -------
1998 ........................ $12,000
1999 ........................ 9,000
-------
Totals .................. $21,000
=======
NOTE 7 - SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, the Company has been acquired by
Clearworks.net, Inc. in a transaction accounted for as a purchase.
As a result of the aforementioned acquisition, the outstanding advancement
payable to Bannon Energy Incorporated in the amount of $105,000 has been
forgiven.
7
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF CLEARWORKS.NET, INC.:
We have audited the accompanying balance sheet of InfraResources, LLC. at
December 31, 1996 and the related statements of operations, members' equity, and
cash flows for the period October 1, 1996 (Date of Inception) to December 31,
1996. These financial statements are the responsibility of InfraResources,
LLC.'s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of
InfraResources, LLC. as of December 31, 1996 and the results of their
operations, members' equity, and their cash flows for the period ended December
31, 1996 are in conformity with generally accepted accounting principles.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
October 4, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10SB Registration Statement of our
report dated October 4, 1999 on our audit of the financial statements of
InfraResources, LLC. We also consent to the reference to our firm under the
caption "Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
- --------------------------------------------------------------------------------
INFRARESOURCES, LLC.
BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash .................................................... $ 5,450
Accounts Receivable - net (Note 2) ...................... 51,266
Prepaid Expenses ........................................ 932
-------
Total Current Assets ............................ 57,648
-------
PROPERTY AND EQUIPMENT: ......................................... 0
-------
OTHER ASSETS: ................................................... 0
-------
TOTAL ASSETS ............................................ $57,648
=======
- --------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ................... $14,923
Advance From Member (Note 4) ............................ 25,000
-------
Total Current Liabilities ....................... 39,923
-------
Total Liabilities ....................................... 39,923
-------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 5)
MEMBERS' EQUITY
Members' Equity ......................................... 17,725
-------
Total Members' Equity ........................... 17,725
-------
TOTAL LIABILITIES AND MEMBERS' EQUITY ................... $57,648
=======
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
INFRARESOURCES, LLC.
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE PERIOD OCTOBER 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INCOME:
Revenues ................................................. $ 51,266
Less: Cost of Goods Sold ................................. 29,500
--------
Gross Profit ..................................... 21,766
--------
GENERAL AND ADMINISTRATIVE EXPENSES:
Advertising .............................................. 2,072
Insurance Expense ........................................ 8,417
Interest Expense ......................................... 43
Miscellaneous ............................................ 278
Office Expenses .......................................... 707
Outside Services ......................................... 961
Payroll and Associated Costs ............................. 37,005
Postage and Delivery ..................................... 44
Rent Expense ............................................. 2,250
Repairs and Maintenance .................................. 367
Telephone and Utilities .................................. 801
Travel and Entertainment ................................. 1,096
--------
Total General and Administrative Expenses ........ 54,041
--------
NET LOSS ......................................................... (32,275)
MEMBERS' EQUITY BEGINNING OF PERIOD .............................. 0
Capital Contribution ..................................... 50,000
--------
MEMBERS' EQUITY END OF PERIOD .................................... $ 17,725
========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
INFRARESOURCES, LLC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD OCTOBER 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Operating Activities:
Net Loss .......................................................... $(32,275)
Adjustments to Reconcile Net Loss to Net
Cash Used by Operating Activities:
Increase in Accounts Receivable ........................... (51,266)
Increase in Prepaid Expenses .............................. (932)
Decrease in Accounts Payable and Accrued Expenses ......... 14,923
--------
Net Cash Used for Operating Activities ............ (69,550)
--------
Investing Activities: ..................................................... 0
--------
Financing Activities:
Increase in Advance From Member ........................... 25,000
Increase in Capital Contribution .......................... 50,000
--------
Net Cash Provided by Financing Activities ......... 75,000
--------
Net Increase In Cash .............................................. 5,450
Cash Beginning of Period .......................................... 0
--------
Cash End of Period ................................................ $ 5,450
========
</TABLE>
Additional Disclosure of Operating Cash Flow
Cash paid during the period ended December 31, 1996
Interest Expense ........................ $ 43
Income Taxes ............................ $ 0
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
INFRARESOURCES, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
InfraResources, LLC. (the Company), was organized as a limited liability
company under the Texas Limited Liability Company Act on October 1, 1996.
The Company is a leading provider of business and information technology
solutions.
A) Income Taxes
The Company was organized as a limited liability corporation. Under the
corresponding provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a net operating loss
carryover or carry-back as a deduction. Rather, the members are liable for
individual federal income taxes on their respective interests of income
and include their respective interests of the Company's net operating loss
on their individual income tax returns.
B) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be recognized when the estimated
non-discounted future cash flows are less than the carrying amount of the
asset. If an asset deemed to be impaired, the asset's recorded value would
be reduced to fair value. In determining the amount of the charge to be
recorded, the following methods would be utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on variation techniques.
At December 31, 1996, no impairment existed.
C) 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 asset 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.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
December 31,
1996
------------
Accounts Receivable ................................ $51,266
Allowance for Doubtful Accounts .................... - 0 -
-------
Net Accounts Receivable ............................ $51,266
=======
<PAGE>
INFRARESOURCES, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $51,266 for the period ended December
31, 1996. The following parties individually represent a greater than ten
percent of these revenues.
DECEMBER 31, 1996
CUSTOMER AMOUNT PERCENTAGE
-------- -------- ------------
Enron Corp ...................... $39,766 77.6 %
United Steel Fabricator ......... $ 6,000 11.7 %
NOTE 4 - RELATED PARTY TRANSACTIONS:
During December 1996, Bannon Energy Incorporated, a Member of the Company,
advanced the Company $25,000. The advancement bears interest at eight
percent and is payable upon demand. This amount has been repaid on March
11, 1997.
The Company maintains a service agreement with Bannon Energy Incorporated
in regards to its office lease. (see Note 5)
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company rents its office space under a three-year service agreement
with Bannon Energy Incorporated. The lease, commencing on October 1, 1996,
may be terminated upon a thirty day written notice from either party. The
Company is responsible for its allocated share of the lessors office lease
expense and various administrative expenses. Rent expense for the period
ended December 31, 1996 was $2,250.
Future minimum payments under this lease service agreement are as follows:
DECEMBER 31, AMOUNT
------------- -----------
1997 $ 12,000
1998 12,000
1999 9,000
---------
Totals $ 33,000
=========
NOTE 6 - SUBSEQUENT EVENTS:
Subsequent to December 31, 1996, the Company has been acquired by
Clearworks.net, Inc. in a transaction accounted for as a purchase.
<PAGE>
INFRARESOURCES, LLC
BALANCE SHEET
(UNAUDITED)
APRIL 30, 1998 APRIL 30, 1997
-------------- --------------
ASSETS
Current assets:
Cash ....................................... $ 80,000 $ 13,000
Accounts receivable, net ................... 77,000 111,000
Prepaid insurance .......................... 22,000 1,000
-------- --------
179,000 125,000
Property and equipment, net ................ 13,000 0
Other assets ............................... 0 0
-------- --------
$192,000 $125,000
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable, trade .................... $ 40,000 $ 41,000
Line of credit payable ..................... 40,000 0
Advance from Member ........................ 105,000 69,000
-------- --------
185,000 110,000
-------- --------
Long-term debt ............................... 0 0
-------- --------
Members' equity .............................. 7,000 15,000
-------- --------
7,000 15,000
-------- --------
$192,000 $125,000
======== ========
<PAGE>
INFRARESOURCES, LLC
STATEMENTS OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND 1997
(UNAUDITED)
1998 1997
--------- --------
Revenues ..................................... $333,000 $203,000
Cost of goods sold ........................... 249,000 145,000
--------- ---------
Gross profit ................................. 84,000 58,000
--------- ---------
Selling, general and administrative:
Salaries and related expenses .............. 60,000 42,000
Advertising ................................ 9,000 2,000
Rent expense ............................... 7,000 4,000
Insurance .................................. 4,000 5,000
Professional fees .......................... 3,000 4,000
Other office expenses ...................... 4,000 3,000
Depreciation ............................... 2,000 0
--------- ---------
89,000 60,000
--------- ---------
Loss from operations before
interest expense ........................... (5,000) (2,000)
Interest expense ............................. (3,000) (1,000)
--------- ---------
Net loss ..................................... $ (8,000) $ (3,000)
========= =========
<PAGE>
INFRARESOURCES, LLC
STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND 1997
(UNAUDITED)
1998 1997
--------- --------
Cash flows from operating activities:
Net (loss) ......................................... $ (8,000) $ (3,000)
-------- --------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation .................................. 2,000 0
(Increase) decrease in accounts receivable .... 51,000 (59,000)
Increase in prepaid expenses .................. (8,000) 0
Decrease in employee advances ................. 4,000 0
Increase in accounts payable .................. 34,000 26,000
-------- --------
Total adjustments ................................ 83,000 (33,000)
-------- --------
Net cash used by operating activities .............. 75,000 (36,000)
Cash flows from investing activities ................. 0 0
-------- --------
Net cash used by investing activities .............. 0 0
Cash flows from financing activities:
Advances from Member .......................... 0 44,000
-------- --------
Net cash provided by financing activities .......... 0 44,000
Net increase in cash ............................... 75,000 8,000
Cash at the beginning of the period .................. 5,000 5,000
-------- --------
Cash at the end of the period ........................ $ 80,000 $ 13,000
======== ========
Supplemental disclosures of cash flow information:
Interest paid ................................ $ 3,000 $ 1,000
Taxes paid ................................... $ 0 $ 0
<PAGE>
INFRARESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
Note 1. General
The unaudited financial statements included herein for the Company for
the four month periods ended April 30, 1998 and 1997, have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission and include all adjustments which are, in the opinion of management,
necessary for a fair presentation. Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the audited financial statements and related
notes thereto included with this filing for the annual periods ended December
31, 1997 and 1996.
