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EXHIBIT 99.3
NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Combined Financial Statements
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nucleus Corporation and Nucleus Energy Consulting Corporation:
We have audited the accompanying combined balance sheets of Nucleus Corporation
and Nucleus Energy Consulting Corporation as of December 31, 1999 and 1998, and
the related combined statements of operations, stockholders' equity, and cash
flows for the years then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Nucleus Corporation
and Nucleus Energy Consulting Corporation as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
August 11, 2000
New York, New York
/s/ KPMG LLP
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Combined Balance Sheets
<TABLE>
<CAPTION>
July 31, DECEMBER 31,
-------------------- --------------------
2000 1999 1998
-------------------- --------- ---------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $1,897,555 $ 19,080 $ 21,223
Accounts receivable 274,685 498,148 249,855
Other current assets 35,777 -- --
---------- ----------- -----------
Total current assets 2,208,017 517,228 271,078
Property and equipment, net 343,248 213,031 138,088
Other assets 1,000 44,663 22,451
---------- ----------- -----------
Total assets $2,552,265 $ 774,922 $ 431,617
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $1,646,925 $ 85,893 $ 70,332
Deferred revenues 1,760,191 1,920,111 587,910
---------- ----------- -----------
Total current liabilities 3,407,116 2,006,004 658,242
---------- ----------- -----------
Stockholders' deficit:
Common stock 3,000 3,000 2,000
Accumulated deficit (857,851) (1,234,082) (228,625)
---------- ----------- -----------
Total stockholders' deficit (854,851) (1,231,082) (226,625)
---------- ----------- -----------
Total liabilities and stockholders' deficit $2,552,265 $ 774,992) $ 431,617
========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
2
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Combined Statements of Operations
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED JULY 31, YEARS ENDED DECEMBER 31,
------------------------------- ----------------------------
2000 1999 1999 1998
----------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Licensing fees and software enhancements............. $4,519,601 $1,291,225 $ 2,495,617 $1,273,938
Software services.................................... 2,304,723 668,876 1,334,137 427,389
---------- ---------- ----------- ----------
Total revenues........................... 6,824,324 1,960,101 3,829,754 1,701,327
Cost of revenues
Licensing fees and software enhancements............. 914,486 195,260 647,770 344,502
Software services.................................... 1,371,277 389,437 817,862 291,580
---------- ---------- ----------- ----------
Total cost of revenues................... 2,285,763 584,697 1,465,632 636,082
---------- ---------- ----------- ----------
Gross profit............................. 4,538,561 1,375,404 2,364,122 1,065,245
---------- ---------- ----------- ----------
Operating expenses:
Sales and marketing.................................. 236,187 129,881 291,566 24,891
Research and development............................. 2,215,425 484,460 1,246,408 722,910
General and administrative........................... 1,735,771 672,077 1,848,855 588,921
---------- ---------- ----------- ----------
Total operating expenses................. 4,187,383 1,286,418 3,386,828 1,336,721
---------- ---------- ----------- ----------
Income (loss) from operations............ 351,178 88,986 (1,022,706) (271,476)
Other income........................................... 25,053 4,940 17,249 --
---------- ---------- ----------- ----------
Net income (loss)........................ $ 376,231 $ 93,926 $(1,005,457) $ (271,476)
========== ========== =========== ==========
</TABLE>
See accompanying notes to combined financial statements
3
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Combined Statements of Stockholders' Equity
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
------------------ (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 2,000 $2,000 $ 42,851 $ 44,851
Net loss -- -- (271,476) (271,476)
-------- ------- ------------ ------------
Balance, December 31, 1998 2,000 2,000 (228,625) (226,625)
Issuance of common stock 1,000 1,000 -- 1,000
Net loss -- -- (1,005,457) (1,005,457)
-------- ------- ------------ ------------
Balance, December 31, 1999 3,000 3,000 (1,234,082) (1,231,082)
Net income (unaudited) -- -- 376,231 376,231
-------- ------- ------------ ------------
Balance at July 31, 2000
(unaudited) 3,000 $3,000 $(857,851) $(854,851)
======== ======= ============ ============
</TABLE>
See accompanying notes to combined financial statements.
