EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Synetric, Inc.:
We have audited the accompanying balance sheets of Synetric, Inc. (the
"Company") as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the year
ended December 31, 1999 and for the period from May 28, 1998 (date of
inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States 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, based on our audits, such financial statements present
fairly, in all material respects, the financial position of the Company at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from May 28,
1998 (date of inception) to December 31, 1998, in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
July 27, 2000
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<PAGE>
SYNETRIC, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
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<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 109,273 $ 14,711
Accounts receivable, less allowance for doubtful
accounts of $4,982 and $0, respectively 148,320 2,415
---------- ----------
Total current assets 257,593 17,126
PROPERTY AND EQUIPMENT, NET 12,751 16,230
DEFERRED TAX ASSET 1,918 8,830
OTHER ASSETS 4,787
---------- ----------
TOTAL $ 277,049 $ 42,186
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Accounts payable $ 118,038 $ 43,079
Federal taxes payable 13,128
Accrued expenses 71,351 4,472
Other liabilities 10,150
---------- ----------
Total liabilities 202,517 57,701
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, 1,000,000 shares authorized at $1.00 par value;
3,235 and 2,000 shares issued and outstanding, respectively 3,235 2,000
Paid-in capital 28,765
Accumulated earnings (deficit) 42,532 (17,515)
---------- ----------
Total stockholders' equity (deficit) 74,532 (15,515)
---------- ----------
TOTAL $ 277,049 $ 42,186
========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
SYNETRIC, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD ENDED MAY 28, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Consulting income $ 274,002 $ 72,088
Telephony equipment sales 677,732 35,904
Commission income 162,788
Other income 26,063 10,501
---------- ----------
Total revenues 1,140,585 118,493
EXPENSES:
Direct expenses 738,788 85,305
General and administrative expenses 314,847 66,478
---------- ----------
Total expenses 1,053,635 151,783
---------- ----------
OPERATING INCOME (LOSS) 86,950 (33,290)
OTHER INCOME (EXPENSE):
Interest income 430 6,945
Other expense (7,293)
---------- ----------
Total other (expense) income (6,863) 6,945
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 80,087 (26,345)
INCOME TAX (EXPENSE) BENEFIT:
Current (13,128)
Deferred (6,912) 8,830
---------- ----------
Total income tax (expense) benefit (20,040) 8,830
---------- ----------
NET INCOME (LOSS) $ 60,047 $ (17,515)
========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
SYNETRIC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM MAY 28, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
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<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
--------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 28, 1998 (DATE OF
INCEPTION) - $ - $ - $ - $ -
Issuance of common stock 2,000 2,000 2,000
Net loss (17,515) (17,515)
------- ------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 2,000 2,000 - (17,515) (15,515)
Issuance of common stock 1,235 1,235 28,765 30,000
Net income 60,047 60,047
------- ------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 3,235 $ 3,235 $ 28,765 $ 42,532 $ 74,532
======= ======= ========= ========= =========
</TABLE>
See notes to financial statements.
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<PAGE>
SYNETRIC, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM MAY 28, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 60,047 $ (17,515)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 2,935 799
Loss on sale of equipment 3,977
Deferred taxes 6,912 (8,830)
Changes in operating assets and liabilities:
Accounts receivable (145,905) (2,415)
Other assets (4,787)
Accounts payable 74,959 43,079
Accrued expenses and taxes payable 80,007 4,472
Other liabilities (10,150) 10,150
---------- ----------
Net cash provided by operating activities 67,995 29,740
---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,433) (17,029)
---------- ----------
Net cash used in investing activities (3,433) (17,029)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock 30,000 2,000
---------- ----------
Net cash provided by financing activities 30,000 2,000
---------- ----------
INCREASE IN CASH 94,562 14,711
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 14,711
---------- ----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 109,273 $ 14,711
========== ==========
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 4,787 $ -
========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
SYNETRIC, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999, AND
PERIOD FROM MAY 28, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Synetric, Inc. (the "Company") was formed for the
purpose of developing, installing and testing Internet protocol ("IP")
telephony communication equipment. The Company was incorporated in Texas
on May 28, 1998.