The results for interim periods are not necessarily indicative of trends
or of results to be expected for the full year.
Note 2. Subsequent Events
During May 1998, the Company was acquired by ClearWorks.net, Inc. in a
transaction accounted for as a purchase.
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF TEAM RENAISSANCE, INC.:
We have audited the accompanying balance sheet of Team Renaissance, Inc. at
December 31, 1997 and the related statements of operations, shareholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of Team Renaissance, Inc.'s management. Our responsibility is
to express an opinion on these financial statements based on our audit.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Team
Renaissance, Inc. at of December 31, 1997 and the results of their operations,
shareholders' deficit, and their cash flows for the year ended December 31, 1997
are in conformity with generally accepted accounting principles.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
October 4, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10SB Registration Statement of our
report dated October 4, 1999 on our audit of the financial statements of Team
Renaissance, Inc. We also consent to the reference to our firm under the caption
"Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
BALANCE SHEET
DECEMBER 31,
- --------------------------------------------------------------------------------
ASSETS
1997
---------
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) .......................... $ 18,631
Accounts Receivable - net (Notes 1 & 2) ..................... 39,642
---------
Total Current Assets .................................... 58,273
PROPERTY AND EQUIPMENT (NOTE 1):
Computer Equipment .......................................... 7,954
Furniture & Fixtures ........................................ 10,125
Office Equipment ............................................ 5,908
Less: Accumulated Depreciation .............................. (10,994)
---------
Total Property and Equipment ............................. 12,993
OTHER ASSETS
Security Deposits ........................................... 1,030
---------
Total Other Assets ....................................... 1,030
---------
TOTAL ASSETS ................................................ $ 72,296
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts Payable and Accrued Liabilities .................... $ 8,571
Advance From Shareholder (Note 4) ........................... 69,738
Notes Payable (Note 3) ...................................... 20,812
Sales Taxes Payable ......................................... 4,817
---------
Total Current Liabilities ................................ 103,938
LONG-TERM LIABILITIES: ......................................... 0
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 6)
SHAREHOLDERS' DEFICIT:
Common Stock -- $.01 stated value
Authorized 1,000,000
Issued and Outstanding 500,000 ........................... 5,000
Paid in Capital ............................................. 95,000
Retained Deficit ............................................ (131,642)
---------
Total Shareholders' Deficit .............................. (31,642)
---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT ................. $ 72,296
=========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
STATEMENT OF OPERATIONS
DECEMBER 31,
- --------------------------------------------------------------------------------
1997
---------
NET SALES
Network Cabling and Wiring ............................. $ 103,048
Systems Administration ................................. 292,025
---------
Other Income ........................................... 23,058
---------
Total Sales ......................................... 418,131
COST OF GOODS SOLD
Materials and Supplies ................................. 148,801
Direct Labor and Related Costs ........................ 112,190
Total Cost of Goods Sold ............................ 260,991
---------
GROSS PROFIT .............................................. 157,140
---------
OPERATING EXPENSES
Salaries and Related Expenses ....................... 173,044
Advertising ......................................... 4,868
Bad Debt ............................................ 7,101
Dues and Subscriptions .............................. 984
Equipment ........................................... 2,240
Insurance ........................................... 1,665
Miscellaneous ....................................... 668
Office Expenses ..................................... 2,847
On-line Services .................................... 1,465
Outside Services .................................... 19,658
Postage and Delivery ................................ 681
Printing and Reproduction ........................... 952
Professional Fees ................................... 1,504
Rent - Equipment .................................... 2,949
Rent - Office ....................................... 13,212
Repairs and Maintenance ............................. 343
Taxes ............................................... 763
Telephone ........................................... 8,079
Travel and Entertainment ............................ 20,407
Depreciation Expense ................................ 10,166
---------
Total Operating Expenses ............................ 273,596
---------
EARNINGS/(LOSS) FROM OPERATIONS
BEFORE OTHER INCOME/EXPENSES ........................... (116,456)
OTHER INCOME/(EXPENSES)
Interest Income ........................................ 1,750
Interest Expense ....................................... (6,443)
---------
Total Other Income/(Expenses) ....................... (4,693)
---------
NET LOSS .................................................. $(121,149)
=========
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
STATEMENT OF CASH FLOWS
DECEMBER 31,
- --------------------------------------------------------------------------------
1997
---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ..................................................... $(121,149)
Adjustments To Reconcile Net Loss To Net Cash
Used By Operating Activities:
Depreciation .............................................. 10,166
(Increase)/Decrease in Accounts Receivable ................ 2,349
(Increase)/Decrease in Prepaid Rent ....................... 1,030
Increase/(Decrease) in Accounts Payable
and Accrued Liabilities ................................. 8,571
Increase/(Decrease) in Sales Tax Payable .................. 2,276
---------
Total Adjustments ......................................... 24,392
---------
Net Cash Used By Operating Activities ........................ (96,757)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment ........................ (164)
---------
Net Cash Used By Investing Activities ........................ (164)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(Decrease) in Notes Payable ...................... (5,012)
Increase/(Decrease) in Advance From Shareholder ........... 69,738
---------
Net Cash Provided By Financing Activities .................... 64,726
Net Decrease in Cash ......................................... (32,195)
CASH AT THE BEGINNING OF THE YEAR ............................... 50,826
---------
CASH AT THE END OF THE YEAR ..................................... $ 18,631
=========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest ............................................... $ 6,443
Income Taxes ........................................... $ 0
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TOTAL
DECEMBER 31, 1996 COMMON COMMON PAID IN RETAINED SHAREHOLDERS'
TO DECEMBER 31, 1997 STOCK (SHARES) STOCK CAPITAL DEFICIT EQUITY / (DEFICIT)
- ---------------------------------------- ------------- --------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
December 31, 1996 ...................... 500,000 $ 5,000 $ 95,000 $ (10,493) $ 89,507
--------- --------- --------- --------- ---------
Net Loss as of December 31, 1997 ....... 0 0 0 (121,149) (121,149)
--------- --------- --------- --------- ---------
Total Shareholders' Equity/(Deficit)
As Of December 31, 1997 ....... 500,000 $ 5,000 $ 95,000 $(131,642) $ (31,642)
========= ========= ========= ========= =========
</TABLE>
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Team Renaissance, Inc. (the Company), incorporated as a Texas corporation
and commenced operations on January 26, 1996. The Company is a leading
provider of business and information technology solutions.
A) Cash and Cash Equivalents
At December 31, 1997, the Company has $8,631 in cash located in
non-interest bearing accounts. Additionally, the Company has a $10,000,
three-month certificate of deposit bearing interest at approximately 3.5%.
B) Accounts Receivable
The Company reserves for uncollectable accounts through an allowance for
doubtful accounts. For the year ended December 31, 1997, a reserve of
$7,101 existed.
C) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting purposes. The recovery classifications for these assets are
listed as follows:
YEARS
-----
COMPUTER EQUIPMENT 3
OFFICE EQUIPMENT 3
FURNITURE AND FIXTURES 7
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
D) Income Taxes
The Company has elected to be taxed under the provision of Subchapter S of
the Internal Revenue code. Under those provisions, the Company does not
pay federal corporate income taxes on its taxable income and is not
allowed a net operating loss carryover or carry-back as a deduction.
Instead, the stockholders are liable for individual federal income taxes
on their respective shares of income and include their respective shares
of the Company's net operating loss on their individual income tax
returns.