4
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY, 31 YEARS ENDED DECEMBER 31,
----------------------- ------------------------
2000 1999 1999 1998
---------- --------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 376,231 $ 93,926 $(1,005,457) $ (271,476)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 57,145 35,341 97,962 60,581
Changes in:
Accounts receivable 223,463 (291,274) (248,293) (99,483)
Other assets 7,886 (19,549) (22,212) 5,881
Accounts payable and accrued liabilities 1,561,032 (10,700) 15,561 16
Deferred revenues (159,920) 1,162,945 1,332,201 344,577
---------- ---------- ----------- -----------
Net cash provided by operating activities 2,065,837 970,689 169,762 40,096
---------- ---------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (187,362) (108,039) (172,905) (198,669)
Purchase of investment in securities -- (105,554) -- --
---------- ---------- ----------- -----------
Net cash used in investing activities (187,362) (213,593) (172,905) (198,669)
---------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 1,000 --
---------- ---------- ----------- -----------
Net cash provided by financing activities -- -- 1,000 --
---------- ---------- ----------- -----------
Net decrease in cash 1,878,475 757,096 (2,143) (158,573)
Cash at beginning of year 19,080 21,223 21,223 179,796
---------- ---------- ----------- -----------
Cash at end of year $1,897,555 $ 717,319 $ 19,080 $ 21,223
========== ========== =========== ===========
See accompanying notes to combined financial statements.
5
</TABLE>
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Notes to Combined Financial Statements
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Nucleus Corporation ("Nucleus") and Nucleus Energy Consulting Corporation
(together, the "Companies") were incorporated in January 1997 and September
1999, respectively, under the laws of the State of Texas. The Companies
generate revenue from licensing their software products and performing
services related to the implementation, training and support of these
software products.
PRINCIPLES OF COMBINATION
The Companies have common ownership and thus the accompanying financial
statements have been presented on a combined basis. All intercompany
balances and transactions have been eliminated in combination.
CASH AND CASH EQUIVALENTS
The Companies consider all short-term debt securities purchased with
maturities of three months or less at the time of purchase to be cash
equivalents. At December 31, 1999 and 1998, the Companies did not hold any
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation on property and
equipment is computed generally on accelerated methods over the estimated
useful lives, which is between three to seven years, of the respective
assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Companies review their property and equipment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The Companies evaluate the recoverability of long-lived assets
by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future undiscounted cash flows of long-lived
assets are not sufficient to recover the carrying value of such assets, the
respective assets are adjusted to their fair values. To date, the Companies
have not recognized any impairment of long-lived assets.
REVENUE RECOGNITION
The Companies follow the provisions of Statement of Position ("SOP") No.
97-2, "Software Revenue Recognition," as amended by SOP 98-9, "Modification
of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions." Under SOP 97-2, if the license agreement does not provide
for significant customization or enhancements to the software, the
Companies recognize software license revenues when a license agreement is
executed, the product has been delivered, all significant Companies'
obligations are fulfilled, the fee is fixed or determinable, and
collectibility is probable. For
(Continued)
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Notes to Combined Financial Statements
those license agreements where customer acceptance is not probable, the
Companies recognize software license revenues when the software has been
accepted. Maintenance and support revenues associated with new product licenses
and renewals are deferred and recognized ratably over the contract period.
Software services revenues are recognized as such services are performed.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred.
RESEARCH AND DEVELOPMENT
Capitalization of software development costs begins upon establishment of
technological feasibility of the product. After technological feasibility is
established, material software development costs are capitalized until there
has been a general release of the product. The capitalized cost is then
amortized on a straight-line basis over the estimated product life, or on the
ratio of current revenues to total projected product revenues, whichever is
greater. To date, the period between achieving technological feasibility, which
the Companies have defined as establishment of a working model that typically
occurs when beta testing commences, and the general release of such software,
has been short, and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Companies have not capitalized any
software development costs to date.
INCOME TAXES
The Companies are S corporations for Federal and state income tax purposes. An S
corporation does not pay Federal income taxes, except in certain circumstances.
Normally, in lieu of Federal and state corporate income taxes, the shareholders
of an S corporation are taxed on their proportionate share of the Companies'
taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments consist primarily of cash, accounts
receivable, and accounts payable. The current carrying amount of these
instruments approximates fair value due to the relatively short period of time
to maturity for these instruments.