REVENUES AND EXPENSES RECOGNITION POLICY - Consulting revenues,
including the implementation and installation of telephony equipment, are
recognized when the work is completed. Telephony equipment sales are
recognized when equipment is delivered. All equipment sales are
returnable to the manufacturer therefore the Company has no sales return
and allowance. Commission income from vendor warranty contracts is
recognized as earned. All warranty liabilities are the primary
responsibility of the telephony equipment manufacturer and the Company
sells on their behalf.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS - The Company considers all short-term,
highly liquid investments that are readily convertible, within three
months, to known amounts as cash equivalents.
PROPERTY AND EQUIPMENT - The cost of property and equipment is
depreciated over the estimated useful lives of the related assets.
Depreciation and amortization are computed on the straight-line method.
The following is a summary of useful lives of the major categories of
property and equipment:
Furniture 7 years
Computer and telephone equipment 5 years
INCOME TAXES - Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
COMPREHENSIVE INCOME - The Company has no elements of comprehensive
income, except net income.
SEGMENTS - The Company is in a single-market segment for the sale and
installation of telephony communication equipment.
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<PAGE>
LONG-LIVED ASSETS - Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," requires that they be stated at
the lower of the expected net realizable value or cost. The carrying
value of long-lived assets is periodically reviewed to determine whether
impairment exists. The review is based on comparing the carrying amount
of the assets to the undiscounted estimated cash flows over the remaining
useful lives. No impairment is indicated as of December 31, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued in June
1998 and establishes standards for accounting and reporting for
derivative instruments. It requires entities to record all derivative
instruments on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and on the type of hedge
transaction. The portion of all hedges not effective in achieving
offsetting changes in fair value is recognized in earnings. SFAS No.
133, as amended, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management has not completed an
evaluation of the impact of the provisions of this statement on the
Company's financial statements.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements,"
which summarizes the application of accounting principles generally accepted
in the United States of America to revenue recognition in financial
statements and which is effective for fiscal year 2000 financial statements.
The Company does not believe the adoption of Staff Accounting Bulletin 101
will have a significant impact on its financial position or results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Office furniture $ 4,125 $ 8,250
Computer and telephone equipment 12,212 8,779
--------- ---------
Total cost 16,337 17,029
Less accumulated depreciation (3,586) (799)
--------- ---------
$ 12,751 $ 16,230
========= =========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
LEGAL - The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business operations. In the opinion
of management, the amount of liability, if any, with respect to these
actions would not materially affect the financial statements of the Company.
OPERATING LEASES - The Company conducts its operations in leased
facilities and has entered into a lease for office space. This lease
will expire in November 2000. The remaining future minimum lease
payments under this operating lease as of December 31, 1999, is
approximately $3,200.
The Company recorded operating lease expense of approximately
$3,900 and $4,400 in 1999 and 1998, respectively.
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<PAGE>
4. INCOME TAXES
Net deferred taxes in the accompanying balance sheets include the
following components as of December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax asset:
Net operating loss caryforward $ - $ 8,830
Bad debt reserve 1,918
--------- ---------
Deferred tax asset $ 1,918 $ 8,830
========= =========
</TABLE>
The Company annually evaluates the recoverability of the deferred tax
asset and adjusts the valuation allowance for the portion of such asset
not considered likely to be realized.
A reconciliation of income taxes computed at the U.S. federal
statutory tax rate to the provision for income tax is as follows as of:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) at U.S.
federal statutory rates $ 27,229 34.00 % $ (8,957) (34.00)%
State tax, net of federal benefit 1,825 2.28
Other, primarily permanent differences 1,088 1.36 127 0.48
Benefit of lower tax brackets (10,102) (12.62)
---------- ------- ---------- -------
$ 20,040 25.02 % $ (8,830) (33.52)%
========== ====== ========== =======
</TABLE>
5. SUBSEQUENT SALE OF COMPANY
On May 18, 2000, NetVoice Technologies Corporation acquired all of the
outstanding common stock of the Company in a purchase combination.
******
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