E) Impairment of Long Lived Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be recognized when the estimated
non-discounted future cash flows are less than the carrying amount of the
asset. If an asset deemed to be impaired, the asset's recorded value would
be reduced to fair value. In determining the amount of the charge to be
recorded, the following methods would be utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on variation techniques.
At December 31, 1997, no impairment existed.
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
F) Advertising and Promotion
All advertising related costs are expensed as incurred. The Company does
not incur any cost for direct-response advertising. For the year ended
December 31, 1997, the Company had expensed $4,868.
G) 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 asset 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.
H) Comprehensive Income
There were no items of other comprehensive income in 1997, and, thus, net
income is equal to comprehensive income.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consists of the following:
DECEMBER 31,
-----------
1997
-----------
Accounts Receivable ............................... $ 46,743
Allowance for Doubtful Accounts ................... (7,101)
--------
Net Accounts Receivable ........................... $ 39,642
========
NOTE 3 - NOTES PAYABLE:
DECEMBER 31,
-----------
1997
-----------
Note payable to Independence Bank bearing
interest at 10.25%; payable $662 monthly
until Jan. 1998 with balance due Feb. 1998 ................. $ 20,812
--------
Total .................................................. 20,812
Less Current Portion of
Long - Term Debt ..................................... 20,812
--------
Total Long - Term Debt ................................. $ - 0 -
========
Future minimum payments are as follows:
1998 ........................................... $20,812
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - ADVANCE FROM SHAREHOLDER:
M. Callihan (President and majority shareholder of the Company) has advanced
the Company $69,738.
NOTE 5 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $418,131 for the year ended December 31,
1997. The following parties individually represent more than ten percent
of these revenues.
DECEMBER 31, 1997
--------------------------
CUSTOMER AMOUNT PERCENTAGE
-------- ----------
101............................. $131,743 31.3%
Wiltel Communications........... $ 72,233 17.2%
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company now leases its primary office space for $1,110 per month under
a non-cancelable three-year lease expiring March 10, 1999. This lease rate
increases approximately 7.5% per year. For the year ended December 31,
1997, rental expense of $13,212 was incurred.
Future minimum payments under this lease agreement are as follows:
DECEMBER 31, AMOUNT
------------ ------
1998 $14,040
1999 3,570
-------
Totals $17,610
=======
NOTE 7 - SUBSEQUENT EVENTS:
During May 1999, the Company was acquired by Clearworks.net, Inc. in a
transaction accounted for as a purchase.
Subsequent to December 31, 1997, in regards to the acquisition by
Clearworks.net, Inc., the management of Clearworks.net, Inc. has questioned
the validity of the account "Advance From Shareholder". As a result, this
account is under negotiations.
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
BALANCE SHEET
DECEMBER 31,
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
1996
---------
CURRENT ASSETS:
Cash and Cash Equivalents ............................ $ 50,826
Accounts Receivable - net ............................ 41,991
---------
Total Current Assets .............................. 92,817
PROPERTY AND EQUIPMENT:
Computer Equipment ................................... 7,854
Furniture & Fixtures ................................. 10,125
Office Equipment ..................................... 5,844
Less: Accumulated Depreciation ....................... (828)
---------
Total Property and Equipment ...................... 22,995
OTHER ASSETS
Security Deposits .................................... 2,060
---------
Total Other Assets ................................ 2,060
---------
TOTAL ASSETS ......................................... $ 117,872
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note Payable ......................................... $ 5,012
Sales Taxes Payable .................................. 2,541
---------
Total Current Liabilities ......................... 7,553
LONG - TERM LIABILITIES: ................................ 20,812
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Common Stock - $.01 stated value
Authorized 1,000,000
Issued and Outstanding 500,000 .................... 5,000
Paid in Capital ...................................... 95,000
Retained Deficit ..................................... (10,493)
---------
Total Shareholders' Equity ........................ 89,507
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 117,872
=========
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
STATEMENT OF OPERATIONS
JANUARY 26, 1996 (INCEPTION) TO DECEMBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
NET SALES
Network Cabling and Wiring .......................... $ 59,200
Systems Administration .............................. 345,307
Other Income ........................................ 3,017
---------
Total Sales ...................................... 407,524
---------
COST OF GOODS SOLD
Materials and Supplies .............................. 54,230
Direct Labor and Related Costs ...................... 174,773
---------
Total Cost of Goods Sold ......................... 229,003
---------
GROSS PROFIT ........................................... 178,521
---------
OPERATING EXPENSES
Salaries and Related Expenses ....................... 133,769
Advertising ......................................... 1,581
Dues and Subscriptions .............................. 182
Insurance ........................................... 815
Miscellaneous ....................................... 360
Office Expenses ..................................... 5,487
On-line Services .................................... 433
Outside Services .................................... 3,791
Postage and Delivery ................................ 587
Printing and Reproduction ........................... 36
Professional Fees ................................... 1,490
Rent - Equipment .................................... 2,959
Rent - Office ....................................... 12,029
Repairs and Maintenance ............................. 49
Taxes ............................................... 1,218
Telephone ........................................... 5,944
Travel and Entertainment ............................ 15,014
Depreciation Expense ................................ 828
---------
Total Operating Expenses ......................... 186,572
---------
LOSS FROM OPERATIONS BEFORE
OTHER INCOME/EXPENSE ................................ (8,051)
OTHER INCOME/(EXPENSE)
Interest Expense .................................... (2,442)
---------
Total Other Income/(Expenses) .................... (2,442)
---------
NET LOSS ............................................... $ (10,493)
=========
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
STATEMENT OF CASH FLOWS
JANUARY 26, 1996 (INCEPTION) TO DECEMBER 31,
- --------------------------------------------------------------------------------
1996
---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ..................................................... $ (10,493)
Adjustments To Reconcile Net Loss To Net Cash
Used By Operating Activities:
Depreciation .............................................. 828
Increase in Accounts Receivable ........................... (41,991)
Increase in Security Deposits ............................. (2,060)
Increase in Sales Tax Payable ............................. 2,541
---------
Total Adjustments ......................................... (40,682)
---------
Net Cash Used By Operating Activities ........................ (51,175)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment ........................ (23,823)
---------
Net Cash Used By Investing Activities ........................ (23,823)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Notes Payable ................................. 25,824
Issuance of common stock .................................. 100,000
---------
Net Cash Provided By Financing Activities .................... 125,824
Net Decrease in Cash ......................................... 50,826
CASH AT THE BEGINNING OF THE PERIOD ............................. 0
---------
CASH AT THE END OF THE YEAR ..................................... 50,826
=========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest ............................................... $ 2,442
Income Taxes ........................................... $ 0
<PAGE>
- --------------------------------------------------------------------------------
TEAM RENAISSANCE, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 26, 1996 (INCEPTION) COMMON COMMON PAID IN RETAINED SHAREHOLDERS'
TO DECEMBER 31, 1996 STOCK (SHARES) STOCK CAPITAL DEFICIT EQUITY
- -------------------------------- ------------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock ....... 500,000 $ 5,000 $ 95,000 $ -- $ 100,000
Net Loss as of December 31, 1996 0 0 0 (10,493) (10,493)
--------- --------- --------- --------- ---------
Total Shareholders' Equity
As Of December 31, 1996 ........ 500,000 $ 5,000 $ 95,000 $ (10,493) $ 89,507
========= ========= ========= ========= =========
</TABLE>
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Team Renaissance, Inc. (the Company), incorporated as a Texas corporation
and commenced operations on January 26, 1996. The Company is a leading
provider of business and information technology solutions.
A) Cash and Cash Equivalents
At December 31, 1996, the Company has $40,826 in cash located in
non-interest bearing accounts. Additionally, the Company has a $10,000,
three-month certificate of deposit bearing interest at approximately 3.5%.
B) Accounts Receivable
The Company reserves for uncollectable accounts through an allowance for
doubtful accounts. For the year ended December 31, 1996, there was no
reserve for uncollectable accounts.
C) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting purposes. The recovery classifications for these assets are
listed as follows:
YEARS
-----
COMPUTER EQUIPMENT............. 3
OFFICE EQUIPMENT............... 3
FURNITURE AND FIXTURES......... 7
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
D) Income Taxes
The Company has elected to be taxed under the provision of Subchapter S of
the Internal Revenue code. Under those provisions, the Company does not
pay federal corporate income taxes on its taxable income and is not
allowed a net operating loss carryover or carry-back as a deduction.
Instead, the stockholders are liable for individual federal income taxes
on their respective shares of income and include their respective shares
of the Company's net operating loss on their individual income tax
returns.