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, liabilities, and disclosure of
contingent assets and liabilities at the date of the combined balance sheet and
revenue and expenses during the period. Actual results could differ from those
estimates.
UNAUDITED INTERIM FINANCIAL DATA
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim
information. In the opinion of management, the accompanying unaudited financial
statements have been prepared on the same basis as the audited financial
statements, consisting of normal recurring adjustments, necessary, for the
fair presentation of the Company's financial position as of July 31, 2000 and
the results of its operations and its cash flows for the seven months ended
July 31, 2000 and 1999.
(Continued)
7
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Notes to Combined Financial Statements
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for the Companies
beginning in 2001. SFAS 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments, as well as for other hedging activities, as amended by SFAS
No. 138. The Companies believe the adoption of this pronouncement will have
no material impact on their financial position and results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. "Revenue Recognition," which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission. SAB
101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies.
Management believes that its revenue recognition policies and practices are
in conformity with SAB 101.
2. PROPERTY AND EQUIPMENT
Depreciation expense for property and equipment for the years ended
December 31, 1999 and 1998 was $97,962 and $60,581, respectively.
The following is a summary of major classifications of property and
equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Computers...................... $ 317,663 $ 169,212
Furniture and fixtures......... 34,174 27,480
Machinery and equipment........ 19,737 1,977
---------- ---------
371,574 198,669
Less accumulated depreciation.. (158,543) (60,581)
---------- ---------
$ 213,031 $ 138,088
========== =========
</TABLE>
3. COMMON STOCK
Common stock has no preemptive, redemption, or other subscription rights.
Pursuant to an agreement entitled Agreement Governing Transfer of Shares,
the Companies and, under certain circumstances, their shareholders, have
rights of first refusal with respect to proposed sales of shares of common
stock to third parties.
(Continued)
8
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Notes to Combined Financial Statements
The companies have an aggregate of 1,000,000 shares authorized at $1.00
stated value per share. Nucleus Corporation has 2,000 shares issued and
outstanding at December 31, 1999 and 1998. Nucleus Energy Consulting
Corporation has 1,000 and -0- shares issued and outstanding at December 31,
1999 and 1998, respectively.
4. COMMITMENTS AND CONTINGENCIES
Nucleus is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability, if any, with respect to these actions will not
materially affect the financial position, results of operations, or
liquidity of Nucleus.
Nucleus is a defendant, counter-plaintiff in interpleader and
cross-plaintiff in interpleader in litigation with Avista Energy, Inc.
("Avista"). The claims against Nucleus are for breach of contract for not
paying certain commissions to Avista, which were paid to a third party.
Nucleus filed a counter-claim and a cross-claim in interpleader. It is the
opinion of the management, based on advice from legal counsel, that the
resolution of this litigation will not have a significant impact on its
financial condition or results of operations.
The Companies lease office space under operating leases. The office leases
normally contain contingent rental provisions based on a percentage of
landlord operating expenses and have renewal options. Future minimum lease
payments under these operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
2000 $ 371,624
2001 421,228
2002 259,391
Thereafter --
----------
$1,052,243
==========
</TABLE>
Total rent expense on these leases for the years ended December 31, 1999
and 1998 was $173,847 and $63,663, respectively.
5. CONCENTRATION OF CREDIT RISK
The Companies provide services to customers in numerous states. The
Companies evaluate the creditworthiness of their customers and the age and
diversity of their accounts receivable on a periodic basis but typically do
not require collateral to secure the payment of the accounts receivable.
The Companies have not experienced any significant credit losses.
The Company maintains cash in bank deposit accounts that, at times, exceed
the federally insured limits. The Companies have experienced no losses
associated with these accounts.
9 (Continued)
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NUCLEUS CORPORATION AND
NUCLEUS ENERGY CONSULTING CORPORATION
Notes to Combined Financial Statements
6. SUBSEQUENT EVENT (UNAUDITED)
On August 30, 2000, the Companies consummated the sale of substantially all
their assets to Caminus Corporation for cash, Caminus common stock, and the
assumption of certain of the Companies' liabilities.
10