E) Impairment of Long Lived Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
assets for potential impairment on an ongoing basis. An impairment loss
would be recognized when the estimated non-discounted future cash flows
are less than the carrying amount of the asset. Assets found to be
impaired are reduced to fair value. At December 31, 1996, no impairment
exists.
F) Advertising and Promotion
All advertising related costs are expensed as incurred. The Company does
not incur any cost for direct-response advertising. For the year ended
December 31, 1996, the Company had expensed $1,581.
G) 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 asset 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.
H) Comprehensive Income
There were no items of other comprehensive income in 1996, and, thus, net
income is equal to comprehensive income.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consists of the following:
DECEMBER 31,
1996
---------------
Accounts Receivable ................................ $41,991
Allowance for Doubtful Accounts .................... 0
-------
Net Accounts Receivable ............................ $41,991
=======
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - NOTES PAYABLE:
DECEMBER 31,
1996
-------------
Note payable to Independence Bank bearing
interest at 10.25%; payable $662 monthly
until Jan. 1998 with balance due Feb. 1998. $25,824
-------
Total ................................... 25,824
Less Current Portion of
Long - Term Debt ..................... 5,012
-------
Total Long - Term Debt .................. $20,812
=======
Future minimum payments are as follows:
1997................. $ 5,012
1998................. $20,812
NOTE 4 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $407,524 for the year ended December 31,
1996. The following parties individually represent more than ten percent
of these revenues.
DECEMBER 31, 1996
CUSTOMER AMOUNT PERCENTAGE
-------- -------- ----------
Computer Software (Canada) Inc. ....... $ 42,530 10.4%
Huntsman Chemical Corporation ......... $223,750 54.9%
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company now leases its primary office space for $1,110 per month under
a non-cancelable three-year lease expiring March 10, 1999. This lease rate
increases approximately 7.5% per year. For the year ended December 31,
1996, rental expense of $12,029 was incurred.
Future minimum payments under this lease agreement are as follows:
DECEMBER 31, AMOUNT
------------ -------
1997................... $13,212
1998................... $14,040
1999................... 3,570
-------
Totals.............. $30,822
=======
<PAGE>
TEAM RENAISSANCE, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS APRIL 30, 1998 APRIL 30, 1997
-------------- --------------
Current assets:
Cash ................................... $ 3,000 $ 21,000
Accounts receivable, net ............... 42,000 64,000
--------- ---------
45,000 85,000
--------- ---------
Property and equipment:
Computer equipment .................. 8,000 8,000
Furniture and fixtures ............. 10,000 10,000
Office equipment .................... 6,000 6,000
--------- ---------
24,000 24,000
Accumulated depreciation ............... (14,000) (4,000)
--------- ---------
10,000 20,000
--------- ---------
Other assets:
Security deposit .................... 1,000 1,000
--------- ---------
1,000 1,000
--------- ---------
$ 56,000 $ 106,000
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ................ $ 40,000 $ 5,000
Advance from Shareholder ............... 80,000 0
Current maturities of long-term debt ... 19,000 5,000
Sales taxes payable .................... 4,000 2,000
--------- ---------
143,000 12,000
--------- ---------
Long-term debt, net of current
maturities .............................. 0 19,000
--------- ---------
Shareholders' equity (deficit):
Common stock, $.01 stated value;
1,000,000 shares authorized;
500,000 and 500,000 shares
issued and outstanding at April 30, 1998
and 1997, respectively .............. 5,000 5,000
Paid-in capital ........................ 95,000 95,000
Retained earnings (deficit) ............ (187,000) (26,000)
--------- ---------
(87,000) 75,000
--------- ---------
$ 56,000 $ 106,000
========= =========
<PAGE>
TEAM RENAISSANCE, INC.
STATEMENTS OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND 1997
(UNAUDITED)
1998 1997
--------- ---------
Revenues ..................................... $ 145,000 $ 170,000
Cost of goods sold:
Materials and supplies ..................... 53,000 49,000
Direct labor and related costs ............. 76,000 74,000
--------- ---------
129,000 123,000
--------- ---------
Gross profit ................................. 16,000 47,000
--------- ---------
Selling, general and administrative:
Salaries and related expenses .............. 42,000 42,000
Advertising and promotion .................. 1,000 1,000
Rent expense ............................... 4,000 4,000
Other office expenses ...................... 17,000 11,000
Depreciation ............................... 3,000 3,000
--------- ---------
67,000 61,000
--------- ---------
Loss from operations before
interest expense ........................... (51,000) (14,000)
Interest expense ............................. (4,000) (2,000)
--------- ---------
Net loss ..................................... $ (55,000) $ (16,000)
========= =========
<PAGE>
TEAM RENAISSANCE, INC.
STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND 1997
(UNAUDITED)
1998 1997
-------- --------
Cash flows from operating activities:
Net loss ......................................... $(55,000) $(16,000)
-------- --------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation ................................ 3,000 3,000
Increase in accounts receivable ............. (2,000) (22,000)
Decrease in deposits ........................ 0 1,000
Increase in accounts payable ................ 30,000 5,000
Increase in sales taxes payable ............. 1,000 0
-------- --------
Total adjustments .............................. 32,000 (13,000)
-------- --------
Net cash used by operating activities ............ (23,000) (29,000)
Cash flows from investing activities:
Purchase of property and equipment .......... 0 0
-------- --------
Net cash used by investing activities ............ 0 0
Cash flows from financing activities:
Repayments of notes payable ................. (2,000) (1,000)
Advance from Shareholder .................... 10,000 0
-------- --------
Net cash provided (used) by financing activities . 8,000 (1,000)
Net decrease in cash ............................. (15,000) (30,000)
Cash at the beginning of the period ................ 18,000 51,000
-------- --------
Cash at the end of the period ...................... $ 3,000 $ 21,000
======== ========
Supplemental disclosures of cash flow
Information:
Interest paid .............................. $ 4,000 $ 2,000
Taxes paid ................................. $ 0 $ 0
<PAGE>
TEAM RENAISSANCE, INC.
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
Note 1. General
The unaudited financial statements included herein for the Company for
the four month periods ended April 30, 1998 and 1997 have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission and include all adjustments which are, in the opinion of management,
necessary for a fair presentation. Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the audited financial statements and related
notes thereto included with this filing for the annual period ended December 31,
1997.
The results for interim periods are not necessarily indicative of trends
or of results to be expected for the full year.
Note 2. Subsequent Events
During May 1998, the Company was acquired by ClearWorks.net in a
transaction accounted for as a purchase.
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
TO THE PRINCIPAL OF VIDATEL COMMUNICATIONS:
We have audited the accompanying balance sheet of Vidatel Communications. at
December 31, 1997 and the related statements of operations, owner's equity, and
cash flows for the period September 3, 1997 (date of inceptions) to December 31,
1997. These financial statements are the responsibility of Vidatel
Communication's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Vidatel
Communications at of December 31, 1997 and the results of their operations,
owner's equity, and their cash flows for the period ended December 31, 1997 are
in conformity with generally accepted accounting principles.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
October 16, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10-SB Registration Statement of our
report dated October 16, 1999 on our audit of the financial statements of
Vidatel Communications. We also consent to the reference to our firm under the
caption "Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
VIDATEL COMMUNICATIONS
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS:
Cash .......................................................... $ 310
Accounts Receivable - net (Notes 1 & 2) ....................... 22,417
--------
Total Current Assets ........................................ 22,727
--------
PROPERTY AND EQUIPMENT: (NOTE 1)
Automobiles ................................................... 32,738
Computers and Equipment ....................................... 1,562
Machinery and Equipment ....................................... 6,000
Office Equipment .............................................. 593
Less: Accumulated Depreciation .............................. (2,796)
--------
Total Property and Equipment ................................ 38,097
--------
TOTAL ASSETS .................................................. $ 60,824
========
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ......................... $ 10,055
Notes Payable (Note 4) ........................................ 3,473
Sales Tax Payable ............................................. 2,293
--------
Total Current Liabilities ................................... 15,821
--------
LONG-TERM LIABILITIES:
Notes Payable (Note 4) ........................................ 18,072
--------
Total Long-Term Liabilities ............................... 18,072
--------
Total Liabilities ............................................. 33,893
--------
OWNER'S EQUITY
Owner's Equity ................................................ 26,931
--------
Total Owner's Equity ...................................... 26,931
--------
TOTAL LIABILITIES AND OWNER'S EQUITY ........................ $ 60,824
========
See accompanying notes to the financial statements.
<PAGE>
VIDATEL COMMUNICATIONS
STATEMENT OF OPERATIONS AND OWNER'S EQUITY
FOR THE PERIOD SEPTEMBER 3, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
INCOME:
Revenues ..................................................... $64,900
Less: Cost of Goods Sold ..................................... 37,155
-------
Gross Profit ............................................... 27,745
-------
GENERAL AND ADMINISTRATIVE EXPENSES:
Automobile Expense ........................................... 1,068
Equipment Rental ............................................. 441
Insurance Expense ............................................ 1,007
Office Expenses .............................................. 635
Postage and Delivery ......................................... 89
Printing and Reproduction .................................... 373
Professional Fees ............................................ 150
Repairs and Maintenance ...................................... 171
Supplies ..................................................... 413
Telephone and Utilities ...................................... 392
Travel and Entertainment ..................................... 775
Depreciation ................................................. 2,796
-------
Total General and Administrative Expenses .................. 8,310
-------
EARNINGS BEFORE OTHER EXPENSES ................................. 19,435
OTHER EXPENSES
Interest Expense ............................................. 829
-------
Total Other Expenses ....................................... 829
NET INCOME ..................................................... 18,606
OWNER'S EQUITY-BEGINNING OF PERIOD ............................. 0
Capital Contributions ........................................ 8,325
-------
OWNER'S EQUITY-END OF PERIOD ................................... $26,931
=======
See accompanying notes to the financial statements.
<PAGE>
VIDATEL COMMUNICATIONS
STATEMENT OF CASH FLOWS
FOR THE PERIOD SEPTEMBER 3, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
OPERATING ACTIVITIES:
Net Income .................................................... $ 18,606
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities:
Depreciation .............................................. 2,796
Increase in Accounts Receivable ........................... (22,417)
Increase in Accounts Payable and Accrued Expenses ......... 10,055
Increase in Sales Tax Payable ............................. 2,293
--------
Net Cash Provided by Operating Activities ............... 11,333
--------
INVESTING ACTIVITIES:
Purchase of Property and Equipment ............................ (40,893)
--------
Net Cash Used for Investing Activities .................. (40,893)
--------
FINANCING ACTIVITIES:
Increase in Notes Payable ..................................... 21,545
Capital Contributions ......................................... 20,259
Owner's Draw .................................................. (11,934)
--------
Net Cash Provided by Financing Activities ............... 29,870
--------
Net Increase In Cash .......................................... 310
Cash Beginning of Period ...................................... 0
--------
Cash End of Period ............................................ $ 310
========
Additional Disclosure of Operating Cash Flow
Cash paid during the period ended December 31, 1997
Interest Expense ..................... $ 829
Income Taxes ......................... $ 0
See accompanying notes to the financial statements.
<PAGE>
VIDATEL COMMUNICATIONS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Vidatel Communications (the Company), was organized as a sole
proprietorship and commenced operations on September 3, 1997. The Company
is a leading provider of business and information technology solutions.
A) Accounts Receivable
The Company reserves for uncollectible accounts through an allowance for
doubtful accounts. For the period ended December 31, 1997, no reserve
existed.
B) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting purposes. The recovery classifications for these assets are
listed as follows:
YEARS
-----
AUTOMOBILES.................... 5
COMPUTERS AND EQUIPMENT........ 3
MACHINERY AND EQUIPMENT........ 5
OFFICE EQUIPMENT............... 7
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
C) Income Taxes
The Company was organized as a sole proprietorship. Under the
corresponding provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a net operating loss
carryover or carry-back as a deduction. Rather, the principals are liable
for individual federal income taxes on their respective interests of
income and include their respective interests of the Company's net
operating loss on their individual income tax returns.
D) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be recognized when the estimated
non-discounted future cash flows are less than the carrying amount of the
asset. If an asset were deemed to be impaired, the asset's recorded value
would be reduced to fair value. In determining the amount of the charge to
be recorded, the following methods would be utilized to determine fair
value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on valuation techniques.
As of December 31, 1997 no impairment exists.
<PAGE>
VIDATEL COMMUNICATIONS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
E) 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 asset 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.
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
DECEMBER 31,
1997
------------
Accounts Receivable ................................ $22,417
Allowance for Doubtful Accounts .................... - 0 -
-------
Net Accounts Receivable ............................ $22,417
=======
NOTE 3 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $64,900 for the year ended December 31,
1997. The following parties individually represent a greater than ten
percent of these revenues.
DECEMBER 31, 1997
---------------------
CUSTOMER AMOUNT PERCENTAGE
-------- ------- ----------
Baker Hughes/Western Atlas .............. $37,970 58.5 %
Com Tel Communications .................. 8,225 12.7 %
Danny Daniels ........................... 9,768 15.1 %
NOTE 4 - NOTES PAYABLE:
Note payable to Planet Ford bearing interest
at 13.46%, due $513.33 monthly until
September 2002. $21,545
-------
Total........................ 21,545
Less Current Portion of
Long-Term Debt............. 3,473
-------
Total Long-Term Debt......... $18,072
=======
<PAGE>
VIDATEL COMMUNICATIONS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 5 - SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, Clearworks.net, Inc has acquired the
Company's assets.
<PAGE>
VIDATEL COMMUNICATIONS
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS OCTOBER 31, 1998 OCTOBER 31, 1997
----------------- -----------------
<S> <C> <C>
Current assets:
Cash ................................... $ 2,000 $ 1,000
Accounts receivable .................... 1,000 0
----------------- -----------------
3,000 1,000
----------------- -----------------
Property and equipment:
Equipment ........................... 40,000 39,000
Furniture and fixtures .............. 2,000 2,000
----------------- -----------------
42,000 41,000
Accumulated depreciation ............... (6,000) 0
----------------- -----------------
36,000 41,000
----------------- -----------------
Other assets ............................. 0 0
----------------- -----------------
0 0
----------------- -----------------
$ 39,000 $ 42,000
================= =================
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable, trade ................ $ 7,000 $ 0
Current maturities of long-term debt ... 3,000 4,000
Sales taxes payable .................... 1,000 0
----------------- -----------------
11,000 4,000
----------------- -----------------
Long-term debt, net of current
maturities .............................. 14,000 17,000
----------------- -----------------
Owner's equity ........................... 14,000 21,000
----------------- -----------------
14,000 21,000
----------------- -----------------
$ 39,000 $ 42,000
================= =================
</TABLE>
<PAGE>
VIDATEL COMMUNICATIONS
STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998 AND
THE PERIOD SEPTEMBER 3, 1997 (INCEPTION) THRU OCTOBER 31, 1997
(UNAUDITED)
1998 1997
-------- --------
Revenues ................................... $200,000 $ 11,000
Cost of goods sold ......................... 139,000 9,000
-------- --------
Gross profit ............................... 61,000 2,000
-------- --------
Selling, general and
administrative:
Insurance ................................ 1,000 0
Rent expense ............................. 2,000 0
Other office expenses .................... 8,000 1,000
Depreciation ............................. 3,000 0
-------- --------
14,000 1,000
-------- --------
Income from operations
before interest expense .................. 47,000 1,000
Interest expense ........................... 1,000 0
-------- --------
Net income ................................. $ 46,000 $ 1,000
======== ========
<PAGE>
VIDATEL COMMUNICATIONS
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998 AND
THE PERIOD SEPTEMBER 3, 1997 (INCEPTION) THRU OCTOBER 31, 1997
(UNAUDITED)
1998 1997
-------- --------
Cash flows from operating activities:
Net income ......................................... $ 46,000 $ 1,000
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .................................. 3,000 0
Decrease in accounts receivable ............... 20,000 0
Decrease in accounts payable .................. (4,000) 0
Decrease in sales taxes payable .............. (2,000) 0
-------- --------
Total adjustments ................................ 17,000 0
-------- --------
Net cash provided operating
activities ....................................... 63,000 1,000
Cash flows from investing activities:
Purchase of property and equipment ............ 0 (40,000)
-------- --------
Net cash used by investing activities .............. 0 (40,000)
Cash flows from financing activities:
Capital contributions ......................... 0 19,000
Owner's draw .................................. (59,000) 0
Increase in borrowings ........................ 0 21,000
Repayment of notes payable .................... (2,000) 0
-------- --------
Net cash provided (used) by
financing activities ............................. (61,000) 40,000
Net increase in cash ............................... 2,000 1,000
Cash at the beginning of the period .................. 0 0
-------- --------
Cash at the end of the period ........................ $ 2,000 $ 1,000
======== ========
Supplemental disclosures of cash flow Information:
Interest paid ................................ $ 1,000 $ 0
Taxes paid ................................... $ 0 $ 0
<PAGE>
VIDATEL COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
Note 1. General
The unaudited financial statements included herein for the Company for the
ten months ended October 31, 1998 and period inception (September 3, 1997) to
October 31, 1997 have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. Certain information and footnote disclosures required by generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the audited financial statements and related notes thereto included with
this filing for the annual period ended December 31, 1997.
The results for interim periods are not necessarily indicative of trends
or of results to be expected for the full year.
Note 2. Subsequent Events
During November 1998, the Company was acquired by ClearWorks.net, Inc.in a
transaction accounted for as a purchase.
<PAGE>
ARCHER MICKELSON TECHNOLOGIES, LLC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY 07950
<PAGE>
[MCMANUS & CO., P.C. LETTERHEAD]
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND MEMBERS
OF ARCHER MICKELSON TECHNOLOGIES, LLC.:
We have audited the accompanying balance sheet of Archer Mickelson Technologies,
LLC. at December 31, 1998 and the related statements of operations, members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of Archer Mickelson Technologies, LLC.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Archer
Mickelson Technologies, LLC. as of December 31, 1998 and the results of their
operations, members' equity, and their cash flows for the year ended December
31, 1998 are in conformity with generally accepted accounting principles.
/S/ MCMANUS & CO.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
September 22, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10SB Registration Statement of our
report dated September 22, 1999 on our audit of the financial statements of
Archer Mickelson Technologies, LLC. We also consent to the reference to our firm
under the caption "Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
- --------------------------------------------------------------------------------
ARCHER MICKELSON TECHNOLOGIES, LLC.
BALANCE SHEET
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash ........................................................ $ 17,876
Accounts Receivable - net (Note 2) .......................... 89,144
Due From Members ............................................ 2,148
Income Tax Receivable ....................................... 1,838
---------
Total Current Assets ..................................... 111,006
---------
PROPERTY AND EQUIPMENT:(NOTE 1)
Equipment ................................................... 14,507
Furniture and Fixtures ...................................... 2,915
Less: Accumulated Depreciation ........................... (7,314)
---------
Total Property and Equipment ............................. 10,108
---------
OTHER ASSETS:
Security Deposits ........................................... 1,665
Organization Costs (Note 1) ................................. 221
Less: Accumulated Amortization ........................... (221)
---------
Total Other Assets ....................................... 1,665
---------
TOTAL ASSETS ................................................ $ 122,779
=========
- --------------------------------------------------------------------------------
LIABILITIES AND MEMBER'S EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ....................... $ 26,561
Deferred Tax Liability (Notes 1 & 4) ........................ 4,592
Sales Tax Payable ........................................... 3,315
Payroll Taxes Payable ....................................... 7,067
Notes Payable (Note 3) ...................................... 8,199
---------
Total Current Liabilities ................................ 49,734
---------
NON - CURRENT LIABILITIES: .................................... 0
Total Liabilities ........................................ 49,734
---------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 6)
MEMBER'S EQUITY
Member's Equity ............................................. 73,045
---------
Total Member's Equity .................................... 73,045
---------
TOTAL LIABILITIES AND MEMBER'S EQUITY ....................... $ 122,779
=========
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
ARCHER MICKELSON TECHNOLOGIES, LLC.
STATEMENT OF OPERATIONS AND MEMBER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INCOME:
Revenues ................................................... $1,051,498
Less: Cost of Goods Sold ................................... 718,505
----------
Gross Profit ............................................. 332,993
----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Automobile ................................................. 2,094
Contributions .............................................. 3,090
Freight .................................................... 490
Insurance Expense .......................................... 15,479
Interest Expense ........................................... 1,136
Miscellaneous .............................................. 2,578
Office Expenses ............................................ 11,117
Payroll and Associated Costs ............................... 198,721
Postage and Delivery ....................................... 596
Rent Expense ............................................... 7,232
Repairs and Maintenance .................................... 3,834
Taxes - Other .............................................. 171
Telephone and Utilities .................................... 12,430
Training Expense ........................................... 3,848
Travel and Entertainment ................................... 17,047
Depreciation and Amortization .............................. 4,767
----------
Total General and Administrative Expenses ................ 284,630
----------
INCOME BEFORE INCOME TAXES ................................... 48,363
Provision for Income Taxes ................................. 7,254
----------
NET INCOME ................................................... 41,109
MEMBER'S EQUITY BEGINNING OF YEAR ............................ 31,936
----------
MEMBER'S EQUITY END OF YEAR .................................. $ 73,045
==========
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
ARCHER MICKELSON TECHNOLOGIES, LLC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Operating Activities:
Net Income ................................................... $ 41,109
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization .............................. 4,767
Increase in Accounts Receivable ............................ (59,746)
Increase in Prepaid Income Taxes ........................... (1,838)
Increase in Security Deposits .............................. (1,385)
Increase in Accounts Payable and Accrued Expenses .......... 26,450
Increase in Deferred Tax Liability ......................... 4,592
Increase in Sales Tax Payable .............................. 729
Increase in Payroll Taxes Payable .......................... 5,234
--------
Net Cash Provided by Operating Activities ............... 19,912
--------
Investing Activities:
Purchase of Property and Equipment ......................... (8,531)
--------
Net Cash Used for Investing Activities .................. (8,531)
--------
Financing Activities:
Increase in Due From Members ............................... (2,148)
Decrease in Notes Payable .................................. (7,478)
Decrease in Advance From Members ........................... (7,894)
--------
Net Cash Used for Financing Activities .................. (17,520)
--------
Net Decrease In Cash ......................................... (6,139)
Cash Beginning of Year ....................................... 24,015
--------
Cash End of Year ............................................. $ 17,876
========
Additional Disclosure of Operating Cash Flow
Cash paid during the year ended December 31, 1998
Interest Expense.................. $ 1,136
Income Taxes...................... $ 7,254
See accompanying notes to financial statements.
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Archer Mickelson, LLC. (the Company), was organized as a limited liability
company under the Texas Limited Liability Company Act on September 23,
1996. The Company is a leading provider of business and information
technology solutions.
A) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes. The
recovery classifications for these assets are listed as follows:
YEARS
-----
COMPUTERS AND EQUIPMENT 3
FURNITURE AND FIXTURES 7
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
B) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be recognized when the estimated
non-discounted future cash flows are less than the carrying amount of the
asset. If an asset deemed to be impaired, the asset's recorded value would
be reduced to fair value. In determining the amount of the charge to be
recorded, the following methods would be utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on variation techniques.
At December 31, 1998, no impairment existed.
C) Organization Costs
Organization costs were incurred during the establishment of the Company.
These costs are being capitalized and amortized over a period of five (5)
years. At December 31, 1998, accumulated amortization was $221. (see Note
1-f)
D) Income Taxes
The Company was organized as a limited liability corporation. Under the
corresponding provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a net operating loss
carryover or carry-back as a deduction. Rather, the members are liable for
individual federal income taxes on their respective interests of income
and include their respective interests of the Company's net operating loss
on their individual income tax returns.
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
D) Income Taxes (continued)
During 1998 however, the Company has decided to be treated as a corporate
entity for income tax purposes. The Company has thus adopted the
provisions of Statement of Financial Accounting Standards (FASB) No. 109,
"Accounting for Income Taxes", which requires a change from the deferral
method to assets and liability method of accounting for income taxes.
Timing differences exist between book income and tax income that primarily
relates to depreciation.
E) 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 asset 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.
F) Accounting Pronouncements
During August of 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 98-5 "Reporting
on the Costs of Start-Up Activities". This statement requires all costs
related to a company's start-up activities be expensed during the period
incurred rather than capitalized and amortized over a period of time.
This pronouncement becomes effective for fiscal years beginning after
December 15, 1998. The Company however, elected early application of this
new pronouncement thus fully amortizing the remaining organization costs.
NOTE 2 - ACCOUNTS RECEIVABLE:
At December 31, 1998, accounts receivable was $89,144. Due to the
Company's ability to collect its receivables, no allowance exists.
NOTE 3 - NOTES PAYABLE:
DECEMBER 31, 1998
-----------------
Note payable to Richard Archer
bearing interest at 8.25%; due
$314.55 monthly until Dec. 1999. $ 3,611
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - NOTES PAYABLE: (continued)
DECEMBER 31, 1998
-----------------
Note payable to Yvonne Jackson
bearing interest at 10.0%; due
$242.00 monthly until Dec. 1999. $ 2,753
Note payable to Jolynn Archer
bearing interest at 10.0%; due
$161.34 monthly until Dec. 1999. $ 1,835
--------
Total 8,199
Less Current Portion of
Long-Term Debt 8,199
--------
Total Long-Term Debt $ - 0 -
========
NOTE 4 - INCOME TAXES:
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Implementation of SFAS did not have a material cumulative effect
on prior periods nor did it result in a change to the current year's
provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
DECEMBER 31, 1998
-----------------
%
U.S. Federal Statutory Tax Rate 15
U.S. Valuation Difference - 0 -
------
Effective Tax Rate 15
======
B) Deferred income taxes are provided for differences between financial
statement and income tax reporting. The principal difference is the manner
in which accounts receivable and accounts payable are accounted for and
depreciation is computed for financial and income tax reporting purposes.
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $1,051,498 for the year ended December
31, 1998. The following parties individually represent a greater than ten
percent of these revenues.
DECEMBER 31, 1998
- ---------------------------
CUSTOMER AMOUNT PERCENTAGE
-------- ---------- ----------
Houston Cutting Tools $ 104,895 10.0%
LandCare USA 157,900 15.0%
Pilko & Assoc. $ 101,391 21.0%
NOTE 5 - DUE FROM MEMBERS:
During 1998 the Company advanced Brian Mickelson and Robert Archer,
members of the Company, $140 and $2,008, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company rents its office space under a three-year lease with Morgan
Group, Inc. at a monthly rate of $925. This thirty-sixth (36) month lease
commenced on October 1, 1998 and expires September 30, 2001.
In Addition to the monthly lease payment, the Company is responsible for
its portion of Common Area Maintenance (CAM) fees. These CAM fees are
currently $30 per month.
Future minimum payments under this lease service agreement are as follows:
DECEMBER 31, AMOUNT
------------ ---------
1999 $ 11,460
2000 11,460
2001 8,595
---------
Totals $ 31,515
=========
NOTE 7 - SUBSEQUENT EVENTS:
During April 1999, the Company was acquired by Clearworks.net,
Inc. in a transaction accounted for as a purchase.
<PAGE>
ARCHER MICKELSON TECHNOLOGIES, LLC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY 07950
<PAGE>
[MCMANUS & CO., P.C. LETTERHEAD]
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND MEMBERS
OF ARCHER MICKELSON TECHNOLOGIES, LLC.:
We have audited the accompanying balance sheet of Archer Mickelson Technologies,
LLC. at December 31, 1997 and the related statements of operations, members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of Archer Mickelson Technologies, LLC.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Archer
Mickelson Technologies, LLC. as of December 31, 1997 and the results of their
operations, members' equity, and their cash flows for the year ended December
31, 1997 are in conformity with generally accepted accounting principles.
/S/ MCMANUS & CO.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
September 22, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 10SB Registration Statement of our
report dated September 22, 1999 on our audit of the financial statements of
Archer Mickelson Technologies, LLC. We also consent to the reference to our firm
under the caption "Experts".
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
<PAGE>
- --------------------------------------------------------------------------------
ARCHER MICKELSON TECHNOLOGIES, LLC.
BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash ........................................................ $ 24,015
Accounts Receivable - net (Note 2) .......................... 29,398
--------
Total Current Assets ..................................... 53,413
--------
PROPERTY AND EQUIPMENT:(NOTE 1)
Equipment ................................................... 7,619
Furniture and Fixtures ...................................... 1,272
Less: Accumulated Depreciation .............................. (2,724)
--------
Total Property and Equipment ............................. 6,167
--------
OTHER ASSETS:
Security Deposits ........................................... 280
Organization Costs (Note 1) ................................. 221
Less: Accumulated Amortization .............................. (44)
--------
Total Other Assets ....................................... 457
--------
TOTAL ASSETS ................................................ $ 60,037
========
- --------------------------------------------------------------------------------
LIABILITIES AND MEMBER'S EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable ............................................ $ 111
Sales Tax Payable ........................................... 2,586
Payroll Taxes Payable ....................................... 1,833
Notes Payable (Note 3) ...................................... 7,478
Advance From Members (Note 5) ............................... 7,894
--------
Total Current Liabilities ................................ 19,902
--------
NON - CURRENT LIABILITIES:
Notes Payable (Note 3) ...................................... $ 8,199
Total Non - Current Liabilities .......................... 8,199
--------
Total Liabilities ........................................... 28,101
--------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 6)
MEMBER'S EQUITY
Member's Equity ............................................. 31,936
--------
Total Member's Equity .................................... 31,936
--------
TOTAL LIABILITIES AND MEMBER'S EQUITY ....................... $ 60,037
========
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
ARCHER MICKELSON TECHNOLOGIES, LLC.
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INCOME:
Revenues .................................................... $482,520
Less: Cost of Goods Sold .................................... 292,458
--------
Gross Profit .............................................. 190,062
--------
GENERAL AND ADMINISTRATIVE EXPENSES:
Advertising ................................................. 446
Insurance Expense ........................................... 7,412
Interest Expense ............................................ 1,792
Miscellaneous ............................................... 1,120
Office Expenses ............................................. 2,615
Payroll and Associated Costs ................................ 18,959
Postage and Delivery ........................................ 368
Professional Fees ........................................... 250
Rent Expense ................................................ 1,800
Repairs and Maintenance ..................................... 1,105
Telephone and Utilities ..................................... 4,490
Training Expense ............................................ 2,121
Travel and Entertainment .................................... 11,085
Depreciation and Amortization ............................... 2,434
--------
Total General and Administrative Expenses ................. 55,997
--------
NET INCOME .................................................... 134,065
MEMBER'S EQUITY BEGINNING OF YEAR ............................. 12,671
--------
Member's Draw ............................................... 114,800
MEMBER'S EQUITY END OF YEAR ................................... $ 31,936
========
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
ARCHER MICKELSON TECHNOLOGIES, LLC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Operating Activities:
Net Income ................................................. $ 134,065
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities:
Depreciation and Amortization ............................ 2,434
Member's Draw ............................................ (114,800)
Increase in Accounts Receivable .......................... (22,005)
Increase in Organization Costs ........................... (221)
Increase in Accounts Payable ............................. 111
Decrease in Sales Tax Payable ............................ (3,161)
Decrease in Payroll Taxes Payable ........................ (7,087)
---------
Net Cash Used for Operating Activities ................ (10,664)
---------
Investing Activities:
Purchase of Property and Equipment ....................... (3,315)
---------
Net Cash Used for Investing Activities ................ (3,315)
---------
Financing Activities:
Increase in Advance From Member .......................... 7,894
Decrease in Notes Payable ................................ (6,823)
---------
Net Cash Provided by Financing Activities ............. 1,071
---------
Net Decrease In Cash ....................................... (12,908)
Cash Beginning of Year ..................................... 36,923
---------
Cash End of Year ........................................... $ 24,015
=========
Additional Disclosure of Operating Cash Flow
Cash paid during the year ended December 31, 1997
Interest Expense............... $ 1,792
Income Taxes................... $ 0
See accompanying notes to financial statements.
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Archer Mickelson, LLC. (the Company), was organized as a limited liability
company under the Texas Limited Liability Company Act on September 23,
1996. The Company is a leading provider of business and information
technology solutions.
A) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting purposes. The recovery classifications for these assets are
listed as follows:
YEARS
-----
COMPUTERS AND EQUIPMENT 3
FURNITURE AND FIXTURES 7
Expenditures for maintenance and repairs are charged against income as
incurred and major improvements are capitalized.
B) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be recognized when the estimated
non-discounted future cash flows are less than the carrying amount of the
asset. If an asset deemed to be impaired, the asset's recorded value would
be reduced to fair value. In determining the amount of the charge to be
recorded, the following methods would be utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on variation techniques.
At December 31, 1997, no impairment existed.
C) Organization Costs
Organization costs were incurred during the establishment of the Company.
These costs are being capitalized and amortized over a period of five (5)
years. At December 31, 1997, accumulated amortization was $44.
D) Income Taxes
The Company was organized as a limited liability corporation. Under the
corresponding provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a net operating loss
carryover or carry-back as a deduction. Rather, the members are liable for
individual federal income taxes on their respective interests of income
and include their respective interests of the Company's net operating loss
on their individual income tax returns.
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
E) 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 asset 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.
NOTE 2 - ACCOUNTS RECEIVABLE:
At December 31, 1997, accounts receivable was $29,398. Due to the
Company's ability to collect its receivables, no allowance exists.
NOTE 3 - NOTES PAYABLE:
DECEMBER 31, 1997
-----------------
Note payable to Richard Archer
bearing interest at 8.25%; due
$314.55 monthly until Dec. 1999. $ 6,937
Note payable to Yvonne Jackson
bearing interest at 10.0%; due
$242.00 monthly until Dec. 1999. 5,244
Note payable to Jolynn Archer
bearing interest at 10.0%; due
$161.34 monthly until Dec. 1999. $ 3,496
---------
Total 15,677
Less Current Portion of
Long-Term Debt 7,478
Total Long-Term Debt $ 8,199
=========
<PAGE>
ARCHER MICKELSON, LLC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - SIGNIFICANT CUSTOMERS:
The Company had gross revenues of $482,520 for the year ended December 31,
1997. The following parties individually represent a greater than ten
percent of these revenues.
DECEMBER 31, 1997
-----------------------
CUSTOMER AMOUNT PERCENTAGE
-------- --------- ----------
Notre Capital Ventures II, LLC $ 76,477 15.9 %
Pilko & Assoc. $ 101,391 21.0 %
NOTE 5 - ADVANCE FROM MEMBERS:
Brian Mickelson and Robert Archer, members of the Company, advanced the
Company $3,902 and $3,992, respectively. These monies were used for
operating capital and are payable upon demand.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES:
As of November 1, 1997, the Company rents its office space under a month
to month lease with Morgan Group, Inc. The monthly rent expense is $900
and is cancelable by either party.
NOTE 7 - SUBSEQUENT EVENTS:
During April 1999, the Company was acquired by Clearworks.net,
Inc. in a transaction accounted for as a purchase.
<PAGE>
ARCHER MICKELSON TECHNOLOGIES, LLC.
BALANCE SHEETS
(UNAUDITED)
ASSETS APRIL 30, 1999 APRIL 30, 1998
-------------- --------------
Current assets:
Cash .................................. $ 15,000 $ 5,000
Accounts receivable, net .............. 69,000 56,000
Income tax receivable ................. 2,000 0
Due from Members ...................... 2,000 3,000
-------- --------
88,000 64,000
-------- --------
Property and equipment:
Equipment .......................... 15,000 13,000
Furniture and fixtures ............. 3,000 2,000
-------- --------
18,000 15,000
Accumulated depreciation .............. (9,000) (4,000)
-------- --------
9,000 11,000
-------- --------
Other assets:
Security deposit ...................... 1,000 0
-------- --------
1,000 0
-------- --------
$ 98,000 $ 75,000
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable, trade ............... $ 28,000 $ 0
Payroll taxes payable ................. 6,000 3,000
Current maturities of long-term debt .. 6,000 7,000
Sales taxes payable ................... 4,000 1,000
-------- --------
44,000 11,000
-------- --------
Long-term debt, net of current
maturities ............................. 0 6,000
-------- --------
Members' equity ......................... 54,000 58,000
-------- --------
54,000 58,000
-------- --------
$ 98,000 $ 75,000
======== ========
<PAGE>
ARCHER MICKELSON TECHNOLOGIES, LLC
STATEMENTS OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
1999 1998
--------- ---------
Revenues ........................... $ 209,000 $ 285,000
Cost of goods sold ................. 144,000 185,000
--------- ---------
Gross profit ....................... 65,000 100,000
--------- ---------
Selling, general and administrative:
Salaries and related expenses .... 53,000 54,000
Rent expense ..................... 4,000 2,000
Other office expenses ............ 26,000 15,000
Depreciation ..................... 1,000 2,000
--------- ---------
84,000 73,000
--------- ---------
Income (loss) from operations before
interest expense ................. (19,000) 27,000
Interest expense ................... 0 (1,000)
--------- ---------
Net income (loss) .................. $ (19,000) $ 26,000
========= =========
<PAGE>
ARCHER MICKELSON TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
1999 1998
-------- --------
Cash flows from operating activities:
Net income (loss) ............................... $(19,000) $ 26,000
-------- --------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation ............................... 1,000 2,000
(Increase) decrease in accounts receivable . 23,000 (28,000)
Increase in advances to Member ............. 0 (3,000)
Increase in accounts payable ............... 1,000 0
Decrease in deferred tax liability ........ (6,000) 0
Increase (decrease) in payroll taxes ...... (1,000) 2,000
Increase (decrease) in sales taxes payable . 1,000 (1,000)
-------- --------
Total adjustments ............................. 19,000 (28,000)
-------- --------
Net cash provided (used by) operating activities 0 (2,000)
Cash flows from investing activities:
Purchase of property and equipment ......... (1,000) (6,000)
-------- --------
Net cash used by investing activities ........... (1,000) (6,000)
Cash flows from financing activities:
Repayment of advance by Member ............. 0 (8,000)
Repayment of notes payable ................. (2,000) (3,000)
-------- --------
Net cash used by financing activities ........... (2,000) (11,000)
Net decrease in cash ............................ (3,000) (19,000)
Cash at the beginning of the period ............... 18,000 24,000
-------- --------
Cash at the end of the period ..................... $ 15,000 $ 5,000
======== ========
Supplemental disclosures of cash flow
Information:
Interest paid ............................. $ 0 $ 1,000
Taxes paid ................................ $ 0 $ 0
<PAGE>
ARCHER MICKELSON TECHNOLOGIES, LLC
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
Note 1. General
The unaudited financial statements included herein for the Company for
the four month periods ended April 30, 1999 and 1998 have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission and include all adjustments which are, in the opinion of management,
necessary for a fair presentation. Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the audited financial statements and related
notes thereto included with this filing for the annual periods ended December
31, 1998 and 1997.
The results for interim periods are not necessarily indicative of
trends or of results to be expected for the full year.
Note 2. Subsequent Events
During May 1999, the Company was acquired by ClearWorks.net, Inc. in a
transaction accounted for as a purchase.
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
EXHIBIT
3(i) Articles of Incorporation of the Registrant*
3(ii) Amendment to Articles of Incorporation*
3(iii) By-Laws of the Registrant*
4(a) Specimen Stock Certificate**
4(b) Convertible Note Regarding KMA Investments**
10(a) Plan and Agreement of Merger and
Reorganization*
10(b) Certificate of Merger of Southeast Tire
Recycling, Inc. into ClearWorks Technologies, Inc.*
10(c) Certificate of Authority to Transact
Business in Texas*
10(d) Agreement for Purchase of Common Stock (By
Southeast Tire Recycling, Inc. of Millennium)*
10(e) Addendum to Agreement for Purchase of
Common Stock*
10(f) Stock Option Plan*
10(g) Stock Warrant Plan*
10(h) Agreement of Merger and Plan of
Reorganization (InfraResources)*
10(i) Agreement of Merger and Plan of
Reorganization (Team Renaissance)*
10(j) Asset Purchase Agreement (Vidatel)*
10(k) Agreement and Plan of Acquisition (Archer
Mickelson Technologies, Inc.)*
10(l) Agreement regarding strategic business alliance with Land Tejas
Development, L.L.C.**
11 Statement re: computation of per share Reference is made to the
earnings*.........................................Consolidated Statements of
Operations of the Registrant
for its fiscal years ended
December 31, 1998, and 1997,
which are incorporated herein
by reference.
21 A description of the subsidiaries of the
Registrant*
27 Financial Data Schedule
* Incorporated by reference from Registrant's Form 10-SB, which was
previously filed on June 29, 1999.
** Incorporated by reference from Registrant's Form 10SB/A-1, which was
previously filed on September 20, 1999.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized.
CLEARWORKS.NET, INC.
Date: October 20, 1999
By: S/S MICHAEL T. MCCLERE S/S HOWARD ANDREWS
Michael T. McClere Howard Andrews
Director, Cheif Executive Officer, Director
And Chairman of the Board of Directors
S/S SHANNON D. MCLEROY S/S CARL A. CHASE
Shannon D. McLeroy Carl A. Chase
President and Secretary Chief Financial Officer
Treasurer and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 161,957 101,000
<SECURITIES> 0 0
<RECEIVABLES> 205,608 829,000
<ALLOWANCES> (2,029) (3,000)
<INVENTORY> 12,000 34,000
<CURRENT-ASSETS> 382,744 1,165,000
<PP&E> 266,627 1,607,000
<DEPRECIATION> (13,240) (34,000)
<TOTAL-ASSETS> 1,190,405 3,328,000
<CURRENT-LIABILITIES> 291,699 663,000
<BONDS> 0 0
0 0
0 0
<COMMON> 11,460 17,000
<OTHER-SE> 873,133 2,600,000
<TOTAL-LIABILITY-AND-EQUITY> 1,190,405 3,328,000
<SALES> 1,090,215 1,025,000
<TOTAL-REVENUES> 1,090,215 1,025,000
<CGS> 1,054,116 1,325,000
<TOTAL-COSTS> 1,332,471 1,282,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,060 13,000
<INCOME-PRETAX> (252,316) (300,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (252,316) (300,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (252,316) (300,000)
<EPS-BASIC> (0.03) (0.02)
<EPS-DILUTED> (0.03) (0.02)
</TABLE>
